Two Additional Hurdles to Oil Independence: Fear of Inconveniences and Tax Aversion June 12, 2010Posted by Michael Hoexter in Climate Policy, Energy Policy, Green Transport, Sustainable Thinking.
Tags: carbon tax, Energy Policy, Oil Independence, rail electrification, Sustainability
A couple weeks ago, I sketched out an Oil Independence Plan for the United States that was based on a combined move to more efficient uses of petroleum as well as a much more aggressive move to oil- (and natural gas-) independent infrastructure, than is currently proposed in existing legislation in the US Congress. [Since posting that plan, Craig Severance has written an equally ambitious and more detailed plan which can seen here. I also didn’t reference Boone Pickens' “Pickens Plan” which is an Oil Independence Plan that relies heavily on natural gas and tractor trailer trucks fueled by natural gas.] The most immediate motivation for such a plan, which we should have embarked upon 35 years ago anyway, was of course the oil disaster in the Gulf as well as the muted and unambitious response to that disaster by the Obama Administration. [There are now rumors that Sen Jeff Merkley may be producing a plan to reduce oil demand in the US which will be announced shortly]
I asserted in that post among other things that planning was a critical missing element in our policy arsenal and that only a plan, and not the cap (cap and dividend, cap and trade) instruments under consideration, would bring the necessary resources to bear in a timely manner. Not only has there been a failure to plan for the demise of oil as our primary transport fuel, there has been a fundamental failure to accept planning as part of the legitimate role of political leadership.
After outlining this plan in the same post, I identified 6 hurdles which President Obama or another future leader of such a plan to radically reduce our oil dependence would face. Those hurdles are:
- Market Idealization vs. Planning
- Deficit Worries and Hysteria
- Balancing the Interests of Stakeholders/Mixture of Public and Private Enterprise
- Many Americans’ Love of Expansive Resource Use
- The Biofuels Distraction
- Corporate Funding of and Influence in Politics
Two additional hurdles occurred to me but I felt these deserved their own post.
Hurdle #7: Unwillingness to Accept Inconveniences (or the Prospect of Inconvenience)
The economic history of the last 100 years in developed nations might be called the “March of Convenience” as activities that used to take hours, like procuring and preparing food or traveling to a nearby city, now take minutes. “Convenience” means the use of a device or the design of a way of life enables desires to be more easily fulfilled. Fossil fuels have had a critical role in powering almost all of the conveniences that we enjoy, either directly in automobiles or indirectly via a partly fossil-energy powered electric grid. Americans have led the way in the “March of Convenience”, adopting consumer devices on a mass scale more quickly than other countries, though in recent years we have lagged in many areas of consumer device adoption.
While Europeans, Japanese, and increasingly others in fast developing Asian countries, enjoy many conveniences that Americans do not (better public transportation for one), the American way of life is particularly dependent both on the automobile and the oil-powered delivery truck because of the structure of our towns and cities and the lack of oil-independent infrastructure. Convenience in America, has come to be defined by easy use of the automobile for either long or short trips to stores, work, and entertainment. The hundred year old trend in real estate development towards sprawl has kept Americans in most locations almost entirely dependent on the automobile. Additionally “just in time” supply of retail and wholesale goods has become a business practice that demands air freight or relatively energy-inefficient trucking transport for many locations that are not located on major rail lines.
The proposed Oil Independence plan as well as, in my estimation, the plan offered by Craig Severance, would involve a period of one to two decades (or longer) within which, for some trips, people might need to sacrifice some time or convenience in order to avoid using increasingly pricey and eventually scarce oil. This might mean waiting for others in a carpool or Internet-brokered ride-share, or taking bus service or using a shared van. It may take 25% or 50% more time to do certain tasks. For some people, the isolation of their cars is far preferable to any contact with others, so the notion of sharing space with others will be considered a major inconvenience. These people will, if they are able, pay a higher price for convenience, as the price of oil is bound to go up either via market forces or taxation or both. Nevertheless, in time, those who prefer self-driven solitary transport and have middle to high income will be able to buy battery electric vehicles or plug-in hybrids.
On the other hand, there are tradeoffs other than cost which eventually may become incentives for others not to use a self-driven vehicle: when one isn’t driving one can work, socialize or read using our increasingly multi-functional mobile communications devices and networks. The provision of workable transportation alternatives is key to the success of any of these plans. While some offer the hope of a “drop-in” solution for oil (a fully-realized battery electric vehicle infrastructure and fleet of tens of millions of BEVs) this is not likely to be scaled up in time to radically reduce our oil demand with no inconveniences. Depending on increased or the same level of convenience is a liability for a serious plan to get off oil before both its depletion, before more deepwater environmental disasters, as well as to avoid climate tipping points.
There are aspects of an Oil Independence Plan that typically will attract more attention and therefore funding, those which usually offer an increase in convenience for many transport users. A TGV or Shinkansen-class high speed rail network (>160mph average speed) (which is just one of the solutions in my and others’ Oil Independence Plans) represents a net increase in convenience over the status quo for most trips up to 500-600 miles. On high speed rail with Internet access, one is offered a more luxurious ride than either in a self-driven vehicle or experiencing the inconveniences of air travel. The less “sexy” 90 or 110 mph freight or passenger rail may be more difficult to “sell” because they do not in their design offer the promise of increased convenience over the status quo for those who are particularly devoted to automotive travel (where traffic isn’t a problem).
Another area where there is a fairly transition is where the charging or battery-swap infrastructure has been built for battery electric and plug-in hybrid vehicles. These will represent at least an equal level of convenience to gasoline powered vehicles for most local trips, though the technology is not as mature as that for electric rail.
Perhaps more frightening to politicians and to anxious consumers is the mere prospect of change of any kind in the relatively pampered automotive lifestyle that we currently inhabit with gas at somewhere around $3.00/gallon. The actual changes involved in an Oil Independence Plan will with time offer net benefits or at least a livable but more sustainable lifestyle but to those who are clinging to the “edge” or to office, any change seems frightening. The attack campaigns by elements of the political Right, by incumbent industries, or others who base their appeals on fear are almost pre-programmed for efforts that even suggest that people should loosen their grip on the steering wheel.
Some of these fears might be premised on a fear of strangers, “other people” in general or class prejudices. The automobile dominated lifestyle has enabled people to live in relative isolation from each other. Becoming used to dealing with and coordinating movement with others may be a challenge for some. . While the prospect of sharing rides or public transit is uncontroversial for some and almost a sign of personal virtue, at least in the way of advocacy, there are many, many Americans who are either horrified by this notion or would, when push comes to shove, resist having to enact these virtues rather than simply advocate them.
As with the other hurdles, leadership and planning are required to overcome this hurdle. Planning is going to be required to provide Americans with alternatives to automobile travel, per expansion of mass transit, as well as funding more novel systems like internet ride sharing or automated pod-cars. Higher gas prices, whether by market forces or by the imposition of taxes would drive the change faster but only a visionary and persuasive leader is going to be able to convince Americans to accept higher fuel taxes. The offense and defense against inevitable attacks from the anxious and the defenders of the status quo is to engage consumers/citizens/businesses in an epic quest to change our way of life and put it on more sustainable basis. The missing element is principled leadership in both speech and example which would ideally come from the President or another national leader. As it currently stands, the Presidency of Barack Obama has not attempted to engage in such a quest; partial or half-hearted movements towards these goals would expose leaders to attack from those who cling fearfully to present satisfactions and our way of life as it stands. The best defense in this case is offense and commitment to a better future.
Especially with a rise in the cost of fuel, businesses used to “just in time” delivery from distant suppliers may need to reconsider their business practices and inventory strategy. Long-distance rail freight may not in the first years be able to reproduce the speed of long-distance tractor-trailer trucks which can choose the most direct routes between supplier and buyers. For local delivery however, the transition to battery power is fairly easy for small and medium duty trucks with shorter ranges.
There are “Peak Oil” narratives, associated with figures like Richard Heinberg or James Howard Kunstler that based on an extreme version of this change in lifestyle, within which society becomes radically localized and many institutions collapse into a friendlier version of the world of “Mad Max”, the 1979 Australian film which portrayed a dystopian future. I don’t share the pessimism of some in the Peak Oil community but their arguments and warnings cannot be dismissed out of hand. With the cautious and unimaginative leadership shown in the last month here in the US, the likelihood of social collapse or at least a radically downsized society (an outcome which some would find a positive development) is higher rather than lower after a peak in oil production.
The largely mythical notion of a painless transition between one industrial and energy-related way of life and the next holds out the notion for policy makers that they just need to wait for innovation to deliver a new technology that offers only benefits and no tradeoffs. Economic historian Jeremy Greenwood chronicles how throughout the last two hundred years the acceptance of technologies that we consider to be superior happened over a period of decades in which there were struggles between interest groups and losses of economic benefits as well as gains from the new technologies. The fantasy of a “drop-in” technological replacement for the internal combustion engine continues to make it difficult for leaders to face hard choices.
Hurdle #8: Tax Aversion and the Retreat from an Ethic of Social Responsibility
Another hurdle to oil independence is tax aversion bordering on tax phobia. While, in the previous list of hurdles, I underlined the importance of public finance of transport and energy infrastructure, I left open the possibility that deficit spending would be the primary means of financing this infrastructure. I pointed this out only as a short-term fix during our current deep economic slump. In better times, tax financing will be crucial to keeping deficits and inflation in check. Taxes will need to rise on both the well-to-do and also the middle class as counseled by a growing group of economists that NY Times economic columnist David Leonhardt has grouped in his fictitious “Club Wagner”. Of course tax rates have at times been too high in certain places and times and levied unfairly upon certain activities or groups but now is not one of those times for most tax brackets and taxable entities in the US.
Tax paying and voting are the two main pillars of what ordinary citizens can to do to express a sense of group or social responsibility, the idea that “we are in this together”. Attacking tax-paying in general as an evil in itself, as has become common, is an almost direct attack on a spirit of national or group responsibility. Excessively high taxes can stifle individual initiative but excessively low taxes can fray the ability of a society to meet large scale group challenges requiring government investment. Unfortunately there is no generally agreed-upon economic model of how to set optimal tax rates that accommodates both of these concerns, so tax rates are raised and lowered according to changes in political fashion and power dynamics.
In addition to being a source of funding, the aversive effect of tax is also one of the stronger mechanisms we have to shape our own group behavior via the use of incentives and disincentives. Pigovian, a.k.a. “sin” taxes, are means of limiting the use of resources or engaging in activities which are not illegal but are considered to have high social costs. Many conservative economists prefer Pigovian taxes to income taxes under the rubric “tax what you don’t want”. A significant carbon tax would be one of the most efficient means to limit carbon emissions and fuel taxes of sufficiently high levels curtail the use of various fuels.
To enact significant new Pigovian taxes, these too require a sense of social solidarity or at least a broad social agreement that some activity should be limited at some initial or ongoing monetary cost to society. One of the key weapons we have in reducing oil consumption is to levy higher taxes on oil. Ian Parry of Resources for the Future rightly points out that, like an upstream carbon tax, oil should be taxed at the well-head rather than downstream as a fuel tax. While a upstream carbon tax is preferable as it would include oil, natural gas and coal for addressing GHG emissions, relative to a simple gasoline tax an oil tax has greater coverage as it also would start the search for alternatives to oil in industrial processes and home heating, which makes up 23% and 5% of oil demand respectively.
We have just gone through a 30 year period in the US within which income tax rates have been cut dramatically, particularly on the wealthiest Americans, justified with reference to the largely discredited theories of Arthur Laffer (that tax cuts increase government revenues via economic growth) as well as supply-side, “trickle-down” theories associated with highly influential “Reaganomics” associated with his first budget director David Stockman. The accumulation of private wealth and therefore productive investment was thought to be smothered by the top level marginal tax rates of post-WWII America; by allowing rich people to accumulate more wealth it was thought that more would be invested and the economy would grow. Progressive taxation (the taxation of the wealthiest at a higher rate than the less wealthy) and taxation in general have been treated as taboo and as damaging to the economy since the political triumph of Reaganism. The raising of taxes even slightly became highly politicized as the ideal of a low-taxation, small government society has remained the implicit ideal for politicians in both political parties. Despite the small government ideal, government has continued to grow though often in ways that are not the social welfare driven “Big Government” that the followers of Reagan have attempted to pillory. Furthermore savings rates, one of the advertised benefits of lower taxes, have continued to plummet in the US.
The American economy has grown in this period of low taxation but these increases have come largely in the service sector and particularly in financial services. Low taxation, in combination with a trade policy that undermines domestic production relative to other countries has led to super-consumption, massive increases in private and public debt, trade deficits, investment in and inflation of the value of real estate, and speculative excess in paper assets. The economic booms of the 1990’s and the early 2000’s that low-tax advocates like to point out as benefits of reduced tax rates has come at the expense of manufacturing capacity, at least in the US.
While taxes are never popular, almost no one stands up now in favor of taxes, despite professed concern about deficits. Every politician believes that if they were to be the one to raise taxes, they would lose the next election. With some justification, American taxpayers under 65 feel that they don’t get much benefit from taxes, as there is no comprehensive universal social programs other than for elderly people. The government spends money on an elaborate military, the world’s gendarme, which offers few direct benefits to Americans domestically. American industrial and trade policy has allowed jobs to be off-shored, so the government has not exactly stood at the side of the American worker. President Obama’s health reforms will not be tax-funded with the exception of the expansion of Medicaid, which again biases America’s social spending in favor of distinct disadvantaged groups rather than as a generalized universal principle of social solidarity.
Both the Pigovian side of (oil and carbon) taxation as well as the revenue generation component are critical for a rapid reduction in oil demand. An ambitious leader, I’m hoping President Obama, would have to tackle this by “reversing the ethical valence” of popular perceptions of tax-paying and thereby also some of its emotional valence. To do this, he would need to discuss tax paying as an expression of social responsibility, social solidarity, and responsibility to the future, not merely as a subtraction of monetary funds from one’s perceived economic well-being. To date, the President has tended to reinforce the individualized ethical framework of the low-tax world-view by continual efforts to court those who believe only in individual private initiatives rather than social initiatives. This “pragmatism” continues to undermine Americans’ fragile sense of social solidarity.
Eight hurdles: Too Many?
While six substantial hurdles was a lot, eight hurdles is even more. Is it too much to ask of us, our government and President to meet this challenge?
In my mind, this is the matter of, as mentioned above, a “reality principle” that cannot be ignored, so hurdles must be overcome no matter how many of them exist.
However, the path is somewhat easier than my presentation of these as individual free-standing hurdles would suggest. Many of these hurdles “stand in bunches” or can be surmounted if our leaders adopt a new stance. Leaders attempting to push the US off its oil addiction need to invoke the following general principles, which in turn will allow these hurdles to be taken as groups:
- Re-affirm our sense of social solidarity and social responsibility
- Emphasize social and individual resilience over sensitivity to minor hardships like carbon or oil taxes, hassles of coordinating transportation with others over self-driven automobile centered transportation.
- Affirm the role of government as a tool for the realization of national ambitions and the necessary backstop for market failures
Within this context, many of the eight hurdles become easily surmountable if the “general case” has been made for these principles.
We can reduce our dependence on oil with sufficient coordinated effort. With this effort will come a great sense of accomplishment in an era where it had been thought that this kind of challenge was no longer part of the American Dream.