by Jim Jubak
10-05-06
How many times over the last year -- as oil was
on its way to $ 75 a barrel and gasoline crept toward $ 3.50 a gallon -- have
you said, "I could come up with a better energy plan than these bozos"?
Well, here's your shot. In the column, I'm going to lay out my four-step
solution to our current energy crisis -- well, actually half the crisis. My plan
focuses on the steps we should take to reduce our demand for energy.
My challenge to you is to tackle the other half of the solution and come up
with ideas for increasing energy supply. You can use my plan as a template for
the level of detail and specificity I am looking for in your own ideas and then
send them to me. No idea is too outrageous, too controversial or too impossible
(as you'll see in a little bit when you get to my national energy-efficient
refrigerator lottery plan).
Remember, we're brainstorming, and the point is to come up with a better energy
plan than anything we've heard from Washington.
But do try to go beyond the "encourage more ethanol (or whatever) production"
level of suggestion. Tell me how you'd go about this. Taxes? Production
subsidies? Time travel? Aid missions from aliens? Whatever.
Please don't engage in the kind of wishful thinking that has so dominated energy
planning in Washington for decades. The bozos in Washington, DC, have set the
bar for energy planning rather low. The half-baked proposals coming from our
"leaders" range from the laughably self-serving -- like that $ 100 gas rebate to
every voter ... er, I mean driver -- to the deeply cynical -- like the proposal
to give the president authority to raise the fuel economy standards for new cars
beginning in 2009.
Not hard to do better
But don't be too hard on the politicians. It's difficult to come up with
creative ideas for solving an oil crisis when you're so beholden to the oil and
gas industry -- the same oil and gas industry that contributed $ 26 mm to
candidates running for the House, Senate and White House in 2004and $ 34 mm in
2000 (ranking oil and gas as No. 13 among donor industries in 2004). About 80 %
of the money in each of these years went to Republicans and 20 % to Democrats.
(Want to see who got what from whom? Check out the database at the Centre for
Responsive Politics.)
So, we've got a definite advantage in formulating our plans. We're not beholden
to anyone. Just to the prosperity of future generations and the security of our
country.
My plan isn't about short-term fixes. I don't think you can quickly and
painlessly reduce the price of oil and gasoline in a world where, thanks to
China and India, demand is moving steadily higher, and where supply, for a
combination of political and geological reasons, is having trouble keeping up
even as constantly increasing prices encourage more and more exploration.
I think we can take steps now, however, that will reduce our own demand for oil,
and that will work to keep the global price of oil lower over time and to lessen
the amounts of cash that we have to send to oil producers.
Higher oil prices are like a tax on our economy, and the result -- over time
-- is less to go around for future generations in our country. Higher oil prices
are inflationary, and inflation reduces the future value of savings. Higher oil
prices give people less money at the end of every month to save, reducing the
amount that we can put away to prepare for the day when the country is, on
average, considerably older. And higher oil prices mean we've all got less to
spend on other things.
And our dependency on imported oil and gas also diminishes our national and
global security. The competition for resources that is already under way raises
tensions around the world and encourages local commodity wars.
A tight global supply of oil gives leverage to oil-producing countries to, at
best, get an improved deal in the global economic system for their own citizens,
but at worst, to follow narrowly nationalistic dreams of power. It doesn't help
the US to achieve its goals in the world when so many with so much less can so
readily conclude that our only goal is keeping control of as much of the world's
oil as we can.
So here's my four-point plan for solving the current -- and future -- energy
crisis. After you've read it, send me your own ideas. Don't think you need to
send a complete plan; single ideas are just great. I'll publish the best in a
future column.
Raise gasoline to $ 4
To discourage demand for gasoline, slap enough federal taxes on gasoline to
raise the price to $ 4 a gallon. It sure looks like $ 3 gas isn't enough to
produce a very big change in consumers' behaviour. Sales of older-model SUVs
have indeed plunged, but that seems to have more to do with the age of the
design than with the price of gas. Sales of General Motors' new Tahoe SUV, on
the other hand, climbed nearly 35 % in April; sales of the GMC Yukon and
Cadillac Escalade jumped 36 % and 127 %, respectively.
Average daily demand for gasoline for April was 9.127 mm gallons, according to
theUS Department of Energy. That's roughly the same as the 9.125 mm gallons used
in April 2005. Holding demand steady when the economy is growing at better than
4 % isn't nothing, but it's not enough. Looking at the sensitivity of demand for
gasoline to its price, many economists see $ 4 a gallon as the point at which
higher prices really begin to bite.
Make it permanent
Further discourage demand by guaranteeing that gasoline prices will stay at $ 4.
(It might even be good to index the taxes to inflation so that the price of
gasoline stays at $ 4 in 2006 dollars.)
It's not just higher prices, but the duration of higher prices, that matters. If
consumers think that $ 3.50-a-gallon gas is just a price spike that will soon go
away, they'll grit their teeth, pay what it takes and continue to behave just as
they have.
Market overview
It's the same thing at the production end. Companies won't invest in additional
capacity -- and the country badly needs additional refining capacity -- unless
they're convinced that prices high enough to earn the profit projected by the
company's investment plans will stick around for a while.
ExxonMobil, for example, said that, despite record profits, it won't be building
any new refineries anytime soon in the US because it doesn't believe that
current high gasoline prices are here to stay.
An energy-efficiency lottery
Set aside a quarter of the revenue from the additional gas taxes to set up a
national energy-efficiency lottery to put more efficient vehicles and appliances
on the road or into homes.
To enter the lottery, you have to be the owner of a working, but older,
energy-inefficient car or refrigerator, for example. The prize in the lottery
would be the money to buy a new energy-efficient car or refrigerator. The
government would set (gradually increasing) standards for energy efficiency, but
a lottery winner could buy any model off the energy-efficient list.
The goal is twofold:
-- To speed up the replacement of old gas and electricity guzzlers with new
energy-efficient versions. Right now, the rate at which cars and light trucks
are going to the junkyard is at historic lows: The average age of the US fleet
hit nine years in 2005, as only 4.3 % of all cars and light trucks were
scrapped. That's the lowest level since 1949. The longer a car is on the road,
the more gas (on average) it uses because of a decline in engine efficiency that
results from normal wear and tear. Among appliances, refrigerators have shown
the highest efficiency gain per dollar of price over the last 20 years. A new
refrigerator saves $ 82 in electricity annually when compared with a 20-year-old
model.
-- By constantly ratcheting up the energy-efficiency standard, the government
could encourage the production of more energy-efficient cars and appliances
without all the regulatory bother of the current fleet-mileage standards. If you
didn't want to participate in the lottery, you could continue to buy whatever
you wanted. If you wanted a chance to win a free car, you'd have to agree to put
up with one that burned less fuel. (If the government wanted to get really
ambitious, it could limit the choice of prizes in the lottery to those with a
certain percentage of US content. That would save energy and increase US
manufacturing jobs.)
Gas-tax revenue
The idea is to reduce gasoline demand, not to give the federal government a huge
new source of tax revenue to spend.
My suggestion: Sequester the tax money -- I mean, really sequester it -- by
using the 75 % that remains after my energy-efficiency lottery to fund private
retirement accounts that would supplement Social Security. Don't put the money
into a government trust fund that's just an accounting fiction. Require that the
money be put in designated private accounts controlled by their individual
owners with default investing in indices and no withdrawals until retirement.
OK, your turn. Let's see those plans for increasing energy supply in the US.
You'll find my email link below this column. Please note that by sending me an
email on this topic, you are giving me permission to use it in a future column
with your name attached. (I will not include your email addresses with any
response in my column, however.)
E-mail Jim Jubak at jjmail@microsoft.com
Source: MSN Money Markets