Politicians Praise Big Oil for High Gas Prices…

Michael Giberson

…at least that would be a sensible response for senators concerned about automobile fuel economy and increasing consumption of fossil fuels. While news reports have suggested that higher prices haven’t really backed down consumption much, we all know what would happen if prices were a dollar per gallon lower. But no, market-based solutions are not what a half-dozen senators had in mind when they held a press conference at a gas station on Capitol Hill. The Washington Post reports:

Sen. Charles E. Schumer (D-N.Y.) said Congress would look into breaking up the giant companies. Sen. Maria Cantwell (D-Wash.) promoted her anti-price-gouging bill, which the Senate Commerce Committee adopted on Tuesday. And Sen. Bernard Sanders (I-Vt.) backed a windfall profits tax, pointing to $440 billion in profits over the past six years for the nation’s five biggest oil companies.

The WSJ’s Energy Roundup points to consultant/blogger Geoffrey Styles statement in which Styles says we really shouldn’t hope for cheaper gasoline because of the effect it has greenhouse gas emissions and oil imports. (Actually, the relation between price and oil imports is complex, because domestic producers are relatively high cost. As prices fall, domestic production will tend to fall relative to foreign production.) It all reminds me of the old natural resource economics truism: a monopolist is the conservationists best friend.

“I think it’s time to say to these people, ‘Stop ripping off the American people,’ ” Sanders said.

A common congressional viewpoint, no doubt. As the bumper sticker says, Congress hates the competition.


14 thoughts on “Politicians Praise Big Oil for High Gas Prices…

  1. As an American who is concerned both about global warming and the health of the US economy, I would like to bring to your attention a policy proposal that can make a significant dent in US greenhouse gas emissions and oil consumption, while actually improving the efficiency of the economy and increasing overall consumer benefit. Believe it or not, this can be achieved without a carbon tax, CO2 cap and trade, raising CAFE standards, increasing taxes or the budget deficit, developing new fuels, or replacing gas-guzzlers with hybrids.

    This can be done simply by reforming how auto insurance rates are determined.

    Currently, car insurance is sold on an unlimited mileage, per-year basis. In their 2006 paper “The Accident Externality from Driving” Aaron S. Edlin (Professor of Economics and of Law at UC Berkeley, former senior economist for President Clinton’s CEA) and Pinar Karaca-Mandic (RAND Corporation) show that drivers’ crash-related costs may be four or five times larger than what they are currently paying for liability and collision coverage. When accident costs are thus “externalized”, drivers receive an erroneously low price signal, creating a powerful incentive for all motorists to drive more than they would otherwise and resulting in subsidies from low-mileage drivers to high-mileage drivers.

    William Vickrey, who was awarded the Nobel Prize for Economics in 1996, was the first to notice this phenomenon and proposed an alternative that
    bases premiums on miles driven, in addition to existing rate factors. Within any rating class, the less you drive the more you save, so every driver enjoys an incentive to reduce those miles that provide the least
    benefit, while preserving the option of driving when the perceived benefit is great. Todd Litman of the Victoria Transport Policy Institute estimates that the introduction of per-mile auto insurance could reduce
    total vehicle miles traveled (VMT) by 15% of more, with corresponding reductions in gasoline consumption and CO2 emissions. And because a relatively small number of high-mileage drivers account for a large percentage of VMT, a majority of drivers could expect to pay less for
    per-mile insurance than they do currently.

    Insurance companies won’t voluntarily adopt the per-mile basis because any firm that did would bear all the costs (enforcement costs and reduced premiums) of doing so, but its competitors would reap most of
    the benefits (reduced accident-related payouts). Therefore, public policy measures requiring all insurance companies to offer per-mile insurance (at least as a consumer option) are needed to eliminate this market distortion.

    Per-mile auto insurance would start to reduce energy consumption and greenhouse gas emissions as soon as enacted, and would also reduce costs related to accidents, traffic congestion, local air pollution, and
    transportation infrastructure. The true beauty of this proposal is that, rather than merely transferring resources from one group in the economy to another, it would result in a net increase in consumer welfare by
    increasing the efficiency of the transportation sector.

    Per-mile auto insurance is supported by many environmental organizations, including Environmental Defence, USPIRG, and Resouces for the Future.

    See another paper by Edlin entitled “If Voters Won’t Go for Taxing Oil to Conserve Energy, How Do We Do It?”

  2. As an American who is concerned both about global warming and the health of the US economy, I would like to bring to your attention a policy proposal that can make a significant dent in US greenhouse gas emissions and oil consumption, while actually improving the efficiency of the economy and increasing overall consumer benefit. Believe it or not, this can be achieved without a carbon tax, CO2 cap and trade, raising CAFE standards, increasing taxes or the budget deficit, developing new fuels, or replacing gas-guzzlers with hybrids.

    This can be done simply by reforming how auto insurance rates are determined.

    Currently, car insurance is sold on an unlimited mileage, per-year basis. In their 2006 paper “The Accident Externality from Driving” Aaron S. Edlin (Professor of Economics and of Law at UC Berkeley, former senior economist for President Clinton’s CEA) and Pinar Karaca-Mandic (RAND Corporation) show that drivers’ crash-related costs may be four or five times larger than what they are currently paying for liability and collision coverage. When accident costs are thus “externalized”, drivers receive an erroneously low price signal, creating a powerful incentive for all motorists to drive more than they would otherwise and resulting in subsidies from low-mileage drivers to high-mileage drivers.

    William Vickrey, who was awarded the Nobel Prize for Economics in 1996, was the first to notice this phenomenon and proposed an alternative that
    bases premiums on miles driven, in addition to existing rate factors. Within any rating class, the less you drive the more you save, so every driver enjoys an incentive to reduce those miles that provide the least
    benefit, while preserving the option of driving when the perceived benefit is great. Todd Litman of the Victoria Transport Policy Institute estimates that the introduction of per-mile auto insurance could reduce
    total vehicle miles traveled (VMT) by 15% of more, with corresponding reductions in gasoline consumption and CO2 emissions. And because a relatively small number of high-mileage drivers account for a large percentage of VMT, a majority of drivers could expect to pay less for
    per-mile insurance than they do currently.

    Insurance companies won’t voluntarily adopt the per-mile basis because any firm that did would bear all the costs (enforcement costs and reduced premiums) of doing so, but its competitors would reap most of
    the benefits (reduced accident-related payouts). Therefore, public policy measures requiring all insurance companies to offer per-mile insurance (at least as a consumer option) are needed to eliminate this market distortion.

    Per-mile auto insurance would start to reduce energy consumption and greenhouse gas emissions as soon as enacted, and would also reduce costs related to accidents, traffic congestion, local air pollution, and
    transportation infrastructure. The true beauty of this proposal is that, rather than merely transferring resources from one group in the economy to another, it would result in a net increase in consumer welfare by
    increasing the efficiency of the transportation sector.

    Per-mile auto insurance is supported by many environmental organizations, including Environmental Defence, USPIRG, and Resouces for the Future.

    See another paper by Edlin entitled “If Voters Won’t Go for Taxing Oil to Conserve Energy, How Do We Do It?”

  3. Why not try MPG-CAPS and increase mileage while reducing emissions? I’ve been using this product for 18 months, and love it!

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