Tuesday, May 23, 2006

High cost of gas, high cost of remedying it

Senator Clinton has detailed a plan to reduce foreign oil consumption substantially by 2025, the AP. A rough sketch of her plan is as follows:
Clinton is calling for the creation of a $50 billion "Strategic Energy Fund" paid for by increased profits of the big oil companies. She had urged the creation of such a fund last fall when hurricane damage in the Gulf Coast sent the price of gas soaring.

She is also calling for a massive expansion of ethanol, a corn-based fuel additive and substitute, which is currently only available at a small percentage of gas stations in the United States.

President Bush and other elected officials have called for a greater expansion of E-85, a fuel made of 85 percent ethanol that can be used in vehicles built to run on both regular unleaded gasoline and E-85.

Clinton's speech calls for accelerating the spread of E-85 to half of the nation's gas stations by 2015 by offering a 50 percent tax credit for station owners who install ethanol pumps.

Ethanol is also a popular political cause in midwestern corn states like Iowa, which plays a key early role in the presidential primary process.
Creating a $50 billion dollar energy fund, no matter how well we name it, will not remedy the problem. Moreover, I am philosophically disinclined to tax certain industry sectors at an additional rate because they are now more profitable. However, I do believe we can stop oil subsidies and apply that money to low interest grants and loans for research.

The Federal Government can use its substantial buying power to create a productive market for e85 consumption in the short term. General Motors and other U.S. automakers have the ability to produce hundreds of thousands of flex-fuel vehicles. At present, the cost of gas encourages action toward alternatives. It would have been nice if this was not something new -- if there had been a higher gas tax to fuel alternative research. Tom Friedman, on last night's episode of Charlie Rose, proposed a $3.50/gallon (net, with tax) rate to protect investors in alternative energy; he also said that lower and middle income people would be granted a lower tax rate to offset this cost.

Clinton's idea of a substantial fund in government hands will not fly. However, a small government research fund combined with deliberate government spending on alternative fuel vehicles and higher gas taxes to support alternative fuels economically and in the lab can happen.


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