Some Uncommon Good Sense Coming From Washington

The following news comes The Financial Times of London. There has been talk about reducing American's use of oil and gas by increasing the taxes we pay on what we use. The idea is if it cost more, we would use less. This of course is economic insanity. It would only harm the consumer, the oil and gas industry, and put a damper on the entire economy.

The following article indicates that Steven Chu, the Obama Administration's new US Secretary of Energy understands this, if not from an economic perspective, then from a political one. With some more common sense like this coming from Washington, maybe there is hope for economic recovery.
Peter

Rise in taxes on US petrol ‘not feasible’

By Carola Hoyos, Fiona Harvey and Clive Cookson in London

Published: May 27 2009 22:29 Last updated: May 28 2009 00:44 (source)

Steven Chu, US secretary of energy, on Wednesday said that it would not be politically feasible for the country to lower its reliance on oil by raising petrol prices to Europe’s levels through higher taxes or regulation.

In the past Mr Chu, a Nobel laureate, has argued that if the US wanted to reduce its carbon emissions, policymakers would have to find a way to increase petrol prices to levels in Europe. But in an interview with the Financial Times, he said: “At this moment, let me be frank, it is not politically feasible.”

Mr Chu’s comments come as oil prices surged to their highest level this year after Saudi Arabia’s oil minister said the global economy had strengthened enough to cope with oil at $80 a barrel.

Prices rose to $63.82 a barrel, almost double their February low of $32.70, after Ali Naimi, speaking in Vienna ahead of Thursday’s Opec meeting, said the world could withstand prices of between $75 and $80. This is a shift in policy for the oil cartel, which this year gave the impression it would not push prices higher too quickly.

Mr Chu’s move against using taxes to raise US petrol prices is likely to frustrate environmental advocates who believe the only way to change Americans’ consumption habits is through higher prices. US fuel taxes are much lower than in Europe, leading to pump prices that are often one-third lower and to the average American consuming double the amount of oil as his European counterpart.

But Mr Chu warned that Americans will have to learn to live with higher petrol prices even if Washington does not enact policy that boosts them. “Regardless of what one does in any sort of taxation, I believe that prices of oil and natural gas will go up in the coming decades,” he said, adding: “They will naturally go up just because of fundamental supply and demand issues.”

Congress is considering a cap-and-trade system that opponents say will substantially increase petrol prices as oil prices soar to their highest level in six months.

Higher petrol prices are likely to be one of the biggest potential sticking points of the proposal when the bill moves from the Democrat-controlled House of Representatives to the more conservative Senate this year.

Mr Chu was adamant that a cap-and-trade system would be necessary to cut emissions. “We need to begin to put a price on carbon,” he said.

A key question, however, was “how to help the US make the transition”, as many states are heavily dependent on coal or have energy-intensive industries.

Additional reporting by Javier Blas in Vienna

Copyright The Financial Times Limited 2009