10 November 2005

Enlightened Energy Policy Not Oil Profits Tax

Oil companies have reaped enormous profits in this past summer's run up of oil prices. We've also seen greater noise about hybrids, alternatives, and greater fuel economy in the wake of escalating prices at the pump. But should the oil industry be socked with a tax to address "excessive" profit-taking? No.

Rather politicians should take advantage of these times to encourage conservation by consumers, call for an enlightened energy policy, and improved vehicle fuel-efficiency. This would be a better long-term solution than taxing this momentary windfall.

Oil prices will continue to fluctuate -- it's the nature of the business. At some point, a few speculate, we'll see oil top $100 a barrel. But already the price is dropping and people are starting to take the FOR SALE signs off their SUVs. While this may be a reaction to scrutiny on the part of the oil companies, more likely it's the usual reaction caused by unseasonably warm weather in the northeast driving down demand or increased productivity and the efforts of companies to pump up refining in the aftermath of the hurricane season. There's more oil available. That won't always be the case.

So why not seize this opportunity to make a real difference by addressing the demand side of the equation? Reduce our consumption through conservation measures and improving our energy use per unit of economic output, which most agree is abysmal, and we may be able to create long-term impact and incentives. (This is always better for an economy than increased taxes.) Some are calling for an economy-wide carbon tax (more on that later) and greater energy-efficiency requirements.

In the long run, such solutions may provide much more traction than any tax on windfall. Besides, one person's windfall is almost always someone else's loss. Where will it end? Is your business gleaning excessive profits? What if you made a bundle on the sale of your house in an insane market? You could be next.

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