The leaking underwater oil well in the gulf has attracted much attention, as it should. The effects could be devastating for the already battered economy of Louisiana and other states dependent on tourist dollars. President Obama has announced, quite correctly: “BP is responsible for this leak. BP will be paying the bill.” The President’s response in terms of limiting the immediate damages and stopping the leak seems prudent as well. Read the story on Politico.
However, this is an election year and thus I get more than a little nervous when I read statements like: “every American affected by this spill should know this: Your government will do whatever it takes for as long as it takes to stop this crisis.”
“Whatever it takes” is a big category and one cannot see the word “crisis” without recalling the sage words of Rahm Emanuel: “You never let a serious crisis go to waste. And what I mean by that it’s an opportunity to do things you think you could not do before.”
Crisis always opens a window of opportunity for policy change. One could only hope that this and similar crises would lead to a re-evaluation of our energy policy. We have a heavy reliance on petroleum and, as everyone knows, our dependence on imports has increased dramatically in the past few decades. I am certain that the oil spill will lead to new calls for a green industrial policy and heavy investments in solar energy and other green alternatives.
There is an old saying: the first thing you should do when you find yourself in a hole is stop digging. The heavy reliance on petroleum is, in many ways, a product of past policy decisions.
As a recent study by David Victor and the Global Subsidies Initiative notes that governments around the world spend some $500 billion per year in fossil fuel subsidies. In the US, government spent $72 billion on fossil fuel subsidies between 2002 and 2008. These subsidies do not include myriad other forms of taxpayer support for fossil fuel based energy.
As we know, subsidies lead to overconsumption. They blunt the incentives to invest in alternatives. Before we respond to this new crisis by creating new subsidies for alternative energy or initiating a green industrial policy, it would be advisable to (1) eliminate the subsidies and (2) use a Pigouvian tax to internalize the negative externalities created by fossil fuel consumption. We might discover that this alone could create the incentives for the development of energy sources that do not lead, quite predictably, to the kinds of problems we are witnessing in the gulf coast.
Unfortunately, the probability of this response approaches zero. In Congress, Republicans would gnash their teeth at the idea of an expanded fuel tax and sing the praises of “free” markets while quietly accepting campaign donations to maintain the system of fossil fuel subsidies. Democrats might be more willing to embrace a tax, but they would wither at the thought of allowing markets to create incentives for alternative fuels (oh yes, and they would never refuse the ongoing financial support of the very industries they vilify).
So what can we expect? My best guess: new transfers layered upon existing transfers combined with unsustainable promises made in the heat of an election year.