Who Should Reduce Their Energy Consumption?

As a follow-up to the post below this one on the politics of promoting increased energy independence, this is from the CEO of Eni:

To extend the age of oil, we must save fuel now, by Paolo Scaroni, Commentary, Financial Times: One of the most common explanations advanced in the west for the current squeeze on energy supplies – and for why prices are still so high ... is ... China...

But... In spite of China’s rapid expansion, it still accounts for only 8 per cent of global oil demand. Meanwhile, the US and Europe account for 25 per cent and 18 per cent of global oil demand respectively. Each Chinese individual uses fewer than two barrels of oil a year. This compares with the 12 barrels used by their European counterparts and with the massive 26 barrels used by each US citizen every year.

It is the west’s consumption, along with sustained under-investment in energy infrastructure during the 1990s, that has really pushed prices up. The paradox is that, while on the one hand we complain about high oil prices, on the other we pursue energy policies that are wholly irrational. ... Look at the US, where oil demand keeps rising. Indeed, one out of every two cars sold there in the past five years was an SUV or a light truck...

As a result, American cars average only 7km per litre of petrol. In Europe, things look a bit better, with cars averaging about 13km per litre. If it were possible to convince Americans to buy the same cars as Europeans, we could save 4m barrels a day – equivalent to the oil production of Iran, the world’s third-largest oil exporter.

But why should we settle for cars that cover only 13km with one litre? Nowadays, there are comfortable cars that run for 20km on one litre of petrol.

If all the cars in the US, Canada, Europe, Japan and Australia were this efficient, we could save 10m b/d. That is equal to all of the oil produced by Saudi Arabia, the world’s largest oil producer, and is more than the total consumption of China and India together.

Inefficient cars are not the west’s only folly. Another is excessive temperature control. People like to keep their homes tropical in winter, while restaurants are frozen in summer. The US uses up far more energy on heating and air-conditioning than Europe does. Just think. If rich countries used readily available, fuel-efficient cars and Americans adopted European standards for heating and air-conditioning, we could save 15m b/d. That is roughly 20 per cent of global consumption.

In spite of this, western consumers clearly do not feel that changing their behaviour is a priority. One explanation is that, even at nearly $60 a barrel, oil may not be expensive for the western consumer.

By way of comparison, if for any reason you wanted to buy a barrel of Coca-Cola or lemonade, you would pay more than twice the price of a top-quality barrel of Brent crude from the North Sea.

But even if consumers are not feeling the pain from oil prices, there are still some very good reasons for industrialised countries to implement sensible energy policies and reduce waste.

The first is that, while wealthy SUV drivers may not mind paying a few dollars more on their petrol bill, they are actually keeping prices high for everyone else, too – including for those in poorer countries who rely on petrol for heating, transport and to earn their livelihoods.

The efficient use of oil is also the best way to protect the environment. By using less oil we will also reduce the emission of greenhouse gases into the atmosphere.

While there is still plenty of oil underground, oil reserves are not infinite. Even including all the unconventional oil from Canada and Venezuela, reserves are expected to last only 70 years. That means that the children of today’s young couples will live in a world without hydrocarbons.

The great hope is that we will have found alternative energy sources by the time oil runs out. But in the meantime, we should focus on extending the hydrocarbon era for as long as possible, in order to ensure a smooth transition. This is our challenge for the future.

But how to change behavior, that's the hard part. Somebody has to give up something, but who should that be? The answer given here is that the costs should fall mainly on Americans who drive SUVs from their temperature controlled homes to air conditioned restaurants. Even with growing concerns about global warming and other issues, I'm not sure the large number of voters driving SUVs between these locations are ready to agree with that assessment.

Comments

[realpc]

"People like to keep their homes tropical in winter, while restaurants are frozen in summer."

It's absolutely insane. I don't use air conditioning at home (it gets pretty hot here in July) and I'm the only person I know who doesn't.

My favorite example of hypocrisy is an ultra-progressive who drives a hybrid and rants about the greedy oil companies taking over the world. But lives in an enormous oil-heated house, in Maine. I bet he isn't the only progressive doing that.

[cm]

Air conditioning is in good part a consequence of what the building stock looks like. Many office building have windows that don't open, and air has to be circulated artificially to keep the building inhabitable. Lack of windows or unfavorable layout requires lighting even during the daytime. Poor insulation and/or building in harsh climates leads to temperature control being desirable. Those things are much more difficult to address than replacing a vehicle. Essentially a not unsubstantial part of the social infrastucture requires constant energy consumption just to be usable. It's not just a matter of preferring heating over putting on another sweater.

[donna]

Just getting ready to replace our 30 year old furnace and air conditioner with a new many times more efficient system. Double paned all windows and glass doors during the "energy crisis" in CA a few years back. Installed low-flow Toto toilets and a new, water-efficient dishwasher. Will be replacing the water heater soon with an instant-on system. Small yard, much of which is xeriscaped, backing onto a natural chapparal hillside. As much of landscaping as possible is edible plants, still too much lawn for me though. Drive as little as possible, combining errands; husband and son, who must commute, drive fuel-efficient vehicles. Live in a 1350 sq foot house in an area surrounded by McMansions.

I try to keep my energy footprint as low as I can. I wish others would do their part, too.

[dryfly]

It's absolutely insane. I don't use air conditioning at home (it gets pretty hot here in July) and I'm the only person I know who doesn't.

I don't use AC & it's typically 80-90 degF here all summer. The only room we air condition is my 'office' since the machines crash when it goes much over 90.

We also keep the temp down in winter to approx 60-65 degF though have a wood stove & an occasional space heater. One small strategically placed space heater makes a 60 degree room comfortable. When its 30 below for days on end - it makes a difference.

I know VERY few of the type of 'progressives' you mention but do know more than a few conservatives with 'Drive 90 freeze a New York Liberal' bumper sticker. Are either stereotypes typical of the whole? I doubt it.

[gordon]

"How to change behaviour, that's the hard part". SUV manufacturers managed to change Govt. behaviour when they got SUVs exempted from fuel efficiency standards. Toyota must be changing quite a bit of behaviour to sell efficient 4-cylinder sedans in the US market. And I remember the behaviour changes involved both in selling tailfins (in the late 1950s) and then in not selling tailfins (in the later 1960s). And of course European behaviour (as Scaroni says) has, except in the Rolls-Royce and Ferrari end of the market, always been different. I doubt whether this reflects any profound genetic difference between Americans and Europeans, though of course it does reflect differences in attitudes to public transport and long-distance travel.

I sometimes wonder whether the SUV craze is really the result of the wind tunnel's dominance of styling over the last decade or two. Most cars in the US, I would guess, spend most of their time moving slowly through congested city streets where aerodynamic design provides few efficiency benefits but does mean that the driver is quite low to the ground. Many drivers, however, want to sit up high, where they feel safer and can see better. A non-aerodynamic SUV allows this. Maybe one avenue to behaviour change would be to abandon the wind tunnel and design a smaller car with a high seat, near-vertical windscreen and good all-round visibility. It would lose efficency at high speeds, but how important is that in the lifetime fuel efficiency of the car?

[realpc]

"Many office building have windows that don't open, and air has to be circulated artificially to keep the building inhabitable."

Yeah that's insane also. And they continue building them that way. Why????

[calmo]

Mark summarizes

The answer given here is that the costs should fall mainly on Americans who drive SUVs from their temperature controlled homes to air conditioned restaurants.

on an article that does not reference those stone age days when 55 mph speed limits instead of tax exemptions for SUVs were government responses.
So this remark

But how to change behavior, that's the hard part.

suggests that representative government is representing oil interests and not ordinary people breathing ordinary air.
And that ordinary air --including information and commercials, doesn't include pieces like this.
It is no surprise that this article comes from the UK.

[dryfly]

Why????

For large office buildings there are multiple reasons:

(1) Security. Don't want people dropping stuff out of open windows. A coffee cup at forty stories does about as much damage to a head as does a shotgun at close range. Most large buildings don't give access to their roofs anymore either - only authorized personnel... and hope they don't crack up.

And of course there is the risk of suicides - but there are lots of ways to do that. But if the windows don't open at least they won't jump there and land on somebody else.

(2) Tall buildings have great difficulty getting airflow right. Open windows make it FAR more difficult. They can literally suck stuff right out. Plus most large buildings (I believe) have positive air pressure - open windows defeat that.

(3) Fire prevention. Open windows allow air (or fire) to flow up elevator shafts & stair wells like a chimney's draft - making containment much more difficult. Keeping the buildings closed puts those close to the fire at higher risk but slows the fire spread sufficiently that most others might be saved... open windows would allow fire to race from floor to floor rapidly.

Remember the wind at 10, 20, 50 floors up - especially in urban areas where other tall buildings are - is VERY different than we sense on the ground.

Still there are many ways office buildings could be made more efficient vis-avis ambient outside conditions similar to IF they had open windows - things like air-to-air heat exchangers. It would also reduce sick building syndrome - assuming the air is cleaner outside. I've been in cities where I doubt that.

The single best way to save energy though is through proper 'sun light management'... high e glass & well insulated multi-pane panels. Pretty much the norm now.

That and keep the buildings lower to the ground & smaller so they don't have all those air flow issues. Easy to do in the sprawl outside Oklahoma City... not so easy in Manhattan.

It's not 'all insane'.

[calmo no hobo]

dryfly, what about Chicago?
(But do I want to get into corporate assertion and erectility? Not at my age.)
My impression is that you cover more miles in a month than I do in a decade. So I'm wondering about that preference for buildings and not vehicles when it comes to energy consumption.
Do I need to revise my view that the lion's share of energy consumption is embedded in our insistence on driving the damn car and making it clear that we are no bus-riding hobo with serious erectility deficiencies?

[Movie Guy]

cm - "Air conditioning is in good part a consequence of what the building stock looks like. Many office building have windows that don't open, and air has to be circulated artificially to keep the building inhabitable. Lack of windows or unfavorable layout requires lighting even during the daytime."

Good points.

[Movie Guy]

I was offered an opportunity to take a short trip in a future design full size SUV recently - 28-30 mpg on the highway; 19-22 mpg city. I checked both measurements myself, and I was running over 80 mph on most of the 121-mile highway portion of the trip.

It should hit the market in early 2008.

Perhaps some of you who hate SUVs should start attacking all passenger cars that aren't averaging 30 mpg on the highway or 22 mpg in the city.

[cm]

MG: Thanks. Re your future SUV, it will still block out my view when in front of me on the road, compelling me to fall back and "invite" other SUVs from neighboring lanes to jump in.

[cm]

dryfly: I'm hardly seeing office building with more than 2-3 stories hereabouts. That should mostly remove the high-altitude wind argument, but security/safety is still there.

Other things I can think of are:

* nonmovable windows are cheaper in installation/maintenance (and can be made larger/heavier), and A/C is a nonoptional cost "anyway",

* rain can enter the building and damage assets through windows left open, necessitating daily patrols of Facilities staff to close windows when rain can be expected (or reliance on employee discipline).

[reason]

cm...
Or the windows could be automatically centrally closed. I worked in a building like that here in Frankfurt.

gordon Maybe one avenue to behaviour change would be to abandon the wind tunnel and design a smaller car with a high seat, near-vertical windscreen and good all-round visibility.

It's called the Mercedes A-Class. (Lots of imitators already).

[a]

"Many drivers, however, want to sit up high, where they feel safer and can see better. A non-aerodynamic SUV allows this."

Isn't this actually one of the problems caused by SUVs? A person who buys a SUV does become safer - he sees better - but only at the expense of people who stay in their smaller cars, who now see worse. Everyone in small cars, or everyone in SUVS - it's the same safety for everyone. But given that people get to choose, those who can afford to are pretty much obliged to choose SUVs because other people have other SUVs.

(Mind you, I don't own a SUV and rarely use a car. But I live in Paris, so the public transport is excellent.)

Anyway the solution to the oil problem is pretty obvious: Americans need a huge gas/petroleum tax, where the money is earmarked for research and the defense department (got to keep the oil coming...)

[anne]

"Americans need a huge gas/petroleum tax...."

Phooey, and happily impossible. What we need is to continually be pushing business on energy efficiency measures.

[spencer]

Question?

If we are really at peak oil why did the real price of oil only go to about $78 this time versus $100 --in 2005 prices --at the 1980 peak?

[reason]

Anne,
why are you so against petrol taxes? They make sense elsewhere. They encourage conservation and as a side benefit clean up the air. The total cost of mobility may not increase for most people (because they will use smaller more efficient cars). If you want to cut down on the use of something - increase the price.

[anne]

Though I am entirely in favor of efficiency and conservation and development of alternative energy sources, we are a country that has come to rely especially on driving. Though I can walk to work most cannot, and for many who cannot a gasoline tax that would matter would be a significant expense. Such a tax would be regressive, without much tax complexity. There is no reason I can find that industry has not long been pushed harder on efficiency and conservation and developing energy source alternatives. So, go back to the years of Jimmy Carter and push industry.

[Scott Ferguson]

"I don't use AC & it's typically 80-90 degF here all summer. The only room we air condition is my 'office' since the machines crash when it goes much over 90."

Here in Dixie an 80-90 degree day is down right Autumnal (we're expecting 80 degress on Wednesday). Much of the growth in this country has occured in the so-called Sunbelt over the last couple of decades. Atlanta, Dallas, Orlando - these are places where summers can be downright brutal. Think 90/90 - that's temperature and humidity. I had a German Math professor who commented on the fact that Atlanta is near the lattitude of Morocco.

Perhaps we in the South could adopt a nice siesta during the worst parts of the day. The range of behavior modifications is much broader than merely buying a Prius.

BTW, "... a wood stove"? Nice for a niche market but truly impractical on a large scale.

[reason]

But Anne that is easy to fix, just add a flat tax rebate to the package.

[cm]

Scott: In Spain they are taking shots at abolishing the siesta. It's in the way of "prosperity".

[cm]

reason: That's right, at a cost. Perhaps less than paying wages/benefits for more Facilities workers though.

[cm]

Also, electric window shutters may not be as reliable in the US as a guard making their round, with the rate of power outages we observe here ... he he. :-)

[t11]

Hi Scott

It also takes time to change the housing and vehicle stock. Many small changes are required - for example planting more trees, minor changes to urban design, etc.. Building effective transit systems that work will also take time.

Just a note comparing heating and cooling - air condiitoning is inherently less efficient than heating, and heating is a basic need while air conditioning is a luxury. To make the point, if you drive by a person with a broken down car on a lonely road at -30 it is manslaughter. Maybe long term developemnt patterns need to change?

Again, nothing will happen overnight but the first step is admitting a problem.

[Wimpy]

Scott makes a good point about our population migrating to the South and Southwest. Without air conditioning these areas would be essentially uninhabitable for many homeowners and office workers alike.

As for the gas tax, perhaps we should institute a gas tax in urban areas possessing sophisticated transit systems while leaving those in the suburbs and rural areas free to drive (relatively) cheaply.

[calmo]

spencer raises a good question (Ok, you're right: "better". Better than following this gas tax chat digression/diversion/distraction).
Mr Numbers says things don't add up if we assume oil prices are done climbing and we assume Hubert's Peak (not the mountain) is legit.
So is this just a pause in the oil prices or has the peak been postponed?
Is the 1980 reference a good benchmark given available/reliable supply and reliable/committed/intransigent demand then or have we become much more flexible and resilient (to use Greenspeak) and capable of absorbing any price/volume volatility?

[anne]

The issue I have been puzzled about for several years, is what are raw production costs for oil and natural gas. I suspect, but surely do not know, these costs have been strikingly low relative to delivered prices. I find market movements puzzling entirely apart from the matter of reserves and production capacity, and "peak production" papers have not yet been convincing.

[t11]

Dryfly - most of your heating cooling load is outside air - sealed buildings are more energy efficient but have other problems. Opening the windows might work in Frankfurt cm, but not in Houston. Remember a big part the reason for mechanicl cooling is humidity control.

[t11]

Anne - what is the relavance of knowing the raw production cost? What will this tell us?

There is great difficulty in determining these numbers as it becomes an exercise in accounting definitions. Some of this information, the useful stuff, is rightfully proprietary, but gross numbers can be worked out from annual reports. This is the type of stuff Wall Street Analysts grind out for investment purposes.

[anne]

Estimating extraction and production costs for fuels, and estimating these costs considerably lower than delivery costs, has had everything to do with making sound investment decisions since 1998-1999 or through this price cycle. But, for public policy, from the supposed California energy crisis on to a focus on generally rising and relatively high energy prices, having a sense of basic costs is immensely helpful.

California state energy contractors and consumers were penalized many billions of dollars in not having a sense of basic energy costs, and knowing they were far lower than selected analysts and the general media asserted.

[anne]

Berkshire Hathaway has been right on basic energy costs since 1998, and a reasonable number of analysts know enough to closely follow and discuss a Berkshire Hathaway perspective frequently ignoring what is most heard from prime Wall Street sources.

[anne]

Another reason I have little regard for the gasoline taxers, and a gasoline tax would have to be rough indeed to make a significant difference, is the notion that we need to be made to suffer for our sins. When Thomas Friedman or Andrew Samwick preach to me about gasoline taxes, I tell either to pay attention to Iraq and drive all the more just for spite.

[No Dartmouth economist was harmed in making this comments, though ruffled a little I hope.]

[anne]

Increasingly, New York and Chicago developers are building from an environmentally friendly perspective. I wish there was more of a zoning push for such construction, but selected results I have been taken to are impressive.

[elvis]

I live in Japan, where the average citizen uses half the energy of the average American. Everytime I visit family in Detroit, I think, "This is the most insane lifestyle." It's comfortable, but simply insane. We enjoy a great lifestyle here in Japan--and at HALF the energy. Americans are in serious, pathological denial.

I like most of anne's comments, but energy is just too cheap in the USA. The continued investment in the American lifestyle is a mistake. Market forces won't fix this--until there is no other choice. For proof, just look around. Why has the US developed the way it has? Pioneer spirit or plenty of cheap gas? Also, anne, gas needs to be taxed because transportation uses 75% of oil. Any attempt at reducing oil vulnerability needs to address our transport system.

Our family of four in Japan has 1 late model car that is pretty efficient but not a pricey or futuristic hybrid. We fill it up about once a month. I bicycle to work mostly--and am in excellent health because of it. Kids walk to school. We use our car for fun and groceries.

movie guy pointed out the good points of how buildings are constructed that lock them into a high energy future.

The low-hanging fruit needs to be picked. Solar water heaters, co-generation systems (there's a great one comming out in Britain this year using a Stirling engine to heat water and generate electricity) and fuel efficient cars/mass transit.

Here are a few suggestions for the current Administration which seems to lack ideas:

Tax gas and end the payroll tax.
Put Detroit back to work with a Liberty Car (as in the Liberty Ships). A car that gets great mileage and would be offered as trade-ins. Trade in your SUV or rust-bucket and get a fuel-efficient vehicle in return [which also employs Americans in desperate need]. The turned in cars could be scrapped by more Americans in need of employment.

Tax the use of high ways, and use the revenue to provide free mass transit. Don't feel like paying to use the highway? Then park and ride for free.

The time to act was 30 years ago. We can't change the past. The longer we wait, the more dramatic the changes will be required. The world needs an America that wakes up to larger realities. People and comedians _know_ that the Iraq thing is about oil. The whole Middle East thing is about oil. We've know for a long time. But we don't act--because action is painful and politically problematic. It's so much easier to whip up a little fear and anger and send in troops than to raise the tax on gas.

[cm]

Taxation works only to the extent the tax cost cannot be "handed down" to the buyers of your products/services, or to whoever supplies you income. In an economy where essentially everybody has to eat resource taxes, everybody can figure them into their price structure as well, resulting in a largely diluted "incidence" of the tax. E.g. the gas taxes incurred on account of producing and distributing food will be paid by the people who finally have no choice but to buy the food. They can substitute from one food to another, but not away from the tax hand-down.

The only thing that helps is regulation. Legal mandates cannot be handed down. Resulting costs still can, but the subject matter of the mandate sticks (if the legislation is written well enough).

[elvis]

anne, sorry to pick on you, since I usually enjoy your posts. However...

>extraction and production costs for fuels, and estimating these costs considerably lower than delivery costs

You _aren't_ going to include the costs of protecting our supplies?
http://www.ilsr.org/carbo/costs/truecosts2.html
[these are 1996 numbers]

>Another reason I have little regard for the gasoline taxers, and a gasoline tax would have to be rough indeed to make a significant difference, is the notion that we need to be made to suffer for our sins. When Thomas Friedman or Andrew Samwick preach to me about gasoline taxes, I tell either to pay attention to Iraq and drive all the more just for spite.

Have you been reading Alfie Kohn?
http://www.alfiekohn.org/index.html
He also says rewards/punishments don't work. I agree with him in a lot of matters, but... higher taxes on gas work to reduce usage. Look at Europe and Japan.

We will "suffer for our sins" no matter. If we drive to much and don't walk, our health will suffer. If we mindlessly burn oil to get to shopping malls, our planet will suffer.

We can't escape suffering. That's life. We can manage it, though. That's politics.

[ninjaplease]

"Perhaps some of you who hate SUVs should start attacking all passenger cars that aren't averaging 30 mpg on the highway or 22 mpg in the city."

Do some checking... it's a short list for cars made after 1991.

The only cars that get poorer mileage than that (30mpg hwy) have 500 horsepower, the GTO from 2005/6 for example.

The SUV craze is a security blanket: in these insecure times, terrorism on the news, jobs being offshored, wages fairly flat, housing prices influx (reportedly,) nothing makes you feel safer than driving a large vehicle, even though inertia belies any safety. F still equals m(a).

As far as reducing energy consumption, the irony is that there is an economic incentive (you spend less money on bills.) People don't always act rationally.. But if you want real fuel economy, buy a motorcycle, crotch rockets can get 80mpg on the highway, and take you up to 200mph, you know for those times when you come across a band of "have nots" that you created with your economic theories that got you an award and were implemented with our current administration and tax/tariff incentives to keep corporate entities offshore, and must escape.

[calmo]

I knew it! "ninja" as in motorcycle and not turtle...
Ok crotch rocketer

Do some checking... it's a short list for cars [getting >30mpg] made after 1991.

Do you, mighty-fast fact checker, figure those mustangs, corvettes et al actually do get the 30 mpg mileage claimed in the (usually very small) print (for those rare ninnies who are interested in the economical 6 cylinder) for these gas guzzlers or is it more important that the 500 hp figure or 0-100mph ETs are in your face?
Thank you elvis for your enlightened international perspective.
We will catch up to you. We must.

[reason]

cm, Anne
I think to avoid any confusion here we should stop confusing separate issues here. So a couple of quick points to clarify things.
1. Taxes can be used to internalise externalities. Economists like this solution (as against regulation) because it acchieves the desired effect in the most efficient manner.
2. Taxes also have a variable incidence effecting income distribution. In this case, the tax system should be seen as a whole and desired income distribution set by political bargaining. Unfortunately, it the US it is now considered taboo to talk about redistribution, even re-redistribution as it were.

To complain about point 1, because of point 2 is to my way of thinking mixing two separate issues.

[Ninjaplease]

Calmo

The corvette engine is one of the most refined, powerful and efficient engines produced today, if not THE MOST (at least of the mass produced ones.) GM's LS-2 engine is now used in the Z06 corvettes (the ones for sale today.) They do get something like 33mpg on the highway and still have an amazing zero-60 acceleration.

I don't know the building codes in China, or how well they're enforced, but I would imagine that any country with a good amount of blackouts (I've heard that in south China the government only provides electricity 2 days a week, factories must generate electricity for the other 5 days) would enforce fairly strict energy efficiency standards.

If our government is serious about having the median family becoming more energy efficient, it ought to enact far more tax incentives and rebates for solar roofing + air conditioning systems, those argon gas injected double paned windows installed by someone who knows what the hell they're doing, and it ought to pay for a free home efficiency rating where an HVAC guy will visit your home and evaluate all the heating/cooling leaks and give you a shopping list of energy efficient things you can do to reduce energy waste, like using the correct insulation and insulation type for your area in attics outer walls and basements. The US government pays for some of this---in NJ governor Cody (the guy who filled in for the rest of McGreevy's term) enacted somekind of rebate for about 6months to 1 year where compact fluorescent lighting was dropped to about $1 per bulb instead of its initial like $5 per bulb when they first came out.

[calmo]

How can I slow Nija down people? Do we want the 500 hp because it's so efficient or because we justliketogofast? Why not cut the sucker in half and brag up the 66mpg?

[reason]

I was warned against argon filled windows because the argon leaks. And then I wonder how much energy it takes to win pure(ish) argon in the first place. But I still don't doubt that it is possible to build a much more efficient home that what most most people currently have, and for not that much extra investment. As I've mentioned before, the cost of building codes tends in expensive cities to be reflected in the cost of land. Maybe Boston and New York should take the lead.

[cm]

reason: My point was precisely that a "pass through" tax will "hit" the final entity who cannot pass it through anymore, not the entity on which it is nominally imposed, hence it will not be internalized where intended. That of course requires thata there be price leverage, which is a function of the competitive situation and how discretionary the sold good is (and whether the final customers still have money in their pockets). That has nothing to do with redistribution via taxes.

Perhaps CAFE standards are a good example. They don't mandate fuel efficiency on particular models, but across the fleet. That enables consumer choice, and gas prices can then drive how the choice is made. But without the mandate fuel-efficient models may not exist.

[johnchx]

cm wrote:

Taxation works only to the extent the tax cost cannot be "handed down" to the buyers of your products/services, or to whoever supplies you income.

This isn't exactly true. Taxing an input confers a competitive advantage on firms whose technologies use relatively less of that input. Other firms have an incentive to shift into those technologies. The end result is that suppliers wind up using less of the taxed input.

Consider the food example. A gas tax increase could raise the price of food hauled over long distances compared with local produce. Retailers and restaurants can increase profits by shifting some of their purchases from distant to local produce. Some foodstuffs have no local sources of supply, of course; these will become more expensive relative to those that do have local supply. Restaurant-owners can increase profits by shifting the mix of ingredients in their products, and by changing the product mix. Grocery consumers may be expected shift their purchasing mix as well.

Note that none of this assumes that sellers have to pay the tax increase. This is because, if they can pass on the tax increase to their customers, they can increase profits by (a) raising their prices "as if" they were passing on the tax increase and (b) economizing in production anyway.

[piglet]

"Though I am entirely in favor of efficiency and conservation and development of alternative energy sources, we are a country that has come to rely especially on driving. Though I can walk to work most cannot, and for many who cannot a gasoline tax that would matter would be a significant expense. Such a tax would be regressive, without much tax complexity."

That is undeniable, anne, but... what do you think European energy habits would look like if their energy prizes were as low as in North America, thanks to almost no fuel taxes? You guessed it, they would be driving SUVs like Americans. European energy prizes are two to three times higher, and consumption is two to three times lower, than in North America. Forcing higher standards on car manufacturers is good as far as it goes, but improving SUVs to get 25mpg is NOT going to solve our problems as long as Americans don't see the point of reducing their gas consumption.

[piglet]

I agree that a gas tax increase is politically impossible right now but still it is what we need. The revenue from the tax would have to be invested in energy efficiency, and it must be enough to give it a real boost: public transport, bicycle trails, countering urban sprawl, maybe promoting hybrid or electric technology. Some of it might have to be given back to low-income car users. Of course the proposed investments will need time to bear fruit. But without energy prizes going up, people will never change their habits. With increasing demand pressure, prizes will, of course, go up anyway and sooner or later, the cost of owning a car will become prohibitive for a large portion of the population. But they will still have no alternative because the necessary investments in public transport etc. won't have been made. This is the scenario that I worry most about. You can go on resisting fuel taxes, only to see more and more of your income disappear to Saudi-Arabia and Iran, instead of seeing it invested in useful infrastructure at home. The problem is that even the dramatic increase in gas prizes that we have seen since Bush took office doesn't automatically change people's habits. *That is because they keep believing that those increases are only temporary.* What we need is a government saying: "The party is over. Cheap energy is a thing of the past. Let's get used to it, and let's build the infrastructure that allows us to maintain our living standard while using much less energy."

[cm]

johnchx: Of course. Most everything is a matter of proportion, not yes/no. Tax pass-through will only be partial, and long-distance varieties will merely be affected more than the local ones, giving local producers relatively more price leverage. When the price of long-distance products goes up, local varieties will be sought after more, but it's more likely than not local vendors will try to benefit from it by hiking their prices somewhat. If not the vendor, then your store management will try to arbitrage.

[Dirk van Dijk]

Here is a rough proposal: Institute a variable tax such that the price of a gallon of gas stays fixed at a certian level, say $3.50 a gallon. As the price of oil moves up, the tax would fall and vice versa. That would provide certianty to drivers, and they could make their long term decisions, such as what sort of car to buy, based on that. Deciding where to live, out in the exurbs or close in where decent public transport is availible would be another example. Offset the regressive effect by eleiminating the SS tax on the 1st $10,000 of income and remove the upper limit on SS taxes, which is currently scheduled to be $97,000.

[reason]

Dirk,
not bad but I think that fixed gas price will prove too low long term. Question - will you tax domestic and foreign oil differently (as was done in Australia)? Or have you some other plan to cut down on windfall gains on oil leases?

[piglet]

Dirk, I have thought about the same idea. Only I think that the price should rise at a steady pace to give energy consumers a real incentive to think and invest long term.
However I suspect trying to fix the gas price wouldn't work. I remember Krugman once argued that if taxes were lowered to offset rising crude prices, the price at the pump would stay the same and the petrol companies would just make more profit. Anybody got any ideas about this problem?