A ‘reasonable’ price?
By Amit Singh | Saturday, November 29th, 2008 | Policy
Iraqi Oil Minister Shahristani said on Friday that “A reasonable price for oil is 80 dollars a barrel” and they would go along with OPEC to cut production to ensure oil was consumed instead of stored. Without large petroleum reserves in the US, this essentially guarantees OPEC will dictate the price of oil.
On one hand, I am quite annoyed with Iraq who have large cash reserves with their oil exports subsidized by American muscle. But on the other hand, I’m also worried with cheaper gas ($1.79/gallon in MD) we will fall back to our old ways of buying low efficient cars and perpetuate our dependence on foreign oil.
OPEC will walk a fine line of maximizing profits while not incentivizing automakers from aggressively pursuing alternative fuels. The worst thing we can do now is bailout the American auto-makers who are stuck in their current engineering designs and modus operandi. Freeing American ingenuity from the burden of bad business practices will allow us as a nation to kick our addiction.
So is $200/barrel “reasonable” or will we get our act together?
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15 Responses to "A ‘reasonable’ price?"
Amit,
I agree with you. I am a truck driver. When diesel was over $4.50 a gallon, truck drivers were motivated to conserve diesel and help us break our addiction to foreign oil. Now that diesel prices are dropping the motivation is leaving us.
I think taxes should be raised on both diesel and gasoline to continue to motivate conservation. Taxes in other areas could be decreased so that no overall impediment to the economy results. You tax what you want less of and I want decreasing use of crude oil which to a large degree comes from foreign sources.
In fact a method to motivate truckers to continue fuel conservation could be implemented through the existing International Fuel Tax Agreement (IFTA) where taxes would be charged on the number of gallons of diesel purchased and then the entire new tax refunded based upon efficiency through the number of miles traveled. Fuel gluttons would be punished and fuel conservers rewarded.
In a similar fashion the government could tax gasoline and offer rebates to taxpayers via the income tax system. Taxpayers who used their rebates to help us conserve fuel would reap benefits while fuel gluttons would be punished.
We are enjoying low fuel prices now due to the depressed economy. Once things turn around we are going to see the fuel prices increase to past levels if not even higher. Supply and demand. Once demand picks back up we are going to be once again staring peak oil in the face.
Let’s dampen the new fuel price cycle caused by peek oil and eliminate our dependence on foreign oil at the same time. Let’s put a tax on crude oil fuels when the price drops to abnormal lows so that we castrate OPEC’s rationing of their production. When the economy starts to come back around we should not allow the rebound to be choked off by skyrocketing increases in the price of fuel.
Except for adding the unnecessary complexity of International Fuel Tax Agreement (IFTA) refunds, I do not have any problems with taxing petroleum and reducing other taxes. If you want government to do anything right, then please do not make it complicated.
LittleDavid, I couldn’t disagree with you more.
The tax code is there to generate revenue. It’s not to accomplish energy strategies that our legislators have been unwilling to adopt. Taxes should not be the way that the federal government dictates to us what car we drive, or whether we take a bus. That’s a missuse of the tax code.
Besides, if you raise taxes on things you want less of, you’ll get less of it. And then you’ll have to raise taxes again.
Your ideas of high taxes and rebates reeks of government overreach. Taxes should be simple and designed to generate revenue needed for government to fund its functions. The tax code needs less complexity, not more.
Brian,
I think it is in our national interests to wean ourselves off our addiction to foreign oil. I do not see anything wrong with using the tax code to help us achieve this very desirable outcome.
As for having to raise taxes because the taxes themselves would have motivated less use of crude oil I think you missed the point of my proposals. All revenue obtained from the taxes would be returned to the taxpayers so there would be no need to increase the taxes. If the taxes result in less crude oil used the goal of the tax would have been reached.
Perhaps you have a better idea on how we can break our addiction to foreign crude oil? I’d love to hear it.
Citizen Tom,
Using the IFTA (International Fuel Tax Agreement) to motivate fuel conservation by truckers would not really be that complex. Truckers already have to do all the paperwork to comply with IFTA. Believe me, IFTA is a great improvement over how truckers used to have to go about complying with paying their fuel taxes to each state they ran in. If you attempted to abolish IFTA you might actually see the great trucker strike that many fear.
My proposal would motivate conservation and should actually result in reduced transportation costs for the American consumer. With decreased demand the real cost of fuel (after taxes) should decrease. Fuel surcharges paid by customers would reflect only the cost of fuel minus the tax. If you do not refund the taxes via some method back to the truckers, it will result in a drag on the economy. Through IFTA, fuel conservers will see increased profits while those who refuse to conserve will be driven out of business.
This would put an economic motivator in place to invest in new technologies and methods to conserve fuel. For example, it costs anywhere from $6,000 to $9,000 to retrofit a truck with an Auxiliary Power Unit (APU). With diesel at $4.50 a gallon it does not take as long for such a fuel saving investment to pay for itself then if diesel is lower in price like it is today.
When diesel was $4.50 a gallon many trucking companies where governing their trucks at lower speeds (and YES lower speeds do result in fuel savings if gone about in the right way). However if fuel prices remain low you are going to see even those companies that took the plunge increase the governed speed of their trucks so that they can retain drivers.
Unless we provide the economic incentive to truckers to conserve fuel they are going to stop taking the fuel saving steps I witnessed being taken back when fuel prices where high. Individual truckers and trucking companies are not going to invest in fuel conservation unless it increases profits. We need to put in place a formula that ensures fuel conservation is part of the equation towards fat profits.
Brian, what are you talking about? Taxes and credits are a major tool used by the government in spurring behavior and leveling market imbalances. Tax credits on hybrids to encourage efficiency, tax credits on mortgage interest to encourage home ownership, sin taxes, cap and trade – the list goes on and on. The manipulation of taxes and credits to provide financial incentives (and disincentives) for specific behaviors is pretty much established.
That’s especially true where market externalities have disproportionate societal impacts to their minor if any direct pricing effect (ie national security and environmental impacts).
Jeremy,
Brian is one of those guys who describe tax motivators as loopholes.
It doesn’t matter that such a loophole would help break our addiction to foreign oil, it’s still a loophole.
To Brian, every loophole is evil, even if the loophole helps us avoid economic ruin by stopping the large transfer of wealth to OPEC.
I’m in favor of breaking our addiction to foreign oil by any means necessary. It does not hurt that such steps might actually help us on the global warming front.
I love it when OPEC/ the Middle East gets to decide what a barrel of oil should cost.
The bottom line from the above discussion is this: Brian and his ilk want the price of oil to be set by the oil cartel – they talk about a free market. But, there isn’t one. There is an oil monopoly run by some of the richest men in the world – including many who have made it clear that they are not friends of the U.S.
The rest of us want the price of oil to be set by the our nation. Lets create a sensible fuel policy that ensures that any profits on a gallon of gas are kept as close to home as possible – and, lets stop letting OPEC decide what to charge us for a gallon of gas.
You all can favor a federal government controlling our behavior through confiscatory taxes.
I’ll still think it’s wrong.
Brian,
Under my proposal, the taxes would not be confiscatory. Those that help conserve fuel would actually come out ahead. The only ones who would suffer are the fuel gluttons because they are hindering instead of helping us break our addiction to foreign oil.
Brian,
Are you making a libertarian argument (which I agree with by the way)
However, as others have stated the government already penalizes and rewards behavior.
Are you ready to repeal all subsidizes and incentives. Including mortgage decuation, farm subsidies?? If so I agree with you. If not its more republican doublespeak which perpetuates the notion of our party as anti-environment among other things..
I was just thinking that there is another thing I might actually be in favor of. And that would be a tariff on all crude oil from OPEC nations.
This would encourage domestic production of crude oil.
Some would argue that such a tariff might not pass WTO (World Trade Organization) muster. However I believe any such argument made in front of the WTO could be successfully countered by pointing out OPEC is an illegal organization that artificially limits supply in order to drive up prices. Surely it should be allowed for nations to counter such abnormal supply management with tariffs.
These tariffs would allow domestic suppliers to reap larger profits then normal on their production (motivating increased domestic production) and all receipts from the tariffs could be used to lower other taxes or immediately returned to the taxpayer via the income tax system.
a tariff on OPEC oil would only hurt Americans since China and India can easily consume the oil we don’t. I think it would probably strategically help the Middle East by diversifying their customer base.
nova, I’ve long since been a Flat Taxer. And my god, the farm programs should have a time limit. You’d never believe what farm bills have loaded into them, when the problems they were meant to solve have long since been solved.
LD, you’re making my point. Taxes would have to be confiscatory to prompt the behavior changes you say will occur.
Ask any private company how often consumers take them up on rebate offers.
Ooh ooh, is this an open door to hijack the thread for a flat/fair tax talk? I love those, they’re so much fun.
By the way Brian, when is a tax confiscatory, and when is it not? Just curious…
Brian,
We consumers learned to avoid rebate offers since they often turned out to be lies. You can send in everything the ask for, cross every T and dot every I and they still find some way to claim you did not meet the requirements. They will make up a reason if they have to.
A hint to rebaters. Avoid any rebate that you must send to a New York address.
But as for my proposal, if a trucker isn’t already complying with the current fuel tax laws they may have a problem. But if they are complying with current laws the rebate comes automatically.
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