Raise Gas Taxes NOW...(or, Justifying Demand Destruction)
Posted by Prof. Goose on June 19, 2005 - 12:17am
The chart below presents inflationdata.com yearly average data, plotted on a logarithmic scale. This unit of time flattens out the spikes in prices, which is probably a more valid measure of sustained price.
The blue line in the graph is the raw price, the pink line is the inflation adjusted price.
As was suggested in the comments in the post below (where you will find an interesting discussion of gas taxation and whether or not it is regressive), this kind of a plot does have a more interesting story to tell.
The data tell us that the price of oil averaged $51/bbl in 2005, whereas oil averaged $66.20/bbl in 1981, adjusted for inflation.
It is interesting that we think of the shock in 1979 as being the time of the highest prices (at least I did). However, prices were much higher in 1981 than 1979 (according to the data available at inflationdata.com).
An interesting history lesson I found at a site on the history of oil prices: events in Iran and Iraq led to another round of crude oil price increases in 1979 and 1980. The Iranian revolution resulted in the loss of 2 to 2.5 million barrels of oil per day between November of 1978 and June of 1979. In 1980 Iraq's crude oil production fell 2.7MMBPD and Iran's production by 600,000 barrels per day during the Iran/Iraq War. The combination of these two events resulted in crude oil prices more than doubling from $14 in 1978 to $35 per barrel in 1981.
That means, by this way of looking at the data, we're not actually at 63% of the 1981 high in 2005 as I discussed in an earlier post.
Instead, with this more valid data, we're at 76% of the 1981 price!
That means the call for alarm should be even greater than it was in my earlier post.
The data tell the story. Find some method of demand destruction. Now.
What we do with that 24% difference and when we do it is going to be one of the crucial public policy decisions of the coming generation. And the time to make that decision is not far in the future.
Now, granted, I was but a mere pup in 1979...but I do remember President Carter in his sweater. I remember my parents bitching profusely about gas prices (what were they, 50c a gallon?). I remember the lines of cars on television every night. It wasn't pretty. People were losing jobs left and right. It wasn't Bladerunner, but it wasn't pretty either.
The real conundrum, in my opinion, is how to destroy demand so as to come in for a soft landing, even if we are heading towards a 1979 to the googol (ed: not google the search engine, and googol is the correct spelling as I just learned in the comments) power. (no pun intended, I assure you.)
I advocate taxing gasoline now. Abruptly. Quickly. Severely. Better to bend the shit out of the economy now than completely break it later.
If we were to somehow organize and convince Congress that a $1/gal tax on gas now would make their political futures brighter than the alternative. I maintain that's the first rational course of action as I've said in many posts on this blog.
The first step to convincing anyone in elected office is demonstrating that there is a problem that, if not solved by them, will hurt them politically. If politicians can ignore something, they will, because it is politically expedient for them to do so.
The second step is finding politicians that actually think oil policy is in their purview (it is, from the conversations I have had thus far considered a "private and corporate" matter, not one for the public sector to regulate...and THIS is going to be a real problem if that mindset does not change...).
Remember, politicians, if they are anything, they are the ultimate in rational actors. That's why I have spent so much time talking about the tragedy of the commons and the governing of the commons.
As I said in the comments a few posts back...that's why politicians will wait to build the wolf trap until the wolf is at the door. The problem is that the stuff to make the wolf trap is out in the workshed.
We all know admitting that there is a problem is step one of twelve, the first step on a journey, yadda yadda.
This may be more difficult than it seems, especially for politicians (and that's from both parties...), as I'll illustrate when I discuss my (mis)adventures with my elected officials over the next week.
Go to the postings for today
Technorati Tags: peak oil, oil
The blue line in the graph is the raw price, the pink line is the inflation adjusted price.
As was suggested in the comments in the post below (where you will find an interesting discussion of gas taxation and whether or not it is regressive), this kind of a plot does have a more interesting story to tell.
The data tell us that the price of oil averaged $51/bbl in 2005, whereas oil averaged $66.20/bbl in 1981, adjusted for inflation.
It is interesting that we think of the shock in 1979 as being the time of the highest prices (at least I did). However, prices were much higher in 1981 than 1979 (according to the data available at inflationdata.com).
An interesting history lesson I found at a site on the history of oil prices: events in Iran and Iraq led to another round of crude oil price increases in 1979 and 1980. The Iranian revolution resulted in the loss of 2 to 2.5 million barrels of oil per day between November of 1978 and June of 1979. In 1980 Iraq's crude oil production fell 2.7MMBPD and Iran's production by 600,000 barrels per day during the Iran/Iraq War. The combination of these two events resulted in crude oil prices more than doubling from $14 in 1978 to $35 per barrel in 1981.
That means, by this way of looking at the data, we're not actually at 63% of the 1981 high in 2005 as I discussed in an earlier post.
Instead, with this more valid data, we're at 76% of the 1981 price!
That means the call for alarm should be even greater than it was in my earlier post.
The data tell the story. Find some method of demand destruction. Now.
What we do with that 24% difference and when we do it is going to be one of the crucial public policy decisions of the coming generation. And the time to make that decision is not far in the future.
Now, granted, I was but a mere pup in 1979...but I do remember President Carter in his sweater. I remember my parents bitching profusely about gas prices (what were they, 50c a gallon?). I remember the lines of cars on television every night. It wasn't pretty. People were losing jobs left and right. It wasn't Bladerunner, but it wasn't pretty either.
The real conundrum, in my opinion, is how to destroy demand so as to come in for a soft landing, even if we are heading towards a 1979 to the googol (ed: not google the search engine, and googol is the correct spelling as I just learned in the comments) power. (no pun intended, I assure you.)
I advocate taxing gasoline now. Abruptly. Quickly. Severely. Better to bend the shit out of the economy now than completely break it later.
If we were to somehow organize and convince Congress that a $1/gal tax on gas now would make their political futures brighter than the alternative. I maintain that's the first rational course of action as I've said in many posts on this blog.
The first step to convincing anyone in elected office is demonstrating that there is a problem that, if not solved by them, will hurt them politically. If politicians can ignore something, they will, because it is politically expedient for them to do so.
The second step is finding politicians that actually think oil policy is in their purview (it is, from the conversations I have had thus far considered a "private and corporate" matter, not one for the public sector to regulate...and THIS is going to be a real problem if that mindset does not change...).
Remember, politicians, if they are anything, they are the ultimate in rational actors. That's why I have spent so much time talking about the tragedy of the commons and the governing of the commons.
As I said in the comments a few posts back...that's why politicians will wait to build the wolf trap until the wolf is at the door. The problem is that the stuff to make the wolf trap is out in the workshed.
We all know admitting that there is a problem is step one of twelve, the first step on a journey, yadda yadda.
This may be more difficult than it seems, especially for politicians (and that's from both parties...), as I'll illustrate when I discuss my (mis)adventures with my elected officials over the next week.
Go to the postings for today
Technorati Tags: peak oil, oil
“The infrastructure of suburbia can be described as the greatest misallocation of resources in the history of the world.”
—JH Kunstler
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PG -
Thanks for the work in doing the graph.
A very depressing tale it tells - a sad future it foretells.
And on top of that I'm reading Simmons this weekend....
Reading my copy of Simmons, too.
Something funny about the "inflation adjusted oil price chart"... The folks that typically haul it out trying to show that oil prices really are not that high are the same folks saying that inflation is generally well contained. But you can't make both claims simultaneously. Either (general) inflation is contained and energy is expensive, or energy is cheap and the price of everything else is too high. But they want to have it both ways of course.
It seems that what they are REALLY saying is this: if you think energy prices are high just look at the price of everything else you pay for!
Mike
Immediate enforcement of the speed laws would cause demand to contract rapidly. Passing laws that corelated the fines to vehicle MPG in an excessively punitive way that signaled seriousness would enhance such a measure. Better yet, with photo-radar tech, officers out consuming fuel wouldn't be needed. Monbiot had an interesting idea about how to do this, http://www.monbiot.com/archives/2004/07/27/think-inside-the-box/
Demand enhancement could be had by further utilization of fryer fats for biodiesel and farm and forest biomass waste material for ethanol.
I already made what must be the #1 suggestion for demand destruction: roll back the Empire and its support structures. Even they're feeling the pinch as they've ordered several thousand minivans to replace Hummers for intrabase transport because the vans are 3X efficeint, http://money.cnn.com/2005/05/23/Autos/military_minivans/
Repeal the oil depletion allowance.
Increase CAFE to 50MPG.
Subsidize the trade-in of any vehicle getting under 20MPG for a new one getting at least double MPG.
FastTrack hybrid diesels.
But even all of the above isn't enough to solve overshoot. We have a chance of continuance if we scale back to using biofuels for powering truely needful machinery like tractors, combines, and a fleet of emergency and infrastructure repair vehicles. That reduces personal transport to what it was 100+ years ago--foot, bicycle, horse, public transport, boat. It's easy for me to see how this would succeed in the country; rather it's the megalopolii like the whole LA region of 20M+ that present the challenge because of the tremendous reliance of food security on oil. By contrast, Mumbai is likely more sustainable than NY City--isn't that a thought!
An item for discussion I've thought about is The MegaCities and the Ethics of Peak Oil. Ultimately, demand destruction connotates population reduction. The earlier thread used the metaphor of "goring" oneself. The avearge American creates ten times more overshoot than the average Indian. My paternal extended family did its part: 5 pairs produced 3 progeny instead of the 10 needed for a 1:1 replacement ratio. Now that's demand destruction.
If we are going to demand speed enforcement then heck demand trade ins for 20 mpg vehicles without giving anything. The country is just about a dictatorship as it is. Might as well go there completely. Say you get 1 year to turn em in or face $5,000-10,000 a year road tax.
Demand they Stop flying empty planes all over the place. Make them have to have a minimum number of passengers 90%.
Demand the Repeal the tax cuts #1 thing we need todo and increase them 15-30% for the top 25% as they have pretty much stolen it from the bottom 40% over the last 30 years.
I agree with completely dismantling the empire government we have. Its time for a nice boston tea party again. Do it now in an orderly fashion or when the magic number of 50% hits it will be forced on them anyways.
Instantly start charging a 25%-50% additional tax on those people using excessive amounts of energy in their homes. This would make people covert their homes to be more energy efficient.
Demand All new vechiles sold today that do not get over 35 mpg highway charge an additional tax of $10,000 per vehicle.
Demand that people stop driving alone to work. enforce car pooling or more taxes and fines for those who do not.
Anyhow there are lots of things I can come up with theat could be demanded and if things dont change some of them will happen anyways.
karlof1, JD: Even JD's less intrusive suggestions cause me to think of the movie: The Matrix. Assuming you have seen it, these suggestions are the end of the American fantasy -- oops, dream. It means taking the Red Pill. People are not ready for the "desert of the real." But then, neither am I.
I am in the process of a car trip to Washington State which we do every year for the summer. We have stopped in Breckenridge, CO for a week and then on to Estes Park, Yosemite Nat'l Park, and then to Washington up the California coast. I have found myself looking watching this upscale town preparing only for better times. Breckenridge can only exist in all its wealth only because of lots of cheap oil bringing in rich tourists.
We took a brief trip around to Leadville to visit some friends who are able to live there by the use of the internet. They are not rich but have been able to afford an inexpensive home. They told us how almost everybody in this town drives many miles to Vail, etc. for their work because the local economy is in the toilet after the Climax molydenum mine was closed. This town is located in a high altitude desert. We talked about Peak Oil a little--the concern in their is there, but they have a great spirit of optimism. Leadville can only exist by lots of cheap oil.
These towns were started by a VERY intrusive mining industry and only continue to exist by tourist industry.
Tomorrow we climb back into our rusting Subaru and head North. It is also obvious to me that this annual trip will soon come to an end. How soon? Time will tell--I suspect it will be within five years. As much as I might want to fantasize that I am one of those who has "taken the Red Pill," I would have to admit that I have not. I love to hike; I love to travel. I don't want to stay put and tend (and guard) a garden which will provide a lot of my food. Coming off the The Matrix will be the worst part. I know that taking this pill will never be voluntary. It will be more like having a suppository inserted up my rectum -- a very big suppository.
My version of the American fantasy does not require the new car, the big house, etc. Just let me travel to great places so I can hike and cross-country ski. Even though I can convince myself that I am not like those other people who live in clueless bliss jacked into the Matrix, it is not true. I am not ready for "the desert of the real."
The problem with biofuels and biodiesel is the whole land issue. The world currently uses 85Mb/d of crude oil. 1 b/d equals 50T/yr (see http://www.eppo.go.th/ref/UNIT-OIL.html ) which equals 4.25B T/yr of crude oil. Today, the most efficient oil producing plant, the West African Palm produces 7T of oil per hectare of land/yr. That means we require 607M ha of land to produce this oil. Total world arable land is 1400M ha, of which 17% is irrigated. Ref: http://www.cnie.org/pop/conserving/landuse.htm So we would be using 43% of arable land to feed our oil habit. Without a huge demand destruction, bio fuels are just not feasible.
My guess is that we would be lucky if we could divert 5% of our arable land to energy production, leave alone 43%. Of course, this leaves aside the question that the West African Palm can only be grown in certain areas, and leaves aside the energy needs and conversion efficiencies to convert to usable fuel.
On West African Palm oil -- It takes 6 years to reach first production. The life of a palm tree is 15 years.See: http://www.adas-buka.de/palmoel.htm A Mature estate produces 3-4 T per ha See http://www.godrejagrovet.com/oilpalm.htm# So the actual yields will probably be less than what I used in calculation of the previous post. Comparision oil yields Soy 0.6T/ha coconut yields 1200-1500 Kg, ground nut 500 - 800 Kg, and Sunflower 600 Kg per ha annually
Also, just for reference, 1 Tonne is 1000Kg
Re: "the most efficient oil producing plant, the West African Palm" ...
How about sugar cane, converted to ethanol? I just read that Brazil now supplies 40% of its vehicular fuel requirements with ethanol, and that Volkswagon supplies cars that can run on any combination of ethanol and gasoline (in two separate tanks).
I have not been able to find any details about energy inputs (fertilizer, cultivation, harvesting, conversion) to this process, except that part of the waste from the process is used for fertilizer.
Rajiv, I'd like to get your email address because I am interested in such calculations with reference to both palm oil and sugar cane. If you'd like to discuss further, please email me (ralph.dratman@gmail.com).
With respect to the smoothed inflation-adjusted prices, I'm not certain I follow Professor Goose's train of thought. Is your key point that smoothing out the spikes brings the current inflation-adjusted price to closer to the past maximum?
If that's the case, shouldn't one use some sort of weighted average in which the volume traded (depth of market, so to speak) at a given price constitutes the weight for each term in the average? Equivalently, divide total money transfers during a given period by total oil transfers during the same period to get an average price. That would more closely track the economic impact of such high prices, I think. Perhaps only a few (million) barrels changed hands at the highest prices.
But maybe such detailed information is not available.
Ralph: remember, the $51/bbl for 2005 doesn't have to be adjusted for inflation...yet.
So, yes, using the year-on-year inflation-adjusted data cautions us to not use the ONE DAY SPIKE when oil prices were at $95/bbl in 1981 as the "maximum" (as we shouldn't, in my opinion).
It's more important that prices averaged around $66.20/bbl and the economy was in quite bad shape...and here we are at $51/bbl and everyone's saying things are just fine.
Your point about the weighted average on volume...I will check into that, an interesting idea. Might get to the point about price not actually destroying demand, eh?
Can anyone here remember if, in that period ('79-'81) demand overcame supply? Because if so, a graph like that really doesn't matter...so looking at the consumption numbers wouldn't matter, because they would max out at the supply number.
Interesting idea.
Well Ralph, you cannot compare Brazil to US. Brazil has 1 car for every 12 people. annd each car is driven far fewer miles than a car is driven in the US. See http://www.fhwa.dot.gov/ohim/onh00/bar4.htm You can use Mexico as a surrogate for Brazil. Though I belive that automobile use is higher in Mexico than Brazil.
Also from classes.maxwell.syr.edu/ppa777/problems/climsim.pdf
United States:
Energy use: The United States is both the worlds largest energy consumer and producer. Total energy consumption in 2003 was 98.1 quadrillion Btu, or 25% of the worlds total. Per capita energy consumption was 338 million Btu. The strong economic performance of the United States during the 1990s helped to increase energy usage. Industry consumed 33% of the U.S. energy, with transportation at 27%
In 2002, Brazilians consumed 8.6 quadrillion Btu of energy. This was 2.2% of the world total. Per capita consumption was 48.7 million Btu. 51% of energy consumption is from oil, hydroelectric provides 33%, coal 5%, natural gas 5%, other renewables 2%, and nuclear power provides 2% of energy consumed in Brazil.
Since, renewables accounted for only 2% of energy consumption in 2002, I can only conclude that transportation uses only about 5-6% of Brazil's energy consumption, compared to 27% for the US. Also note that percapita energy consumption in the US was 338M btu compared to Brazilian per capita consumption of 48.7M btu
Rajiv--I am very aware of the acerage/biofuels problem, which is why I only suggest powering truely needful machinery.
YS--I too like to travel to see the marvels of the North American landscape. It's very hard to face the end of the "Age of Exuberance" and behave in accordance with its dictates, but the second generation from now won't have any choice.
Karlof, Ralph,
Perhaps a better technology than ethanol and biodiesel, is one of recycling polluting organic waste using thermodepolymerization. I believe that the economics of the technology are much better than ethanol or bidiesel (probably on par with tar sands, and better than oil shale)
Links:
http://www.whizkid.com/thoughts/thermo.html
http://www.technologyreview.com/articles/03/06/visualize0603.asp
http://www.changingworldtech.com/
Price of oli appears to be now over $59 (touched a high of $59.18) as of 8:30pm est
Take the red pill now and you have a choice wait until your unplugged and it could be a bigger shock. Sure most people dont want to admit that america isnt america anymore. Everyone needs to wake up from lala land and realize there are people who have been forced to take the red pill for the last 30 years.
For the past 30 years more and more people have been pushed down so that some could have more. The ones that have more are lead to believe that those who dont have more are there by choice. Needless to say thats one of americas big lies. The have mores have created such a society that only those who belong can get there and get ahead. By raising wages in those sectors which they are most likely to be in while at the same time taking it from those who have not.
If you truly take a hard look at wages and with an open mind analyze things you'll see its all about having slaves or cheap labor. The minmum wage should be twice as much as it is if the country had worked towards equality since the 70's. Imagine today -100% buying power thats what the lower 40% are faced with. If your one of the top 60% take your income and slice it in half. How would you be living today??
Anyhow its hard to even say this stuff because I know most wont even admit its true. Most of the time I feel as though I am pissing in the wind so to speak and I imagine most of the bottom feel the same way.
Go back just 25-35 years ago and a man could work hard and have a life. The house, the Car, the wife who is actually a mother to here children 24/7, put sveral kids through college, have a nice retirement, afford vacations, and still be able to have extra cash to give his family the good things in life.
Now you have two people working and in some cases the children too just to have a roof over their heads. Forget about vacations that would would put most paycheck to paycheck people over the edge. Put your children through college?? not likely they keep raising the prices to make sure that doesnt happen. Have a Wife/Mother for the family at home?? nope shes been reduced to working and barely had time to do enough around the house anymore. retirement?? ha! most of these people dont work for companies that offer 401k's, benefits, health insurance, etc..
Extra cash?? lol maybe if your lucky anough to hit the lottery ( not likely ) in most cases that would bve the couple of times a year where you get 5 weeks pay that month and that might be $200-400. Ah! but its ok they are the slaves and you know how america likes cheap labor.
To put it simply the system is broke and has been for along time. Personally I do not think they sytem can be fixed without major changes.
Fire the FED and let our own country handle our money instead of foreign banks that would be one of the biggest needed changes. Make the government be responsible for a their spending for a change. Put a stop to yearly increases in all wages until all americans have a living wage. Raise the minimum wage to the amount it should be at least $10 an hour. raising the minimum wage will not hurt the poor :) they already are doing without alot as it is. It would give them a few more choices if anything. theres a start!!
Sorry for the rant again lol I just cant help it when it comes to the economy and the government.
JD is right about "taking the red pill", but wrong about most of his conclusions and prescriptions. They aren't necessary; even if they were, people would take one look at the conclusion and reject the argument no matter HOW well-supported it was. As a logical proposition it's ill-supported, politically it's a non-starter.
Yosemite Sam: I don't see Americans standing still for anything that keeps them at home, and a lot of talent will be focused on ways to be personally mobile. All you have to do is look at developments in the labs to see ways this can shake out.
Example: Suppose oil becomes effectively unavailable. Bio-fuels are $8/gallon equivalent, and the product of all thermal depolymerization plants is fully subscribed for lubricants and chemical feedstocks. But we still have wind power at 4.2¢/kWh and dropping and solar PV from micron-thick polymorphous cells at 10¢/kWh and heading down. We have Toshiba-style Li-ion batteries at $100/kWh storage.
We put rail back down in the rights-of-way which have gone to single lines or been abandoned, and start running Bladderunner-style mixed-mode vehicles on them. This includes not just freight and passenger trains, but trucks, buses and some private vehicles. This includes motorhomes.
If you've got a motorhome which gets 10 MPG at 50 MPH and has a drivetrain that's 25% efficient, it's using about 3.37 kWh/mile or about 170 kW. If you can reduce its drag 40% by aerodynamic cleanup and running it on rails, that's 101 kW. You could do this on electricity without much difficulty.
This gives an alternate vision of the American dream: one summer evening you pull out of your driveway in your fully-stocked, fully-charged hybrid motorhome and drive to the rail terminal. After a short wait while you register your destination with the network, you pull onto a rail siding, lift the mast for the overhead brush and engage the bogie jacks; you start drawing power from the overhead and most of the weight lifts off the road tires. At this point you serve dinner and start a video for the kids.
After a wait for scheduling and blocking, your motorhome gently starts up and slips into place in a train of vehicles moving nearly nose to tail. None of them are running engines; there is the click-click of metal wheels, the hum of motors and the buzz of air conditioning fans. It gets dark; you put the kids to bed. The train cruises 50 MPH most of the night, slowing gently for termini where some vehicles drop onto their tires and slip out of line like cars going off an exit ramp. During the night your motorhome goes through a couple of "exchanges" where it splits off one line and gets onto another. The cruise control, auto-steer and network manager handle this; you don't even wake up.
7 AM, and dawn finds you 550 miles from home. You've had a good night's sleep and not burned a drop of fuel; every kWh you've used has come from wind farms and waste-to-energy plants, and it's cheap because you've been travelling at night during off-peak hours. Your cost is about what you would have paid for regular no-lead in 2004.
At 10 AM, you've covered 675 miles and you're nearing your destination. The train slows over a section where the steel is flush with pavement; you pull up your rail wheels, slide to the right and disengage the cruise control. The mast for the overhead brush folds itself against the roof. An hour of driving on back roads puts you at the campground on the lake with a quarter of the battery left, and you're fully rested. During your week at play, the panels on the roof recharge your batteries; when time comes to go home, you slide out silently as if you were never there.
This is just a mental image with some supporting numbers, but it ought to put the lie to the idea that the end of oil has to mean the end of everything.
(I got a bit of a shock just now; my own site is the fourth Google hit for "bladerunner truck rail".)
Like I said most people will never know the real truth :) keep trying at least.
I don't think you are going to convince the politicans to do anything until you convince the people that there is a problem. The lesson of Carter is instructive. He tried to show people there was a problem, and he got booted out of office for it.
There was a long article in yesterday's New York Times about oil shortages and hire gas prices, and how today, the government has less safeguards in place to deal with oil price shocks than it had in the 70s. The article said most people were taking high gas prices in stride, having beeome somewhat accustomed to them, and it alluded to peak oil and the rest, but danced around coming to terms with what peak oil entails. Meanwhile, even in reporting that people were taking high gas prices in stride for now, the article said polls showed that people were becoming more upset -- and were looking for somebody to blame.
Look in the mirror?