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The T-Word

by Richard T. Stuebi

One of the bummers of having been in the energy/environmental field for so long is that rarely do I read or learn something I haven’t heard of before. It’s hard to for me get excited anymore.

Perhaps one of the silver linings of the current economic malaise is that thought-leaders are coming with novel and interesting ideas for the public sector to raise revenues. Yes, that’s right, new taxes.

Two recent examples. First, an intriguing idea put forth by Ian Ayres and Barry Nalebuff in the March 16 Forbes: a voluntary gas tax. This brings back, in different clothing, the concept of war bonds that could be marketed as a matter of patriotism to promote energy independence: citizens can optionally buy an advance tax rebate in exchange for paying an extra amount per gallon of gas purchased at the pump. If you drive little, or drive a fuel-efficient vehicle, you can actually profit from this transaction.

Second, Seattle city officials are considering a $0.20 charge per plastic or paper shopping bag. The idea is up for referendum in August, but unfortunately, it seems that the idea is on the ropes. It’s too bad, because the same idea has been in place (unbeknownst to me) in Ireland since 2002, and appears to be working well.

Although four-letter words are considered nasty, there’s no worse word in the American lexicon than that little three-letter devil. No politician can afford to raise the specter of new taxes, even when they’re desperately needed to balance budgets while encouraging more responsible behaviors.

The cap-and-trade legislation is being threatened by opponents who claim it is nothing but an energy tax (see, as an example, the March 9 editorial by the Wall Street Journal). The dirty little secret is that they’re right: cap-and-trade is a tax. Does the mere fact that something is a tax mean that it shouldn’t be adopted?

Richard T. Stuebi is the Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc. Later in 2009, he will also become a Managing Director at Early Stage Partners.

The Problem With Polls

by Richard T. Stuebi

Recently, I’ve been working more closely with people who are active in setting and shaping policies, and it’s clear that they’re wired differently from me. As an economist, my first question in considering policy usually is: “What are the costs and benefits?”. The policy-wonks tend to first ask: “What do the polls say?”

When it comes to energy issues, it’s increasingly clear to me that an instinctual reliance by politicians and staffers on polling data is a dangerous thing. That’s because the average citizen/voter is so badly lacking in basic understanding of the key issues that the opinions of Joe/Jane Six-pack on energy/environmental matters, sadly but frankly, ought not to be given much weight.

That doesn’t seem to stop firms from conducting more and more surveys on energy topics, and from touting their fresh results to support their pet positions. For instance, Deloitte recently conducted a survey on alternative energy, and the generally pro-renewables press release claimed that “a majority of customers said they would pay more for clean energy because it is good for the environment”.

However, the frothing anti-renewables critic Robert Michaels, writing in the June 8 New Power Executive, offered an opposing interpretation of the Deloitte poll results: that the indicated support of the average customer is actually rather lukewarm when reviewed in detail.

Moreover, Michaels points out, rightly, that survey data often overstates customer enthusiasm for renewables, relative to what customers actually do decide to purchase when offered renewable energy.

And, Michaels brings up the inconvenient truth that I’m bringing up today: that Americans are clueless about energy. Michaels refers to a survey conducted earlier this year by Enviromedia Social Marketing, which reported in its press release that “more Americans have no idea what fuels their electricity than those who can name any particular source — either correctly or incorrectly.”

As an even more damning anecdotal piece of evidence, Michaels trots out a 2004 survey from Kentucky in which 41% of respondents identified coal, steel and oil as renewables. Yikes!

Do we really want the public sector following the wishes of the masses on energy, if this is what the public thinks it knows about energy?

I think the last word on the lunacy of polling Americans on critical energy issues must go to the blogger Engineer-Poet who posted the following missive on Alternative Energy Blog about two years ago in response to a Yale poll on environmental positions:

“92% considered dependence on imported oil to be serious or very serious. 89% considered the high price of gasoline to be serious or very serious. Only 19% supported a pollution fee on gasoline, and a mere 15% supported a general increase in the gasoline tax. It takes a lot of ignorance to hold such contradictory opinions.”

I think that little ditty says it all.

In general, I don’t know where I stand on the Jefferson-Hamilton spectrum, but I don’t think policy-makers ought to make policies just to appease and pacify the ignorant.

Richard T. Stuebi is the BP Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President at NextWave Energy, Inc.

The Real Price of Gasoline

by Richard T. Stuebi

A couple of weeks ago, 17 Democratic governors, including Governor Strickland of my state of Ohio, sent a letter to President Bush urging that something be done to lower gasoline prices. (News release and letter text on Governor Strickland web site)

I was contacted by an Ohio AP wire reporter to comment on this letter. In responding, I said such a letter was at best naive — just what can the President really do to lower gasoline prices? — but more importantly ill-advised. Higher energy prices help us reduce our “addiction” to oil from sources of increasing concern, as well as reduce emissions and encourage the development and adoption of new energy alternatives. In other words, I had the gall to claim that higher gasoline prices were actually good, not bad.

Of course, this was not exactly a popular position to take, and my quotes generated a bit of buzz across the state. (See example from the Coshocton Tribune) A key element of my argument was that customers are prevented from facing the true cost of gasoline, as the expenditures on military protection of oil production, refining and transportation in and around the increasingly dangerous Middle East are not recovered through gasoline taxes, but rather through income taxes.

I recalled a presentation I had heard from last summer, suggesting that these subsidies were on the order of $10/gallon. The problem was: my memory was vague, I had never seen the actual study, I wasn’t sure that I fully believed the results and couldn’t confirm its validity, but I knew that the conclusions were at least directionally correct. So, I weaseled in my interview, saying something like “Some observers have calculated the subsidy at $10/gallon.” Naturally, the reportage indicated that the $10/gallon figure was mine. I assure you: it wasn’t. I have told many people that my instinct (without any substantiating analysis) suggests that the subsidy is probably in the $3-5/gallon range. Mind you, still a meaningful number, any way you slice it.

So, after the interviews and articles, I went back to find the study that was at the root of my recollection of a $10/gallon subsidy figure. The analysis belongs to Milton Copulos, the President of the National Defense Council Foundation. Mr. Copulos apparently updated his work this past January, and he now suggests a subsidy of $8.35/gallon of gasoline refined from Persian Gulf oil. Since the Persian Gulf reflects roughly 40% of world oil production, this implies a $3.35/gallon subsidy when spread across all gallons of gasoline. That’s more in line with my expectations.

Again, a meaningful number. It means that gasoline prices should be, not $3/gallon, but on the order of $6/gallon, about what gasoline prices actually are in Europe. Moreover, this price level doesn’t include the environmental costs associated with burning gasoline. How much additional might this represent?

All told, my idea of a phased-in gasoline tax increase still seems sensible to me, so that the price signals to customers would begin to more closely match the true full cost of oil exports out of the Middle East. I was pleased to note a Cincinnati Enquirer editorial that was generally very supportive of my arguments, though less ambitious than my yearly 50 cent/gallon increase.

I don’t expect to win any votes with this position — not even in Cincinnati. Thank goodness I have no political aspirations.

Richard T. Stuebi is the BP Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc.