Gas Prices.........

[JOHNNIE36]

Saw another interview with John Hofmeister, former CEO of Shell Oil. He says we (this administration, this country) has to get off it's a$$ and start drilling for our own oil. I think the number was 10M barrels of oil we need each day in the USA. China and India are demanding more oil each day for their countries and putting the demand on more foreign oil. He says we have the oil and we must start drilling for it to supply ourselves and that would keep the price down. However, he says Obama's financial stratigists don't want him to permit drilling. Hofmeister predicts 2012 before we see $6 per gal. Then Obama will "save us", just in time for reelection. Hofmeister didn't say this, I did.

 

[mb]

Oil is cheaper than any other practical high-energy density fuel (suitable for transportation uses). For that purpose, it is cheap.

I agree with your statement with respect to the current situation for transportation fuels.

My statement is more in comparison to historical costs.

Since it is getting more expensive to find and produce oil I think that the days of "cheap oil" will go the way of the buggy whip.

That doesn't mean that we can't have large swings in the price. Obviously we are seeing that now.

 

[Gone4Good]

Do transmission losses and line costs make it impractical to obtain higher reliability from intermittent sources by incorporating a wider geographic base? We've got a big country, and it's always windy somewhere, and it's always sunny (in the daytime) somewhere, and the waves are always high somewhere.

Building a more robust smart grid would also let us shift power where needed for electric cars (if they come) and to recover from localized outages. And, we can burn coal and operate nuclear plants where citizens are happier to have the jobs and the taxable revenues. Citizens elsewhere can continue to enjoy their unsullied views, "nuke-free" status, and pay higher electrical rates. A win-win.

On the existing grid it is a real problem. You can't move electricity from the Mid-West where wind resources are strong and demand is relatively low, to the North East where resources are low, and demand is high. It's just not possible because of technical constraints with the existing infrastructure (line losses, etc) and physical constraints (inadequate tie-ins between regions). New, modern, transmission lines could help, but building new transmission is harder than building new generation capacity. If you think NIMBY is a problem in trying to build a local coal plant (or any other industrial facility), just imagine the troubles in trying to site 1,500 miles of transmission lines. How many states, counties, boroughs and burgs need to approve to get that done? Hundreds, probably.

There was talk of giving FERC eminent domain powers to make building new electric transmission (and natural gas pipelines) possible, but I don't think that's going anywhere.

 

[Alan]

....no wonder y'all walk and take public transit!

Gas prices are getting so high, I'm thinking about eating more cabbage..

Cabbage is really cheap here, and bread for that matter. Of course, cabbage sandwiches are an acquired taste.

 

[Independent]

Saw another interview with John Hofmeister, former CEO of Shell Oil. He says we (this administration, this country) has to get off it's a$$ and start drilling for our own oil. I think the number was 10M barrels of oil we need each day in the USA. China and India are demanding more oil each day for their countries and putting the demand on more foreign oil. He says we have the oil and we must start drilling for it to supply ourselves and that would keep the price down. However, he says Obama's financial stratigists don't want him to permit drilling. Hofmeister predicts 2012 before we see $6 per gal. Then Obama will "save us", just in time for reelection. Hofmeister didn't say this, I did.

I think the important numbers are that the US consumes about 25% of annual world oil production and has about 7% of the reserves.

The important economic concept is that oil trades in a global market. If additional US production actually reduced the market price of oil, US consumers would get about 25% of the benefit, foreign consumers would get 75% of the benefit.

And the important physical fact is that oil is non-renewable. Once we pump it and burn it, it's gone.

 

[Independent]

Or, if the government artificially increases the price of oil, coal, etc. That's likely to be more effective in inducing production of alternative energy (and spurring conservation) than any subsidies, etc, but will be very hard on the economy.

"Hard on the economy" probably glosses over the situation. We should always say: "It will reduce the prospects for our kids to have productive careers, increase the price of food and other goods for everyone, make our industries less productive and give other nations a big competitive advantage and reduce our ability to influence world events--including matters of war and peace." That just about covers it.

If the government artificially increases the price of oil with a tax, and rebates that tax by lowering some other tax, the short term impact on these things is very small. Over the long term, we're probably better off.

 

[Nodak]

If the government artificially increases the price of oil with a tax, and rebates that tax by lowering some other tax, the short term impact on these things is very small. Over the long term, we're probably better off.

I would beg to disagree, as far as I'm concerned social engineering is always wrong.

 

[Independent]

I would beg to disagree, as far as I'm concerned social engineering is always wrong.

I don't know how you define "social engineering". So maybe it's always wrong by your definition. You'll have to explain that. I'll give you my reasoning.

If I were trying to label this, I'd call it economics. The US subsidizes oil by spending billions on military activities intended to assure a steady supply of oil. We do this because sudden disruptions in supply or price are damaging to our economy. If we're going to spend that money, we should charge the beneficiaries. A tax on oil which is crudely equal to the military subsidy would be at least $1 per gallon (that generates $300 billion per year).

Such a tax has two benefits. First, most of it is paid by the people who use the most oil, so that seems "fair". It also corrects for an economic distortion that happens when we subsidize something. In this case, because it's a subsidy, we use more oil than we would if users had to pay the full costs.

 

[Nodak]

I would define social engineering as the government attempting to manipulate the behavior of the citizenry using laws not directly addressing their goals. If the government wants people to use less gas try passing a law that says cars that don't meet a certain requirement are not allowed. I suspect that would never be passed so they try subterfuge.

 

[steelyman]

Public transportation is free for employees of the university at which I work. So far, I've been too lazy to take advantage of that, but now that I'm pretty much in the top of the 9th inning regarding time to FIRE, I'm reconsidering the choice to drive.

 

[Independent]

I would define social engineering as the government attempting to manipulate the behavior of the citizenry using laws not directly addressing their goals. If the government wants people to use less gas try passing a law that says cars that don't meet a certain requirement are not allowed. I suspect that would never be passed so they try subterfuge.

So if the government builds a bridge and charges a toll to the users, is that "social engineering" and always wrong?

What if they charge more during peak use periods and less during low use periods, hoping that some peak users will shift and make their fellow drivers' lives easier. Is that "social engineering" and always wrong?

How about charging a gasoline tax, using 100% of the revenue to build roads, and recognizing that the tax itself will somewhat reduce the demand for roads. Is that .... ?

 

[Nodak]

So if the government builds a bridge and charges a toll to the users, is that "social engineering" and always wrong?

What if they charge more during peak use periods and less during low use periods, hoping that some peak users will shift and make their fellow drivers' lives easier. Is that "social engineering" and always wrong?

How about charging a gasoline tax, using 100% of the revenue to build roads, and recognizing that the tax itself will somewhat reduce the demand for roads. Is that .... ?

No, I wouldn't call those things social engineering; they're more civil engineering. In your original example "artificially" raising a price would be social engineering.

 

[samclem]

If the government artificially increases the price of oil with a tax, and rebates that tax by lowering some other tax, the short term impact on these things is very small. Over the long term, we're probably better off.

The bold portion is for those searching for humor?

Less cynically, I agree with you--on average and in principle. In practice, it would be complex, burdensome, and damaging.

Case 1) Mr Smith drives 60 miles each way from his rural home to his place of employment in the city. He lives 60 miles from work because he doesn't earn a lot, and that's where he can afford a safe house for his family. He made these decisions based on his assessment of the situation. When gas prices double, he's now socked with a several hundred dollar per month increase in costs. He's taxed very little already, so he won't get that back. Maybe the plan is "revenue neutral" in the big picture, but Mr Smith's life isn't the big picture--except to him.

Case 2) XYZ Manufacturing makes widgets. They receive the subcomponents by truck. Artificially higher fuel taxes drive up their cost of making widgets. They compete against foreign widget makers who don't pay these artificially high fuel prices. In addition, they compete against other widget makes in the US who will be less adversely affected by these artificially high costs. How do we keep the playing field level (domestically and/or internationally) without an incredibly costly set of tarriffs/credits/set-asides, etc?

Case 3) Do we have a national mandate to encourage related business entities (who ship subcomponents to each other) to cluster closer together, even if this reduces healthy competition from other entities located farther away? Will this make our products more or less competitive internationally?

Case 4) It's cold in northern latitudes, warmer in southern ones. It takes energy to make houses warm. Do we, as a nation, have a vested interest in inducing people to move to warmer places by punishing those who live in the north? To increase urbanization at the expense of rural communities?

Case 5) Higher fuel costs will lead to higher prices for almost all products and services. People with lower incomes spend a higher percentage of their incomes on these things than do wealthy people. Thus, higher fuel prices will be, in effect, a regressive tax collected by the nation's retailers. As a nation, do we want to institute a regressive tax? How can it be avoided without tremendous complexity (and inherent additional costs--direct and indirect)?

I see a rat's nest of complexity, "friction," and expensive unintended consequences. I agree that such a program of artificially higher fuel prices is the most effective way to change behavior and lower fuel use, but the costs (to individuals and collectively) would be huge. The only practical way I see to partially mitigate the damaging impact would be to phase them in very slowly over many years, allowing everyone to make adjustments to accommodate the most onerous effects. We'd need a very compelling motive to institute such a plan, and nothing I see comes close to meeting that standard. If fuel prices go up on their own as a result of market forces, then I don't see any need to cushion the "bad luck" of the people and businesses who will be the losers. But if we, as a nation, artificially raise fuel prices as a matter of policy, that's a whole different situation.

But, some will disagree.

"You can't make an omelet without breaking a few eggs"
-- Attributed to Josef Stalin

 

[ERD50]

Originally Posted by ERD50

2) We will not see any breakthroughs in Fuel Cells. They are operating close enough to their theoretical efficiencies...

Fuel cells are not even close to their theoretical efficiency. That along with high costs and a limited life are some of the problems.

The theoretical voltage of the fuel cell oxygen/hydrogen reaction is 1.2V/cell. Most of them operate at about 0.8 V, thus the so called "voltaic efficiency" which is only one component of the overall energy efficiency is only about 65%.

A fuel cell is an electrochemical device just like a battery so that is a relevant comparison. The discharge voltage efficiency of many batteries is 90+%.

The problem with fuel cell efficiency is that the oxygen reaction is very difficult to catalyze and the "voltage loss" is necessary to drive that reaction.

Well, my wording "close enough to their theoretical efficiencies" wasn't very precise (I was going from memory anyhow), but I think it still holds with respect to expecting a "break through".

From wiki:

Fuel cell - Wikipedia, the free encyclopedia

The laws of thermodynamics also hold for chemical processes (Gibbs free energy) like fuel cells, but the maximum theoretical efficiency is higher (83% efficient at 298K [28] in the case of hydrogen/oxygen reaction)...

Bloom Energy Server - Wikipedia, the free encyclopedia

indicates the Bloom box running ~ 50-60% eff. We aren't going to hit the theoretical in real life, so I don't see the delta between say, 55% and something less than 83% as that big a deal, just the incremental improvement that I mentioned. Sure, getting to 80% from 60% would be good, but not life-changing for fuel cell market penetration.

-ERD50

 

[mb]

, but I think it still holds with respect to expecting a "break through".
-ERD50

You are probably correct on this. The potential returns are high but the problems are very difficult.

That is one reason why Secretary Chu has been reducing funding for fuel cells and reallocating the funds to other areas since he took over from the previous administration.

The Bush administration championed fuel cells but I don't think that they ever had anyone with the required knowledge base necessary to separate fact from hype and assess risk versus return in a decision making position.

 

[Zathras]

Saw another interview with John Hofmeister, former CEO of Shell Oil. He says we (this administration, this country) has to get off it's a$$ and start drilling for our own oil. I think the number was 10M barrels of oil we need each day in the USA. China and India are demanding more oil each day for their countries and putting the demand on more foreign oil. He says we have the oil and we must start drilling for it to supply ourselves and that would keep the price down. However, he says Obama's financial stratigists don't want him to permit drilling. Hofmeister predicts 2012 before we see $6 per gal. Then Obama will "save us", just in time for reelection. Hofmeister didn't say this, I did.

Fascinating. I saw the same interview. Here is what I heard him say.
The US needs to get off it's a$$ and start drilling. We need 10 Million more barrels than we currently produce in the USA.
We must work on developing a wide variety of other fuels, including vehicles that run on electricity, natural gas, etc.
But in the short term, to help a little bit (because it won't be nearly enough) we need to drill more here in the USA.

 

[Independent]

No, I wouldn't call those things social engineering; they're more civil engineering. In your original example "artificially" raising a price would be social engineering.

I think I see the mis-communication. I shouldn't have used the word "artificially".

I hope the second post clarified that. I'd say that the gov't is already bearing the cost of the military operations. Not charging that cost back to the people who benefit is an "artificial" subsidy that we should reverse.

Oil users should bear the cost of our oil region military operations just like bridge users should bear the cost of building a bridge.

 

[Gone4Good]

I see a rat's nest of complexity, "friction," and expensive unintended consequences.

And yet when these 'frictions' are driven by market forces that increase oil prices by a factor of six over a decade that makes them more acceptable?

I think even the most libertarian among us would agree that the government needs at least some revenue. And to raise that revenue the government needs to tax something. Income and generic consumption taxes are far inferior to taxes that target activities with large external costs, like consuming oil.

It's hard to think of a single policy that achieves more of our domestic and foreign policy goals than an oil tax would:

1) Improves our federal deficit
2) Improves our trade deficit
3) Reduces greenhouse gasses
4) Supports alternative energy
5) Reduces revenues to places like Iran
6) Reduces our strategic interest in the middle east (where we're currently involved in three wars we wouldn't be if the region had no oil).

 

[Independent]

The bold portion is for those searching for humor?

Less cynically, I agree with you--on average and in principle. In practice, it would be complex, burdensome, and damaging.

Case 1) Mr Smith drives 60 miles each way from his rural home to his place of employment in the city. He lives 60 miles from work because he doesn't earn a lot, and that's where he can afford a safe house for his family. He made these decisions based on his assessment of the situation. When gas prices double, he's now socked with a several hundred dollar per month increase in costs. He's taxed very little already, so he won't get that back. Maybe the plan is "revenue neutral" in the big picture, but Mr Smith's life isn't the big picture--except to him.

Case 2) XYZ Manufacturing makes widgets. They receive the subcomponents by truck. Artificially higher fuel taxes drive up their cost of making widgets. They compete against foreign widget makers who don't pay these artificially high fuel prices. In addition, they compete against other widget makes in the US who will be less adversely affected by these artificially high costs. How do we keep the playing field level (domestically and/or internationally) without an incredibly costly set of tarriffs/credits/set-asides, etc?

Case 3) Do we have a national mandate to encourage related business entities (who ship subcomponents to each other) to cluster closer together, even if this reduces healthy competition from other entities located farther away? Will this make our products more or less competitive internationally?

Case 4) It's cold in northern latitudes, warmer in southern ones. It takes energy to make houses warm. Do we, as a nation, have a vested interest in inducing people to move to warmer places by punishing those who live in the north? To increase urbanization at the expense of rural communities?

Case 5) Higher fuel costs will lead to higher prices for almost all products and services. People with lower incomes spend a higher percentage of their incomes on these things than do wealthy people. Thus, higher fuel prices will be, in effect, a regressive tax collected by the nation's retailers. As a nation, do we want to institute a regressive tax? How can it be avoided without tremendous complexity (and inherent additional costs--direct and indirect)?

I see a rat's nest of complexity, "friction," and expensive unintended consequences. I agree that such a program of artificially higher fuel prices is the most effective way to change behavior and lower fuel use, but the costs (to individuals and collectively) would be huge. The only practical way I see to partially mitigate the damaging impact would be to phase them in very slowly over many years, allowing everyone to make adjustments to accommodate the most onerous effects. We'd need a very compelling motive to institute such a plan, and nothing I see comes close to meeting that standard. If fuel prices go up on their own as a result of market forces, then I don't see any need to cushion the "bad luck" of the people and businesses who will be the losers. But if we, as a nation, artificially raise fuel prices as a matter of policy, that's a whole different situation.

But, some will disagree.

Quite a list. But, as I discovered from Nodak's post, I shouldn't have accepted the word "artificial". We're already spending the money on the military, the more oil you use the more you benefit from that spending, therefore it makes sense that you should pay a larger share.

Sure, the person who lives 60 miles from work will be impacted most if the price of oil includes all the costs of supplying it, that's how the system is supposed to work. Maybe that person decides to move closer, maybe he drives smaller car, maybe he cuts other spending. Most of the things you list just describe how markets react to changes in commodity prices.

We should should be careful about the idea of subsidizing a commodity just because some of it is used by poor people. In most cases it's better to let the market price include all the costs, then provide cash to the poor if we feel the need.

Regarding the rebate, we could make it a refundable $1,000 per person tax credit. That would be revenue neutral with a $1.00 per gallon tax since we use about 1,000 gallons of oil per capita. IMO, that's overkill in terms of worrying about poor people, but it's clear that rebate could be made progressive.

(I'm one of the few people who responded to Midpack's "YOU balance the budget" thread. I included the oil tax there as part of a package without any labeled "rebate". http://www.early-retirement.org/for...udget-reduce-the-deficit-specifics-55630.html)

 

[FinanceDude]

And yet when these 'frictions' are driven by market forces that increase oil prices by a factor of six over a decade that makes them more acceptable?

I think even the most libertarian among us would agree that the government needs at least some revenue. And to raise that revenue the government needs to tax something. Income and generic consumption taxes are far inferior to taxes that target activities with large external costs, like consuming oil.

It's hard to think of a single policy that achieves more of our domestic and foreign policy goals than an oil tax would:

1) Improves our federal deficit
2) Improves our trade deficit
3) Reduces greenhouse gasses
4) Supports alternative energy
5) Reduces revenues to places like Iran
6) Reduces our strategic interest in the middle east (where we're currently involved in three wars we wouldn't be if the region had no oil).

So, put a tax on oil in a recovery that is not that stable..........that should end well..........

 

[dgoldenz]

$4.50/gallon for premium here when I filled up Saturday....good thing I don't have to drive that much.

 

[rescueme]

I just did a conversion of current gas prices (liter to gallons, SEK to USD) in Sweden where I traveled to for w*rk quite often before I retired.

It's at $9.20/gal. ...

What I found interesting is that the Swedes generally drive larger cars (similar to the US) rather than the econo-boxes in places like France (where I also wor*ed).

In their case, most of the cost is due to taxes (due to social programs), however it doesn’t keep them off the road (believe me, I know...)

Thank goodness I didn't have to pay that price, being on an expense account (but who knows what the future will bring?)

 

[Nodak]

I think I see the mis-communication. I shouldn't have used the word "artificially".

I hope the second post clarified that. I'd say that the gov't is already bearing the cost of the military operations. Not charging that cost back to the people who benefit is an "artificial" subsidy that we should reverse.

Oil users should bear the cost of our oil region military operations just like bridge users should bear the cost of building a bridge.

Agreed. It's also time we start doing more drilling on our own soil and get away from foreign sources. The reserves here in ND are vast and I'm sure this isn't the only domestic source.

 

[glippy]

Is there something stopping people from drilling in North Dakota? I thought the only areas that had restricted drilling are off the coast and ANWR.

I could see maybe the state restricting drilling to protect local water or something, but is there something the federal gov't is doing to prevent it in places like ND?

 

[Danmar]

I think the price of gas in the US is probably the cheapest in the world. Quite a bit cheaper than Canada and Europe anyway. Canada exports more than half it's production to the US while importing some into Eastern Canada from overseas. Net Canada has an oil surplus of a little over 1million bbls per day and still our gas costs much more than yours. Go figure.