I. Yesterday was the day that the EPA issued new vehicle emission rules that will raise mileage standards across the board in the United States. Obama announced the plan early in his administration, and it was spurred on by governors from various states, including our own Christine Gregoire. No foolin’.

II. The day before, Obama announced the government would make much of the east coast available for off-shore oil exploration and drilling. He said during his announcement: “But what I want to emphasize is that this announcement is part of a broader strategy that will move us from an economy that runs on fossil fuels and foreign oil to one that relies more on homegrown fuels and clean energy. And the only way this transition will succeed is if it strengthens our economy in the short term and long term.”

III. The week before that, the Obama administration said it remains firmly opposed to a gasoline tax increase to fund the next federal transportation bill, even though many point out an increase could reduce emissions and raise substantial revenues.

30 Replies to “Obama’s Three Narratives”

  1. For goodness sakes, raise the gas tax. At only 10 cents a gallon, that just isn’t enough.

    1. Umm, not sure where you get that 10 cents figure from. Here‘s some state-by-state info on gas tax.

      Total gas tax for WA: 54.4 cpg
      The federal tax: 18.4 cpg (and has been since 1993)
      WA State gas tax: 36.0 cpg

      Still though, the gas tax is the absolute best policy measure for reducing how much we use oil. Just raise it already.

      1. The federal gas tax is separate from state gas tax although I believe that the federal gas tax is 18 cents. Yep 18.4 cents per gallon (http://en.wikipedia.org/wiki/Fuel_tax). FYI 60% of people think that the gas tax is indexed to inflation, when it is not. So at the very least the government should move to index the gas tax rate at least on a federal level.

      2. Or at least apply state/local sales tax to motor fuels made from petroleum used for automobiles.

  2. Well, at this point, he seems to be a wiser man than me. There is probably some method to all this. The past year’s Health Insurance debacle shows that change is a very messy process and that sometimes you have to go in really strange directions to outpace your opponents.

    One of the major economic challenges the country faces is that it is spending upwards of $800 Billion per year on imported oil. Perhaps by increasing the domestic supply it puts a good dent in that hemorrhage of our cash going overseas. It isn’t likely to reduce oil prices because the demand will continue to outstrip supply. But if we can reduce our trade/current account deficits, then that is a win. The oil price pressure will likely continue to spur the transition to alternative fuels and transportation modes.

    The left winger in me would suggest that the Government should setup its own oil exploration company and exploit the country’s reserves rather than simply selling leases for fat cat oilmen to sit on. The mandate of such a company would be to drill baby drill and not worry about “coordinating” (e.g. manipulating prices) the supply. Oh and it would be prohibited from exporting that oil. But I guess that will never happen…

    1. The “…demand will continue to outstrip supply”?

      Are you sure?

      I’m pretty confident that I can go out this morning and purchase gasoline, and at a price that historically hasn’t changed much over the years in real dollars.

  3. the federal gas tax is 18.4 cents per gallon, and it’s been that since 1997. it seems like it is time to raise it. the gov’t could certainly use the revenue, and the disincentive to driving is also a nice benefit.

    obama claimed that one of the reasons for the offshore drilling is the revenue the leases will bring in. clearly the gas tax can bring in a lot more revenue than leases that are given away at way below their value.

    i’m suspicious that the only revenue he is really interested in is revenue from the oil companies finding its way into the democratic coffers (instead of all going to the GOP).

    1. The leases are awarded by a competitive bidding process. Oil drilling is still a fairly speculative business. It may turn out that a company makes a lot more money on a lease than seems fair but they are sold at whatever price the market is willing to pay.

    2. IMO, they should double the gas tax and give anyone making less than a given amount added refunds for the cost of the tax times the average gas used by someone driving an average amount in a 30 mpg vehicle. And, raise the mileage write-off rate to accommodate the change, so anyone who drives for work will be able to claim the add in their taxes.

      Also, you could change the refund amount to scale with the EPA standard, so as mileage standards rise, the assumption is that a person averages better mileage, meaning they get less of a refund for the added gas tax.

    1. In your link it states:

      The Omnibus Budget Reconciliation Act of 1993, signed by President Bill Clinton on August 10, 1993, increased the gas tax by 4.3 cents, bringing the total tax to 18.4 cents per gallon. The increase was entirely for deficit reduction, with none credited to the Highway Trust Fund. However, the Taxpayer Relief Act of 1997, which President Clinton approved on August 5, 1997, redirected the 4.3-cents general fund gas tax increase to the Highway Trust Fund.

      1. so it does. i saw the effective date in the chart at the bottom and didn’t read all the way through. thanks.

        in that case, it is definitely time to raise it.

  4. I would support raising the gas tax in order to fund the next transportation bill, but I don’t see how it’s even remotely possible for it to occur. Granted the Democrats could maybe force through a gas tax increase now, but you know with absolute certainty that the Republicans would use it against them in future elections. Democratic majorities would then be lost and the new Republican majorities would begin their efforts to repeal the tax. It’s the same situation for Obama. He could throw his support behind a gas tax increase, but ultimately it won’t do much good if he’s ousted from office in 2012 and the new Republican president likely comes into office and repeals the gas tax.

    1. True.

      It’s too bad that fiscal responsibility is such an unpopular issue, and that some people choose to take advantage of that unpopularity.

      Funny thing is, a low gas tax is the definition of supply side economics. keep the gas tax low as a percentage, and people will drive more (and more inefficiently), causing gas tax revenues to go up. Perfect, win win!

      Well, a win for tax hawks and a win for oil companies, but a loss for the rest of us.

  5. Long-term mandates for both increased vehicle mileage and much higher gas taxes should have been put in place in the early 1970’s as a response to the first “oil crisis”. We managed to pass the Clean Air Act in 1970 — with Nixon, a Republican, in the White House. We managed to raise the Federal gas tax (which has never been indexed for inflation) during the administration of George H.W. Bush and then again in the administration of Bill Clinton. Why are we politically petrified to bump up the gas tax in 2010, with peak oil and climate change as a backdrop, and the Highway Trust Fund going broke? Today’s low Federal taxes help to maintain existing disincentives to improve vehicular efficiency and use less consumptive forms of transportation, such as transit. This makes no sense from a public policy perspective.

    Meanwhile, I believe it would be irresponsible and ultimately counterproductive to consume any additional oil produced by new (and environmentally hazardous) off-shore oil exploration. Every dollar spent on that effort should instead be spent improving efficiency, transit and investing in various new technologies that ultimately reduce our reliance on fossil fuels. How much will it cost (for construction and operations) to do this exploration, and how many weeks worth of U.S. oil consumption will the total yield represent?

    So, we’re 1 for 3 on these big ticket items, the way I see it. Thus far we seem collectively unwilling as a state, a nation and a planet, to make the politically difficult choices our dire circumstances require. We are still in collective denial, during this critical phase that we should be using to smooth our necessary transition to a future that is less dependent on fossil fuels. So while I feel good about the progress we are making, we clearly have a long, long way to go.

    1. That was when the Republican Party was still a reasonable political party. Unfortunately, they’ve descended into madness and have become a sad lampoon of themselves.

    2. Just ran some numbers although this analysis is really unsophisticated.

      Total Oil Refined in Dec 2009: 433,334,000 barrels (EIA)
      Per Day: 13,978,839 barrels

      Total Increase in Oil Production by 2030: 3% of 5.6 million barrels per day = 392,000 barrels per day (EIA and that number is for all US offshore sites not all of which would be opened up.)

      Percent of Oil Refined that Increase Would Be: 392,000 / 13,978,839 = 0.0028%

      What an absolutely worthless effort on the supply chain.

      1. If the Interior Department’s Minerals Management Service estimates are correct:

        undiscovered, economically recoverable resources in the Beaufort Sea are up to 7 billion barrels of oil and 20 trillion cubic feet of natural gas. Chukchi is estimated to have as much as 12 billion barrels of oil and 54 trillion cubic feet of natural gas.

        That’s almost a three year supply of the total US consuption. Spread out over ten years (the usual lease time) that would be 27% of our total. Or since we import about 62% it would cut the amount imported almost in half without touching the Atlantic or Gulf reserves.

      2. Bernie,

        All I have to say to the MMS is “Remember Mukluk!”

        I worked for Sohio in Alaska just after that fiasco (1.7 billion dollars total for a lease, gravel island twenty miles offshore, and exploration well) that showed oil stained Sadlerochit core but no remaining hydrocarbons. The trap was faulty and the fluids leaked out.

        There’s no doubt that seismic, gravimetric, and electrical field technologies have all gotten dramatically better than they were thirty years ago. It would be very interesting as an industry and government funded reality check to apply todays technologies to the Mukluk area and determine if they would clearly show the ruptured trap.

        Obviously, this can’t be a truly “controlled” experiment; everyone in the industry knows the trap is faulty, so if it shows up even in a ghostly way it will certainly be noted.

        But if it doesn’t show up, the MMS estimates need to be discounted. It was the Mukluk disaster that drove Sohio (John Rockefeller’s original “Standard Oil Company” of Cleveland, OH) into the arms of BP.

      3. Note up above where I said, “Oil drilling is still a fairly speculative business.” And even if the field turns out profitable they have risk in production and shipping (Exxon Valdeze). The geology has gotten better and global corporations have gotten better at risk management. But legal and political risks are still very real and, ironically if these wells do meet expectations it could trigger a price collapse in oil that makes them unprofitable. I think these companies will do well financially but I wouldn’t put 100% of my 401k in their stock (don’t own any actually except what an index fund might hold).

  6. While increased drilling is a bit silly, the total amount likely to be extracted is nominal. I think The Economist hit it head on, it’s purely a political move…

    (1. To de-fang the “drill baby drill” crowd ahead of November, and possibly make them move further right into lalaland
    (2. To meet the demand for increased drilling made by Senator Lindsey Graham (R-SC) as a condition of cooperation on cap-and-trade.

    Good article here…http://www.economist.com/blogs/democracyinamerica/2010/04/offshore_drilling

  7. I don’t get why Obama is so opposed to raising the gas tax. U.S. gas taxes are by far the lowest of any developed nation. Effectively a portion of any gas tax increase will be paid by foreign oil suppliers to the extent that there is a reduction in demand. An increased gas tax will generate a reduction in oil consumption and emissions and help shift demand toward more fuel efficient vehicles and more sustainable development. It’s all good.

  8. I for one am glad that the federal gas tax is not tied to inflation since the cost of asphalt, concrete and construction equipment and construction wages are fixed at their 1993 prices/levels and have not increased since then. Right?

    Also, since 1993 there have not been any vehicles introduced that use less or even no gasoline. I mean do you really think a vehicle could run on natural gas or electricity? What fantasy!

    Or how about a hybrid of gasoline/diesel and electricity in order to increase the number of miles traveled per gallon burned? Never!

  9. The problem with indexing the gas tax to inflation is that the temptation to bond all the future revenue for highway expenditures now is very, very high. This removes the flexibility for future decisions that may be different. This may be less of a problem at the federal level than it is at the state level, but in Washington state almost all of our future revenues from the existing gas tax have been committed to projects under way now or in the immediate future.

    To build new projects, or to use the revenue for some new purpose, would require raising the level of the tax. If it’s indexed, and all that growth is already tapped and being used to pay for existing projects it’s hard to raise the tax and you have no flexibility. This is that nasty fiscal responsibility to future generations thing that’s hard for us politicians to do.

    My theory is that the decisions we’ll make 5 years from now are somewhat different than the one’s we’d make today and we should preserve some flexibility for then.

  10. The gas tax works backwards. It is set at a certain level and then we decide what to spend based on how much revenue is generated, which is chronically lower than what actually needs to be spent to maintain our infrastructure – although maintenance could possibly be covered if foolhardy new road capacity weren’t being prioritized. In theory it would be better if it worked like a property tax levy – i.e. the needs would be determined (based on national goals) and a level of expenditure would be agreed to by congress. Then a tax rate would be set based on estimates of gasoline consumption and that rate would produce just the right amount of revenue to cover expenditures. Unfortunately we do not live in that world.
    In this world I think a multi-year stepped increase to a tax of 25c is the fiscally prudent course, given that we are now using general revenues from a treasury in deficit to cover the shortfall in the trust fund. That situation poses a danger to transit because the anti-tax voices are already trying to “restore balance” in the fund by cutting out transit’s portion and dedicating all gas tax revenue to roads (essentially reverting to a highway – not transportation – trust fund). I think congress in general is going the other direction, so not too much worry. Surveys prove public support for using gas taxes to support transit and other alternate modes even in rural america which is more sensitive to the tax because of long distances to anything, and heavy gas use on farms. My only fear is it’s one of those things that an ignorant media could latch on to and light a fire that grows out of control.
    The tax needs to be raised – the transit share needs to increase to 25%, A mandatory maintenance 1st policy should be adopted, an infrastructure bank should be created, tolling should expand, parking should be taxed and, serious work on other replacements or supplements for gas taxes needs to be happening before large scale deployment of electric cars towards the end of the decade.
    I think the administration will hold this anti-tax position until the congress sends them a transport bill with a tax hike in it during the lame-duck session after this years election. Then Obama will sign it saying it’s needed to stop deficit spending and create jobs… he’ll have 2 years before 2012 for people to adjust and forget about it.

    As for drilling – It’s a political move but one that may be useful in a hedging your bets type of way. I really do think Obama is sold on the “let’s use everything” energy approach. He wants sustainable sources to work, but if they don’t, he still wants to not be dependent on the mideast. He also needs to show the base some movement on climate change and this is part of the dealing to get it through. More domestic production (if it happens) would reduce trade deficits and generate lease revenue for both the federal gov’t and the states where drilling happens. I’m surprised he kept California and New Jersey completely off the table, but politically they would be hard sells and it will take so long to produce anything it couldn’t help them with the current budget crisis. The federal revenues from leases will be plowed into renewables. That can come as soon as they get legislation and auction off permits. I’m hoping for wind and wave power to be kicked up here on the W coast given favorable conditions in the eastern pacific – as long as it doesn’t f**k with the whales.
    As for impact to price, econ 101 – price is set at the margin. A small group of speculators drove the spike of 08. A very small decline in demand crashed that spike. The small share of commuters using transit nationwide have a big impact on reducing traffic (also created at the margin) and the price of fuel (shooting ourselves in the foot there). So if we get just 1-2% change in supply that may make a big difference (Demand too – so that’s why we need raised efficiency standards and gas tax shifted to transit). Additional domestic supply may not actually change the broad upward price trend because we’re dealing with a globally traded commodity in long term decline, but what it could do is reduce volatility in prices here, and that is one of the more difficult problems that arise after peak production, so countering it and keeping the economy more level through transition is a fairly astute move – climate implications aside… With gains in efficiency from electric propulsion it’s possible that the additional domestic capacity might supply all of our significantly reduced needs 50 years hence.

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