Climate Progress

Goldman Sachs’ Arjun N. Murti said in a May 5 report:

The possibility of $150-$200 per barrel seems increasingly likely over the next six-24 months, though predicting the ultimate peak in oil prices as well as the remaining duration of the upcycle remains a major uncertainty.

That would mean gasoline prices of $5 to $6 a gallon. Unless of course we permanently suspend the gasoline tax, in which case gasoline prices would only be $5 to $6 a gallon.

Why should we listen to Murti? Well, back in 2005, when prices averaged under $60 a barrel, he was one of the few Wall Street analysts who predicted oil could soon hit $105 a barrel — or higher if we don’t take the right actions quickly:

There will be a peak in production earlier than expected, and that post-peak decline will be more dramatic than currently assumed unless there is a sustained increase in investment in oil and gas production, greater consumer efficiency and alternative energy.

That may all seem obvious, but it has come as a big shock to Detroit, DC policymakers, truckers, and apparently most of the American public. Certainly the fundamentals of oil supply and demand have changed, probably forever, as I have repeatedly written (see below). And as Bloomberg reports, Murti is not alone

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[I write this post with some sadness. I would not have expected a major progressive politician who obviously cares about global warming to propose a gas tax holiday, which has no public benefits whatsoever, but at the same time undermines the entire rationale behind a national climate strategy that includes, as it must, a pricing mechanism for greenhouse gases. I try, however, to be as consistent as possible — and if such a proposal was cynical and hypocritical for Sen. McCain, it is equally cynical and hypocritical for Sen. Clinton. Kudos to Sen. Obama for opposing this absurd proposal — double kudos because it might cost him a few votes.

I am turning this into a multipart post to encompass my first two posts: Part 1, “McCain reveals cynicism, hypocrisy with call for summer gas-tax holiday, energy budget freeze” and Part 2, “Is the gasoline tax regressive? Part 4 will Discuss a vastly superior counter proposal from the Center for American Progress.]

The gas tax holiday proposed by McCain and Clinton is indefensible. That, of course, is why just about every independent observer has criticized it. The Washington Post (”Clinton Gas-Tax Proposal Criticized: Economists Share Obama’s View“) and, separately Huffington Post (”Expert Support For Gas Tax Holiday Appears Nonexistent“), have catalogued an impressive list of serious critiques, starting with the rather obvious point that in a demand-driven price shock, a gas tax holiday probably won’t even save consumers a penny — it will just enrich the poor, suffering oil companies:

Harvard professor N. Gregory Mankiw, who has written a best-selling textbook on economics, said what he teaches is different from what Clinton and McCain are saying about gas taxes. “What you learn in Economics 101 is that if producers can’t produce much more, when you cut the tax on that good the tax is kept . . . by the suppliers and is not passed on to consumers,” he said.

Leonard Burman, director of the Tax Policy Center of the Urban Institute and the Brookings Institution, said the laws of the market argue against a tax suspension. “Every summer, the refiners are running full out. If the price fell, people would want to drive more and there would be shortages,” he said. “It’s a basic economic principle that if the supply is fixed, the price is going to be determined by demand.”

House Majority Leader Steny H. Hoyer (D-Md.), who said that the Democratic leadership of Congress has no intention of pursuing the summer tax suspension that Clinton touted. The move “would not be positive,” he said. “The oil companies would just raise their prices.“

The NYT’s Paul Krugman calls the idea “pointless” and “disappointing.” Tom Friedman labeled the plan “so ridiculous … it takes your breath away.” Newsweek’s Jonathan Alter said,

“Hillary Clinton has now joined John McCain in proposing the most irresponsible policy idea of the year — an idea that actually could aid the terrorists.”

Now I wouldn’t go that far — mainly because I don’t think the proposal would actually lower gasoline prices very much and therefore wouldn’t make us depend much more on foreign oil or send much more money overseas to governments who don’t like us. Huffington Post couldn’t find any serious “economic or environmental analyst” who supported the plan.

And, of course, there is that pesky issue of global warming that McCain and Clinton say they care about — a claim seriously undermined by this absurd proposal:

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Bush blames Congress’s failure to open the Arctic National Wildlife Refuge for high gasoline prices (here). The Administration’s own Energy Information Administration found otherwise in a 2004 Congressional-requested “Analysis of Oil and Gas Production in ANWR“:

It is expected that the price impact of ANWR coastal plain production might reduce world oilprices by as much as 30 to 50 cents per barrel [in 2025].

Don’t spend it all in one place, American public! [Note to Bush: There are 42 gallons in a barrel.] EIA continues:

Assuming that world oil markets continue to work as they do today, the Organization of Petroleum Exporting Countries could countermand any potential price impact of ANWR coastal plain production by reducing its exports by an equal amount.

Curses, foiled again!

Then again, it’s laughable of the EIA to think OPEC (or anyone else) will have any spare capacity in 2025 (see “Peak Oil? Bring it on!“). But that’s the EIA for you.

Now, in “fairness” to the EIA, they did report at the time that the 30 to 50 cent per barrel price is

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[Bill Becker says that a better stimulus than a rebate check would be vouchers for energy-efficient products.]

This is the week that all patriotic Americans will begin hitting the malls to rescue the U.S. economy — a redo of the Bush Administration’s appeal after 9-11 that we boost the economy by going shopping.

By the end of this week, nearly 8 million taxpayers will find rebates automatically deposited in their bank accounts. By July, the Treasury Department will distribute 130 million more rebates by mail — typically $600 for each individual taxpayer, $1,200 for couples filing jointly and $300 for each child. The talk in Congress is that another round of rebates may follow later this year.

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Someone else who makes Climate Progress and most everybody else into optimists, relatively speaking.

“In the new world order, energy scarcity will dominate our lives — determining when we drive, if we travel, and what we eat” — so says Michael T. Klare, Five Colleges professor of Peace and World Security Studies.

Klare is in the Kunstler school of energy dystopia, not a view I share (see “Why I don’t agree with James Kunstler about peak oil and the “end of suburbia“).

He writes in Salon (here):

What this adds up to is simple and sobering: the end of the world as you’ve known it. In the new, energy-centric world we have all now entered, the price of oil will dominate our lives and power will reside in the hands of those who control its global distribution.

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The Center for American Progress has a nice analysis of the history of incorrect predictions by the utility industry, which invariably overestimate the cost of environment regulations. Daniel J. Weiss and Nick Kong, in an article titled, “Fool Me Twice, Shame on Me,” which begins:

Recent studies by the National Association of Manufacturers, the Chamber of Commerce, and the National Mining Association are predicting a rate increase for electricity if the Lieberman-Warner Climate Security Act (S. 2191) becomes law. These studies–just like others we have seen in the past on acid rain legislation and other bills that address pressing environmental issues–are meant to spark fear in the hearts of legislators and paralyze them with worries about an angry public blaming them for skyrocketing electricity prices and other ills.

These types of predictions have been proven wrong time and time again. Public officials should ignore the rerun of these scare tactics.

You’ll want to read the whole article to catch the terrific table that shows how electricity rates have dropped substantially since 1990, even though the industry had predicted the Clean Air Act would increase rates.

Related Posts:

• Wrong Again 2: Delayers cry wolf with same old Garbage In, Garbage Out economic model
• Wrong Again 1: Business Attacks Climate Security Act

Is $3.25 to $3.50 a gallon the long-awaited for inflexion point for driving a shift in U.S. car-buying habits? Obviously we can’t know for sure, but the Detroit News reported that “cars outsold light trucks” in March. [One auto industry insider told me yesterday that this was only the second time that has ever happened in some two decades.]

Yes, the recession no doubt had an impact on the sales of big, expensive vehicles. But since gasoline prices are going to mostly be going up over the next decade or two, possibly to well above $4 or even $5 a gallon (see “Peak Oil? Bring it on!”), this should be (yet one more) wake-up call to Detroit.

What exactly happened in March? According to a cars.com blog:

In March, small cars like the Ford Focus — up 24% — and Honda Fit — up 73.8% — were bright spots almost universally among automakers. Hybrid sales were also up. On the other end of the spectrum, trucks like the Ford F-Series — down 23.8% — and Dodge Ram — down 31% — saw huge losses, as did truck-based SUVs.

Here are their numbers for March 2008 sales performance for a spectrum of cars, trucks, SUVs and hybrids:

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Here is the problemmatic paragraph in Time’s otherwise solid issue on global warming:

If we took all the steps outlined here–a national cap-and-trade system with teeth, coupled with tougher energy-efficiency mandates and significant new public and private investment in green technologies–where would that get us? We’d be a little poorer–a sustained battle against climate change will hit our wallets hard, absorbing perhaps 2% to 3% of gdp a year for some time, according to energy expert Henry Lee at Harvard’s Kennedy School of Government, though unchecked warming could end global prosperity. But think of it as an investment: that money, if matched by action internationally, can reduce emissions radically over the next half-century, contain warming and lead us to a postcarbon world.

Not quite. The battle will not absorb perhaps 2% to 3% of GDP a year for some time. It will redirect 2% to 3% of GDP a year for some time. Big difference — one that I have no doubt will crop up over and over again in the debate in the coming months and years, which is why I am blogging on it.

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My last post argued “McCain reveals cynicism, hypocrisy with call for summer gas-tax holiday, energy budget freeze.” I received an e-mail whose basic thrust was “but everybody knows a gasoline tax is regressive, so how can progressives endorse it?” Well, as we will see, everybody doesn’t know a gasoline tax is regressive. In fact,

• The poor are more likely not to buy any gasoline (i.e. not own a car at all)
• Poor families own fewer cars (and much fewer of the fuel-inefficient SUVs and minivans), and
• They walk and use mass transit more.

Maybe the best description of the situation is from a December 2003 study for the state of California:

“A gas tax would be regressive only across upper-income groups, in this case only in the top half of the income distribution.”

Here is the data they present for the “Average Share of Income Spent on Gasoline in California, by Decile.” In the table, “Decile 1 is the poorest income group, and decile 10 is the richest.”

And this is not a new conclusion in the economic literature. As James Poterba, an economist for MIT and the National Bureau of Economic Research found back in 1991:

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Any remaining glimmer of hope that Senator John McCain might be the principled, non-cynical politician to transform our energy policy and avoid the dual calamaties of peak oil and climate catastrophe died today. The Associated Press reported that:

John McCain wants the federal government to free people from paying gasoline taxes this summer … aimed at stemming pain from the country’s troubled economy….

To help people weather the downturn immediately, McCain was calling for Congress to institute a “gas-tax holiday” by suspending the 18.4 cent federal gas tax and 24.4 cent diesel tax from Memorial Day to Labor Day….

Among other proposals, McCain said he would … Suspend for one year all increases in discretionary spending for agencies other than those that cover the military and veterans.

Sad. In fact, doubly sad.

Okay — let’s provide more tax relief to the American people, as progressives have been pushing hard to do. So why not cut income or payroll taxes or give the public a larger direct rebate — one that is linked to income so that the rich don’t get yet more money that should be going to middle class and poor. Cutting the gas tax will send a lot of money to the rich, and not bloody much money to the people who can’t afford a car, especially the urban poor. Who is out of touch?

[UPDATE (revised): I examine the regressivity of the gas tax in another post (see here). Bottom line — as a 2003 study for the state of California found, “A gas tax would be regressive only across upper-income groups, in this case only in the top half of the income distribution.”]

The AP describes McCain’s strategy as pursuing “a trickle-down effect.” McCain says “because the cost of gas affects the price of food, packaging, and just about everything else, these immediate steps will help to spread relief across the American economy” [his speech is on his website here]. What? So we have a temporary gasoline tax cut that directly helps people who drive a lot and that eventually trickles down to the price of … “packaging” (!), which in turn will trickle down to the poor and everyone else. Seriously.

Progressives should calculate the value of the McCain tax cut and offer the same amount directly to the poor and middle class. Enough trickle down nonsense already.

And no — I am not terribly concerned that lowering the gas tax will temporarily boost gasoline usage and greenhouse gas emissions (although it obviously will a little bit). What I am terribly concerned about is that this strongly suggests a President McCain would be prepared to walk away from the price for carbon he plans to impose upon the public — the first time there is a recession after a cap & trade bill is passed.

Let’s be very clear — the greatest threat to the long-term health and well-being of this country is unrestricted greenhouse gas emissions. The key strategy that McCain and Obama and Clinton have embraced is a cap on emissions coupled with a trading system that sets a market price for carbon dioxide. That is how you get decarbonization at the lowest possible cost. Now, the greatest threat to the success of a cap and trade system is that somebody might artificially limit the carbon price, either through a safety valve designed into the system (see here) or because some weak-kneed President (or Congress) walks away from that price the first time the economy suffers a downturn.

McCain would appear to be that weak-kneed Presidential hopeful — especially given that he has also walked away from using “mandatory” to describe his cap and trade system (see here and here). Perhaps this is what he means by not “mandatory” — the cap disappears the first time there is a recession or energy prices spike.

MCCAIN’S RECESSIONARY SPENDING CUTS

And then there is his equally lame desire to freeze all increases in nonmilitary discretionary spending — proposed in the middle of a recession no less. Doesn’t he know that government spending is an economic stimulus?

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