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Energy Policy: SUVs, Energy, and the Oil Economy 1 1973 • OCT 8-10 OPEC negotiation with oil companies fail • 16 Iran, Iraq, Abu Dhabai, Kuwait, Saudia Arabia, and Qatar raise price oil 17% • Oct 17 Openc agrees to cut exports and recommend embargo • 19-20 OPEC proclaims embargo against US • November Embargo extended to Netherlands, Portugal, Rhodesia, South Africa • Nov 27 Nixon Sings Emergency Petroleum Allocation Act • Dec 22-24 OPEC Gulf States double+ price of crude oil 2 1973 Oil Embargo • OPEC cuts oil exports (5%/month + 25%) to pressure US. Raises prices. • Gas prices quadruple. Supply is limited. • Policy rations fuel; mandates cuts in commercial lighting, limits heating in federal buildings . . . • Appeal for voluntary efforts to limit consumption. 3 1 Response to crisis: “Energy conservation is the moral equivalent of war.” J. Carter • 1974 national 55 mph speed limit • 1975 Energy Policy and Conservation Act – Strategic petroleum reserve – CAFÉ standards • Other conservation policies promote development more efficient technologies. • Rapid growth in alternative energy R&D. 6 Auto Fuel Efficiency 25 Miles per Gallon 20 15 Cars Light T rucks 10 5 0 7 19 0 19 75 19 80 19 85 19 90 19 95 20 00 20 05 10 Data courtesy of the Federal Highway Administration of the US Department of Transportation. US Vehicles Miles per capita Vehicle M iles per Capita 12000 10000 1973 Oil Embargo 8000 1978 OPEC 6000 WWII 4000 2000 0 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 Year 9 Data courtesy of the Federal Highway Administration of the US Department of Transportation. 2 What’s the problem with SUVs? Advocates Critics • ? • ? • ? • ? • ? • ? • ? • ? 19 What’s the problem with SUVs? Advocates Critics • “The only problem is when government interferes in private life.” • “It’s my choice whether I make my family safer. Don’t complain if you’d rather save a few bucks” • Vehicles must address the variety of needs that exist in society. • Not breaking any law. • “It’s my right.” • It’s a “bad bargain for society. • Wasteful. Dangerous excess. Selfish. • What’s safe for you (and maybe not) is not for us. • It’s immoral. You ignore the impacts your actions have on others. Desire cannot justify military action. • You’re misguided. 20 What’s the problem with SUVs? Advocates Critics • Individual choice is sacrosanct. • Society includes different needs and priorities. Choices must be available to each. • Tastes are not open to dispute. • No legitimate basis for government intrusion. • Wanting is not needing. • No right is involved. • Choices that affect others are moral choices. Require actions that are just, fair, responsible . . . • Safety and security create a legitimate basis for government action. • Choices misguided. • False tradeoff. 21 7 2 competing problem frames. Markets & private choice preferred. Problem is gov’t intrusion. Do nothing. Legitimate public concerns come before private preferences. Problem is individual choices fail to take account of broader impacts. Gov’t must act. 22 If government acts, how can/should it act? What alternative strategies are available that can infuse individual/private choice with public/collective concerns 23 Forms of Government Action Voluntary Action Markets Laws Do Nothing Information Services Rules Rights 24 8 Government Action: Laws & Rules • Ban SUVs • Auto Fuel Efficiency Standards – Government limits social choices – Create pressure for technological development • Limit gasoline purchases (rationing) 25 Government Action: Taxes • Influence individual choice through market mechanisms – “price” as signal • Diffuse mechanism • Allows for flexibility • Revenue to finance environmental/energy programs • Revenue neutral versus revenue generating 26 Price Î Taxing Products to Produce Socially Desirable Outcomes Product Demand p2 Product Supply p1 q2 q1 Quantity Î 27 9 Taxing Products to Produce Socially Desirable Outcomes Price Î (highly elastic demand) Product Supply Product Demand p2 p1 q2 q1 Quantity Î 28 Taxing Products to Produce Socially Desirable Outcomes Price Î (highly inelastic demand) Product Demand p2 Product Supply p1 q2 q1 Quantity Î 29 Equity & Taxes • Taxes on Gasoline – Greater impact on: • Commuters • Working families • Truckers – food costs • Taxes on SUVs – Greater impact on: • Wealthy • Businesses • Large Families • Can these effects be mitigated? • Can Taxes be revenue neutral? 30 10 Government Action: Information • Educate the public on energy use impacts – Vulnerability to oil imports • Economic policy implications • Foreign policy implications – Effects on climate and local air quality • Provide “signals” other than price – What might influence consumption decisions? 31 Government Action: Property Rights • Property rights created by government action – Intellectual property; Real estate – Pollution credits • Creates scarcity and potential for market transactions • Rights that are auctioned and traded. – SO2 – Carbon credits • How could it apply here? 32 CAFÉ standards: A mixed strategy • Rule creates strict requirement enforced through penalties and taxes • Focus on fleet average allows manufacturers flexibility in meeting standard • Means open to manufacturers – Use incentives to influence consumer choice and offset sales of less efficient cars – Educate consumers – Technology development: make more efficient cars that are attractive to consumers 33 11