Re: Peeved at the pump

From: Al Koop <>
Date: Fri May 14 2004 - 10:41:49 EDT

On 5/13/04 10:29 PM, "Glenn Morton" <> wrote:

> I disagree with this. We are paying the value of oil in our gasoline.
> The other countries are paying 60-80% taxes on their oil. The UK
> government made more per barrel than OPEC did, which meant when Tony
> Blair would jawbone OPEC to lower prices, they would laugh at him.

Howard Van Till responded:

>If Value = Cost of Producing & Distributing, I agree. We are probably
>paying the production & distribution costs + a reasonable profit.

>However, my point is that because oil is a finite and versatile natural
>resource its actual Value >> Cost of Producing and Distributing. If our
>generation simply uses it up for cheap and portable energy, our
>grandchildren will have a perfect right to be really angry and to ask why we
>had so little foresight. We will have used up the oil that they will need
>for manufacturing all sorts of products * plastics, etc.

>Consequently, I am inclined to say, go ahead and heap taxes on oil as a way
>of educating people concerning the actual Value of oil as a finite and
>versatile resource and spend that money on developing alternative energy
>producing systems.

Here are several views about oil and taxes:

There are obviously some differences of opinion concerning the direct versus the indirect costs of oil. Such discussions are, of course, not confined to just oil but forests, mines, water, air and other natural resources as well. A great deal seems to depend on the economics you grow up with.


Here is one person's about tax breaks for the oil industry. I cannot vouch for the numbers one way or the other.

 "The federal government provides the oil industry with numerous tax
 breaks designed to ensure that domestic companies can compete with
 international producers and that gasoline remains cheap for American
 consumers. Federal tax breaks that directly benefit oil companies
 include: the Percentage Depletion Allowance (a subsidy of $784 million
 to $1 billion per year), the Nonconventional Fuel Production Credit
 ($769 to $900 million), immediate expensing of exploration and
 development costs ($200 to $255 million), the Enhanced Oil Recovery
 Credit ($26.3 to $100 million), foreign tax credits ($1.11 to $3.4
 billion), foreign income deferrals ($183 to $318 million), and
 accelerated depreciation allowances ($1.0 to $4.5 billion)."

 "Tax subsidies do not end at the federal level. The fact that most
 state income taxes are based on oil firms' deflated federal tax bill
 results in undertaxation of $125 to $323 million per year. Many states
 also impose fuel taxes that are lower than regular sales taxes,
 amounting to a subsidy of $4.8 billion per year to gasoline retailers
 and users. New rules under the Taxpayer Relief Act of 1997 are likely
 to provide the petroleum industry with additional tax subsidies of
 $2.07 billion per year. In total, annual tax breaks that support
 gasoline production and use amount to $9.1 to $17.8 billion."

 Digging a little deeper...

 On the percentage depletion allowance:

 On the other hand, ...

 On the Nonconventional Fuel Production Credit: (note: claim of $5B/year subsidy)

Here we have the opinion of the Nobel Laureate Paul Samuelson in his textbook. Here you see a great example of the great divide between neoclassical economics and ecological economics.

"IT is difficult to exaggerate the world-wide impact of Mr. Samuelson's

 Here Nobel Prize winner Paul Samuelson & William Nordhaus give us the
 acceptable dogma on oil and gas: "oil and gas are not essential" because
 "the isoquant hits the vertical axis at point A"!

 [ here's the context ]

 "Should we be taking steps to limit the use of these most precious stocks of
 society's capital so that they will still be available for our

 "Economists answer this question in two ways. First, they point out that
 fossil fuels like oil and gas are finite but not 'essential.' An essential
 resource is one, like oxygen, for which there are no substitutes.
 Substitutes exist for all the energy resources. We can substitute coal for
 oil and gas in most uses; we can liquefy or gasify coal where liquid or gas
 fuels are needed; when coal runs out, we can use higher-cost solar energy,
 nuclear fission, and perhaps someday even nuclear fusion. These last three
 are superabundant in the sense that when we run out of solar energy, the
 earth will already be uninhabitable.

 "A second point concerns the relative productivity of different assets. Many
 environmentalists argue that energy and other natural resources like
 wilderness areas and old-growth forests are very special kinds of capital
 that need to be preserved so that we can maintain 'sustainable' economic
 growth. Economists tend to disagree. They look at natural resources as yet
 another capital asset that society possesses -- along with fast computers,
 human capital in an educated work force, and technological knowledge in its
 patents, scientists, and engineers. Both economists and environmentalists
 agree that this generation should leave an adequate stock of capital assets
 for future generations; but economists worry less about the exact form of
 capital than about its productivity. Economists ask, Would future
 generations benefit more from larger stocks of natural capital such as oil,
 gas, and coal or from more produced capital such as additional scientists,
 better laboratories, and libraries linked together by information

 "The substitutability of natural capital and other kinds of capital is shown
 by the production indifference curve or "isoquant" in Figure 18-2. We show
 there the amounts of the two kinds of capital that would be required to
 attain a certain level of output in the future (Q*), holding other inputs
 constant. That output can be produced at point C with a conservationist
 policy that emphasizes reducing energy use today, leaving much oil and gas
 and relatively little human capital for the future. Or it might be produced
 with a low-energy-price and high-education strategy at B. Either of these is
 feasible, and the more desirable one would be the one that has a higher
 consumption both now and in the future.

 "Note as well that the isoquant hits the vertical axis at point A,
 indicating that we can produce future output level Q* with no oil and gas.
 How is this possible? With the greater scientific and technical knowledge
 represented by point A, society can develop and introduce substitute
 technologies like clean coal or solar energy to replace the exhausted oil
 and gas. The curve hits the axis to indicate that in the long run, oil and
 gas are not essential." [ p. 328, ECONOMICS, Paul Samuelson and William
 Nordhaus; McGraw-Hill, 1998 ; ]


If you like your economics on the ecological side with a dose of John Cobb theology you can read:

 Herman Daly and John B. Cobb Jr.[ ].
Received on Fri May 14 10:43:20 2004

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