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How much higher than European gas prices should we have to pay?



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Today’s New York Times, noting that crude oil recently hit $83.32 a barrel on Sept. 20 and stayed above $80 a barrel for the next two weeks, provides some eye-popping numbers on how the high cost of crude is affecting transport industries:

Airlines worldwide expect to spent $132 billion for jet fuel this year, up from $40 billion in 2002. The industry estimates that the share of operating costs devoted to fuel has doubled in six years.  Similarly, the American trucking industry expects to spend $107 billion on diesel fuel this year, up from $45 billion in 2002. This means that fuel eats up nearly twice as much of the industry’s annual revenue…

Fortunately, a boom in business has protected trucking’s bottom line. “Had this happened 10 years ago, the industry would have been decimated,” the Times quotes Bob Costello, chief economist for the American Trucking Association, as saying.

An obvious question that leaps to mind: How much higher can fuel prices go without ‘decimating’ the trucking and airline industries–or without triggering a recession?

This question is all the more pertinent given the enthusiasm on Capitol Hill for mandatory global warming policies. For example, John Dingell, Chairman of the House Energy and Commerce Committee, recently advocated (a) a $50 tax on the carbon content of fuels, (b) a $.50 hike in federal motor fuel taxes, and (c) a cap-and-trade program adequate to reduce U.S. emissions 60 to 80 percent by 2050.

A $50 tax on the carbon content of fuels translates into a $.50 cents per gallon gasoline tax. So Dingell is effectively asking for a $1.00 per gallon hike in gasoline taxes. A cap-and-trade program, especially one tough enough to reduce emissions by 60 to 80 percent, would put an additional heavy constraint on petroleum supply, further inflating fuel costs.

So it is a real question whether the airline and trucking industries could remain profitable under the kinds of global warming policies Dingell and others are proposing–and whether the U.S. economy could continue to grow.

Although higher fuel costs would hurt consumers and the economy, emissions might still go up: economic pain for no environmental gain. Consider the European experience.

Because of high motor fuel taxes, Europeans in some countries pay $7.00 a gallon or more for gasoline.  But where in Europe are all the zero-emission vehicles? Where is the miracle fuel to replace petroleum? Europe is not one mile closer than we are to achieving a “beyond petroleum” transport system. Indeed, EU transport sector emissions grew by almost 26 percent from 1990 to 2004.

Dingell is more up front than most pols about the costs of Kyotoism. But hiding the costs of climate policy has become a fine art on the Hill. The question a straight talker like Dingell should be raising is: How much higher than European level gasoline prices does Congress think Americans should have to pay to reduce emissions?



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