03 May 2010

Here's how you get Oil

If he pulls a knife, you pulls a gun. If he sends one of yours in the hospital, you send one of his to the morgue.... That's the Chicago way



"In the US, government spent $72 billion on fossil fuel subsidies between 2002 and 2008. These subsidies do not include myriad other forms of taxpayer support for fossil fuel based energy." - Curious that the discussion over subsidizing alternative energy sources never focuses on the fact that their own desired subsidies are probably dwarfed by the amount portioned out already for oil, coal, and even natural gas. As with discussions on taxing unhealthy food, you may want to start by stopping funding to unhealthy food chains (corn subsidies for example). A carbon tax may ultimately be necessary to take up the externalities of pollution priced into the production of energy, but that tax will be a whole lot more efficient if carbon-based energy sources have to compete at market rates instead of within favorable government provided rigged market conditions. I think Reagan described the activity of government as follows "If it moves, tax it, if it keeps moving, regulate it, if it stops moving, subsidize it". We're not at the tax it point just yet, but fulfilling this circle of logic by taxing oil when we're still handing them off billions of dollars makes no sense whatsoever.

A lack of subsidies for gasoline and oil would make things like public transit or alternative energy already that much more attractive to people who favor these policies because they would already have that much more of the price gap in their current market efficiency made up.

As mentioned in the link above, the possibility of such a sane economically principled response, ending inefficient subsidies and a simple net zero tax to disincentivize some future development that is undesirable now, is approaching zero. Those subsidies have powerful interests, both in energy lobbies and the general public who thinks cheap oil or carbon energy is some sort of American birth right (and woefully overestimates the effectiveness of opening new drilling sources on prices. Even if we were sitting on virtual oceans of untapped oil capable of actually moving the price of oil and resultant fuels, which few people claim we are, such oceans would be exploited in market protective ways by large energy corporations rather than entrepreneurs who might compete for market share). And the possibility of say, income or corporate income tax reform with a simple and basic cut in the rates of lower and middle class incomes or the reduction of corporate income taxes across the board in exchange for the ending of peculiar subsidies, is practically impossible as well.

Incidentally, Tyler Cowen notes that another undisclosed obstacle is land use regulation. Environmentalists and others who end up opposing things like wind farms are basically shooting the energy reform movement in the foot. Sometimes on the notion that their desired outcome isn't new energy at all replacing the old but reduced energy based lifestyles. While it may be entirely sensible for people to conserve energy and reduce the amount needed for the exercise of their daily activities, this won't happen because we rant and rave about it and try to starve people of energy production. If we cannot produce that energy from cleaner sources, like wind or solar or nuclear fuels or something else, then consumers will continue to get it from cheaper and dirtier sources like gasoline, corn ethanol, and coal and no change will occur. The effective means of getting people to alter their daily lifestyles and energy consumption will be the price of energy going up. As happened when gasoline prices skyrocketed up toward and, in some cases, over $4 a gallon.

That cannot happen with billions of dollars of needless subsidies and it won't happen with the obstruction of construction projects actually trying to solve the problem.

Oh and people saying things like this: You're a moron. Thanks for playing, now go back to playing with your paper circles in the special class room. Especially the part about oil and water. Holy shit you're stupid.

2 comments:

Tragedy101 said...

In your opinion, when/if we remove subsidies, is it better to deregulate first, or should we just drop the subsidies?

Sun Tzu said...

Deregulation, particularly of energy, has some tricky history (see Enron and California). In my opinion the subsidies should go away first and the de-regulation battle will take time to do and work through what is "needed" and what is not. Most such regulations are probably unnecessary in my world, but I don't quite occupy the normal political world.

There may be, in my opinion, lots of frivolous regulations (such as CAFE standards on vehicles) that will be further rendered unnecessary if the base energy prices are left undisturbed, or are increased by a combination of removed subsidies and increased taxes. We may not know this until we get to the other side of the subsidy situation. These subsidies are small in comparison to the overall energy markets, but they're not insignificant factors for things like the profit margins of firms, especially larger versus smaller firms (larger being more likely to extract economic rents from government largess).

I assume for the most part that the most effective regulations will simply establish and police markets for the prices of pollutants and externalities related to them, leading to companies trying to minimize such costs by cleaning them up themselves or by producing energy without such costs built in. But this is probably not what most people envision when they think of energy regulations.