What if there are no gains from reducing Mid-East oil imports?
ASK THIS | February 08, 2006
Writers are skeptical that there would be any real benefits, doubt Bush’s motives and pose sharp questions for reporters to ask. What would work, they say, are higher gasoline taxes to restrain consumption.
By Martin Lobel and Henry M. Banta
In his State of the Union speech, President Bush called on the American people to break their “addiction to oil” particularly from “unstable parts of the world.” These may seem like laudable goals, but it is not clear that achieving them would accomplish anything. Here are a few questions that need to be answered, if he is serious about developing a real energy policy.
Q. Although the largest known reserves of oil are in the Middle East, US imports are quite diversified; most come from the Western Hemisphere – Canada, Mexico, and Venezuela. Even if we could completely eliminate imports from the Middle East, what good would it do us in economic terms? Oil is sold in a global market; our domestic price is the world market price. An interruption of Middle Eastern oil would have a direct impact on our price – even if we did not import a drop. What then is the policy objective of reducing imports from the Middle East?
Q. Since an interruption in the supply of Middle Eastern oil would reduce the total supply of world oil, it would raise the price of oil everywhere – even in those nations that did not import any. In particular it would have an impact on all of our trading partners. If this is true, what is the point of reducing imports from the Middle East?
Q. The United States’ oil “addiction” is mainly a gasoline problem. We consume 44% of our oil in the form of gasoline – compared with 18% for the rest of the world. This problem has nothing to do with where our oil comes from, it has to do with how much we consume. Why don’t we restrain our consumption like every other industrialized nation with a large gasoline tax? Isn’t that the free market solution? Wouldn’t a $1 or $2 a gallon gasoline tax imposed over a few years be the most efficient way to force conservation and stimulate private efforts to find alternative fuels?
Q. Why can’t we afford a gasoline tax? Gasoline prices in the US, even now, are very low in terms of per capita income, about 4.2%.
Q. If we really care about alternatives, why do we have a high tariff on imported ethanol? While the ethanol program is a very generous and inefficient subsidy for firms like ADM, is it consistent with the President’s State of the Union energy policy?
Q. If the President was serious about increasing research into alternative fuels, why did his budget cut the funds for research into alternative fuels?
Henry M. Banta is a partner in the Washington, DC, law firm of Lobel, Novins & Lamont.
Martin Lobel is a partner in Lobel, Novins & Lamont, a Washington, DC, law firm, and chairman of the board of Tax Analysts (www.tax.org), a source for journalists.