Tuesday, July 28, 2009

US: The Case for a GasolineTax

The last US President to take seriously the idea of a gasoline tax was Jimmy Carter. He was the last because the idea was so unpopular that Ronald Reagan used it to defeat him in the 1980 election. Yet while the idea of a gasoline tax, or an oil tax, might be bad politics, it is good policy.

A gasoline tax means that consumers pay more, but it also give the government a whole lot of tax revenue. As a nation, an oil tax does not change the financial position of the US; it's only a matter of distribution. Hopefully Congress puts that money to good use, such as by paying for universal health care or reducing the deficit, but even if it wastes it entirely, that is sort of beside the point. The really issue is the effect of the tax on market behavior.

Once the tax is applied, oil producers have a choice: they can reduce the price of oil to offset the tax, or they can pass the tax on to consumers. (To simplify things, let's suppose that there is no middle ground: either they reduce the price by the whole amount of the tax, or not at all.) If the producers reduce the price of oil, America wins: consumers pay no more for their gas than they were already paying, and instead of sending hundreds of billions of dollars overseas each year to foreign oil producers, the US now keeps the money at home in the form of tax payments.

If the oil producers don't reduce the price of oil, and the tax drives up the cost of gasoline, then consumer behavior is going to shift -- people will drive smaller cars and/or drive less frequently. We saw this happen in the 1970s, and again in the summer of 2008. It means less oil is consumed, and that has all kinds of benefits: it reduces greenhouse gas emissions that drive global climate change; it reduces the US dependence on foreign and especially Middle Eastern oil; it reduces the money available for terrorist financing in the Middle East; and it reduces the effect of various forms of the "resource curse" that afflict oil-exporting countries, such as anemic economic growth and even civil war. Again, America wins.

To be fair, there are some downsides to an oil tax. Since a disproportionate share of the poor's income is used on gas, an oil tax could be quite regressive if it is not accompanied by a rebate program aimed at low-income households. An oil tax also could lead to government waste if the revenue from the tax is not wisely spent -- though right now the US desperately needs that money to reduce its ballooning deficit.

On balance, an oil tax has enormous potential for economic, political, and environmental good. The idea is rarely discussed in the US anymore because it is dismissed as politically infeasible. Yet if we don't talk about it at all, it never will become politically feasible.

Tuesday, June 16, 2009

Energy and climate security

The US Congress is currently considering multiple bills on climate change and energy security. In December, the world will meet in Copenhagen to consider a framework for a post-Kyoto agreement. Perhaps it is time we had a serious discussion about what these issues mean for US national security.

Environmentalists often point to climate change as the source for all manner of ills, including the destruction of Pacific Islands and low-lying coastal areas, massive immigration issues in South Asia, and perhaps even war. There may be a grain of truth to these claims, but they seem distant from the average American voter. Let's focus instead on three issues that are clear and present dangers from America's current energy and climate policies.

First, there is the full cost of America's oil dependence. As the global economy shows signs of recovery, the price of oil has quietly crept above $70 a barrel, a price far above the historic trend. Indeed, the recent collapse in investment in the oil sector means that oil prices could continue to rise. Follow the money: America is sending more than $500 billion a year overseas to oil-exporting countries. Most of those countries have autocratic political systems that are unprepared to handle that kind of financial influx. Oil money often turns into military spending and advanced weaponry, which in turn leads to civil and international war. Ironically, this costs America even more money in the long-run, as it spends billions on the military to try to maintain "stability" in oil-exporting regions.

Second, there is the full cost of doing nothing about climate change. The US Navy has hundreds of concrete piers around the world that are likely to be submerged by rising seawater, and the cost to replace them is estimated at $100 billion. Insurance companies will raise premiums for natural disasters. The government will spend millions developing early-warning systems and mitigation systems in light of more frequent hurricanes like Katrina and Gustav. These are just a few examples of the costs climate change will impose on the public. Whenever some pundit complains about the cost of environmental policies, remember the implicit price tag of doing nothing.

Third, there is the real but unquantifiable risk of catastrophic climate change. The single biggest risk is that the ocean currents will change, diverting the warm Gulf current from the North Atlantic and bringing a rapid ice age to Europe. If this sounds like the stuff of Hollywood, well, it is, but it is also a significant risk that has been highlighted by the UN International Panel on Climate Change. This risk is real, and it is a threat to the US military in two ways. First, chaos in Europe would threaten many of America's most important allies, not to mention the thousands of US troops posted in Germany and elsewhere. Second, this sort of disruption in Europe would destabilize the US-Russia relationship in ways that are impossible to predict.

You don't have to be a tree-hugger or a radical hawk to see energy and climate change as serious issues of US national security. It's time to see these issues as a statesman would: from a bipartisan, long-term perspective. Obama's move to increase the gas-mileage was a good first step, but more is needed. It will take decades to convert the capital stock of US power plants into cleaner, more efficient technology, even if the right policy incentives were put in place today. To make that happen, the US needs to see the issue not just as an environmental problem, but also a security imperative.

But have hope. Far-sighted politicians are starting to watch for the first moment when the words "carbon tax" become politically palatable. It will pay to be out front on this issue.

Monday, June 15, 2009

Iran's questionable election

While it is hardly clear who really won in Iran's election last Friday, one thing is clear: the clerics are still firmly in control of the regime. Whether they remain so depends largely on how they handle the present protests.

Optimists in the West hoped that hardliner Ahmedinejad would be replace by the kinder, gentler Moussavi as President. There are two big problems with that notion. First, Moussavi is no teddy bear. He was the militant Prime Minister who guided Iran through the Iran-Iraq war, in which the use of waves of boy-minesweepers was one of one of Iran's favored tactics.

Second, even if Moussavi were the Iranian version of Gandhi, it isn't clear how much of a difference it would make. The President is not the most powerful person in Iran: that's the job of the Supreme Leader Ali Khamenei. The President is probably not even the second most powerful, or the third, or the fourth -- those are all occupied by the unelected clerics in Khamenei's inner circle, and those who run the Iranian Revolutionary Guard.

Don't get me wrong, if Moussavi were elected, that would be (have been?) better than Ahmedinejad. But I'm not sure that it was ever really that important who was President.

Paradoxically, the real question is how the clerics handle the aftermath of this election. If they do as they have done twice before when faced with calls for reform (in 1999 and 2000), and send in the military, they may have a real problem. They could end up legitimizing their opponents and strengthening an underground resistance. (Of course, this isn't guaranteed: the Chinese roled out the tanks in 1989 and got away with it.)

If instead the clerics give ground, perhaps even by declaring fraud by Ahmedinejad and giving Moussavi the Presidency, they will likely strengthen their own long-run position. The reason for this is simple: Moussavi is highly unlikely to be able to get anything done once in office. Khamenei can veto anything he really doesn't like, and there are more subtle ways of derailing reforms. Giving the reformers hope and then strangling it slowly with Iran's infamous bureaucracy is likely a far, far more effective tactic for the clerics.

Either way, let's hope the clerics screw it up. It is high time for reform in Iran.