Er, Does Anyone Remember That Oil Import Fee? : Energy: America had a chance to stabilize markets back in 1986. The lesson should not be lost this time around.
Oil prices are rising, the stock market is dropping, the nation’s economy teeters toward recession and American forces are again assembling in the Persian Gulf. Saddam Hussein’s fault? Well, only partly.
In the summer of 1986, when oil prices hovered around $10 a barrel, the United States wasted a golden opportunity to stabilize world oil markets. As the second-largest producer and the world’s leading consumer of oil, America could easily have boosted prices through a tax on imports. Higher prices would have slowed the rapid decline in production, induced greater fuel efficiency and encouraged the continued development of energy alternatives.
Instead, the mere suggestion of an oil import fee and other mechanisms aimed at stabilizing prices brought howls of indignation from New England and the industrial Midwest, where cheap oil was seen as important to the Frost Belt’s economic recovery and also as sweet revenge on Texans who had sported “Let Them Freeze in the Dark” bumper stickers a few years earlier. And, to an Administration ideologically opposed to intervention, the best energy policy was no energy policy.
For now, U.S. energy security rests with the military. But if America is to extricate itself from costly and open-ended involvement in the Persian Gulf, it must craft an energy policy that recognizes that cheap oil is the problem, not the solution. The Administration, Congress and the public must understand that oil is a relatively scarce commodity in the hands of people who don’t necessarily believe in free markets or in every American’s constitutional right to cheap gasoline.
The best policy for stabilizing prices remains a sliding-scale oil import fee, setting a minimum price of $24 a barrel. Conservation and fuel switching could be enhanced further by a 50-cent increase in the federal gasoline tax. In addition, all remaining restrictions on the use of natural gas should be removed immediately. Finally, we desperately need congressional action to reform an antiquated regulatory and licensing process that has seriously inflated the cost of nuclear power plant construction and operation.
Because of dwindling domestic reserves, new tax breaks for drillers will have marginal impact on oil output. By contrast, policies to keep energy prices high and stable will bring forth additional production more quickly--because higher prices are the best incentives of all.
