Environmental Dilemma of Low Oil Prices

Today's Sunday New York Times carried two columns in its Op-Ed section - one by Tom Friedman and the other by Art Laffer and Bob Inglis. Both columns dealt with the issue of emissions and energy prices, but through different approaches. Both columns reflected a certain degree of frustration about what was happening to the environmental and energy saving efforts in America due to weak oil prices.

Friedman's column was a rant that low gasoline prices (due to low oil prices) was destroying the government's efforts to ween Americans off oil in favor of hybrids. He was bemoaning the fact that we were going through another cycle of high oil prices causing Americans to want more fuel efficient vehicles only to have prices fall, which is encouraging Americans to buy more SUVs because gasoline is cheap.

Friedman does understand a key point about the oil market - price does matter. But what he doesn't seem to understand is that price is not just about the cost of gasoline but the price of vehicles, too. We have seen that the cost of hybrids and other super fuel efficient vehicles are priced at a premium that can take years to recoup at today's gasoline prices. The problem that Friedman fails to grasp is that even at $4 a gallon, it still took several years to breakeven on the purchase of a fuel efficient or hybrid car. So it isn't all about pump prices, it is also about total vehicle cost.

The other column focused on how to develop a national emissions policy that would appeal to conservatives. Laffer and Inglis recognize that what we need to do is price carbon, but that doesn't mean a cap and trade system that would become an additional tax on energy. Instead, they believe a tax need to be levied on carbon but other taxes such as payroll and/or corporate taxes should be reduced to eliminated. According to them, shifting to a consumption tax that incorporates a tax on carbon would be the most efficient system.

There is little doubt that low oil prices have disrupted the envisioned shift toward a green energy market and the demise of the SUV. The reality is that we can have SUVs and coal and other non-green fuels. In fact we will need them all if we are to continue to power our economy with our existing infrastructure. People seem to forget that it took roughly 50 years before oil displaced whale oil in this country. until we develop another fuel that is as, or more, efficient in producing energy for use in the transportation system of the world.