Real energy policy needed

Gasoline prices once again are rising and at recent Senate hearings oil industry executives were grilled with price rises blamed on industry concentration. The Bush administration calls for relaxed rules for oil drilling in the Gulf of Mexico and continues advocating drilling for oil in the Arctic National Wildlife Refuge. These events are just the tip of the iceberg in a national energy policy in near total disarray.

The Energy Policy Act of 2005 was heralded by the Bush administration as a step forward. Yet the underlying assumption of this act seems to have been that any policy is better than no policy. The result was no more than a hodgepodge of tax breaks and subsidies for every imaginable kind of energy firm.

The irony here is that many of the same members of Congress who voted last summer for these tax breaks and subsidies for energy companies now cry foul about “excess” profits and higher prices. The hypocrisy does not end there. Oil company lobbyists who lined up in Vice President Dick Cheney’s office for secret meetings to pack the bill with goodies, now complain about proposed windfall profits taxes and limits on oil industry mergers.

Of course, you and I are part of the problem. We want cheap energy, independence from foreign suppliers and a clean environment. We simply cannot achieve all three at the same time. The likelihood of seeing cheap energy again is very small. Increasing global population and industrialization mean increasing demand for energy resources, hence higher prices in the future.

So what to do? We should scrap the current systems of tax breaks, subsidies and convoluted federal research programs and start again. Two goals are achievable – reduced reliance on imported energy sources and reduced environmental effects from energy use. The best chance for success is to adopt well-designed energy taxation and then let the energy markets do the rest.

Complete energy independence is a pipe dream for the United States; we simply do not have the resources to meet our still growing energy appetite. It is, however, in our national interest to reduce our reliance on imported energy, particularly hydrocarbons from the Middle East. A per-barrel fee on imported oil is a simple and effective way to create incentives for domestic markets to produce more energy.

An oil import fee should be introduced gradually over a five to 10 year period, increasing to an amount that approximates the national security costs to the United States of maintaining access to oil markets in unstable parts of the world. The logic here is that users of oil in the United States. should pay the military and diplomatic costs of keeping our access to these supplies secure. Estimates put these costs at as much as $1 to $2 per gallon of gasoline. A scheduled introduction of such a fee would give domestic energy producers clear market signals to develop energy alternatives and would give oil consumers a market signal to invest in energy efficiency. Both would reduce our reliance on imported oil.

The second issue is the environmental cost of energy production and use. While an oil import fee would encourage domestic energy production, we would want to make sure that the energy we use does not cause unacceptable environmental hazards. The idea here is what economists call full-cost pricing. The price of energy should reflect all of the costs that it imposes on society.

We know that burning gasoline in cars causes the formation of ozone in the lower atmosphere. This ozone contributes to respiratory health problems, such as increased incidence of asthma attacks in vulnerable people. If the costs of asthma are clearly attributable to gasoline use, should not gasoline users pay those costs?

Other such costs of energy use include increased risk of climate change, mercury contamination of air and water, and long-term storage of high level radioactive waste. No energy resource is free of such spillovers. They are essentially hidden costs. The idea of full-cost pricing is that every energy source should be taxed based on its own particular array of hidden costs. Then markets would do what they do best, allow suppliers and demanders to choose which energy source would be used and in what quantities.

The simplified, if imperfect, version of full-cost pricing is a carbon tax, a differential tax based on the carbon content of fuels. Carbon taxation in Europe results in countries finding means of achieving a standard of living like in America using a whole lot less energy, a policy that yields more independence and less environmental effect.

Full-cost pricing obviously means higher fuel prices for consumers, but those costs are already being paid by society. The only difference with this approach is that the costs are right up front in gas and other energy prices instead of being hidden in the labyrinth of what is supposed to be an energy policy.

We can pretend that the hidden costs of energy use are not real and continue an energy policy that favors those with the best lobbyists. Or we can use energy taxes to make the prices we pay really cover all the energy costs. Then we would have a real energy policy, one that makes us less dependent on foreign energy suppliers and yields a cleaner environment.

Mark W. Anderson is the coordinator of the Ecology and Environmental Sciences Program at the University of Maine.