Why Conservation Works Better Posted by Ilan Goldenberg

Using a full cost benefit analysis from the start of the production process until the end David Tilman and Jason Hill demonstrate that while ethanol is nice and helpful it is really not the answer to our global warming and energy security problem.

Another complication and a nice little tidbit from the department of unintended consequences.

There is another problem with relying on a food-based biofuel, such as corn ethanol, as the poor of Mexico can attest. In recent months, soaring corn prices, sparked by demand from ethanol plants, have doubled the price of tortillas, a staple food. Tens of thousands of Mexico City's poor recently protested this "ethanol tax" in the streets.

The reality is that fuel efficiency is the key to all of this.  Don’t ask me.  Ask a bipartisan group of the country’s foremost CEOs who will tell you that some reasonable changes to efficiency standards can save us 4.3 million (Warning PDF) barrels of oil per day.  Twice as much as what they recommend we can get out of alternative fuels.

Comments

[Zathras]

The recomendations of this panel of illustrious or at least famous CEOs fall into two categories. One is changing regulations of various kinds. The other is increasing subsidies for various things.

But the core of America's profligate energy use is price. It is only price; it has always been price; it will always be price. Americans use a lot of energy because energy is cheap. We will use less energy when energy becomes more expensive. Eventually, world market forces will make energy more expensive, and we will just have to live with it. Getting ahead of the curve will require extensive use of the one policy tool this panel of worthies did not see fit to mention: taxation.

Of course raising taxes on energy, particularly gasoline, would be unpopular. The public is easier to approach when the subject is reducing energy use through regulatory changes the costs of which can be camouflaged, and business leaders are attracted to complicated regulatory systems and subsidy schemes they think they may be able to game. However, it is not written anywhere that we have a right to solutions that pose no political difficulties. Some questions do not have easy answers.

They often do have simple ones. Raise the price of energy, and people will use less, and businesses will use less. Raise the price of energy and you will create markets for new technologies that will develop on their own, without the government having to try to guess how to grow them. Raise the price of energy, through taxation, and you can forego all the noodling around with CAFE standards and other regulatory instruments that the passionate champions of painless change are anxious to expand. There are political obstacles to raising energy taxes, but doing this does have one saving advantage that none of this panel's recommendations, or all of them together, do. This is that we know raising energy taxes will work.

[Cal]

There are political obstacles to raising energy taxes, but doing this does have one saving advantage that none of this panel's recommendations, or all of them together, do. This is that we know raising energy taxes will work.

So will raising CAFE standards -- and it will reduce consumption without hurting poor and rural consumers.

What's more, the price of gasoline has risen sharply the past 7 years, and yet our consumption has continued to grow. So how high does a gas tax have to be to have a significant effect? $2? $3? Why don't we just disband the Democratic party altogether and be done with it?

Raising the CAFE standards might not be the ideal solution, but it's much better than what the Republicans propose, and it won't result in political suicide.

[Zathras]

Changes in CAFE standards bear on the kinds of cars the government determines car manufacturers should be allowed to make, and that consumers should be allowed to buy. They don't influence people to change driving habits, provide no revenue to the government and -- because most people do not buy new cars every year -- yield no efficiency gains at all for the vast majority of vehicles. And, of course, because they apply only to motor vehicles changes in CAFE standards will not influence energy use outside the transportation sector.

Market energy prices go up, and they go down. Because most people's energy consumption is related to habits that can be changed but which they are reluctant to change quickly or often, demand for energy does not follow price fluctuations. It will follow substantial, permanent increases in energy taxes, which can provide revenue to relieve the burden on particularly vulnerable groups.

There's no getting away from the fact that increasing energy taxes, and sustaining the increase over several years, would be painful. A sudden spike in energy prices that hit American consumers while they were still practicing the cheap-energy habits of generations would be a lot more painful, particularly to low-income and rural consumers, and could do serious damage to the economy. In the meantime, those who see climate change as something close to a "global crisis" need to think about how likely it is that a real global crisis can be addressed painlessly.

As the study linked in the main post here was produced by corporate leaders I did not discuss the implications of energy policy for partisan politics. No doubt there would be some. Ideally there would be a way to reduce America's energy usage substantially without inconveniencing anyone; politicians of both parties could proclaim their unshakeable commitment to cheap energy and energy independence -- and halting climate change -- without any risk to their own positions and ambitions. This painless path does not exist. Americans can accept this and deal with whatever political consequences flow from that choice, or they can listen to happy talk about easy answers from political types who care more about not losing a possible edge in the next election than they do about addressing serious national problems.

[J Thomas]

Apart from the politics, it would be quite possible to put in a large gasoline tax with on average no pain at all to voters.

The procedure is: Put in a large gasoline tax. Each quarter (or each month if you can arrange it) divide up the income from the tax and mail it in equal shares to all the voters.

If you get by without using gasoline at all, you get rewarded for that. If you drive no more than you absolutely need to with fuel-efficient transportation, you get rewarded for that.

If you're an average taxpayer who uses the average amount of gasoline, you break even.

If you're a big part of the problem, then it costs you.

This plan would lose a whole lot of votes in texas, where nobody with a rational energy policy can win no matter what. It would tend to lose in various other Red states. But give them a good solid reason to use less gasoline and they're likely to go along.

[Dgilman]

Of course, the other option to raising taxes is cutting taxes on products that compete with oil. The German biodiesel industry was doing great until the put taxes back on biodiesel. You would need to tie tax-breaks to sustainability standards for biofuels and bioenergy, to ensure that you don't just end up with more problems, but instead see more biogas and other low-impact technologies. If you are interested, we are putting together a global database of biofuel policies (the good, the bad and the ugly) at www.bioenergywiki.net, as well as trying to get an overview of all of the developments happening in this area.

[J Thomas]

However, as I have pointed out elsewhere, there is no such thing as conservation of fuel.

The world will use as much oil as we pump, barring attempts to buy it and pump it back into the ground.

The world will mostly pump as much oil as we can, though funding for increased capacity will fluctuate with the short-term business cycle.

When one group or nation or whatever conserves, they get somebody else get it cheaper. Consumption does not decline.

Whatever noble intentions we might have about energy conservation, they'll all get blown away with the next war. Oil-producing nations at war sell more oil at whatever price they can get, up to their capacity limits. They have a war to fight and they need money to fight it. Oil-consuming nations will use as much oil as their war reasonably takes -- if necessary they ration oil to civilians so the war can have more, but they don't reduce consumption. In either case, the priority is to win the war first and deal with the long-term consequences later. Why save resources and lose a war and see the enemy get the use of those resources after we lose?

Energy conservation is the same kind of mirage as building freeways to reduce traffic congestion. Wherever congestion falls to an acceptable level, more housing will be constructed to take advantage of the favorable traffic conditions up to the point it becomes so unbearable they can't sell the housing. Freeways are good for realtors and they may be good for business generally, but they don't help congestion.

[Cal]

"Changes in CAFE standards bear on the kinds of cars the government determines car manufacturers should be allowed to make, and that consumers should be allowed to buy. They don't influence people to change driving habits..." -- Zathras

Yes all of this is true, and yet CAFE standards do curb oil consumption. From the National Academy of Sciences link I posted above:

The CAFE program has clearly contributed to increased fuel economy of the nation's light-duty vehicle fleet during the past 22 years....If fuel economy had not improved, gasoline consumption (and crude oil imports) would be about 2.8 million barrels per day greater than it is, or about 14 percent of today's consumption.

....Between 1975 and 1984, technology improvements were concentrated on fuel economy: It improved 62 percent without any loss of performance....Thereafter, technology improvements were concentrated principally on performance and other vehicle attributes. Fuel economy remained essentially unchanged....

You were saying that the only effective way to curb oil consumption is with a gas tax. That is clearly untrue.

I realize that you aren't concerned with the political effects of passing a gas tax through a Democratic Congress -- perhaps because you're a Republican. But the fact is that regulation can work, it's much less politically painful than a gas tax, and it wouldn't disproportionately affect poor and rural consumers.

The Congress should try this easier method first, and if that doesn't work, then it should consider a gas tax. But the choices aren't as stark as you make them, Zathras.

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