Download 1973 1973 Oil Embargo

Energy Policy: SUVs, Energy, and
the Oil Economy
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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
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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.
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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.
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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
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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
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Data courtesy of the Federal Highway Administration of the US Department of Transportation.
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What’s the problem with SUVs?
Advocates
Critics
• ?
• ?
• ?
• ?
• ?
• ?
• ?
• ?
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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.
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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.
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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.
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If government acts,
how can/should it act?
What alternative strategies are
available that can infuse
individual/private choice with public/collective concerns
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Forms of Government Action
Voluntary
Action
Markets
Laws
Do
Nothing
Information
Services
Rules
Rights
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Government Action: Laws & Rules
• Ban SUVs
• Auto Fuel Efficiency Standards
– Government limits social choices
– Create pressure for technological development
• Limit gasoline purchases (rationing)
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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
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Price Î
Taxing Products to Produce
Socially Desirable Outcomes
Product Demand
p2
Product Supply
p1
q2
q1
Quantity Î
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Taxing Products to Produce
Socially Desirable Outcomes
Price Î
(highly elastic demand)
Product Supply
Product Demand
p2
p1
q2
q1
Quantity Î
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Taxing Products to Produce
Socially Desirable Outcomes
Price Î
(highly inelastic demand)
Product Demand
p2
Product Supply
p1
q2 q1
Quantity Î
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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?
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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?
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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?
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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
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