|
|
| |
More on Chp. 21, The National Policy Wrap Up
|
|
| |
Who Does an Oil Tax Hurt?
An effective national energy policy, such as the one proposed here will be vigorously opposed the one special interest it really hurts—Big Fossil. Understanding this, is the our only hope of defending against it.
As reported in chapter 13, OPEC is well aware that a tax on oil or gasoline is their least favorite policy. Domestic oil companies are no less aware. No company wants their product taxed—the higher the cost the less people by. That’s called a “demand curve” in economics, and along with the supply curve there is no more basic economic concept.
As we’ve seen for the untax in general, a tax will be passed on. So although the oil companies will pretend to dislike the tax because they are paying it, it is actually paid by consumers. The problems for oil companies all arise from one source—reduced oil consumption. If no one could use less oil, the oil companies would just add the tax to the price of oil, sell same amount and make the same profit. But less demand hurts them for two reasons. First, they make a little money on every barrel sold, so selling less means less profit. Second, with less demand for their product, competition between suppliers will drive down the price on every barrel they do sell. This what hurts the most.
This little economic analysis contains a tremendously important message. The only reason a carbon tax or untax hurts the oil companies is because it makes consumers use less oil. But the only reason any energy policy aimed at oil, whether it is fuel efficiency, ethanol, or mass transit, hurts the oil companies is just the same. Every equally-effective policy hurts oil companies the same amount and for the reason. The less oil they sell the lower their profit.
Since oil companies, like all others, maximize their profits, they will oppose the policies most vigorously that hurt their profits the most. But every policy reduces their profits based on only one variable—the policy’s effectiveness—the extent of oil-use reduction. So oil companies will oppose policies purely on the basis of their effectiveness at reducing oil use. The more effective a policy the more they will oppose it.
As with any generalization, there are some exceptions, but they tend to be obvious. If a policy imposes a lot of costly and complex accounting on the companies, that will increase their opposition. But anytime an oil company says: “Policy X won’t work well, try policy Y instead—that will save more oil,” you can be quite sure that just the opposite is true.
This is important because oil companies are the most profitable and will connected in the world, and they will spend heavily to protect their profits. Other companies such a airlines will also be harmed when we use less fossil fuel. They cannot be trusted on this point for the same reason. But it is oil companies that have by far the most to loose, and the most power to stop us. They have had decades of experience in keeping us addicted to oil, as President Bush put it so aptly.
Understanding this much leaves us vulnerable to one final argument that will be used by oil companies, airlines, and other companies that use a great deal of fossil fuel. They will play on our sympathies. Higher oil prices means air less travel and so their business will be hurt. We should give them a handout to compensate. This argument can make sense in extreme circumstance. If the government began huge tax on a certain chemical that had just been discovered to be poisoning the environment, perhaps the manufacturer would deserve something, and a good case for helping its workers find new employment could certainly be made.
But increased oil prices are a natural part of the oil market. Given nearly thirty-five year decades of warning signals about the need to curtail oil use, the adjustment process for business and industry is no different from ones they face every day. Technical progress is constantly throwing curve-balls at business, as are fluctuating business conditions. VCR makers were killed off far more suddenly. The market for new-home construction goes through a bust about once a decade that is more severe than the transitions caused by energy policy. The government could step in and try to iron out all the wrinkles, but it would make a dreadful mess, and multiply the cost of energy policy many times.
All that should be expected of a carbon on tax is that it be changed fairly gradually. Unlike the permit-price of cap and trade, which is likely to jump from zero to $50 per ton in a single year, a carbon tax should and can be introduced gradually. Because taxes begin to take effect through anticipation, a gradual tax increase can still have a prompt effect.
To be concrete, a pre-announce gasoline-price increase of five-cent per year for the next 10 years, would be far easier for business to adjust to than the much larger and completely unpredictable oil shocks that occur naturally—or perhaps unnaturally but without any government intervention. There is simply no reason for the government to step into the market to cushion players from the “shock” of such mild government policies. A five-cent gas tax is equivalent to a $5 per ton carbon tax, so after only six years, such a policy could reach the $30 per ton level. Taking into account the anticipatory business response, this is plenty fast enough and the
As I’ve said repeatedly, use an untax. Tax gasoline, and return the proceeds—all of them—to consumers.
Making gasoline cheaper will never reduce oil imports—it will increase oil imports and contribute to higher world oil prices and more profits for OPEC, Exxon and the rest. Domestic oil producers probably do make a bit extra from market manipulation, but it’s small enough that its quite hard to prove. At the same time, Exxon is setting world records for highest profits of any company ever, and we know exactly why that is, but it’s almost never mentioned in the press. Domestic oil companies sell their domestic oil at the world price, even if they sell it domestically. So every time the world price of oil goes up $10, domestic oil producers make about $80 million dollars a day more, just on their domestic production.
high world oil prices caused by OPEC and increased demand. Unfortunately, OPEC has been far more clever this time than it was during the 1970’s and 1980’s. Last time it cut production. This left them with spare capacity and an urge to use it. This time, they have carefully
|
|
http://zfacts.com/p/983.html | 01/18/12 07:21 GMT
Modified: Wed, 02 Apr 2008 20:13:06 GMT
|
|
