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A while ago, when oil was at $140 per barrel, I suggested that we set a floor price of $100 / barrel so that if there was ever a shock spike lower, we could achieve two things. First, we could raise a lot of money to offset taxes, and now, with the economy in such trouble, to help out. Second, we would make sure that there was never a short-term blip to discourage long-term investment in alternatives. I’m afraid that might be going on right now. I never anticipated such a dramatic economic decline like the one we are in right now. I think people are therefore finding relief at the pump a welcome thing right now. However, I think this could be deceptive as we bask in this short-term effect.
Had we instituted a $100 floor price of oil, just since the middle of September, when oil went below $100, we would have raised nearly half a billion dollars a day, or more than $33 billion so far. That’s nothing to sneeze at, even in this new era of huge numbers we hear about. Plus it would be continuing to pile up at more than $1B per day right now. In addition, we would have no fear that investments in the future would not pay back at a particular rate, because of the certainly of minimum $100 / barrel oil.
On the one hand, I find it hard to bring myself to suggest people should be paying this extra price right now, but actually, I feel it’s the right thing. Why? Because with any good strategy, there is by definition a trade of a short-term loss in return for a long-term gain. In this case, I feel setting a floor price of $100 (or any reasonably high number) is medicine that will definitely make the patient healthier in the long term.
I suspect there are people who would disagree. I would love to hear what you think.
Thanks,
Bill
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Bill,
I have not seen this idea in print before.
Personally I like the concept.
$100.00 a barrel does not result in painfully high prices at the pump. And, if the result is surplus of 1Billion a day, if we did nothing but through that at the country budget deficit (hands off Congress!!), we’d be a debt free country in very little time and could then take that same money to repair and upgrade our infastructure nationwide.
I say Bill Gross for Pres. 2012!!!
So, because you love to take advantage of government subsidies to sell your solar products, you think that the government should institute (at today’s level) a 100% tax on every barrel of oil. Now I’m no genius, but that seems awfully confiscatory. And who gets to pay that tax? Every energy user in the U.S. gets to pay that tax through gas prices, heating oil prices, etc. So everybody gets to subsidize your alternative energy sources that cannot stand on their own. I wonder how many more companies will be driven outside our borders because our energy is so much more expensive than everybody else’s. Tell you what. Spend more of your time making your alternatives cost effective, instead of building your profit off the backs of government subsidies – which is basically my dime. If you have such a good strategy, then let the venture capitalists take the risk and reap the huge reward – I’m all for that – just leave me and the other poor shmoe taxpayers out of it.
Steve, I suggest the subsidy, even though I HATE subsidies, ONLY because I think the long-term gain that results from encouraging investment has a positive ROI on the cost of the subsidy. If I didn’t believe that were not true, then I wouldn’t recommend it. So how do I prove there is a positive ROI? That’s tough. I’ll have to find some examples where that has worked in other industries. I’ll come back and write as soon as I have proof!
Bill
I was reading over your site and like what I saw. I just wanted to say keep up the good work.
The folks who pay this monstrous oil tax are the ones footing the bill for the long-term investment. But are they the ones that are receiving the return on their investment? If I drive my 20mpg car 12,000 miles a year, and $100/barrel causes me to pay $2.00 more per gallon of gas, then that makes me shell out $1200 more per year just to get around. I wonder at what point my investment will start to cut my home electric bill by $100 per month? And I hate to even think of the effect on people and businesses that expend a much greater portion of their operating costs on oil-based energy (trucking industry, airline industry, etc.). The unintended consequences of creating an artificial domestic market for a commodity are pretty scary. I also wonder if such a scheme might stimulate domestic oil drilling and create additional supply. That would suit the government just fine – relax the exploration and drilling restrictions in order to reap more of that tax revenue. Oh, but I guess that energy companies still won’t have any incentive to produce more supply, because they won’t be getting any money from that $100/barrel. And finally, when the world price of oil approaches and exceeds $100/barrel again, all that wonderful tax revenue disappears and it will be time to bail out all of the alternative energy companies that lined up at the government trough to get their share of the windfall subsidies.
Steve, you make a very good point. That’s the correct way to analyze it. If you personally have to pay an extra $1,200 per year at the pump, do you end up coming out ahead? I think you do. Now let me see if I can prove that! If you do not come out ahead, then I agree that this is not a good idea.
Bill
Nice post. Thank you for the info. Keep it up.
Ive been reading your blog for quite a while. You have a very nice blog. Please post more often. Keep it up. – Business Entrepreneur
Imagine if we all gassed up only a half tank at a time instead of a full tank.
With 125 million cars on the road in the U.S., that would mean the oil companies would instead hold an extra billion gallons of oil in their tanks.
I started doing this when the price of gas hit $4.
Now I routinely do this and it feels pretty good.
I’m still gassing up about once per week so it really isn’t inconvenient.
And it means I am driving a car 50 pounds lighter, getting somewhat better gas mileage too.
And with two cars to fill, it keeps a few extra bucks in my pocket, not in someone else’s.
Would you be willing to do this too? Could you pass this blog on to five friends?
I like this idea very much. Stabilizing the price of oil will stabilize many other industries that depend on oil. Steve mentions that you should spend time making renewables cost effective, but does he understand how the only reason oil is cost effective is because of government subsidies. If the government subsidized the alternative energy industry as much as the oil industry, solar and wind would be more cost effective? Subsidies, incentives, and tax breaks have to be in place in order to make industries look appealing to investors over the long term. Stabilizing oil at $100 dollars a barrel would accomplish this.
Thanks for the good ideas!
Excellent idea, Bill. Deflation has crushed all asset classes, and energy has certainly been hit hard. A recent article in the FT says that investment in over 80% of new refining capacity has been pulled due to low oil prices. More importantly, state oil companies (which is estimated at 90%+ of remaining reserves) are getting hit hard due to massive deficits in budgets. Yet, even the IEA’s recent World Energy Outlook has global oil production declining at 6% per year. This is not going to be pretty, and this would help smooth the transition.
Thanks for the blog and all the great work at IdeaLab!
What concerns me about this proposition is that the greatest effect is not upon people with great public transportation or the means to invest in a Prius, –yet still have to drive to work. $100/barrel is going to affect those who can least afford to bear the elasticity in the price of gas, let alone a subsidized floor. Even should provision be made such that people get a tax “break” to account for this, it just seems to shift the burden of systemic inefficiencies somewhere els. A sort of Sachs approach to the plight of the poor. Maybe this is a good theoretical idea when the economy is robust, but with the shocks to the system we’re experiencing still, months after this post, make me wonder if you still come out the same way? Apparently oil is at $36.22 and hundreds of homes are being foreclosed by the minute…
It seems to me Ross Perot beat you to this idiotic idea long ago. Do you not remember the gas tax to retire the debt during the debates?
How about instead of a tax, we simply cut off all Middle East oil, as it is the crucible of energy instability. This would of course require our using our resources that could easily retire the national debt through royalties alone. This would also stimulate job growth immediately and allow for a stable market to develop alternate fuels with hydrogen being the most abundant, pollutant free energy source that can be produced on the spot (through our electric utility lines) within your own home and could be available virtually on every market corner. This would however require the liberal eco-nuts to get over their unwarranted fears (actually fear has nothing to do with it, this is just the vehicle for the elimination of our rights and the Constitution) of drilling for oil, nuclear power and clean coal. By clean I mean scrubbed of toxins other than Co2 which is not a pollutant and cannot be attributed either global warming or cooling. You have to understand that ANY activity has a Co2 component. Besides, there are billions of tons of methane (Natural Gas); purportedly a gas much worse than Co2 is constantly bubbling up from our ocean beds.
Instead of believing that contracting our economy (Carol Browner-admitted socialist and now a member of Obama’s team) will be of benefit to the world. An ever-growing American capitalist society will indeed improve the standard of living for all of us on the good earth.
I would actually enjoy having “some skin” in this game.
I’ve been saying the same thing essentially…add a $2 gas tax that invests the money in infrastructure and alt energy. Six months ago, big trucks and SUV’s were piling up in used car lots. Now that gas is cheap again, they’re back on the road. People are going to go back to what is familiar unless there is a compelling reason to change.
Never let the free market decide. We should turn into a socialist state!
You can’t have your cake and eat it.
We can either pay the taxes to raise oil from $50 to $100 per barrel now, or we can pay $200 per barrel once the recession ends and demand for oil recovers without the necessary investments to guarantee adequate supplies having been made in the interim.
@Steve Colley: I understand that $1200/year extra is not something you’d be ahhapy to pay. But oil companies are postponing and cancelling projects right now and investments in alternative energy, conservation and buying more fuel efficient cars look less appealing while gasoline is cheap again. That will leave us totally unprepared in two or three years. Then prices will go through the roof. Then you’ll think of $4 per gallon as a bargain, which it really is when you take the long term view.
I think Steve Colley raises some legitimate concerns, mostly: is *moral* to charge people more for a service than the service costs to provide?
But people who are using a lot of oil, many of whom are driving much bigger cars and trucks than they need, are imposing burdens on the taxpayer. For example, Iran periodically threatens to shut down tanker traffic through the Strait of Hormuz, through which all Persian Gulf oil travels, which would catastrophically affect world oil prices. The US Navy responds to these threats by counter-threatening that we will go to war to keep the Strait of Hormuz open. So the gasoline user is making our economy vulnerable, making war more likely, and making it necessary to spend astronomical amounts of money to build and maintain a military that can project to the Persian Gulf and overpower any major player there. And the war in Iraq was arguably started over oil. So rather than having these huge military costs be billed to everybody through the federal income tax, wouldn’t it be fairer to charge it all to a gasoline tax and thus put the burden on the people who are driving around in Hummers?
Another thing about the discussion on this thread is that everybody’s acting like this is a radical proposal that has never been tried anywhere. Europe has been taxing up the price of oil for many years, the result of which is that they drive smaller cars, use public transport more, and use much less energy than we do. I’ve seen a graph of European countries, with oil price in each country on one axis and per capita oil usage on the other axis, and there is a clear correlation — the countries with cheaper oil burn more of it. Many European countries have a higher GDP per capita than ours, higher energy costs notwithstanding.
Bill, I share your concern that the nascent renewable energy industry needs some insulation from the violent and churning storms of our current economic climate. Investors need to have some confidence in their ability to do long term planning, and if they keep getting tossed this way and that and getting these extremely mixed messages from a chaotic market, they will simply recoil and shy away from risking involvement. We cannot afford to let this happen.
Like any fledgling new thing that is worth a damn, sometimes you’ve just got to be the penguin and sit on that egg while it incubates. It is a specious argument / failed idealogy that we should just step back and take a hands off approach to important developments that affect the fate of mankind. I’m simply not convinced that a pure laissez faire approach to our energy future is the way we want to go. There are plenty of practical, real world precedents for where a laissez faire approach does not only *not* work, but where it could in fact be cataclysmic.
Consider using a laissez faire approach to replacing the Bay Bridge, for example. Certain complex and far reaching objectives require long term planning. There are occasions where design / planning are required in order to achieve a long term goal. If, as a society, we form a vision of where things need to be 10, 20, 30 years from now, it is not unreasonable to work out a strategy to ensure that those goals are achieved and that the plan is not derailed along the way.
With this in mind, it occurs to me that a strategic approach is needed. A clear example of a strategic approach vs a laissez faire approach is in how one approaches the subject of energy efficiency. Many thinkers in the renewable / clean tech space don’t question for a moment the need for technological innovations in energy efficiency – across the board. It’s gospel. But, from a certain perspective, if one is trying to effect a rapid – rather than a protracted – switchover from a dwindling fossil fuel resource to renewable sources of energy, the last thing one wants to do is allow energy efficiency technologies coming online during the decline of the limited resource to detract from the price competitive appeal of the renewable sources.
Energy efficiency has a place, and a time, but in some ways it can also buy time for existing fossil fuel sources – not desirable. It would be much better, for example, to develop energy efficiency technologies that are closely coupled to renewable energy technologies – and electricity in general – rather than efficiency that supports our continued use of fossil fuels. Good planning can allow energy efficiency development to be disproportionately / asymmetrically supportive of the switchover to renewables, rather than a thorn in its side by being undiscriminating. I would much rather see a disruptive, tipping point transformation to electric transportation than a drawn out, gasoline-transportation-on-life-support-for-decades transformation.
Saying that economics can’t (or even shouldn’t) be controlled by strategic policies is about as sensible as arguing that a complex structure like a bridge should just be able to come about naturally of its own accord. Sometimes you have to decide that you want a specific outcome and then figure out the strategy to achieve that outcome. I’m not a fan of just letting the market do whatever it wants to address our energy needs, and then – in fifty years – whatever we get is what we get. This is too important of an issue to leave to the next-fiscal-quarter mindset that besets our corporations. Strategy necessarily implies waging a battle and not just following the watercourse way. It would be naive for the cleantech industry to pretend that it’s not in a war with the fossil fuels industry. Wars are won on good strategy.
Gas taxes combined with income tax cuts are OK, otherwise it is $0.5 billion dollars extra to feed the beast. We need less $$ going into the Goverment paws, more into the private sector. Agree that higher energy prices will help with alternative energy investment long term, but it has to be combined w income tax cuts.
I must say, I can not agree with you in 100%, but it’s just my opinion, which indeed could be very wrong.
p.s. You have an awesome template for your blog. Where did you find it?
$100 per barrel for whom – only America, or the entire world?
Sorry, but I expected a well thought out idea from you.
You forget that much of the world does not function on efficient capitalism.
My aged parents in India pay more than 3 times what I pay for gas here – and that is in actual, absolute prices. Relatively speaking, they pay $50 a *gallon*. When crude oil goes up, their gas prices go up. When it comes down, unlike here, their prices remain up.
What I am getting at is, your solution is a death sentence for much of the rest of the world.
Your efforts to raise oil prices would be more credible if you didn’t have an immense direct financial interest in high oil prices.
My previous comment was solely about credibility. I personally believe in your good intentions, and also agree that government-sustained high oil prices would facilitate energy source diversification, to the eventual benefit of the US.
If nothing else, it is immensely risky to base an entire economy on the perfect continuity of the global oil distribution system. A temporary disruption, for one reason or another, is almost certain to occur sooner or later, and would play havoc with the whole economy.
The unsolved problem is that it’s a regressive tax, but there are other ways around that.
@Steve Colley
Think of the extra cost of oil as a hedge against an almost certain future of dwindling fossil fuel supplies. We urgently need to invest in alternative sources of energy now, while there is still time to do it. If we wait until the onset of permanent shortages, it might be too late — or it might not. Do you want to risk a permanent crash of civilization?
I certainly don’t, not when the damage is potentially that extreme. So we need to hedge against that risk, and to me $100 oil is a price well worth paying if the revenue generated thereby is poured directly into alternative energy technologies.
What are the unintended consequences?
What if as NASA has recently reported on (solar radiation at 50 year lows), the solar radiation minimum continues, as it has in the past. Or if we get a period like the Younger Dryas and solar stays inefficient due to a scenario that is unlikely to be accountd for by greentech engineers?
That means I paid for a guy like Bill to play scientist and engineer?
If your products work they wont need price floors. But they dont. So you do.
I work as a stockbroker. Maybe we should increase trading commissions to an arbitrary high price to reduce volatility (people will be slower to buy and sell if commission is 15%). But does that really provide a benefit? It does to me and some others. But to most
I actually went to go read this article because I thought it was from Bill Gross of Pimco fame, not some moron regurgitating Nixon and Perrot election ideas.
LOL Price floors… what a horrible idea. Please post entirely different blog entry where you address Steve’s concerns…
Also, please list the names of all companies where you have significant investment. I want to have my money on the same side as you after seeing how much influence you have in DC.