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Thesis & Antithesis

A critical perspective on energy, international politics & current affairs

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Location: Washington, D.C.

greekdefaultwatch@gmail.com Natural gas consultant by day, blogger on the Greek economy by night. Trained as an economist and political scientist. I believe in common sense and in data, and my aim is to offer insight written in language that is clear and convincing.

11 November 2005

Gasoline price freeze?

It is heartening to read Charles Krauthammer’s column today in the Washington Post on “pumping some seriousness into energy policy.” He writes: “for three decades we have done criminally little about it [the energy problem]. Conservatives argued for more production, liberals argued for more conservation and each side blocked the other's remedies -- when even a child can see that we need both” (1).

When it comes to specifics, Krauthammer calls for a $3/gallon price floor for gasoline. Here is how he puts it: “Every penny that the price goes under $3 should be recaptured in a federal gas tax so that Americans pay $3 at the pump no matter how low the world price goes.” Although the merits of a gasoline tax are indisputable, this specific tax structure is a bad idea. Politics aside, it forces the government to make judgment calls on the price of gasoline between intermediaries. Let’s say a refiner sells at price of $2.45/gallon to the gas station, and the station wants to sell it for $2.55. But the price at the pump is still $3. Are they trying to trick the government or are they earning reasonable returns? This is a tough call for the government.

This government vigilance would also undermine another part of Krauthammer’s argument: to build more refineries. The economics are stacked against refineries: refineries are less profitable than other parts of the oil business and domestic refineries are less profitable than foreign refineries. Given the disinclination to build refineries, a tax system that would prevent refiners from earning the desired returns would likely act as a disincentive to more refineries.

But don’t let the specifics distract from a discussion that America needs desperately.

References:
Charles Krauthammer, “Pump some seriousness into energy policy,” Washington Post, 11 Nov 05 (link)

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1 Comments:

Anonymous Anonymous said...

But don’t let the specifics distract from a discussion that America needs desperately.

The whole time I read this I kept saying that over to myself. Thankfully you included it at the end. Thumbs up.

8:21 PM  

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