What Does Your Car Run On?
By Jane Dudley | Wednesday, April 29th, 2009 | PoliticsAnyone else here think energy is a serious matter? Okay, that’s everyone – you can all put your hands down. Anyone think we should develop and use alternative sources of energy? Yes? Everyone again. Anyone think that while we are developing those we will not be needing fossil fuels?
Jody Wagner, apparently…. in a press release she says:
“Instead of focusing on innovative renewable energy and conservation programs that will help position Virginia as a global leader in the emerging green economy…” and she proceeds to beat up on Bill Bolling for having the nerve to suggest that we use the offshore resources (oil) that we have, while we diversify our useful energy sources. (For reference, here’s an article about the McDonnell/Bolling energy emphasis .
Bolling also championed some good energy legislation this session – see http://leg1.state.va.us).
Let’s parse her statement… “innovative…” Ms. Wagner, my car doesn’t run on innovative. It runs on a particular liquid hydrocarbon blend. “…conservation programs…” My car doesn’t run on that, either. “Emerging green economy…” You know what’s green? The money we pay to countries that hate us, because we need their oil, in part because Democrats won’t let us drill off our OWN shoreline. That’s real green, and it is a threat to our national security.
“…wind, solar, biofuel, wave motion and biomass energy….” Oh, the jokes about the output of politicians are just too, too easy, so I’ll move on.
“…to ensure renewable energy businesses choose Virginia as their home.” That’s a fine idea. And you better believe it is McDonnell, Bolling, and other Republicans who do what they can to make Virginia friendly to businesses. Yes, I mean keeping taxes low. (Don’t write to me about RINOs. I know, I know). Lower taxes = incentives for businesses to come here and stay here = that’s how people get employed. I’ve started seeing “Bob’s For Jobs” bumperstickers around. Eye-rollingly obvious… but it has the virtue of being true.
So Ms. Wagner goes on to say that “U.S. Department of Energy estimates have shown that any available oil resources off the Virginia coast would have no real affect on production or prices until 2030.” I would rather consult common sense than the DOE, and my common sense tells me that if we started drilling in all of our coastal waters, it would have a profound effect on prices. (Markets are incredibly sensitive! No, really, just look – every time Tim Geithner opens his mouth, the Dow drops).
So a quit-fooling-around effort to exploit fully our own natural fossil fuel resources, while at the same time developing every alternative energy source we can think of, would greatly strengthen the United States. But then maybe that’s the problem. I don’t think a strong United States is at the top of Obama’s priority list. I think that a better perception (of the United States) in the world “community” is at the top of his priority list. My car doesn’t run on that, either.
In short, it is the Republicans who say, “let’s develop and use ALL forms of energy, old and new. It will both create jobs and make us more secure,” while the Democrats seem to not want to deal with today’s ugly reality… we do need to drill for our own oil off of our coast, while we bring the next generation of energy sources online.
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Jane Dudley has enjoyed conservatism and photography for over 30 years. After looking around at the mediocre state of affairs of political photography as it exists on the right, she decided to start making better images, to document Virginia Republicans and to inspire them to make more of an effort to put a fine face on their fine ideas. She is a graduate of the University of Virginia and works in new media.
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20 Responses to "What Does Your Car Run On?"
Time and time again we have seen the development of carbon based energy sources become such a financial burden, or grow too financial powerful, that development of alternative energy is brought to a halt. Drilling and R&D for new energy sources doesn’t really happen, and we all know it. We can go full throttle into the future of energy while we are dragged down by oil.
Joel is so dragged down by oil that I’m sure he doesn’t drive. That’s just a prop he parks in the parking lot.
I’ll never forget the time I saw a folk singer at an environmental rally singing songs to save the trees – while playing on a WOODEN guitar.
Personally, I think I agree pretty much with Jane.
However my support for increased offshore drilling comes with a caveat. It should allow for progressive royalties. Royalties would be low when crude oil prices are low so that oil companies could earn a reasonable profit for their efforts. As the price of crude oil goes up (which will happen in an improving economy) then oil companies would pay an ever increasing percentage of the additional profits in the form of royalties.
Such royalties should be dedicated to furthering our efforts to shift to alternative fuels and continuing R & D.
I think this would kill several birds with one stone. Help break our addiction to foreign oil and provide a stream of revenue to encourage alternative energy just for starters.
I do not see why we must insist that only OPEC alone should benefit from high crude oil prices. What is wrong with the American citizen getting a stream of revenue which will help us to break our addiction to foreign oil? I wish to point out that this revenue stream could also be used to lower our emissions of greenhouse gasses.
My car happens to run on hope!
All kidding aside. I think we can only drill if we absolutely MUST drill. IF there are substantial deposits off our coasts, then we should consider that an option. I just haven’t been convinced that we MUST drill. While shifting to alternatives, such an investment doesn’t seem necessary to me.
Joel,
Where is the money going to come from to shift our consumption to alternatives? How are we going to keep this shift affordable for everyone including those who have limited income?
You can’t keep pointing to increases in the cigarette taxes as being the answer to every funding need.
“My car happens to run on hope!”
Dude, that’s why I like you. That’s a damn funny line!
Joel, sometimes doing something is worth doing even if you don’t “have to”.
If you are able to build options and reserves for your career and family, doing something “extra” that isn’t an immediate necessity, is often seen as good planning. The same applies to energy resources and our standard of living. We MIGHT not need that oil/natural gas. Alternatives MIGHT be just around the corner. There MIGHT be an auto industry with enhanced gas milage or run on alternatives.
When it comes to needing energy and secure access to it, there is no might or maybe about it. Finding options and resources as we wait for these “Green” miracles is just prudent.
I know…I know……the nightmare of the Greens is that we’ll find too much energy and lose the desire for alternatives. Then the paltry amount of energy you guys claim we’ll find offshore won’t rock the boat much. And besides, the new energy won’t even be here for 30 years or what ever the claim is. Well, certainly by 30 years, we’ll have better green tech and that added energy will go uneeded.
Still, the more options we have the less the US can be controlled by foreign governments. Also, that gives OUR government less control of our individual abilty to move around as we see fit. I guess to some, the latter is a bad thing. Perhaps even the former.
I love how the mantra of “oil/gas/etc supplies won’t affect markets for years” always show up. 10 years ago, we wanted to drill in ANWR. It was stopped. “We wouldn’t get oil for 10 years…” Now its happening again. So what if we don’t get the oil/gas for 20 years. I would love for my 9 year old to have domestic fuel when she’s driving instead of paying Arabs.
Liberals are idiots.
So what kind of car does Jody drive? Studebama?
Ever hear of the three mile limit? That’s the extent of Virginia’s influence. After that, its a Fed decision. Heck if they wanted, the feds could sell development rights to China or Dubai. Just to help pay down the trillions we owe them.
As for all those high paying jobs everyone seems to think Virginia will have, well;
http://www.businessweek.com/bwdaily/dnflash/content/aug2008/db2008084_341769.htm?campaign_id=rss_daily
Little david,
“Royalties would be low when crude oil prices are low so that oil companies could earn a reasonable profit for their efforts. As the price of crude oil goes up (which will happen in an improving economy) then oil companies would pay an ever increasing percentage of the additional profits in the form of royalties”
the problem with this kind of idea is that it is pro cyclical. When oil prices are already low, this is essentially a tax subsidy for even more production, further depressing prices and reducing the incentive for investment in a alternatives. When prices are high, when you ideally want the most new development to bring prices down, you end up punishing investments more, or at least more relative to what would have been produced without the changing scale.
I generally don’t agree with taxation that gets too progressive. It punishes success and rewards failure. Many of our problems are caused by rewarding failure. In general, I would agree with EJ here and disagree with David. As a general rule, I also don’t like trying to influence behavior with the roylaty schemes or the tax code.
However, if the goal is to find energy independence and secure energy supply to the Free Market, some short term exceptions might be worth exploring.
“When oil prices are already low, this is essentially a tax subsidy for even more production,” – EJ
What’s wrong with that? OPEC needed a bloody nose and so did US oil companies that had incentive to keep oil at a high price and their stock prices climbing. When there isn’t enough different sources of energy competing, colusion can happen. Besides, when oil gets too cheap new demand thresholds will open up.
Does cheap oil reduce demand for new energy? Short term, yes. Long term, no.
There is pent up demand in developing nations like China and India. China recently changed policies to artificially inflate the cost of consumer gas. That demand control might be relaxed if world market prices trended down. That would be a source of moderation if not hyper consumption. With fresh new competition for supply, green alternatives would again be called for. Long term, India and China will at some point further emerge and that will have consequences on world energy supply. Let’s find new energy, not fight future wars over old finite sources.
Where is another source of “Green Demand”? There is a cultural shift in America. This is pretty much evident in campaigns by candidates for Governor here in Virginia. “Green” is taught or at least subtly editorialized in public schools. A certain 11 year old brings home rhetoric from school. You also see the commercials on TV showing children trying to influence their parents to keep the planet in mind in their daily routines. If the population of smokers can be reduced, so can consumer demand for fossil fuels as its main energy source.
I took a toll booth riddled Mapquest route from Virginia to Minnesota. I took another path back. Along the way, I saw surprising amounts of giant white colored wind mills. How did they get there when we have so much oil, coal, and nuclear energy?
“When prices are high, when you ideally want the most new development to bring prices down, you end up punishing investments more, or at least more relative to what would have been produced without the changing scale.” – EJ
I absolutely agee with EJ here. Although, our royalties and oil/gas production would be a comparitively small portion of overall production. Also, oil companies would not be the sole sources of finding new energy.
However, could we pre-emptively take away the penalties in some way? How about offering credits for shale oil or other sources that are more expensive to produce? Incentive programs like Forbes has come up might help. Any tax credits would need to be on proven actions taken.
Would a progressive scale work for royalties? Maybe. We should be open to at least explore all options.
E.J.,
I do not think your argument is valid.
Your argument says to me that you like keeping prices as high as possible and you see nothing wrong with prices returning to or surpassing $4 a gallon for gasoline. That way you get what you desire which is to motivate alternative energy by making the way we presently do things unaffordable.
If exploration is started now, it will take several years to bring production online. Who knows where prices will be by then. My way allows for motivation of oil companies no matter what. If prices are low, they make a reasonable profit, it is not a subsidy. If prices spike, they still make money but are required to share the windfall profits with the American public.
If oil companies do not like the deal, they are not forced to bid on it. But all new areas offered for exploration under control of the US government should be subjected to the same terms, and where else are the oil companies going to find a better deal?
“Your argument says to me that you like keeping prices as high as possible and you see nothing wrong with prices returning to or surpassing $4 a gallon for gasoline.”
I’m not saying that at all. My point is simply that a tax that adjusts that way amplifies the price cycle more so then it would otherwise. When prices are high, your progresive tax will make them go even higher, because projects that would have been viable without the higher tax no longer are and therefore dont get developed. Likewise, when prices are low, the reduction in royalties will make the prices go even lower as projects that previously were not viable are now viable (of course this is all to the extent that marginal changes in US production are large enought to change world prices).
In a market economy, when prices get high, this is supposed to induce more people to supply good x and this reduces prices. When prices get too low (below the cost of production) this incentives less resources being devoted to that area. I am simply recongnizing that the tax policy dampens this natural market corrective behavior.
BH – though alternative energy research and low oil prices are not mutually exclusive, there is a tradeoff to some degree. Its basic law of demand that states when the price of good x rises, substitutes will be saught to a greater degree, whether that be other alternatives or conservation, etc. Though i think it is insane to purposely try to drive oil prices up when we dont have any alternative sources readily available (its a huge leap of faith on the anto carbon advocates part) that are eccnomically feaseable, recongize that sustained low oil prices will reduce the amount of money seeking alternatives, with the opposite true with high oil prices. This is why I am not worried about long term energy if the government would just get out of the way and allow all sources to be developed. As oil gradually runs out, prices will trend upwards and alternatives will be developed. We only have this huge mess and large price swings because of 1. Fed policy screwing with the dollar, 2. OPEC manipulating markets, 3. government restrictions on the supply of new energy sources.
EJ,
Uh no.
My proposal would serve as a dampening effect on the wild swings. Oil companies would always benefit no matter what the price was, but would not profit outrageously from the wildest swings.
Your argument is completely contrary to this, and I quote:
“When prices are high, your progresive tax will make them go even higher, because projects that would have been viable without the higher tax no longer are and therefore dont get developed. Likewise, when prices are low, the reduction in royalties will make the prices go even lower as projects that previously were not viable are now viable (of course this is all to the extent that marginal changes in US production are large enought to change world prices).”
You are arguing against any understanding of market forces. When profits after taxes remain to be realized, the market forces will remain to realize these profits. My plan allows for reasonable profits no matter where prices swing to. They are not going to swing unreasonably low due to peak oil.
Little David, I think you and EJ are talking about two different parts of the discussion.
I think he’s now talking about the application of royalties that you would dedicate to use on funding new resources.
If oil/gas is priced too low as compared to before, the funding stream starves. Much like if you pay for things with cigarette taxes but, lots of people see the light and stop smoking. At that point, that dedicated revenue to your selected green projects would lose funding and possibly not be viable. Or funding comes at the expense of some other sacred cow.
Conversly, I think EJ is saying that if oil prices get too high and your scaled tax goes up, the company will pass that royalty/tax on to the consumer driving the prices even higher. (companies don’t pay taxes, they pass along the cost) Of course, as we have already witnessed, if it gets too high in price, consumers will put on the breaks. Also, the cost of transporting everything goes up which kills profit margins. Next thing ya know, some nut (either party) is trying to craft a stimulus bill that will cripple the dollar and our country’s financial health. Consumers will cut back. The government rarely does.
Your scaled system also doesn’t take into account as EJ stated, fiscal irresponsibility causing the dollar to lose value. (Thus more dollars to buy the same barrel of oil).
The Chinese really saved our hides by raising the cost of consumer fuel use in China. Then again they depend on us buying their goods and need us healthy. What happens in the future when domestic energy demand by consumers spikes in China and India but, our worthless dollar makes our consumer cuts near meaningless? It is imperative that we regain financial health and find more sources of energy.
All that aside, I do agree that in many cases your scaled system would have a moderating effect on oil/gas in the current enviornment. Colusion and some of OPEC’s game playing would be penalized. They would have to recalculate supply/demand in order to price. That would buy some valuable time. You just need a balanced currency, government being fiscally responsible, and give bigger incentives to develop when oil prices are high. You would also need to plan for funding stream changes for your dedicated projects. Good luck with that but, a congress acting as a team *cough* could do it.
A discussion on my favorite topic, yay!
Okay let’s start with Virginia’s offshore, we get no royalties if it is more than 6 miles offshore. That is N-O-N-E, zero, zilch. The current lease sale on the table (220) looks to be 50 miles at least off of our coast. That is per the Outer Continental Shelf Lands Act. Texas and Louisiana have landed sweeter deals, but we are in the OCSLA bucket. So, next time you hear a local politician drool over potential royalty revenues, you can set them straight.
And just another point, if we are drilling less than 6 miles off our coast, you can see the rigs from the shore. If you have been to Galveston, TX or the Bolivar Peninsula, you can attest to this fact. I don’t find them visually offensive, but then I also think the refineries lit up a night in Houston are pretty. I don’t know how Virginia Beach folks and tourists would feel about having to look at that though.
To this royalty argument, royalties in the US are super low comparatively speaking. So, this argument about somewhat higher royalty rates being a disincentive to E&P here is silly. Most countries take more than half and US Oil companies are more than happy to operate there (heard of Nigeria or perhaps Indonesia?). Now that isn’t to say you can set them at any level. We currently use a percentage of the revenue to determine the royalty, which address’s Little Tom’s point. As the price of oil goes up, royalty revenue goes up. And in the current environment, company profits on that oil increase by the same percent, so everybody wins.
Royalties though are not the best way, I think to affect a change in consumer behavior (to drive them to green practices). Crude oil is used in such a diverse range of applications that royalties get spread over all of them. And to the point about consumers picking up the tab of the tax, it depends on how elastic demand is as to whether consumers end up holding the bag. A better option is an excise tax on the activity you want to change incentives for. So, if you want to put electric cars on parity with gas powered cars, then the solution is a gas tax. Now if you want a very broad effect like you don’t want people to buy floors, paint, makeup, toys, pesticides, or any product containing a derivative of oil, then I think a carbon tax would work best. My desire with these consumption based taxes is that they be revenue neutral (but you know fat chance with that, right?). That way they reduce something like payroll taxes, which would be awesome!
Also to EJ’s points, outside of choosing alternatives, people can choose to conserve. And there are a lot of alternatives existing. You can bike to work. You can take public transportation. You can walk depending upon how close you live. Many employers have telework policies, so you could work from home. And even if you live in the boonies and forced to drive (no alternative), you can car pool or in the long run you can move closer in. So, it’s not like high gas prices mean unavoidable higher energy costs for families. There are alternatives currently, and they can also choose to use gas more efficiently or conserve. What we saw in the DC area when gas prices hit record highs (even from a constant dollar perspective), Metro ridership hit all time highs. So, change people’s incentive structure and they will act accordingly. The same things you know from managing people at work are true everywhere (including the what gets measured, gets done axiom).
And just some asides about EJ’s last point, the problem in higher prices has been more complex than the three things you say. On the second point, when the price was high in 07-08, OPEC wasn’t doing anything to manipulate prices. I don’t think an OPEC member was minding their quota because the market incentive was for them to produce every last drop (and members have a history of breaking the quotas). And Saudi no longer has that huge swing volume they used to bludgeon Venezuela when they tried to take Saudi’s top slot as number one exporter to the US. What OPEC is doing to manipulate price is using so little of their oil revenues to develop their oil industry. Instead of plowing that money back into E&P, they have used it either for funding social programs or just whittling it away from government corruption. So, their failure on that end is much larger than us not opening up all offshore areas to drilling. All our current offshore E&P has done is just prevented a more precipitous decline in US oil production, it’s not made any dent in our imports. It still works out to be that every additional barrel we consume comes from somewhere else. Also, the biggest driver in that spike was increased demand. China’s and India’s rapid growth in addition to our own continued growth in oil demand put great pressure on price. And we are going to see that again when India gets their nano car into full production swing. There simply is not enough oil on the planet to allow for Chinese and Indians to consume close to what we do on a per capita basis. And as they do, prices are going to respond accordingly.
And last aside to Britt, the cigarette tax is bad analogy. Demand is pretty inelastic given how addictive nicotine is. The bigger problem is not getting new smokers to replenish the ones who die off. Outside that, you have a fairly steady base of consumers you can just bleed forever basically. It’d be interesting to see a study on whether New Jersey’s ridiculously high cigarette tax has reduced smoking appreciably as compared to other states with lower cigarette taxes. My guess here is no and that the only thing it has really done has fueled a hugely profitable illicit trade in interstate cigarette trafficking.
Britt,
You stated:
“…the company will pass that royalty/tax on to the consumer driving the prices even higher.”
I do not think the oil market works like that. What was driving crude oil up to new heights in the recent past was the speculators. Speculators were betting supply would not be able to meet demand in the future and were soaking up every last bit of excess production on the market.
Speculators and oil companies always charge what the market will bear. If crude oil on the global market is going for $50 a barrel, they can not “pass that royalty/tax on to the consumer” by charging $75 a barrel. Who is going to pay $75 a barrel when they can get it somewhere else for $50? (Please note that it is my understanding that this comes with a couple caveats. There are different prices for different grades of crude. Also, refineries might be willing to pay slightly higher prices for crude that comes with lower transportation costs. Which is why for a period of time, so much Alaskan crude was exported. It was cheaper to buy and transport Venezuelan and Mexican crude to East Coast refineries then to transport Alaskan oil there. Meanwhile Asian markets found it cheaper to transport Alaskan oil then it was to transport Venezuelan oil or Mexican oil produced along the Gulf Coast. For both doing it the other way either involved using smaller tankers and going through the Panama Canal, which can not accommodate super tankers, or traveling around South America’s Cape Horn using super tankers. Everybody paid lower transportation costs and everybody won.)
Tex, you’re likely right about us not getting royalties from that. I’m sure you also know far more about the oil biz than we do. However, my cigarette analogy was meant as an extreme and not a perfect analogy inorder to prove a point. Also, my analogy DOES consider not just those that DO quit but, also a cultural pressure that prevents people starting to begin with. My point is exactly the highly addictive nature of cigarettes and our PAST culture that suggested “cool” people smoke. The large drop off in smokers proves that cultural change is achievable and so is generating a desire for alternatives even with cheap oil. Addicts do quit. Ok, that’s the cultural change point of cigarettes.
Now let’s look at taxes where my analogy is a little weak. Partly due to the demonization of “Big Tobacco” (rightly or wrongly). Tobacco has to absorb more punishment due to legislation that punishes them exclusively and directly. However, let’s look at tax revenue. As fewer people smoke, what happens to prices? They go up, especially given the relative inelasticity of addict demand as Tex points out. What happens to tax revenue even without a rate increase? It goes up, because (random number) 10% of a $5 pack is more than 10% tax on a $3 pack. (no, I have no idea of the tax rates but, my point is obvious) You can indeed lose marketshare and tax revenue won’t take as bad a hit. Our “representatives” can always raise the tax as they do, and take advantage of the addicts still in the pool of victims. The addicts will be shocked but, will “find a way” or quit finally. Revenue declines still have to be reckoned with. Eventually, nobody will be smoking. See the no public restaurant smoking laws that recently passed and were unfathomable not long ago.
Tex, your point on royalties is well taken. I still support energy generation regardless. I do admit that our elected officials never have done a great job looking out for VA. on this issue. Could be why we’re up first on new off shore. We’re suckers.
As to your thoughts on aesthetic appeal of rigs and refineries, the same goes for giant wind mills that I consider eye sores but, greenies might find “pretty”. Even Pelosi allegedly blocked solar panels blanketing some desert area. The NIMBY crowd only needs to drive by those windmills once during a trip. The windmills also have limitations. You will never find one in Town Center(Va. Beach) or urban settings where “Green” political power is stronger (yet they conveniently don’t have to live with it or develop around it).
I also agree 100% about China and India obviously. I’m sure Iraq will feel future pressure to upgrade their technical abilities and increase production from that underdeveloped area. We need more and new sources of energy before China and India fully enter the energy market. If not, our way of life will greatly diminish.
David, I get what you’re saying on what the market will withstand but, I still disagree. 1. the caveats you mention. 2. Speculators drove up prices. There is no denying that. In order to do that, there must be an upper level that the market will endure, at least for a short time. If it goes beyond that, yes they seek alternatives or cut back. The industry then sees a steep drop in demand along with their profits. Usually tax increases/royalties are gradual or a low percentage. The first step is to test the level that the market will bear. Also, note the market will bear different levels in different localities and countries. The truth is David, that if you tax away their profits beyond what the industry will bear, owners will seek more profitable investments. It can get to the point where the industry will start to fail. Then we’ll get another bail out we can’t afford. We could start breeding horses again I guess.
Britt,
If the oil companies do not like my deal, nobody is forcing them to bid on it. Where are they going to find a better deal?
Exxon-Mobil already indicated they had no problem with getting out of the energy business when they stated they had no interest in investing in alternative energy. Short term their position is correct as long as they can continue to find cheap sources of crude. Long term this position is suicidal as the world attempts to deal with peak oil.
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