Pump Some Seriousness Into Energy Policy
Thank God for $3.50 gasoline. True, we had it for only a brief, shining moment, and there is not much good to be said about the catastrophic hurricanes that caused it. But the price was already inexorably climbing as a result of 2.3 billion Chinese and Indians industrializing. Their increased demand is what brought us to the energy knife's edge and makes us so acutely vulnerable to supply disruptions.
Yet, the Senate is attacking the problem by hauling oil executives to hearings on "price gouging." Even by Senate standards, the cynicism here is breathtaking. Everyone knows what the problem really is. It's Economics 101: increasing demand and precariously tight supply.
Yet for three decades we have done criminally little about it. Conservatives argued for more production, liberals argued for more conservation and each side blocked the other's remedies -- when even a child can see that we need both:
Demand . Just yesterday we were paying $3.50 a gallon at the pump and were ready to pay $4 or $5 if necessary. No blessing has ever come more disguised. Now that we have lived with $3.50 gasoline, $3 seems far less outrageous than, say, a year ago. We have a unique but fleeting opportunity to permanently depress demand by locking in higher gasoline prices. Put a floor at $3. Every penny that the price goes under $3 should be recaptured in a federal gas tax so that Americans pay $3 at the pump no matter how low the world price goes.
Why is this a good idea? It is the simplest way to induce conservation. People will alter their buying habits. It was the higher fuel prices of the 1970s and early '80s that led to more energy-efficient cars and appliances -- which induced such restraint on demand that the world price of oil ultimately fell through the floor. By 1986 oil was $11 a barrel. Then we got profligate and resumed our old habits, and oil is now around $60. Surprise.
The worst part is that much of this $60 goes overseas to foreigners who wish us no good: Wahhabi Saudi princes who subsidize terrorists; Hugo Chavez, the mini-Mussolini of the Southern Hemisphere; and (through the fungibility of oil) the nuclear-hungry, death-to-America Iranian mullahs. This is insanity. It makes infinitely more sense to reduce consumption, drive the world price down and let the premium we force ourselves to pay at the pump (which begins the conservation cycle) go to the U.S. Treasury. If the price drops to $2, plow that $1 tax right back into the American economy by immediately reducing, say, Social Security or income taxes.
The beauty of a tax that keeps gasoline at $3 is that it obviates the waste and folly of an army of bureaucrats telling auto companies what cars in which fleets need to meet what arbitrary standards of fuel efficiency. Abolish all the regulations and let the market decide. Consumers are not stupid. Within weeks of Hurricane Katrina, SUV sales were already in decline and hybrids were flying off the lots.
Supply . For decades we've been dithering over drilling in a tiny part of the Arctic National Wildlife Refuge. Look, I too love the caribou. They are sweet, picturesque and reputedly harmless. But dire predictions about the devastation that Prudhoe Bay oil development would visit upon the caribou proved false. They have thrived. Let's get serious. We live at the edge of oil shortages and in perpetual vulnerability to oil blackmail. We have soldiers dying in the oil fields of the Middle East, yet we leave untouched the largest untapped oil field in North America so that Lower-48ers can enjoy an image of pristine Arctic purity. This is an indulgence bordering on decadence.
As is our refusal to drill on the continental shelf. Offshore drilling technology is far safer and more efficient than it was decades ago, when this prohibition was passed. We're starving ourselves.
The same logic applies to refineries. We have not built one since 1976. Gasoline doesn't grow on trees. The U.S. refining industry operates at 96 percent capacity. That is unsustainable. We need the equivalent of the military base closing commission, whereby outside experts decide which bases should be closed in the national interest. A refinery commission that would situate 15 new refineries scattered throughout the United States (some perhaps on Army bases scheduled for closing) would spread the pain, depoliticize the process and arm us against future shortages.
With these simple steps, we could within a decade finally escape the oil noose. But don't hold your breath. The Senate just loved its little oil-executive inquisition. The House stripped out the ANWR drilling provision Wednesday night. And there is not a single national politician who dares propose raising gas taxes by even a penny. We are criminally unserious about energy independence, and we will pay the price.