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Energy: Government Vs. Market Solutions

by: Mark Perry June 06, 2008 | about stocks: CNQ / ECA / VLKAY.PK    

Mark J. Perry, Ph.D.

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Coercive, government solutions to high energy prices:

1. Investigate oil companies for "price gouging."
2. Impose windfall profits taxes on oil companies.
3. Keep plentiful domestic energy resources off-limits.
4. Pressure (beg) Saudi Arabia to increase output.
5. Regulate stricter CAFE standards for fuel efficiency.
6. Waste taxpayer money to subsidize "demon ethanol."

Voluntary, market solutions to high energy prices:

1. Producers develop fuel-efficient cars like the 300 mpg Aptera (watch CNN video) that can go cross country on one tank of gas, and the 230 mpg Volkswagen (VLKAY.PK) coming in 2010, WITH NO GOVERNMENT SUBSIDIES.
2. Consumers drive less voluntarily and buy more fuel-efficient cars to conserve gas.
3. Producers attempt to find more oil in Canada, North Dakota, the Outer Continental Shelf and ANWR, subject to government restrictions.
4. Oil refiners attempt to build more, energy-efficient, environmentally-safe oil refineries, subject to government restrictions.

Future government solutions?

1. Impose windfall profits taxes on Aptera and other energy-efficient vehicle makers if they start making "windfall profits" from booming sales of small cars.
2. Investigate "price gouging" if consumer demand for the Aptera and other small cars results in "excessive prices."

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This article has 20 comments:

  •  
    Jun 06 07:53 PM
    Very entertaining (sadly) post.
    Reply
  •  
    Jun 06 08:06 PM
    Yeah, sure, it's all the government's fault.

    Well, you elected him.
    Reply
  •  
    Jun 06 08:12 PM
    Yeah, or the government could have done what Perot said and impose a 10 cent per gallon per year tax on gas.

    That would only have put us 7-10 years ahead of where we are now in terms of looking for alternatives ...

    Just because government can do stupid things doesn't mean it has to.
    Reply
  •  
    Jun 06 08:44 PM
    Great Post
    Reply
  •  
    Jun 06 10:46 PM
    GH,

    Are you referring to Bill Clinton who block ANWR oil development?

    Its funny, energy is cheap and the government puts out Energy Squirrel PSAs to try to get us to conserve. Now prices are rising and all of this puffery and grandstanding is going on. I don't know if they honestly believe what they say or are just trying to appease their constituencies.

    Gas prices are rising and what does GM do? Closes down four SUV plants. Go figure.
    Reply
  •  
    Jun 07 08:29 AM
    The government should be supporting these companies and doing everything possible for these energy efficient initiatives to be successful. At the same time, instead of playing the haves and have-nots card, they should be making it clear to every person in this country that once we stop sending money overseas for oil, we will all be more secure and have a better opportunity for the American dream.

    Instead, with all their talk of windfall profits, our politicians pander for votes. Makes me wonder if Washington in general and the Congress in particular is a bigger threat to our survival than plague, pestilence and Al Quaida combined.

    Our elected officials need to be reminded that if you're not a part of the solution, you're part of the problem.

    It is my belief that the government should make a comprehensive energy plan with the goal of not needing to send any money overseas for energy within a certain time frame their #1 goal. If and when that day comes, we can begin to pay down our national debt. And with the combination of not having to pay interest on that national debt and well as the additional taxes raised by the growth in our own economy by these new energy efficient products..... you see where I'm going.

    Keep that money in our own system. With less interest being paid out on our national debt, Washington could then move on to making positive adjustments to our social security and our health care systems.

    Morons who focus on windfall profits on businesses that are working on these initiatives need to be in their neighborhood bar discussing politics and not in Washington setting policy. Unfortunately, it seems that the bar people are hoping for a car with great mileage and the Washington people are discussing the politics of what to do to win the next election.

    If this keeps up, the illegal imigrant situation will solve itself. No one will want to come here.
    Reply
  •  
    Jun 07 10:04 AM
    Now we can add Michael Moore to the list of Congressional solutions to skyrocketing oil prices. He testified recently that the problem is speculators (ie. "the market"), which needs to be further regulated to forestall ever higher oil price increases.

    So there you have it in a nutshell. The Greens' answer to $4-plus gasoline is now complete. Raid the SPR, sue OPEC and artificially control the marketplace. Oh, and don't forget the $5 TRILLION cap and trade charade, the mother of all earmarks.

    Meanwhile, back here on earth, the auto, airline and trucking industries are all going broke. As this energy choked malaise continues to spread throughout our economy, millions more Americans find themselves without jobs or no way to get to work.

    Now it's up to us. Either we're the dumbest voters in the history of the planet and we re-elect these nitwits for more of the same, or we wake up and throw these numbskulls out on their pinheads. Think about it... Michael Moore as our new Secretary of Energy!

    As one of them likes to say, "Change we can believe in...!"




    Reply
  •  
    Jun 07 10:15 AM
    I agree governments make useless decisions. However in Europe where "gas" is $10 a gallon they use half or less the fuel used in the US. As a result Europe drives cards that get double the mileage of US cars, they have a better train system (in France a brilliant train system) and they are much less exposed to Peak Oil.

    In contrast "the market" in the US has led to the strip mall/exurban model lifestyle that is even now proving the first casualty of Peak Oil.
    Reply
  •  
    Jun 07 10:19 AM
    The Bush Admin has an energy policy, its high oil prices. No high cafe standards no alterative subsudies for solar etc. If congress wont allow offshore and Alaskan drilling then we'll twist your arm till you say uncle. The problem is do you want Bush signing that contract giving away our ntional resourses to his buddys, at least lets wait for an admin that will give us revenue from the finds. That will teach the american people to elect an oil man president. The proverbial fox guarding the hen house.
    Reply
  •  
    Jun 07 11:37 AM
    The good news is that all that untapped oil in ANWAR etc everyone wants is now worth more. And no, I don't want Bush giving it away to his buddies. It has become a tired refrain that all our problems are from the stupid old government. Just let world corporate interests and the market have their way and we'll have a rational prosperous society that can cure all our ills. Recent events have not proved this assumption. I'm thinking mortgages and banking, health care, insurance scams, the upcoming credit card crisis, inefficient transportation, market manipulations, etc.

    The problem is not the price of oil. Oil is an amazing store of energy with potential way beyond our current usages. The problem is that oil has been undervalued for so long that this re-valuation is calamitous.

    If we continue to ignore public transportation then our situation will only become worse. If we continue to waste energy then we will decline as a society until we have nothing left to waste. How many countries store 50 gallons of hot water in every home 24/7? Only North America. How much energy will we save if millions of homes just replace wasteful water heaters for efficient flash heaters? The next time you fly at night observe all the parking lots that are empty and fully lit. The good news is that we have easy efficiency gains out there for the taking and they will create jobs in the process. Bill Clinton said that the efficiency gains from IT were responsible for the booming economy under his term. Maybe the next administration will be wise enough to encourage the retrofitting of America's infrastructure and prosper as well.
    Reply
  •  
    Jun 07 01:17 PM
    Not much in the article or in the comments that I haven't heard before.

    Did any of you read the report that was given to the US Senate Committee by Professor Michael Greenberger, from the University of Maryland School of Law titled "Energy Market Manipulation and Federal Enforcement Regimes"?

    I downloaded this report and it is outrageous that the Commodity Futures Trading Commission has not done their job in regulating commodities trading so as to keep speculators out of commodities trading. We are being cheated.

    Read the report Dr.Perry. Then tell me why the law that allowed Enron executives to rig energy prices was passed. We have a Securities and Exchange Commission that is supposed to protect the public. Insurance industry laws, banking industry laws, etc.

    It is time to do something about oil monopolies and people and institutions that rig commodity prices.

    Finally, Phil Davis And Anthony Schneider on SeekingAlpha have also written articles on how, why and who is involved in manipulating oil prices. Do some of your own research and you will know the truth about this problem.



    Also, there are articles in the LA Times, Bloomberg, and the NY times on who is involved in the price fixing and manipulation. Some names are Goldman Sach, Morgan Stanley, the intercontinental exchange ( in Atlanta Georgia
    Reply
  •  
    Jun 07 01:33 PM
    Great post jjason. I have no proof, but after JP Morgan, G Sachs, Lehman Bros and others have lost BILLIONS with the sub-prime crises, it's time to get that money back from commodities, specially oil. Derivatives is their addiction and with <5% leverage it's easy money when prices keeps going up.

    Conserving energy is great, but what makes anyone think that this alone will bring the oil price down? Not in the short run, since the JP's of life along with the support of the government profit billions from high oil prices. It's not in their interest to bring it down, not for now.
    Reply
  •  
    Jun 07 02:10 PM
    Price Controls=Shortages...e... the Magic Mulatto and watch it happen. Yeah, and raising taxes during a slowdown is smart, too. Every roof should have solar panels, and every appropriate hilltop or open field should be generating wind power, and things are gonna be rough until this happens. Send money, guns, and lawyers.
    Reply
  •  
    Jun 07 02:34 PM
    Entertaining AND insightful, Mark. While the government pays to have CO2 sequestered and buried underground, Denbury Resources (DNR) taps an underground source of CO2 which it uses (very profitably) in extracting oil from wells previously deemed to be exhausted. There is no end (sadly) to the ironies and idiocies when government intrudes into the marketplace.
    Reply
  •  
    Jun 07 02:34 PM
    Yeah GH, lets blame Bush...well you elected the do-nothings and big government jerks like Kennedy, Pelosi, and Reid...now does this blaming each other solve anything? No...
    Maybe we could really try for some solutions now, and not blame one another..
    Reply
  •  
    Jun 07 02:49 PM
    This article is right on the money. Speculators are the reason oil prices are rising but speculators are acting on a real imbalance between supply and demand. Until that supply/demand equation comes back into balance, prices will be high.

    How is that rebalancing accomplished? You can either increase supply or decrease demand or some combination of the two. Government "solutions" invariably ignore free-market principles and in fact exacerbate the problem by artificially stimulating demand and discouraging expansion of the supply.

    Punishing oil companies with windfall profits taxes or elimnation of subsidies may feel good, but it doesn't do a thing to increase the supply of oil and in fact, by reducing the cash flow of the oil companies, reduces exploration/extraction activities. So this government "solution" actually reduces supply, therby throwing supply/demand further out of whack.

    Price caps at the pump artificially stimulate demand, thereby perpetuating the imbalance between supply and demand. Any sort of "relief" offered to the consumer is going to have the same effect. High prices reduce or eliminate "unnecessary"... consumption, thereby relieving pressure on prices.

    It sounds harsh but market forces are the best solution to the problem. Goverment interference promises to make it worse, while presenting new opportunities for corruption as favored and out of favor industries vie for special treatment from the regulators.

    My eight year old son understands this stuff. Too bad the politicians don't.
    Reply
  •  
    Jun 08 01:52 AM
    Jjason-

    Here's a news flash for you... No one's SPECULATING about oil prices in the markets. They're simply reacting to the self-imposed embargo the Congress has imposed against all forms of domestic U.S. energy exploration and production. It's NOT speculation if you're betting on a SURE THING...!
    Reply
  •  
    Jun 08 02:11 AM
    Ronmac,

    Great idea, buddy, but I believe we're past that. The Greens and their fellow travelers in the Congress have declared war on the internal combustion engine and our way of life. And they're not about to compromise so long as they're winning.

    Like you, I'd love for it to be otherwise. We could mix and match old and new energy technologies... nuclear reactors and electric cars, windmills and natural gas vehicles, domestic oil exploration and hybrids, and on and on.

    No, the only way we're going to get any of that is to defeat them soundly at the ballot box. And it appears that's going to be quite awhile from now. In the meantime, the only solution I know is to invest into this artificially self-imposed energy shortage, and hope we survive this attack intact.
    Reply
  •  
    Jun 08 02:17 AM
    Itsonlymoney,

    Don't knock the lights in the all night parking lots, friend. That's so the cops can catch the thieves siphoning the gas out of our cars.
    Reply
  •  
    Jun 09 02:52 PM
    paulk8756, You, obviously, have not read the reports I described. Also, you probably don't know about Enron. There is speculation driving up prices but speculation in commodities is only part of the problem with a run up in commodity prices. Take the gamble if you wish. Buy oil futures. The traders will profit and in the zero sum zero game, half of the speculators will win and half will lose.

    It's happened before and will happen again.
    Reply
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