Nearly two months into the Persian Gulf crisis, Washington's response on the energy front is still nil.
The president's sole specific contribution has been to urge tax incentives to increase domestic oil production. Even were it not for the government's critical need for more revenue rather than less, there is no logic in a call for tax incentives when prices -- the best incentive -- have just doubled.
The administration simply resurrected four tax breaks proposed earlier this year, which rightly went nowhere on Capitol Hill. The General Accounting Office found that together they would cost the government up to half a billion dollars while producing a minuscule additional supply of no more than 35,000 barrels per day. The GAO concluded that the government would do better to spend the same sum buying oil to fill the Strategic Petroleum Reserve. If the tax breaks didn't make economic sense at $18 per barrel, what rationale can there be at $38 to $40?
The thinking isn't any clearer at the other end of the ideological spectrum. Predictable calls for a windfall profits tax were heard as soon as prices began to rise at the pump. Setting aside price gouging, which seems to have been brought under control, there is no more case for a windfall profits tax than for production tax incentives. When events drive prices up, companies can charge more for their product, even if it costs no more to produce. When prices come down, they charge less. If, as a society, we can't agree on the rules of a market system to this limited extent, we shouldn't be trying to explain to the Russians how to set one up.
Somewhere between these extremes, an important energy debate began to take shape earlier this week, as the Senate argued the merits of raising new car fuel economy standards by 40 percent over the coming decade.
The American auto industry hates the mileage requirement, believing that it forces them to build cars consumers don't want. There is some truth to that. It is also true, however, that U.S. automakers make most of their profits on the big, loaded-up models, and those are the ones they urge consumers to buy, so that the apparent cost of the standard becomes a self-fulfilling prophecy.
The industry also argues that the proposed new standard can't be met without forcing everyone into a sub-sub-compact car. This is precisely what was said 15 years ago, when new cars averaged 13 miles per gallon, and is no more true now than it was then. The roster of promising mileage-raising technologies is, if anything, longer than it was in the mid-'70s. Since the mileage standard was first adopted, fuel efficiency has doubled, pollution requirements have been significantly tightened, and although cars lost weight, fatalities per vehicle-mile have dropped by 40 percent. Detroit has protested vehemently every step of the way.
Proponents of raising the standard can point to the indisputable fact that the present requirement has saved the nation more than 2 million barrels per day of fuel, three times as much as we were importing from Iraq and Kuwait. Economists argue, however, that the standard applies only to new cars, prolongs the life of old, inefficient cars and provides no incentive to drive less, perhaps even encouraging owners of highly efficient cars to drive more. A gasoline tax corrects all these flaws while raising badly needed revenue.
Advocates of regulation rejoin that the price of fuel is too small a part of the cost of owning and operating a car to induce the desired improvements unless the tax is enormous. Besides, say the hard-liners, even with a big gas tax, automakers won't make the mileage improvements unless forced to, prefering instead to improve what the industry calls "performance" and what the rest of us know as acceleration.
As the argument in the Senate swung between taxation and regulation, no one, sadly, said the obvious: a workable policy must draw upon both. Regulations that make mileage a key factor in new car design are economically inefficient and politically vulnerable so long as gasoline is cheap. Paired with a slowly rising gasoline tax, however, the mileage standard could work wonders, saving an additional 2.5 million barrels per day by 2005, by far the largest opportunity to reduce oil imports. But taxes are the purview of the budget summit, and agreement on a meaningful gas tax (the Republicans have reportedly suggested an increase of 1 cent per gallon) seemed remote.
In this hobbled debate, the vigorous opposition of the administration and the auto industry proved enough to sink the bill, even as Saddam Hussein's threats spurred oil prices skyward. On the same day, the EPA released its list of the 10 most fuel-efficient 1991 cars. Nine are Japanese, the 10th is German. The administration seemed immune to the irony -- and the warning.
Though the costs of a do-nothing energy policy are mounting daily, it is unlikely after this defeat that Congress and the administration will agree on any helpful energy initiatives this year. The best that can be hoped for is that they will avoid giveaways or worse for the sake of being seen to do something. Perhaps by the new year the need to reduce our energy gluttony will have become obvious enough to break through even Washington's policy gridlock.
The writer is vice president of the World Resources Institute.