Cheap Petroleum

Posted By on May 9, 2005

Most of us in the US ‘love’ cheap energy … unfortunately what we like isn’t always good for us.

I’ve enjoyed regular forum debates with Mike Briggs, from UNH, on many issues. A recent issue has me rethinking my positions on a ‘new tax.’ Yes … a TAX … shame on me. Mike presented his idea in a rational way that includes a reform that collect a ‘sin’ style tax on petroleum with a matching reduction on the income tax side.

Here’s why this proposal makes sense:

On the plus side … cheap energy while it is available (by boosting supply and protecting these asset with taxpayer funds – exploration, pumping, refining, importing, shipping and piping) creates a better environment for our economy to excel. We drive bigger and more powerful vehicles and ship products by the fasted means. A country the size of our ‘loves’ it. We smile and life seems good.

On the negative … cheap energy places us at the whims of OPEC and other oil producers … including our own ‘highly’ profitable companies. It deters development of alternatives and places us in more vulnerable situation when supplies are also wanted by other developing nations. (i.e.. China and India of late)

The cycle we are being caught in has happened to us twice that I can remember … once in the 70s and now. The rapid price swings have favored foreign manufactures who were already producing efficient vehicles in comparison to our domestic companies. We were caught flat footed back then … and it is happening again. I recall a quick move toward economical cars (Japanese) and alternative forms of energy were quickly considered for heat and electricity. Then as we started to get up to speed …. more oil began to feed the system and prices in comparison to inflation stagnated in oil … and actually pulled back. This through cold water on alternatives and efficiency gave way to more power and bigger cars. The lower oil prices shut down exploration, additional capital intensive refineries and enticed consumer to drive more, order next day shipping and give up on renewable energy options seeing them as offering a poor ROI.

Now here we are again … back on the alternatives and looking for better choices. Japan is first in line with their Prius and Honda Hybrids … VW and Mercedes is leading the pack with highly successful modern diesels and US based corporations are once again flat footed while those pumping the oil in the middle east are smiling all the way to their palaces.

Question is … will petroleum production come back on line after sinking our economy again? (how many times will it happen?) I can see it happening all over again … the petroleum will slowly come into the system controlled by foreign countries and the largest of the oil companies. The new found life toward efficiency and better alternatives to our dependence on oil will find it harder and harder to compete and once again the US addiction to petroleum will continue as interest in alternatives, efficiency and smarter energy dries up.

One option is to have congress evaluate how many tax dollars go toward securing the need for oil. Do we fund projects and protect oil assets around the world? Yes. Perhaps this cost be reflected in the price for oil? We can do this with a petroleum related tax (or call it something else if the word irritate you as much as it does me) and A REDUCTION of the same coming from our income taxes. Not all the far fetched … as anti-tax and free market kind of guy I am … it made perfect sense. I’m open for suggestions if you have a better way to continue to encourage something to break our addiction.

Comments

Desultory - des-uhl-tawr-ee, -tohr-ee

  1. lacking in consistency, constancy, or visible order, disconnected; fitful: desultory conversation.
  2. digressing from or unconnected with the main subject; random: a desultory remark.