From the Christian Science Monitor, via Yahoo!:
Remember last summer, when gas prices broke new records every day and the era of "energy independence" was on the horizon? Gas is half what it was then, but not for long. When OPEC's planned production cuts hit, tightening the global supply of oil just when economies are poised to resume growth, the world may well face the worst oil crunch in history.
The way to avert the brunt of that? It might not be pretty at first, but a price floor – a government-mandated minimum – on retail gas will buy us the time we need to wean us off the oil.
I like the intent, but binding price floors cause screwy incentives for producers to overproduce. A better solution is to simply increase the federal gas tax by $1 ($2) a gallon. Same set of incentives without the mismatch between what producers want to produce and what consumers want to buy. Making that change (tax rather than price floor), the rest of the opinion makes better sense...
Oil's prognosis is grim for one reason: When prices are low, oil companies do not invest in new projects. That means we are draining global reserves without replacing spare capacity. From North Dakota to Kuwait, new projects that looked lucrative when every barrel fetched $147 got shelved when prices plunged. Many of these developments will resume when prices rebound but, because it takes years before oil from a new field reaches the market, it will be too late.
Hmmmm....maybe Hotelling had it right afterall.
[...]
During the summer of our discontent, pressure mounted to make long-overdue improvements to our national rail and inner city transit systems and to reengineer electric grids for wind energy. But the collapse of oil prices threatens to zap the political will to usher in the postcarbon era.
Surveys indicate that Americans who flocked to buses and trains this summer are getting back behind the wheel now that gas is a bargain again, and politicians who promised a clean energy future are now promising to build new highway lanes.
It's all about the incentives. Get the prices right and the rest will follow.
Consumers will gripe, but they'll soon find solace in the reliable, affordable buses and trains they'll ride when gas prices soar beyond reach. For low-income individuals who would truly suffer as a result of such a policy, a payroll tax offset or refundable tax credit can ease the burden...
Yep. Sounds like good economics to me.
