Gas up 

The case for letting pump prices soar

Not to be outdone by Gulf Coast hurricanes, left- and right-leaning politicians across North America are creating a tempest of their own by calling for government action to stop the rise of gas prices. And in Montana, Gov. Brian Schweitzer has signed on with seven other Democratic governors asking Congress to investigate possible price gouging after gas prices briefly bumped the $3 mark earlier this month. The laws of political physics demand that politicians and lobby groups provide the appearance of action even if no actual action results. Nevertheless, there are holes in the case for fuel price controls big enough to drive a Hummer through.

If governments really want to moderate the costs of fossil fuel, the most effective and beneficial way is to reduce demand by boosting conservation, by regulating more efficient car motors and furnaces and by reducing speed limits. Or providing incentives for farm-grown bio-fuels and electrical cogeneration, or enhancing public transit.

The price of fuel is more likely to respond to falling demand than to government regulatory bodies, which the fossil fuel industry is already quite expert in maneuvering.

But politicians of all stripes are still habituated to catering to road rage. It’s a sobering reminder that the right to drive, though not protected in any constitution, trumps other rights, including the right to clean air, a stable climate or farmland protected from food freighted in from afar.

The right to have a car that smokes means that “sin taxes” or restrictions that are the norm for other socially damaging addictions, such as tobacco, are never applied to drivers. Drivers’ rights even trump the rights of the world’s non-driving majority to decline to pay for the many direct and indirect damages and costs that result from driving.

Leave aside the fact that government time, effort and expense to safeguard cheap fuel is time, effort and expense that disproportionately goes into the tanks of SUV drivers and the furnaces of monster homes—rich examples of what economists call perverse subsidies.

Then there’s the fact that despite the pretense, politicians can’t actually control gas prices. That’s because not all increases are about gouging.

The short-term problem behind recent price hikes isn’t just lack of oil, but a lack of refining capacity. Refineries are in short supply around the world; none have been built in the U.S. since 1976, and none in Europe since the 1980s. This is partly because the price of fuel is too low and too unstable to support mega-investments, and partly because few communities outside the deep South seem willing to invite such explosive additions to the neighborhood.

So supplies are tight after Katrina took out 10 percent of U.S. refining capacity. But the long-term scenario, which promises a decreasing supply and soaring Asian demand, means we should get used to price hikes that have little to do with gouging. This is just a taste.

Drivers and their political champions should think again about the real economy of their autos. The fact is, fuel is far and away the best deal going. Even at $4 a gallon, it barely ranks as a miscellaneous expenditure compared to the costs of the car itself, a home garage and driveway, insurance, parking space and car repairs.

If the issue is drivers’ real costs rather than political showmanship, why not call for a taxpayer subsidy for SUVs or the paving of home driveways?

For that matter, the price a driver pays for a tank of gas, even after taxes are added on, is just a down payment on the direct and indirect costs the world and all its citizens, including the non-driving majority, have to pick up when that car hits the freeway.

Befitting a sector clustered around New Orleans, this is an industry that carefulness forgot. Indeed, the dirty secret of oil’s power is the huge gap between the production or market price of oil and the full, true lifecycle costs, almost all of which are shunted off to taxpayers in general or, more likely, onto the back of the environment. Only a few other products (nuclear fuels are a notable example) benefit from a wider gap between free market prices and true costs.

The current cost of gas plus gas tax does not, for example, begin to match the cost of city roads, all paid for out of property rather than gas taxes. Or of traffic police or emergency caregivers in hospital wards dealing with traffic accidents. These costs come out of general tax coffers, not the tax on gas, and are quite separate from such indirect and hidden costs as the loss of farmland to asphalt or the damage done by global warming or the expense of the war in Iraq.

Cheaper gas and oil prices are a benefit for drivers, but the more we drive, the greater the cost picked up by taxpayers and the polluted environment. That’s why no cost-conscious or environmentally responsible government would ever spend public money to subsidize gas prices directly.

But besides its high social cost, gas is also a deeply disrespected commodity. Governments could be regulating the fossil fuel industry to phase out fast-burning, use-and-toss, low-value-added products that could be replaced fairly easily, like heating fuels for which there are alternatives, and plastic bottles.

The point is to reserve the rare and valuable gift of oil made back in the mists of time for long-lasting, job-creating, high-value-added products.

The most obvious parallel here is with penicillin, the power of which can be squandered on cheap chicken raised in factory farms or reserved to protect humans from killer infections and diseases. The marketplace is too indifferent to ethical values or future needs to be left in charge of that decision, and wise governments would phase out low-quality uses so that high-quality uses could be preserved.

For the same reason, governments could assert the rights of the public good, including the rights of generations yet to come to have access to rare, useful, expensive and difficult-to-replace manufactured products that rely on the robust carbons stored in fossil fuels.

Cheap gas prices ensure that fossil fuels will be treated as a cheap resource that can be burned for humdrum purposes—the ultimate irresponsibility of politicians who pump up price controls as a legitimate field for government action.

This article originally appeared in the Sept. 22 issue of NOW, a weekly newspaper in British Columbia. Additional reporting by Independent staff.

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