Gas tax holidays. Offshore oil drilling. Tire pressure gauges. Windfall profit taxes.
These proposed energy policies are more gimmick than substance, but will anything Sen. Obama or Sen. McCain do as president actually bring down oil/gas prices in the short-term? No.
Robert S. Pindyck, an MIT professor and expert in the behaviour of resource and commodity markets, recently examined the energy plans put forth by senators Barack Obama and John McCain. He was not impressed. He also acknowledged, however, that politicians don’t get elected by telling the truth.
Q: Would either candidate’s energy proposals make much impact on energy costs in the short term?
A: Neither of the candidate’s plans would have any impact. The one exception would be McCain’s proposal to eliminate tariffs on the importation of Brazilian ethanol. It would immediately reduce the cost of ethanol.
Q: Is there anything in either candidate’s proposal that would be particularly bad for holding down energy costs?
A: Most of the proposals are political and they involve subsidies to alternative energy sources. A lot of those subsidies are just ways of providing pork for different groups.
Q: It sounds like you are not impressed, to put it bluntly.
A: Look, what are going to be needed ultimately is a tax on carbon and a tax on gasoline — a large one. Another way to have a tax on carbon is to have a cap-and-trade system so you only allow a certain amount of carbon dioxide to be emitted. That will raise the cost of carbon. A gasoline tax would greatly reduce gasoline use. It would create the incentives we need for other energy sources, including conservation.
No candidate is willing to get up and say, “We need a to have a high tax on gasoline.” In fact, McCain wants to suspend the federal tax on gasoline for the summer and Obama didn’t. Nobody is going to say, “We want to make sure we have a tax in place so gasoline prices are always going to be high.” That encourages people to drive smaller cars and to conserve and that brings about investments in new technology. When people know that gas prices and fuel prices will stay high because of taxes, it means they have incentive to develop alternative energy supplies.
The question is will the candidates, nonetheless, do something when elected. Who knows?
Let’s hope so.
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