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By Robert Rapier on Nov 28, 2010 with 74 responses

Addressing Oil Company Subsidies

Following my recent essay on the elimination of the VEETC, the major ethanol subsidy in the U.S., some ethanol supporters argued for continuing the subsidies because oil companies receive subsidies. There are many versions of the oil subsidy argument – some of them grossly in error – but I won’t argue about what is and is not an oil subsidy.

I do believe that gasoline at the pump is subsidized in various ways. But these subsidies aren’t as simple as a credit based on the number of gallons of gasoline sold – as is the case with the ethanol subsidy. If they were, they would be much easier to eliminate.

My solution to addressing these hidden subsidies would be to artificially increase the cost of gasoline such that consumers are paying something more like fully realized costs. I have made the argument before that if we were to implement a revenue neutral scheme like lowering income taxes or offering tax credits while offsetting those with higher gas taxes, the cost of oil subsidies could be recouped at the pump, proportionately from people who drive the most. This would also improve the economic viability for biofuels because they would be competing against higher fossil fuel prices.

However, many of the so-called oil company subsidies are also subsidies that the ethanol industry receives. For instance, Section 199 of the IRS code is a deduction for domestic production activities. This has often been used as an example of an oil company subsidy, yet the ethanol industry receives the same tax deduction. So in cases like this, the “subsidy” has no impact on the competitiveness of one industry against the other.

But to the extent that oil companies are subsidized, the answer to that is to eliminate those subsidies, not to throw subsidies at the ethanol industry. The important thing to keep in mind is that the oil companies – subsidized or not – are still under mandate to blend ever-increasing volumes of ethanol into their product. Adding in a subsidy on top of these mandated volumes is redundant, irrespective of how much the oil industry is subsidized.

As far as subsidies themselves, I am neither for or against them. It depends. The question I would ask is what are the consequences with and without the subsidies. If an oil company subsidy merely preferentially increases the profitability of an oil company relative to other industries (i.e., a special subsidy that other industries don’t receive), or subsidizes consumption by making gasoline cheaper, I would be against it. If it increased domestic production and backed out imports, then the overall costs to society have to be taken into account in order to judge whether it is a good taxpayer investment.

This is why I oppose the continuation of the VEETC, as explained in the aforementioned post. Whether the VEETC is there or not, oil companies are still under mandate to blend an ever-increasing amount of ethanol. So the consequences of allowing it to expire aren’t going to be great relative to the $6 billion per year cost of continuing it. If the debate was on continuing the VEETC in some form for only blending above the mandated level, or on some modified version applying to only E85, then that’s a different discussion entirely.

  1. By perry on November 29, 2010 at 2:54 am

    If we moved the gas tax from the pump to the sticker price, a lot of those fuel hogs would never make it off dealer lots. Also, the gas guzzler tax needs to be applied to everything at a dealership, instead of just expensive sports cars. Someone buying a 2.5 million dollar Bugatti could care less about a $6400 guzzler tax. But, it would be a big deal for the typical Tahoe buyer. Enough so that they might just opt for the hybrid version.

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  2. By paul-n on November 29, 2010 at 3:15 am

    If we moved the gas tax from the pump to the sticker price,

    Dropping the fuel price will ensure those fuel hogs stay on the road for much longer, and that the people who have them drive them more because the marginal cost of doing so has decreased.  Ditto foe people considering retiring their old, inefficient vehicles -operating them, just got cheaper.

    A buyer can do their sums to work out if the extra purchase tax will be paid off, and thus, those that drive more per year will be more inclined (or less discouraged) to buy the bigger vehicles -is that a good result?

     

    I would like to think that most of the oil industry subsidies RR refers to, are all geared towards domestic production, which, if they are actually helping to increase production in some way, are actually helping to reduce imports.  

    While the figures on oil subsidies are very rubbery, it would seem that they do not amount to very much, on a per gallon basis.

    Hopefully there are none (other than military protection) that are encouraging imports.

     

     

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  3. By perry on November 29, 2010 at 11:54 am

    Paul N said:

    Dropping the fuel price will ensure those fuel hogs stay on the road for much longer, and that the people who have them drive them more because the marginal cost of doing so has decreased.  Ditto foe people considering retiring their old, inefficient vehicles -operating them, just got cheaper.


     

    Old, inefficient vehicles don’t get retired. They get sold cheap to someone who can’t afford better. That buyer throws $10 or $20 in it and drives until he needs more. He doesn’t care about fleet efficiency or which fuel gets subsidized most. A certain segment of our population pays weekly rent for a tv, pays 3000% interest for a payday loan, and drives whatever they can scrape up the cash for. Before we consider new taxes, let’s first enforce one that’s been on the books for over 30 years. Kill the exemptions on the Gas Guzzler tax, and let sticker shock do the rest. A 2010 Ford F-250 Diesel gets a whopping 11 mpg. That’s insane. It deserves a tax just for being stupid.

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  4. By ronald-steenblik on November 29, 2010 at 12:37 pm

    Paul wrote:

    I would like to think that most of the oil industry subsidies RR refers to, are all geared towards domestic production, …

    Actually the largest tax break identified in the Environmental Law Institute’s study relates to Foreign Tax Credit — i.e., the treatment of foreign taxes on oil produced abroad. (Caution, the numbers relate to their estimates of energy subsidies for Fiscal Years 2002-2008 — i.e., for 7 years, not 1.)

    … which, if they are actually helping to increase production in some way, are actually helping to reduce imports.

    Only in the short term. Think about it: the faster we deplete domestic reserves, the sooner we run out of the stuff. So, party today, but pay dearly (in terms of more imports) tomorrow.

     

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  5. By Wendell Mercantile on November 29, 2010 at 1:07 pm

    Old, inefficient vehicles don’t get retired. They get sold cheap to someone who can’t afford better.

    Perry~

    You ignore the argument that used vehicles are the most energy efficient of all. If I buy a ten-year old used car, instead of a new one, no energy has to be sunk into building a new one. If I buy a used car, no resources have to be extracted from the earth to build a new car. If I buy a used car, no steel mill or aluminum smelter has to use energy to melt and shape metal for a new car, etc. etc. also for the glass, plastic, and rubber that goes into a new car.

    The used car may not be as fuel efficient, but the embodied energy cost of the used car is zero, compared to the high embodied energy cost of building a new car — especially the high embodied energy cost a new BEV with lithium batteries.

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  6. By perry on November 29, 2010 at 1:18 pm

    Wendell Mercantile said:

    If I buy a ten-year old used car, instead of a new one, no energy has to be sunk into building a new one. If I buy a used car, no resources have to be extracted from the earth to build a new car. If I buy a used car, no steel mill or aluminum smelter has to use energy to melt and shape metal for a new car, etc. etc. also for the glass, plastic, and rubber that goes into a new car.


     

    Apples and oranges Wendell. Our concern is peak oil, not peak energy. Besides, if the Gas Guzzler tax was ever enforced on all sales, it wouldn’t apply to used cars anyway. It would just mean more efficient new vehicles. Do you think Ford would sell many 11 mpg diesel pickups if there was a $6000 gas guzzler tax included in the sticker price? I don’t. I think Ford would find a way to get 16 mpg from the same truck and reduce the penalty by half.

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  7. By Wendell Mercantile on November 29, 2010 at 2:59 pm

    Our concern is peak oil, not peak energy.

    With only a few exceptions, energy is fungible. The motive force of a vehicle could come directly from gasoline, diesel, ethanol, methanol, charcoal, wood, natural gas, propane, electricity, syngas, or even hydrogen. (We’re probably not ready yet for a fission-powered car except indirectly using the electricity a reactor generates.)

    The amount of embodied energy in a newly-built car is a concern.

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  8. By rrapier on November 29, 2010 at 3:12 pm

    Actually the largest tax break identified in the Environmental Law Institute’s study relates to Foreign Tax Credit — i.e., the treatment of foreign taxes on oil produced abroad.

    Correct me if I am wrong, Ron, but isn’t that foreign tax credit available to all companies operating abroad? In other words, it isn’t specifically an oil company subsidy?

    RR

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  9. By paul-n on November 29, 2010 at 3:17 pm

    Wendell, given that the government went to quite some effort to bail out two bankrupt carmakers, I would say that they are more concerned with having new cars made, than having them not made.

    The amount of embodied energy in a car is not really a concern – it is dwarfed by the amount of energy used over the car’s life, and very little of the embodied energy is oil.

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  10. By perry on November 29, 2010 at 3:32 pm

    Oil industry subsidies for dummies.

     

    http://cleantech.com/news/node/554

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  11. By Wendell Mercantile on November 29, 2010 at 3:50 pm

    given that the government went to quite some effort to bail out two
    bankrupt carmakers, I would say that they are more concerned with having
    new cars made, than having them not made.

     

    I agree fully. There are many variables in the equation and embodied energy is one of the least important on any policy maker’s radar screen. In some ways one can think of the embodied energy that goes into cars as an investment that leads to things such as jobs for the masses.

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  12. By ronald-steenblik on November 29, 2010 at 3:57 pm

    Correct me if I am wrong, Ron, but isn’t that foreign tax credit available to all companies operating abroad? In other words, it isn’t specifically an oil company subsidy?

    Yes and no. Apologies for quoting extensively from the ELI study, but this is how they justify including it as a specific subsidy:

    The Foreign Tax Credit (IRC Section 901) is available generally to all U.S. taxpayers, both corporate and individual. When a taxpayer has earned income abroad subject to another country’s income tax, it may take a tax credit on its U.S. taxes equal to the amount it paid in foreign taxes (i.e. the income taxes due to the United States are reduced by the amount paid to the foreign government). The policy rationale behind this is to avoid double taxation of those taxpayers. There are several limitations on this general rule discussed below.

    In addition to taxes, oil and gas producers pay royalties to the owners of oil or gas deposits based on a percentage of revenues. In many countries, the resource owner is the government itself.

    These payments to governments are technically not a form of taxation but rather compensation to the owner of oil and gas resources for the “specific economic benefit” gained from extracting these resources. Typically, oil, gas, and other resource-extracting industries take a tax deduction for royalty payments to resources owners, including foreign governments, as a business expense. In general, foreign taxes are creditable, but royalty payments to foreign governments are only deductible. Tax credits are more valuable than deductions because they reduce taxes dollar-for-dollar, whereas deductions reduce the amount of income subject to tax and are thus valued at the marginal tax rate of the taxpayer, generally 35 percent for the period of this study.

    In the early 1950s, at the suggestion of the State Department, several countries with state-owned oil and gas resources began reclassifying royalty payments from U.S. oil and gas companies operating in their countries as income taxes. The U.S. government allowed oil companies to claim these payments as a foreign income tax credit, despite the fact that it was an accounting fiction – one made all the more obvious by the fact that these countries charged far lower, if any, income taxes on non-oil and gas businesses. This in effect transferred tax revenues from oil and gas profits from the U.S. Treasury to foreign governments.

    In the wake of the oil crises of the 1970s, Congress imposed restrictions on the ability of oil companies to use the credit in this way. Section 907(a) of the IRC limits the credit available for “foreign oil and gas extraction income” to the amount of tax that would be imposed on that income by the U.S. Tax Code (generally 35% during the study period; see IRC Section 11(b)). Amounts of foreign taxes that exceed this limitation can be carried back one year or forward ten years for use in years when the Section 907(a) limitation is not reached. This limitation, however, does not halt the practice of taking a credit for royalties-disguised-as-taxes that exceed generally applicable tax rates up to the 35% limitation. The carry-forward and carry-back provisions also reduce the effect of the limitation.

    The IRS also has the potential to end this practice through rules governing “dual-capacity taxpayers.” The IRS recognizes that certain foreign “levies” or portions of such levies are not taxes, but rather are imposed as compensation for the sale of “specific economic benefits” (e.g., royalty payments for government-owned oil and gas). Oil companies subject to a levy that is both a form of general taxation and a fee or charge for a specific economic benefit are known as “dual capacity taxpayers.” However, the IRS and U.S. courts have interpreted the rules governing these entities in such a way that it is still possible for oil companies to take advantage of the credit in ways that greatly exceed generally applicable foreign corporate income tax rates.

    Major oil-producing countries continue to direct higher tax rates at oil and gas extraction income. Generally speaking, the tax rates imposed by those countries on oil and gas income are 10-60% higher than the generally applicable tax rate. In Saudi Arabia, for example, the income tax on oil and gas extraction income is 85%, while the non-petroleum tax rate is 20%. In Nigeria, the petroleum tax rate is 85%, while the generally applicable rate is 30%. In the United Arab Emirates, the petroleum tax rate ranges from 55-85%, while the general rate is 20%.8 An analysis of corporate income tax rates in countries listed in IRS statistical tables related to the FTC confirms an average (weighted by oil and gas extraction income by country) generally-applicable corporate tax rate of 28.9%, a 6.1 point lower rate than the U.S. rate of 35%. The subsidy is the difference between 28.9% and 35%, which is the limitation on the tax credit imposed by Section 907.

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  13. By rrapier on November 29, 2010 at 4:17 pm

    These payments to governments are technically not a form of taxation but rather compensation to the owner of oil and gas resources for the “specific economic benefit” gained from extracting these resources.

    Well, I think it is nonsense to single something like that out as an oil subsidy. There are two cases here. One is that the royalty is paid to the government, in which case it is a tax.

    The second is that the royalty is paid to an individual for allowing you to extract oil from their property. How is that different than any other business deduction? A timber company may pay a royalty for extraction in the same way and gets a deduction. A computer manufacturer deducts the cost of materials they use to produce the computer. All businesses deduct for the cost of doing business. So it still seems to me that the foreign tax credit is in no way an oil specific subsidy.

    RR

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  14. By Kit P on November 29, 2010 at 8:10 pm

    “A 2010 Ford F-250
    Diesel gets a whopping 11 mpg.”

     

    Where did you get
    that number from Perry? I looked it up and found 14/18 mgg. Perry
    may be thinking of a commercial duty truck.

     

    “You ignore the
    argument that used vehicles are the most energy efficient of all. If
    I buy a ten-year old used car, ..”

     

    Or better yet
    Wendell, make it last 10 more years. My 20 year old pick saves
    water, no need to wash it anymore.

     

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  15. By ronald-steenblik on November 29, 2010 at 4:43 pm

    Robert, that’s the whole point. Nobody (not even the ELI) quarrels with a company being able to deduct a royalty payment as a business expense. Read the box more closely: what they are alleging is that the U.S. government urged foreign governments to charge oil companies higher rates of income tax in lieu of royalties — considerably higher than the income tax rate applicable to other industries. The countries get the same income, but the companies pay less U.S. tax, because the payments to foreign countries are allowed to be taken as a full credit against their U.S. tax liabilities, rather than simply reduce the taxable income.

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  16. By perry on November 29, 2010 at 4:50 pm

    What about the $7.3 trillion we’ve spent policing the Persian Gulf for the last 30 years? If that ain’t a subsidy, I don’t know what is.

    The Ministry of Oil Defense

    http://www.foreignpolicy.com/a…..il_defense

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  17. By savro on November 29, 2010 at 9:28 pm

    Perry said:

    If we moved the gas tax from the pump to the sticker price, a lot of those fuel hogs would never make it off dealer lots. Also, the gas guzzler tax needs to be applied to everything at a dealership, instead of just expensive sports cars. Someone buying a 2.5 million dollar Bugatti could care less about a $6400 guzzler tax. But, it would be a big deal for the typical Tahoe buyer. Enough so that they might just opt for the hybrid version.


     

    I’m not a big fan of the gas guzzler tax because I don’t see why the government should prevent anyone from purchasing the car of their choice. If a Tahoe owner does not do a lot of mileage, and is therefore burning the same amount of gasoline as any other average citizen, then there’s no reason to penalize him with a guzzler tax. The vehicle is not the problem – it’s the amount of liquid energy being used.

    If the average American burns 750 gallons of gasoline per year, and I burn the same amount in my Tahoe or other fuel inefficient vehicle, then I should not have to pay 1 cent more than the owner of a Honda Civic who burns the same amount of gasoline by driving more miles. And to add to that, if I decided that I wanted to split my driving between two guzzlers that I like, should I be hit with the guzzler tax twice? In short, the price should be determined at the pump — not at the lot.

    That’s not to say we shouldn’t encourage the manufacturing of vehicles that are more fuel-efficient. But I don’t see why we should penalize the car-buyer rather than the gas-buyer. Just charge more for gasoline (while reducing income taxes) and let everyone make their own choices if they want to save money by way of conservation.

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  18. By ronald-steenblik on November 29, 2010 at 5:13 pm

    Perry, most people would argue that a good portion of that military expenditure was related to protecting Israel. But even if you don’t concede that, then the subsidy is to all Middle East oil, including the many millions of barrels that get shipped to Europe and the Far East.

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  19. By perry on November 29, 2010 at 5:24 pm

    Israel is nowhere near the Persian Gulf. Oil already has a monopoly. Subsidies aren’t needed, but military expenditures are a must.

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  20. By perry on November 29, 2010 at 5:26 pm

    Irony? What irony?

    http://jamminangels.net/media/…..070810.gif

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  21. By rrapier on November 29, 2010 at 5:31 pm

    What about the $7.3 trillion we’ve spent policing the Persian Gulf for the last 30 years? If that ain’t a subsidy, I don’t know what is.

    Did you read your own link?

    Defense requirements – Some have suggested that the demands of defending Middle Eastern oil fields added (pre-Iraq war that is) between $10 billion and $20 billion a year in subsidies to the true cost of oil.

    Which begs the question – even if America greatly reduced its imports of oil, would it necessarily reduce its military activity in the Gulf region?

    The question is, would we be in the Gulf if there wasn’t any oil there? Probably, because we are lots of places where there isn’t oil.

    But can some of the spending be attributed to keeping the shipping lanes open? Sure. How much? Who can say?

    As I have said before, I think this falls into the category of consumer subsidy: Theoretically, the protection there keeps the region stable and keeps prices low. Theoretically.

    It is only an oil company subsidy to the extent that it keeps prices low and allows them to sell more product. If the protection wasn’t there and prices were higher, pump prices would reflect that. As I have said many times, there are ways to recoup these subsidies at the pump.

    RR

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  22. By Wendell Mercantile on November 29, 2010 at 6:34 pm

    then the subsidy is to all Middle East oil, including the many millions of barrels that get shipped to Europe and the Far East.

    Good point Ronald. Oil is fungible, and it’s just as important for our oil security that the flow of oil continues to Europe and the Far East as it does to us. If the flow to Europe were shut off and oil prices there shot up as a result, the price of oil here would also shoot up.

    The narrow view is that we protect the the oil in the Middle East for our benefit and that we could save money were we to stop — the broad view is that it is a necessity to keep the the world economy going.

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  23. By perry on November 29, 2010 at 9:49 pm

    The 2010 F-250 Lariat with a diesel engine may be the least fuel-efficient vehicle you can buy this year. Consumer Reports has listed the top 10 most and least efficient cars and trucks it tested this year and of all the cars and trucks that were tested, the F-250 had the dubious distinction of guzzling the most gas. Consumer Reports averaged just 11 mpg with the F-250.

    http://blog.pricewheels.com/20…..2/24/2735/

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  24. By perry on November 29, 2010 at 10:25 pm

    Samuel R. Avro said:

     The vehicle is not the problem – it’s the amount of liquid energy being used.


     

    You can’t argue with the fact that a Tahoe will burn a lot more gas over its lifetime than a Focus will Samuel. It might not leave your garage while you own it, but that choice you made at the dealership will mean more oil imports than had you purchased something more efficient. Eventually, that ton of lard will get every mile that can be squeezed out of it. And, being the one who put it on the road, I think it’s only fair that you should be the one to pay. Nothing personal, mind you. 

     

    I don’t think the law was passed to hurt consumers, or to take away choice. I think the intent was to get automakers to become fuel efficient. Instead, automakers just doubled up on that part of the fleet that was exempted. Trucks and SUV’s went from 25% of sales, to 50%.

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  25. By Kit P on November 29, 2010 at 11:05 pm

    “Consumer Reports
    has listed the top 10 most and least efficient cars and trucks it
    tested this year and of all the cars and trucks that were tested, the
    F-250 had the dubious distinction of guzzling the most gas. Consumer
    Reports averaged just 11 mpg with the F-250.”

     

    That is likely
    because Consumer Reports put the Pious on a trailer and had the F-250
    pull it through the course. Which is what the F-250 with a diesel
    can do much more efficiently than a the Pious. Try doing with a
    Pious what the F-250 is designed to do and you better have a fire
    extinguisher and tow truck ready to get the burned out hulk of Pious
    to the junk yard.

     

    To clarify a some
    points that Perry missed because he is not a very skeptical reader.
    The mileage reported by Consumer Reports is not ‘average’ but a test
    devised by Consumer Reports. Notice that the Pious does not do very
    well either. I read a article on Road and Track where they did a
    road test to determine the ‘greenest’ POV using drivers to get the
    best fuel economy. The Jeep Grand Whatever did the worst but it was
    pulling a trailer with all their cameras as stuff. The VW TDI kicked
    the Pious.

     

    As Sam accurately
    states,

     

    “it’s the amount
    of liquid energy being used.”

     

    I would add for
    getting a specific task done. Perry when the government starts
    taxing you because someone in the government does like something
    about Perry’s lifestyle, Perry is going to get is going to get real
    angry about it.

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  26. By savro on November 29, 2010 at 11:12 pm

    Perry said:

     

    You can’t argue with the fact that a Tahoe will burn a lot more gas over its lifetime than a Focus will Samuel. It might not leave your garage while you own it, but that choice you made at the dealership will mean more oil imports than had you purchased something more efficient. Eventually, that ton of lard will get every mile that can be squeezed out of it. And, being the one who put it on the road, I think it’s only fair that you should be the one to pay. Nothing personal, mind you. 

     

    I disagree entirely with how you’re looking at the issue. I’ll say it again: The enemy (so to speak) here is not the choice of vehicle, it’s the burning of gasoline.

    Let’s look at it this way. For argument’s sake, let’s say every American has a ‘right’ to 100 gallons of gasoline per year. If I choose to burn that while driving 100 miles in a vehicle that gets only 1 mile to the gallon, then so be it. I’d be no worse than my neighbor who manages to get 2500 miles out of his 100 gallon quota.

    So in short, if I choose to sacrifice miles driven in order to drive the vehicle I want to, the government should not stop me. That would be prohibiting free choice. The government should focus on incentivizing fuel efficiency rather than simply penalizing inefficiency in this manner.

    I don’t think the law was passed to hurt consumers, or to take away

    choice. I think the intent was to get automakers to become fuel

    efficient. Instead, automakers just doubled up on that part of the fleet

    that was exempted. Trucks and SUV’s went from 25% of sales, to 50%.

    No matter the intent of the law, it’s still unfairly restricting my choice by trying to plug the leak in a place that isn’t necessarily leaking. Also, if we were incentivizing the manufacturing and sale of fuel efficient vehicles rather than penalizing gas guzzlers, perhaps the automakers wouldn’t be doubling up on the exemptions.

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  27. By perry on November 29, 2010 at 11:27 pm

    Can you think of a better way to raise fleet averages Samuel? Sure, there will always be those who light cigars with $100 bills. But, put an extra tax on fuel hogs, and most consumers would wise up quickly. So would automakers. 

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  28. By savro on November 29, 2010 at 11:39 pm

    Perry said:

    Can you think of a better way to raise fleet averages Samuel? Sure, there will always be those who light cigars with $100 bills. But, put an extra tax on fuel hogs, and most consumers would wise up quickly. So would automakers. 


     

    Charge more at the pump and give Joe, Sally, Jimmy or Cindy the choice of: 1) Paying the price; 2) Conserving fuel; 3) Purchasing a more fuel efficient vehicle. Chances are that with substantially higher pump prices all of them will choose option 3 regardless of which of the two previous options they choose. And once the consumer demands it, the automakers will quickly step up to the plate and supply that demand.

    Another idea would be to give incentives to the automakers for increasing fuel efficiency. I’m sure we can come up with a myriad of ways to accomplish that without penalizing and restricting choice.

     

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  29. By ronald-steenblik on November 30, 2010 at 1:28 am

    Kit wrote:

    My 20 year old pick saves water, no need to wash it anymore.

    Good point, Kit!

     

    Perry wrote:

    You can’t argue with the fact that a Tahoe will burn a lot more gas over its lifetime than a Focus will …

    I think that some here are missing Perry’s point, which is that the life of a vehicle is generally determined by how many miles it is driven, not its chronological age. So, generally (barring an accident or fire), thanks to planned-obsolescence, a vehicle will last for a certain number of miles, whether spread out over 5 years or 15 years. So on that he is right. Of course, it means that delayed consumption of fuel (or emissions) is weighed just as heavily as consumption today.

    Note that, under his proposal, the implicit externality that he is trying to internalize gets internalized into the purchase price of the vehicle, and gets passed on to other buyers through a higher price for used gas-guzzlers. For that to happen, the total supply of gas guzzlers would have to decline, creating a scarcity value for those consumers who valued other features (power, space) comparatively highly.

    Sam’s point, on the other hand, is that people drive a different amount in a given year. So, for somebody who wants a big, relatively inefficient vehicle, and to keep it for a long time, they will end up paying a hefty tax up front, even though the externality they generate will be spread over many years.

    If Perry’s idea is a feebate — i.e., use the gas-guzzler tax to cross-subsidize more efficient vehicles — then there are other problems, namely the challenge to fine-tuning it. Some of the European countries that introduced feebates a few years ago ended up, effectively, subsidizing car ownership, as (in response to high fuel prices) more people bought efficient cars than expected, and fewer bought gas guzzlers.

    So, in short, I continue to regard such a policy as second-best compared with a straight-forward fuel tax. But there is enough merit to Perry’s idea that it is worthwhile continuing to explore it.

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  30. By paul-n on November 30, 2010 at 2:04 am

    Sam wrote;

    For argument’s sake, let’s say every American has a ‘right’ to 100 gallons of gasoline per year.

    I can indeed see such a statement provoking many arguments!  

    That works out to;

    • 2 gal/week
    • 30bn gall/yr, 
    •  or 1.2 million barrels/day, about one quarter of domestic oil production

    An interesting basis to start on Kit’s rationing idea.  If this was the ration of “fuel stamps”, and after that you paid, say $5/gal (still less than Europe at $7, and just over Canada at $4.50), then if you used;

    • 2gal/week (Kit’s usage), average of $0
    • 4gal/week, average of $2.50/gal
    • 5 gal/week, average of $3/gal
    • 10gal/week (national per capita average) , average of $4/gal

    So, the cost is not onerous, but with a marginal cost of $5/gal, there is a great incentive to be efficient.  There would be some very interesting gaming of the system with non motorists selling their fuel stamps, but that’s all part of the fun – it would lead to 0 gal/week = $-5/gal!

    Within about, say, one hour of the scheme being announced, there would be “an app for that” to connect buyers and sellers of fuel stamps over their iPhones.

    Within a day, Chevy would be marketing their Volt as getting “100 gal per year”, though it would take the EPA another year to work out just how to, officially,  calculate that number.

    Within a week, the ethanol lobby would be complaining about hitting the “allocation wall” and would be asking for it to be increased.  E85 would actually be exempt from the 100 gpy  limit, but they would, of course, ignore that.

    Other things that would happen;

    • The banks would be offering credit card linked schemes for people to get their next year’s allocation now, giving “adjustable rate repayments” and paying 19% interest on the value of it.  They would create a derivatives market for “fuel default swaps”, selling the obligations on to thirds parties.  Of course, some motorists would borrow to many years of future stamps, and would end up “under oil” on their credit cards  When motorists couldn’t make the payments, they would be “fuelclosed”.
    • With gasoline consumption dropping, the oil companies and refiners would be in crisis, claiming a lack of “liquidity” in the oil markets, and demanding an “oilout”  Rumours abound the Fed (the Strategic Petroleum Reserve) is secretly buying oil from them to restore markets, called “oiltative easing”
    • Outer suburbs of cities like Phoenix, Vegas, LA etc would see declines in property values as people decide the commute is too expensive.
    • The remnants from BP’s GOM oil spill are cleaned up in record time, as people volunteer for free, as long as they can sell the tarballs back to BP against the fuel stamps.
    • Unemployed people start trading the fuel stamps for food stamps, prompting a huge debate about the “fuel to food” crisis 
    • Oil State senators form a front, complaining about “indirect oil use change”
    • Texas recalls its congressmen and threatens to secede from the Union, because of their loss of tax revenues from oil sales, claiming “no representation without taxation”
    • Range Fuels announces they expect to produce enough ethanol to meet the fuel stamp requirements of their employees, by 2014, if they can get another $20m to complete modifications to their plant
    • Wall St would complain about people doing unauthorised trading, claiming only they can manage it properly, and demand that trades must go through the brokers of the NYSE, with the slogan “Wall St, not Main St”
    • California solar panel installers start the sales pitch that if you put enough panels on your roof, you will reduce your car’s gasoline usage to 100gal/year.  Movie stars line up first, then the infomercials start appearing…
    • Aid groups start running tv ads for donations to people that are on fuel stamps, complete with pictures of poor kids in stalled cars, pointing out the injustice of it all.
    • The NYC mayor sparks a crisis by suggesting that motorists should not be using their fuel stamps for burnouts and stop light drag races, only for productive driving in NYC’s highly efficient traffic system.  
    • People go to McDonalds and pass on the fries, and just ask for a cup of the fryer oil instead…  

    Fortunately, all this is just la-la land – nothing like this would ever happen in the real world…

     

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  31. By ronald-steenblik on November 30, 2010 at 2:21 am

    Wonderful post, Paul! Too bad that policy makers don’t go through the a “let’s-see, how-will-actors-in-the-market-game-this-policy?” exercise before they pass new legislation!

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  32. By perry on November 30, 2010 at 9:16 am

    Ronald Steenblik said:

    So, in short, I continue to regard such a policy as second-best compared with a straight-forward fuel tax. But there is enough merit to Perry’s idea that it is worthwhile continuing to explore it.


     

    A gas tax hurts everyone equally, whether they own a fuel miser or a fuel guzzler. If the goal is to generate revenue, then a gas tax will work great. But, if the goal is to have fewer gas guzzlers on the road, we should target those vehicles specifically. Why should a Prius owner pay the same 50% increase in fuel prices? He already did what we’d like more people to do. He won’t be able to find anything more thrifty on gas.

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  33. By ronald-steenblik on November 30, 2010 at 9:50 am

    Perry wrote:

    A gas tax hurts everyone equally, whether they own a fuel miser or a fuel guzzler.

    That is simply not true. For the same amount of miles driven, somebody who drives a vehicle that gets 45 miles per gallon pays in fuel taxes 1/3 what somebody who drives a vehicle that gets just 15 miles per gallon pays.

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  34. By savro on November 30, 2010 at 10:05 am

    Paul N said:

    I can indeed see such a statement provoking many arguments!  

    That works out to;

    • 2 gal/week
    • 30bn gall/yr, 
    •  or 1.2 million barrels/day, about one quarter of domestic oil production

     

    I think you know this, but just to clarify, I used “100 gallons” because it was the easiest number to highlight my point with, not because it was remotely close to the national average.

    As far as the rest of your post, Bravo!! Like I said after reading the Peak Coffee post, you should be writing for The Onion.

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  35. By savro on November 30, 2010 at 10:13 am

    Perry said:

     

    A gas tax hurts everyone equally, whether they own a fuel miser or a fuel guzzler. If the goal is to generate revenue, then a gas tax will work great. But, if the goal is to have fewer gas guzzlers on the road, we should target those vehicles specifically. Why should a Prius owner pay the same 50% increase in fuel prices? He already did what we’d like more people to do. He won’t be able to find anything more thrifty on gas.


     

    Huh? The Prius owner may be paying the same $$$ per gallon as the Tahoe owner down the block, but since his vehicle will be getting much better than average gas mileage Mr. Prius will be saving on the deal while Mr. Tahoe will be the one coming out on the short end (if they drove similar mileage).

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  36. By perry on November 30, 2010 at 10:17 am

    Ronald Steenblik said:

    Somebody who drives a vehicle that gets 45 miles per gallon pays in fuel taxes 1/3 what somebody who drives a vehicle that gets just 15 miles per gallon pays.


     

    Yes, but they have the same percentage increase in their fuel bills when gas prices jump. Why punish the guy who already bought the best fuel miser on the lot? Do we hike food prices for everyone, since 40% of Americans are obese? Why should the skinny guy pay more? He’s already taking in as few calories as he can get by on.

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  37. By Wendell Mercantile on November 30, 2010 at 10:20 am

    A gas tax hurts everyone equally…

    Taxes can also be incentives — sometimes to get people to do something for their own good they don’t have the willpower to do for themselves. It’s possible a gas tax could actually help everyone equally.

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  38. By perry on November 30, 2010 at 10:28 am

    Wendell Mercantile said:

    Taxes can also be incentives — sometimes to get people to do something for their own good they don’t have the willpower to do for themselves.


     That’s why I think we should go to the source of the problem. If the source of the problem is vehicles that aren’t fuel efficient, then taxes should be targeted at those vehicles specifically. If you want to punish the Prius owner as well, I guess I could go for that too. Whatever works.

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  39. By paul-n on November 30, 2010 at 11:41 am

    Sam,

    Your post is very appropriate in two ways;

    1) the underlying theme that Americans have a “right” to oil – I met one guy last year (from Minnesota) who was the epitomy of that thinking – “if country X has got oil we should just go in there and get it, no messing around”

    2) If you look at those numbers I calculated, it is actually a pretty good amount to work with.   I might allocate it on the basis of fuel per licensed driver, rather than per capita.  Wouldn’t want people having extra kids just to get extra fuel stamps.  Illegal aliens qualify, as long, of course, as they have a legal drivers license.  Visitors/tourists get no allocation, and just pay the $5/gal, but that is OK because unless they are coming from Venezuela or the ME countries, they are used to paying the same or more than that anyway.

    And you can just picture the “outrage” at, and gaming of, such a system, that’s why it’s good for a few laughs – but it would take peoples minds off the economy etc.

     

    @Perry; the “source” of the problem is not just large vehicles, it is also too much driving, and some other wasteful oil uses, like heating oil.  A family that has an SUV, takes the train/bus/cycle/walk to work and school, and just drives the SUV on weekends full of the family (and I know of just such a family) is being very oil efficient.  They are doing all the right things, yet they are penalised by car tax and do not get much reward by avoiding gas tax.  

    You can have a car fuel economy tax if you want, but getting rid of the fuel tax itself can do nothing except increase consumption.  I have no problem with the alternative fuels not being taxed though – in fact, that is a necessary part of the plan.  

    That said, it doesn’t always guarantee wholesale change.   In Australia, LPG (propane) is widely available as vehicle fuel, and is exempt from the 38c/L ($1.44/gal) federal excise tax – it currently sells for $2.17/gal, compared to $4.80 for petrol (the proper name for gasoline!).  On a BTU basis, LPG has 75% of the energy per volume of petrol, so it is the equivalent of paying $2.89 per gal for petrol, still a 40% discount.  There are over 3000 lpg stations (50% of all gas stns, and 50% more than E85 stations in the US!), so it is widely available.  Most automakers offer factory fitted LPG vehicles, which get a $2k gov grant, and there is  $2k grant towards aftermarket conversions.

    Despite all these incentives, just 5% of the vehicle fleet runs on LPG! (though the % is growing rapidly in recent years)  However, most of that 5% are commercial use vehicles – every taxi is on LPG, couriers, travelling salesmen, etc etc. (I used to drive a 2L 4cyl LPG car in the 90′s, a tank got me 250 miles and $17 to fill up – I did it once with loose change from the glovebox!).  But I was an exception – personal owned vehicles on LPG are rare – most drivers are “suspicious” of LPG, and many do not do enough driving to make the cost of the conversion worthwhile, some don;t like the space occupied by the tank, etc etc.

     Clearly, the convenience of gasoline is a big hurdle to overcome, and it takes time for the alt fuel fleet to grow.  Without the tax incentives, the LPG fleet would probably just be forklifts!

    If E85 sold here at a comparative discount as LPG does in Oz, one wonders what the acceptance would be?

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  40. By rrapier on November 30, 2010 at 1:05 pm

    If the source of the problem is vehicles that aren’t fuel efficient, then taxes should be targeted at those vehicles specifically. If you want to punish the Prius owner as well, I guess I could go for that too. Whatever works.

    Yes, a big part of the problem is that we demand big vehicles that aren’t fuel efficient. They don’t do this in Europe because fuel costs too much. The objective would certainly be achieved by making it cost more, and as I have said many times you could combine this with a tax credit so that it doesn’t actually hurt anyone (except those who wish to keep buying inefficient vehicles).

    RR

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  41. By savro on November 30, 2010 at 1:18 pm

    Perry said:

     

    Yes, but they have the same percentage increase in their fuel bills when gas prices jump. Why punish the guy who already bought the best fuel miser on the lot? Do we hike food prices for everyone, since 40% of Americans are obese? Why should the skinny guy pay more? He’s already taking in as few calories as he can get by on.


     

    Am I missing something? How is Mr. Prius paying more if he ends up using less gas than Mr. Tahoe. If the avergae American driver travels 1,000 miles per month, and Mr. Prius gets three times as many miles to the gallon as Mr. Tahoe does, then his savings will be right there in the fact that he’s spending only one third of what Mr. Tahoe allocates for gas expenses.

    That’s why I think we should go to the source of the problem. If the source of the problem is vehicles that aren’t fuel efficient, then taxes should be targeted at those vehicles specifically. If you want to punish the Prius owner as well, I guess I could go for that too. Whatever works.

    The source of the problem are not the vehicles that consume too much gasoline. The source of the problem is with the drivers that burn too much fuel. How the people burn too much can be attributed partially (or mostly) to the fact that they’re driving inefficient vehicles, but the vehicles in and of themselves are not the source of the problem.

    I completely agree with you that we should attack the source of the problem, but the source of the problem is that drivers are purchasing and burning more fuel than can sustainably be produced in the long run. That’s why I’m in favor of cutting income taxes and placing the fuel costs right at the pump instead of at the car lot, so consumers can choose to save money rather than being penalized for buying something that indirectly may cause more consumption.

    Lastly, Mr. Prius will be witnessing his savings right at the pump by the fact that he’s filling up much less often than the inefficient vehicle. That right there (higher gas prices) is a great incentive for the consumer to purchase an efficent vehicle (which the automakers will supply if demand grows). Low gas prices only serve to limit the amount that one stands to gain by purchasing a fuel efficent vehicle.

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  42. By Wendell Mercantile on November 30, 2010 at 1:29 pm

    Why punish the guy who already bought the best fuel miser on the lot?

    Why is it ‘punishment’ to drive a so-called fuel miser? My main car is a Volkswagen TDI sport wagon that gets over 50 mpg on the highway at 65+ mph. I don’t consider it punishment at all to drive that car. In fact, it’s a heck of a lot of fun to drive. 5-speed manual, and lots of low-end torque.

    My second car is a pick-up truck that I drive only when I need to do pick-up truck-type things. Over the last five years I’ve put only about 2,000 miles/year on the truck and expect to be driving it a long, long time.

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  43. By garsky on November 30, 2010 at 1:35 pm

    Robert–

     

    Off-topic, but any reaction to the graphene-based supercapacitor?

     

    http://www.greencarcongress.co…..01126.html

     

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  44. By savro on November 30, 2010 at 1:38 pm

    Wendell Mercantile said:

    My second car is a pick-up truck that I drive only when I need to do pick-up truck-type things. Over the last five years I’ve put only about 2,000 miles/year on the truck and expect to be driving it a long, long time.


     

    Wendell, you seem to be the classic case of where a gas guzzler tax would be unfairly targeting your purchase of a pick-up truck. Owning a pick-up truck does not equal a lot of inefficient mileage being driven. This is why I keep saying that the enemy is not the vehicle, but the driver who burns too much fuel.

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  45. By Kit P on November 30, 2010 at 2:13 pm

    “He won’t be able to find anything more thrifty on gas.”

     

    Sure there is, it is called car pooling.  The basic problem I have is that people want to tax based on some unfounded moral principle and not a systematic approach to problem solving.  Particularly folks like Perry who are not open to the idea that their ideas are not very practical.  It is more about controlling others than actually maintaining your own standards.  Perry wants engineers to design HFCV so he does not have to worry about how much energy he uses. 

     

    It is amazing how many people who talk about the energy they use can tell how many kwh of electricity or how many gallons of gas they use.  They will talk about efficiency but not usage.  The reason my family does not use a lot of gasoline or electricity is that it was a house buying criteria to live close to work/school/shopping and live in a modest size house.  It is not just about the energy savings; is not wasting time doing something I do not like mainly watch the people driving in traffic while talking on the cell.  On the other hand I ‘waste’ lots of time raking leaves when I could use an ICE powered leaf blower.  I like raking leaves on a beautiful fall day.

     

    “An interesting basis to start on Kit’s rationing idea.”

     

    It is more about having a plan in case there is a real problem in the future.  Presently we do not have a problem.  I do have more ideas for those who insist there is a problem:

     

    • Ban Broadway!  TV is good enough for us bumpkins
    • Ban travel to professional sports events!  Put all professional athletes in places with low cost of living.  It is lonely right that Indiana gets basketball.  We could put football on the Ohio/Pennsy boarder.  A little computer generated imagery, who would know the difference and we would import less oil.  
    • Ban all but cross country skiing.
    • Ban ICE PWC, leafblowers, snowmobile, and ATV.  It is not the energy so much as the noise.  Or we could have an open season and leave the deer alone.  
    • Oh, my personal favorite ban all travel to tropical islands except by sail.  I can live with that. 

     

    The point here is I can think of lots of ways to help liberals to use less oil rather than tax all of us who do not think there is a problem.  

     

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  46. By rrapier on November 30, 2010 at 3:04 pm

    Off-topic, but any reaction to the graphene-based supercapacitor?

    Hi Gary,

    That is completely out of my realm of expertise, so I better leave that one alone.

    Cheers, RR

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  47. By perry on November 30, 2010 at 6:43 pm

    Wendell Mercantile said:

    Why punish the guy who already bought the best fuel miser on the lot?

    Why is it ‘punishment’ to drive a so-called fuel miser? My main car is a Volkswagen TDI sport wagon that gets over 50 mpg on the highway at 65+ mph.


     

    How in the world did you read that into what I said Wendell? The goal is to have a more efficient fleet. The “punishment” is putting additional taxes on people who already have efficient transportation. How would the government soaking you for another $500 a year to top off your TDI help anyone? While it’s true that higher utility rates would crimp demand, it’s also true that some people can’t crimp any more than they’re already doing. I think we’d get more bang for the buck by hiking the price of inefficient applainces, or lowering the price of efficient ones, or both.

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  48. By perry on November 30, 2010 at 6:58 pm

    Samuel R. Avro said:

    Owning a pick-up truck does not equal a lot of inefficient mileage being driven. This is why I keep saying that the enemy is not the vehicle, but the driver who burns too much fuel.


     

    I don’t want to punish truck buyers. I drive one myself. I just want people to buy more efficent trucks. They are out there. Problem is, it’s cheaper to build an inefficient one. And buyers always prefer a bargain.

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  49. By paul-n on November 30, 2010 at 6:59 pm

    Actually Perry a lot of people could crimp more than they are.

    Putting up the price of the vehicles, and lowering fuel will lead to more families having one large vehicle to do everything,because once they have it, the act of driving it more is cheaper.  Whereas having two vehicles, Wendell style, cost more to buy and saves less in fuel, so which way do you think they will go?

     

    For companies making investment decisions on their fleets, the ROI on any efficiency measures (including alternate fuels like CNG) just got that much longer.  E85 just got that much less competitive against lower taxed gasoline.  The person who only drives the minivan on the w/e  and takes transit pays the full hit of your tax, and saves nothing by taking transit.  How is your scheme helping any of these oil saving measures?

    Lowering the price of fuel will ensure everyone continues to use it instead of something else.

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  50. By perry on November 30, 2010 at 7:07 pm

    Paul N said:

    Actually Perry a lot of people could crimp more than they are.


     

    Not the old lady across the street. She hasn’t turned on her heater yet. She says she isn’t cold, but we suspect the real reason is because she lives on SSI. Should she pay more anyway, maybe out of some egalitarian principle? I’m all for sharing the pain. But, some people are feeling too much already.

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  51. By paul-n on November 30, 2010 at 7:10 pm

    And is she driving a big vehicle 10,000 +miles per year?

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  52. By perry on November 30, 2010 at 7:30 pm

    Thankfully, no Paul. If she drove, the rest of us would have to stay off the roads. And a few houses might be unsafe as well.

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  53. By Kit P on November 30, 2010 at 7:33 pm

    “but the driver
    who burns too much fuel.”

     

    I get 25-30 mpg in
    my PU driving to work (5spd manual with a 4 banger) but does worse on
    the highway because of wind resistance. I hit every light coming
    home from work but the F350 diesel pulling a loaded utility beside me
    accelerated full throttle even after the next light turned red.

     

    “My main car is a
    Volkswagen TDI sport wagon that gets over 50 mpg on the highway at
    65+ mph. I don’t consider it punishment at all to drive that car. In
    fact, it’s a heck of a lot of fun to drive. 5-speed manual, and lots
    of low-end torque.”

     

    Thanks to the EPA, a
    Volkswagen TDI was not an option when I bought the wife her Corolla.
    I am a great believer in matching the driver with the car. If I was
    driving 50k highway miles a years the added $5k to the base price
    would pay for the 10 mpg improvement. The interesting thing with the
    Corolla is mileage improves with cheapness. The $10k extra for a
    TDI only gets you 5 mpg than the cheap Corolla. It is just hard to
    beat a 4 banger in with a 5spd manual in the mileage department.

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  54. By Wendell Mercantile on November 30, 2010 at 10:53 pm

    The $10k extra for a TDI only gets you 5 mpg than the cheap Corolla.

    That would be true, but when I bought the TDI five years ago it cost only $1500 more than the 4-cylinder gas version of the same car. I reckon I pretty much have the TDI engine paid for — once drove the 963 miles from Peoria, IL to Hyde Park, NY using only 19 gallons of diesel — and am planning on another ten years or so in the same car.

    From where do you get the information that a TDI cost $10k extra? It is true that right now, VW makes the TDI available only in gussied up, deluxe versions* of the Jetta which raises the price, but that increase isn’t solely because of the TDI engine.
    __________
    * Something I think is wrong on VW’s part.

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  55. By Wendell Mercantile on November 30, 2010 at 10:57 pm

    How in the world did you read that into what I said Wendell?

    Sorry Perry, I misread what you wrote. Thought you meant that people who drive cars with good fuel mileage were already punishing themselves by being frugal, so the government shouldn’t punish them anymore. My bad.

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  56. By Wendell Mercantile on November 30, 2010 at 11:07 pm

    I get 25-30 mpg in my PU driving to work (5spd manual with a 4 banger) but does worse on the highway because of wind resistance.

    Kit P~

    My pick-up truck is also a compact (11-year old GMC Sonoma) with a 5-speed and 4 cylinders.

    I get 32 mpg on the highway when burning gasoline. Strangely, when I burn E10, the mileage drops to 29 mpg. That means on a 320 mile trip I would burn 10 gallons of gas, or 11 gallons of E10. But guess what? 90% of those 11 gallons of E10 is gasoline (9.9 gallons).

    Whether I burn gasoline or E10, I burn virtually the same amount of gasoline. That’s the main reason I’m not a fan of mandated E10.

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  57. By paul-n on December 1, 2010 at 2:07 am

    Wendell, you are indeed getting great value from ethanol – first your income taxes pay for the tax credit, then you get to buy your gasoline and pay 10% extra for that ethanol, and get no extra mileage!  Who knew a government initiative could result in money being spent for no measurable benefit?

    Sounds like maybe your truck engine needs to be optimised for E10 – probably a timing advance would do it, though you may be wary of fiddling an engine that otherwise works just fine.

    Now, if you were in Australia, you could by the current model of that truck, the Holdem (GMC) Colorado, with a 3L turbo diesel, that gets 34mpg hwy! (and has 5500lb towing capacity)

    http://www.holden.com.au/vehic…..ifications

    But, thanks to the EPA protecting America from itself, that truck, by an American company, can’t be sold here!  Instead you have to take the gasoline model that gets all of 22mpg (All numbers on Australian test cycle).

    You can get diesel versions of every type of PU sold in Australia, and almost every building contractor/farmer/tradesman takes that option.

    I was incensed to find that I couldn’t do that here unless I wanted an F350!

     

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  58. By Kit P on December 1, 2010 at 8:53 am

    “From where do you
    get the information that a TDI cost $10k extra? It is true that right
    now, VW makes the TDI available only in gussied up, deluxe versions*
    of the Jetta which raises the price, but that increase isn’t solely
    because of the TDI engine.”

     

    I used ‘MSN Auto’
    based on a new car. BTW, the I think the economy model of the
    Corolla is a luxury car. If you want to buy status with ‘deluxe
    versions’ I do not think you are necessarily getting a better car.
    There is a huge difference in quality between auto makers and dealers
    love to tack on stuff you do not need.  However, it is the relaiblity of drive train that counts.  It also helps not to beat the crap out of it. 

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  59. By paul-n on December 1, 2010 at 2:36 pm

    Of course, VW could decide to bring their own diesel pickup truck here;

     

     

    It has a 4cyl, 2L turbo diesel engine, and gets over 30mpg, can carry 1.15 tons and tow 2.8 tons.  Made in Argentina and sold on every continent in the world except N. America (and Antarctica, but their car market is pretty small!).

    Not cheap, of course, base model at about $30K US equivalent, but with Tacomas starting  mid 20′s, that’s not too much iof a premium for VW and diesel.

    http://news.pickuptrucks.com/2…..d-35k.html

     

    Of course, there are no plans to bring it here, and if they did they would have to pay the 25% “chicken tax”   tax on it!

     

    You have to wonder just how these selective government regulations and tariffs are supposed to be helping the country!

     

     

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  60. By Wendell Mercantile on December 1, 2010 at 9:40 am

    There is a huge difference in quality between auto makers and dealers love to tack on stuff you do not need. However, it is the reliability of drive train that counts.

    I concur completely Kit. I’ve always hated it that carmakers bundle options in packages meaning you have to buy something you don’t want to get the one thing you do want. For example, if you want electrically-heated seats, you can’t order that without the moon roof, custom lighting group, leather seats, ad infinitum.

    Unfortunately, VW is now doing that with the TDI. That wasn’t the case when I bought mine. Mine is a plain-vanilla Jetta wagon with a TDI engine — and I love it.

    Now, if you were in Australia, you could by the current model of that truck, the Holdem (GMC) Colorado, with a 3L turbo diesel, that gets 34mpg hwy! (and has 5500lb towing capacity)

    Paul,

    Yes. I would love a TDI engine like is in the Jetta in my 11-year old GMC pickup truck. For some reason, U.S. carmakers are pretty much ignoring the small pickup truck segment, and of course don’t make them available here with a diesel engine. In the U.S. the mentality is still big pickup trucks because we can make the most money off them.

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  61. By Kit P on December 1, 2010 at 6:17 pm

    I bought a new an
    ’80 chevy LUV diesel 4wd (lived in the mountains in snow country and
    worked shift work) which was handed down to my oldest son. The
    engine was still going strong but the body rusted out around it. I
    recall getting a tax deduction for the diesel fuel. The accountant
    doing my taxes did not know about it until I showed him. With the
    right tires it would climb a tree but it was wounded out at 80 mph
    not that you would want to drive it faster.

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  62. By longhorn on December 9, 2010 at 8:03 am

    Robert, well written article but (possibly through oversight) you failed to mention the national security/defense budget subsidies that are expended in certain areas of the world such as Nigeria (Africa) as well as the entire Middle East as well as the India. In example in geo-political context take a look at http://pipelinesinternational……st/040183/. keep up the good work – Happy Holidays…

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  63. By ronald-steenblik on December 10, 2010 at 1:33 pm

    Robert,

    I’ve been commenting on some other blogs, where a guy named Mike Casey, President of Tigercomm, “a leading U.S. cleantech PR firm based in Rosslyn, VA” has been flogging a “call to arms” article aimed at rallying the renewable-energy troops to take on Big Oil, who is out to get them!

    Unfortunately, he too discusses the IEA numbers in a way that most readers who don’t know better may interpret as suggesting that the U.S. government is spending $500 billion dollars a year to keep oil in the United States cheap.

    Be that as it may, what finally dawned on me was this:

    I have not seen much evidence of the renewables industry spending lobbying effort on fighting to have the features of the tax code that favor oil and gas companies repealed. (Where were they in June, when the Senate voted down such a bill by a margin of 2-1?) Rather, it appears to me, they have concentrated their efforts on securing their own subsidies and tax breaks — i.e., engaging in what an anonymous contributer on the Renewable Energy World blog calls the politics of “subsidy envy”.  It made me wonder. Would the renewables industry really be happy for all subsidies and tax breaks to fossil fuels disappear? Or are these subsidies serving the same purpose for it that the existence of the United States does for Castro’s Cuba?

    Just wondering.

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  64. By rrapier on December 10, 2010 at 8:24 pm

    deleted double post

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  65. By rrapier on December 10, 2010 at 8:25 pm

    Given the level of dependence on fossil fuels, do you think these guys really want to pay “true cost” for fuel? Corn farmers would scream loudly.

    RR

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  66. By paul-n on December 11, 2010 at 3:59 am

    Would the renewables industry really be happy for all subsidies and tax breaks to fossil fuels disappear?

    In Canada, the government simply extended many of the same subsidies/tax breaks to renewables.  Things like 33% depreciation on development capital, 100% deduction of “exploration” (=feasibility) costs, etc.  There are a bunch of separate and specific subsidies for biofuels and bio/renewable energy too – the worst being an 80c/kWh solar PV feed in tariff! (Kit will love the fact they pay you less (64c/kWh) if your panels are ground mounted instead of on the roof!)

    Overall I would say that renewables here enjoy most of the subsidies that fossil fuels get, plus much more.  I am sure that no matter how expensive fossil fuels get, the renewable will still “need” their subsidies.

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  67. By Kit P on December 11, 2010 at 8:29 am

    “if your panels are ground mounted instead of on the roof!”

    I do not have a problem with mounting PV on roofs of industrial buildings. Ideally you would put PV panels at higher elevations in the Southwest above the smog and tulle fog. My assumption is that the goal is to make electricity especially offsetting peaking plants. However, when you put PV where is does not make very much electricity, then they are just junk.

    I built a natural circulation solar hot water systems when I lived at the the 2000′ elevation in California. What did I learn? It is better just to make hot water with electricity.

    “if your panels
    are ground mounted instead of on the roof!”

     

    I do not have a
    problem with mounting PV on roofs of industrial buildings. Ideally
    you would put PV panels at higher elevations in the Southwest above
    the smog and tulle fog. My assumption is that the goal is to make
    electricity especially offsetting peaking plants. However, when you
    put PV where is does not make very much electricity, then they are
    just junk.

     

    I built a natural
    circulation solar hot water systems when I lived at the the 2000′
    elevation in California. What did I learn? It is better just to
    make hot water with electricity.

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  68. By ronald-steenblik on December 11, 2010 at 9:32 am

    Given the level of dependence on fossil fuels, do you think these guys really want to pay “true cost” for fuel? Corn farmers would scream loudly.

    Robert and Paul, I’m not sure you got my point. I agree with yours. But mine was that the existence of subsidies to fossil fuels, especially if the renewable-energy industries can plausibly claim they are very big (no matter if most of the numbers cited do not pertain to the United States), provides a ready-made justification for their own subsidies. “Hey, we’re just levelling the playing field!” has a lot of resonance with the public. End any and all subsidies to fossil fuels, however, and now the various factions of that industry (bio-energy, wind, solar, etc.) have to start worrying about people scrutinizing their own subsidies more closely.

    A foretaste of that kind of internal bickering and back-stabbing can be read about in this excellent article on the Huffington Post, “An Irritating Trend: Green Ingrates“.

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  69. By paul-n on December 11, 2010 at 2:25 pm

    the existence of subsidies to fossil fuels…  provides a ready-made justification for their own subsidies.

    That was exactly how it played out here, the wind and biofuel developers realised they could not treat developments costs in the same way as the oil industry, so they lobbied and they got their tax breaks.  

    I don’t have a real problem with these sorts of incentives for development and production of both oil and renewables – they promote growth of the domestic energy industry, without picking winners.

    It is subsidising consumption that is backwards.

     

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  70. By ronald-steenblik on December 12, 2010 at 5:37 am

    I don’t have a real problem with these sorts of incentives for development and production of both oil and renewables – they promote growth of the domestic energy industry, without picking winners. … It is subsidising consumption that is backwards.

    Could you be more specific about “these sorts of incentives for development and production”? If governments hide the true cost of producing energy, then it leads ultimately to higher levels of consumption than economical. And, in any case, even if one is not subsidizing energy “without picking winners”, that is at the expense of other parts of the economy. If it were not, then the answer for all our economic woes would be simple: everybody would just subsidize everybody else.

    The exception is government funding of R&D, because it can help address a market failure. But even then governments have to be careful not to crowd out private investment in R&D, and be very smart in how they spread the money around.

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  71. By paul-n on December 12, 2010 at 12:58 pm

    More specific, sure.  I mean things like the accelerated writeoffs for exploration and development, the low initial royalty rates for oilsands oil, etc.  Exploration, in particular, because you might do a lot of work and not find anything.  You don’t want to overdo it, of course, where it gets to the point that exploration is being done with no intention of finding anything, just to get the subsidies/credits.  

    Does it hide the true cost of producing energy?  Maybe, but that doesn’t mean it makes energy cheaper.  You have said before with oil, in response to my tariff idea, that domestic production (and alternatives) will be priced at the level of imports, and pocket the subsidy.  So, presumably, with these incentives for exploration and production that make it cheaper to produce, will not result in a cheaper market price, for the same reason.

    And, in Canada, I would say this is clearly true.  We produce 2x the oil that we use, at costs that are quite unrelated to the world price, but the world price (plus taxes) is what we pay – and I have no problem with that (though many think we should have Venezuela style domestic pricing!)

    So in Canada, these incentives have helped, to some extent, to create a strong domestic energy industry – I think that is a good thing.  It is now  a huge export industry, also a good thing.  

    For the US, of course, they will probably never again be self sufficient in oil, but incentives that help increase (and that is they key word) domestic production do reduce oil imports, which has economic and political benefits.  I say increase because the ethanol subsidy, for example, does nothing that the mandate doesn’t already do.

    I won’t argue that these incentives do not lead to money flowing to this sector that otherwise might not, but I’m not sure that’s a bad thing.  If the alternative is just buy it on the world market, when it comes to oil, I think that is a worse thing.

    For R&D, well, governments are still struggling on how to get that right.  The picking winners approach is awful, but the government keeps getting sucked in by the glitter of the prize.  For universities etc, the faculty staff supposedly spend a third of their time applying for funding, so you need 50% more staff to get the same amount of stuff done, which means more administrators, offices etc – it does make things very expensive.  

    Maybe the alternative there is to just set the funding for them, for say five years in advance, so they know what they have to work with and just get on with it.  Even if both approaches achieve nothing (in R&D terms), it has cost 1/3 less to achieve nothing.

    On subsidies, governments love to subsidise things, and we probably can’t stop that.  We can hope they limit their subsidising to useful things, not politically advantageous things, but i can’t see that happening.

     

     

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  72. By ronald-steenblik on December 12, 2010 at 2:46 pm

    … but incentives that help increase (and that is they key word) domestic production do reduce oil imports.

    Only in the medium term. In the long term, they exhaust reserves sooner, setting the stage for even higher levels of import dependency later.

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  73. By rrapier on December 12, 2010 at 3:32 pm

    Ronald Steenblik said:

    Given the level of dependence on fossil fuels, do you think these guys really want to pay “true cost” for fuel? Corn farmers would scream loudly.

    Robert and Paul, I’m not sure you got my point. I agree with yours. But mine was that the existence of subsidies to fossil fuels, especially if the renewable-energy industries can plausibly claim they are very big (no matter if most of the numbers cited do not pertain to the United States), provides a ready-made justification for their own subsidies. “Hey, we’re just levelling the playing field!” has a lot of resonance with the public. End any and all subsidies to fossil fuels, however, and now the various factions of that industry (bio-energy, wind, solar, etc.) have to start worrying about people scrutinizing their own subsidies more closely.

    A foretaste of that kind of internal bickering and back-stabbing can be read about in this excellent article on the Huffington Post, “An Irritating Trend: Green Ingrates“.


     

    The problem will get into definition of a subsidy. No matter what you eliminate, the corn ethanol guys will still claim that oil is subsidized. I saw that fall back position from one of the RFA guys recently. He claimed that because of all of the installed infrasctructure for oil, there is a de facto mandate and thus they must have subsidies. So getting rid of oil subsidies — something I agree with — won’t stop them for claiming they are still there.

    RR

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  74. By ronald-steenblik on December 13, 2010 at 1:54 am

    He claimed that because of all of the installed infrasctructure for oil, there is a de facto mandate and thus they must have subsidies.

    Laugh out loud! And whose distribution infrastructure does the ethanol industry rely on? Gasoline pumps! And what propulsion technology is using their product? One designed (at least since the 1920s) for the internal combustion of gasoline! And what infrastructure are those vehicles driving on? Roads designed for vehicles propelled by autonomous, internal-combustion engines!

    I’m sure you’re right that even if subsidies to the O&G industry were eliminated, the biofuels lobby would still claim they were being provided.

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