There's an Energy Crisis

Sunday, September 21, 2008

OIL PRICES are plummeting, and the government ought to do something about it.

You thought that the dramatic decline in the price of oil was one of the few good pieces of economic news lately? Well, in some ways of course it is. As the Post's Steven Mufson reported last week, the price of oil had dropped 38 percent since peaking two months ago. It rose Friday to $104.55 per barrel, but that was still well below the July 11 high of $147.27. The drop eases inflation fears and takes pressure off the U.S. trade deficit. It may hurt autocratic governments in oil-producing nations such as Russia and Iran. Most of all, it makes life a little easier for Americans squeezed by costly gasoline and frightened about how they're going to heat their homes this winter.

But spurred by rising prices, Americans were beginning to change the way they use energy, and a downward trend, particularly if it continues, could abort that essential modification just as it was gaining momentum. As Paolo Scaroni, chief executive of the Italian oil giant ENI, said in a visit to The Post last week, the single greatest opportunity for Americans to move toward energy independence lies in conservation. The average American burns 26 barrels of oil per year, Mr. Scaroni said, compared to 12 for the average European; if Americans drove cars of the same efficiency as Europeans -- even if they continued driving just as many miles as they do today -- they would save in annual oil consumption the equivalent of Iran's entire annual production.

That isn't going to happen overnight, but this year Americans did begin moving from large cars and trucks to smaller ones, and from driving to walking or taking trains and buses. Alternative sources of energy, such as wind and solar power, began to seem more competitive and so to attract more private investment.

There is one way to maintain that progress without asking OPEC to keep prices high, and that's for the government to set a floor on the price of oil with a variable tax. If the price rose back above, say, $110 per barrel, the feds would collect no tax; as it dropped below that, the government could levy sufficient tax to keep the price at the equivalent of $110 per barrel, to rise by a predictable percentage every year. Investors in wind and solar power would have certainty. The Saudis would not be unnecessarily enriched. And ordinary Americans wouldn't have to suffer; Congress could rebate the money at tax time. This wouldn't be about increasing government revenue, in other words, but about changing patterns of consumption.

This is not the proposal you're hearing from the presidential candidates or members of Congress, even as they promise to tackle the energy crisis and deliver us from Big Oil. They talk about maintaining resolve as oil prices decline, even though only price can do that. And they talk about investing tax dollars in wind and solar power, nuclear and coal energy, and battery and biofuel research. Certainly government has a role to play in spurring research. But who is better qualified to decide on huge investments and allocate research funds, House leaders Nancy Pelosi and John Boehner -- or millions of investors, engineers, scientists and executives receiving clear market signals that the era of cheap oil is over? You won't hear a straight answer from the politicians during this campaign season, but as you listen to their promises to spend your money on investment tax credits and lucrative subsidies, at least keep the question in mind.


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