Wednesday, January 11, 2006

Oil Excise Tax if Oil Falls Too Low – a Good Idea

Pretty good idea if you believe in the law of supply & demand and want to encourage alternate fuels to move the United States towards energy independence. See Wall Street Journal (subscription required) The Upside of the Oil Curse by Marc Sumerlin January 10, 2006

- “The most rapid gains in energy efficiency in the U.S. took place when prices were very high.”
- “Since [1973], the amount of energy needed to produce each real dollar of GDP has fallen by 50%, a decline of 2% per year.”
- “Unfortunately, the pace of progress slowedl after prices dropped markedly in 1986.”
- “Over the last three years in Brazil, the share of new car sales that can run on high-content ethanol fuel has risen from 4% to 67%. Its sugarcane-based ethanol is priced competitively with gasoline.”
- “Until recently the futures market converged on a long-term oil price of $20 per barrel, and memories persist of the collapse of the oil price in 1998 to just $10 a barrel.”
- “Entrepreneurs don't know whether the price of oil in the next decade will justify the costs of investments they must make today in new technologies”
- “The U.S. government could approximate a guarantee by taxing oil imports (and other petroleum products) dollar for dollar when the world oil price falls below $35. In effect, the government would be picking up the hedging costs by guaranteeing a long-term "put option" on oil 40% below the current market price.”

The price per barrel of oil fell to $10 per barrel as recently as 1998 rose and then fell to $15 per barrel as recently as 2002. Alternative energy alternatives need some minimum price to encourage significant investments. We normally think of alternative energy as sonar and windmills, but it could also include clean coal and nuclear energy.


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