A Short Musing On Cheap Oil

Between the European fiscal mess, the BP oil disaster, North Korea sinking a South Korean Navy ship, and the fact that the weather in Nova Scotia is just finally starting to get nice, I’ve been unable to really focus on any particular issue or event in the world to really pump out good blog fodder.  (That, of course, assumes that I do in the first place, which may or may not be the case).

I’m on an environmental kick lately though, and I think I have always had that streak.  Right now it’s being fuelled by a few desires – mainly market signals, which are to someone who likes the idea of markets creating allocative efficiency, is good.  I made what I think is a very wise decision a while back to buy a diesel-fuelled car.  At the time I bought it, I had a fairly long commute and ideas about great long roadtrips, and the fact that it gets far better mileage was something I welcomed.  In fact, my biggest grip at the time (October 2005)  was that there were so few diesel models on offer in North America.  Europe has always been far ahead of us there.

Diesel engines, of course, are not really as clean as gasoline engines, litre for litre of fuel consumption – but the advantage comes from using less fuel per kilometre travelled.  I have two Volkswagens – a Rabbit and a Jetta.  The former is gasoline-engined, the latter diesel.  The Rabbit’s a little lighter in curb weight but uses about 50% more fuel for travelling.  I know this because I’ve been using an iPhone app to track it, just out of interest mostly, but also in the vain hope that I’ll be able to claim some of it as a tax deduction.

The whole thing about markets and what I was starting into last night is a belief I have that we don’t pay anywhere near adequate cost for things like fuel – particular petroleum and other non-renewables.  The simplistic solution is to use taxation to adjust the cost to something more realistic and then use the tax revenues toward remeditation.  Great idea, but I can already hear the more reasonable complaints, and I’d echo them – the funds wouldn’t go into remediation or alternatives, they’d go into general revenues and be squandered in the manner practiced so effectively by governments.

I saw the same thing living in Ontario with the Liberal Government’s “OHIP Levy” that “wasn’t a tax”, even though it was determined by income and collected by payroll deductions.  The money didn’t get earmarked specifically for healthcare, it just went into general accounts and disappeared with no real explanation.

Never mind that jacking up the price of a significant input without good alternatives would be economically very destructive and probably counterproductive in the end.  We need to have a little more complex and working solution that that – it’ll take thinking, something that some in the realm of politics seem woefully unwilling to do in any way.

The trick, I would think, lies in expanding the range of alternative fuels available, and alternatives to driving – rail and other mass transit infrastructure.  Until they become more accepted they’d need some subsidization or tax incentives to expand.  This is something that is being tried in Canada, where monthly transit passes attract a federal tax credit – but it’s on the lowest tax rate of 15.5%.  I’d like to see the passes attract a higher credit rate – maybe against the maximum federal income tax rate.

At the same time as this expansion happens, there then can be efforts to disincentivize driving – at least in areas where there’s effective mass transit.  The issue that I can see with the idea of promoting alternatives to driving is that they work well in urban areas, but in a country like Canada – or the United States, too – where there are huge amounts of people living in rural areas where transit simply isn’t an alternative, is that you’ll punish those folks – and the resentment will build quickly.

It’s not an easy thing to think through – how to get us off our addiction to cheap oil, when the alternatives are slow coming and not universally available.  It has to be something one feels in the wallet in order to create incentive to change – but how to make it happen without causing too much adjustment pain.  Or maybe, just maybe, we have to consider that the pain is necessary and just take the big shock at once, get it over with, like ripping a bandaid off – but I don’t think that’s possible given the amount of things that would change quickly.

The trick is to find that sort of balance that allows us to wean ourselves off – the incentives to develop alternatives to oil, and to find ways to maximize what we have – the ways in which we have wasted the resources over the past 150 or so years – making lots of cheap plastic junk, burning off usable gas as a byproduct, building ridiculously inefficient cars because it didn’t matter, all of that has to end and be used as a base point from which to improve.  We’ve put people on the moon, we have to be able to solve this sort of problem, surely.

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