Offering frequent news and analysis from the majestic Evergreen State and beyond, The Cascadia Advocate is the Northwest Progressive Institute's unconventional perspective on world, national, and local politics.

Tuesday, February 14, 2006

The strategic price of gasoline

Governor Gregoire ought to go after Big Oil the same way she went after the tobacco companies. The cases are directly parallel, except when when this patient dies, we all go with her.

For years Big Oil has sponsored quasi-science and employed politicians such as the current president to delay and disrupt action on global warming. I'm willing to bet that, unless they’ve been destroyed, memoranda exist in the files of these companies which display the same cynical disregard for science and for human life we saw with Big Tobacco.

Costs of global climate change are incalculable, but a judgment of any scale against Big Oil would at least double the price per gallon.

Those who think the price of gasoline is too high are like cattle complaining about the discomfort of a boxcar carrying them to slaughter. The price is actually too low, and it is going to the wrong place – the vaults of megacorporations whose business it is to prey on the demise of the planet.

The pump price includes the costs of extracting, refining and distributing the product – getting it to our cars – plus the taxes that build roads without which the product would be useless. The pump price does not include the tremendous costs of pollution, greenhouse gases, and of course, the geopolitical strife inherent in securing the resource for the megacorporations.

This is a massive failure of the market.

Price is the key to getting anything done. [I am particularly frustrated by environmentalists who prefer bureaucratic regulation to price adjustments or direct government intervention.]

Oil prices do not include all costs, not by a long way. We are subsidizing the consumption of oil. Price determines consumption. It is ludicrous to subsidize the poisoning of the planet, but that is what we do.

Stability in oil prices is more important than the level of prices. When prices bounce up and down, people get stuck with SUV’s when they want hybrids. Businesses which count on one cost of manufacturing or distribution in their planning phase get stuck with a different cost at production time. Alternative energy projects are denied financing because of the risk. If energy can be produced at the equivalent of $2.25 per gallon, for example, and the price drops to $2.20 instead, very little of the alternative will be sold, and this only to granola eaters. This is a problem with biodiesel, in particular, but for all alternative energy. (How do you manage a stable price without direct government intervention? You don’t.)

High prices will ultimately be better for the economy, so long as the revenues are directed to a comprehensive energy solution. Why would that be? First, again, higher prices discourage the consumption of fossil fuel and prolong the useful life of the planet. Higher prices make alternatives more economically attractive. Alternatives involve technological development and investment; many would be produced domestically. Good. All good. High prices which serve to inflate Oil company profits are not so good, so without the stipulation that revenues be directed to a comprehensive energy solution, the price level by itself produces a far weaker and less reliable benefit. Plus we continue to send money off to Saudi Arabia and to finance wacko Texas oilmen.
A rational price is the key. Without it our market economy will march along oblivious to its epic miscalculation and down the road to our own destruction.

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