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On How Will Oil's Current Slide Affect Gasoline Prices?

See: http://theenergycollective.com/geoffrey-styles/172516/could-diesel-fuel-made-us-natural-gas-compete-cng-and-lng

On How Will Oil's Current Slide Affect Gasoline Prices?

IK,

I agree that autonomous vehicles are an exciting and potentially transformational development; however, the outcome you describe is one possible scenario, and hardly the only one. It's far too early to make firm predictions about this set of technologies, especially with regard to the implications of their evemtual implementation. Despite progress by Google and others, opinions about how quickly and completely self-driving tech would be adopted are still divided, for good reasons.

You also appear to be making heroic assumptions about the potential impact on fuel demand.  To reduce consumption as much as you suggest, either vehicle miles traveled would have to drop significantly, or autonomous vehicles would have be alternatively fueled, or ultra-efficient.  There's no reason that autonomously driven cars wouldn't be conventionally fueled, especially in a lower-oil-price environment.  (The cost of the self-driving technology by itself could raise car prices signficantly, and manufacturers would likely be looking for other ways to keep initial cost down, such as by avoiding costly batteries or hybridization.)  In any case, our experience with many efficiency technologies is that usage actually increases--the so-called rebound effect.     

On How Will Oil's Current Slide Affect Gasoline Prices?

John,

Good points, though I have to believe the RFS bottleneck will be resolved fairly soon, one way or another, perhaps via one of the reform bills introduced in Congress.  Tier 3 fuel standards could raise costs and reduce US refinery output of domestic gasoline (while increasing exports?)  and state fuel taxes will almost certainly rise a few cents, though longer-term governments will need to find other ways to fund road repair, as fuel consumption continues to decline.  We've just gone through a major battle over transportation funding in VA, with the outcome switching from a retail to wholesale fuel tax, along with an increase in the general sales tax rate and an annual usage fee on otherwise untaxed alternative fuel vehicles.  There's some evidence that QE2/3 have contributed to higher oil prices, but the long-term impact is unclear, once the program ends. 

On Obama 2014 Budget Energy Proposals: Stuck in A Timewarp

I'm not dismissing anything here. Taxing oil and gas production isn't climate policy--see my response to John below.  We need these fuels for the long transition to a low-carbon economy, and oil still has no viable, large-scale substitute, since vehicle electrification will take decades to have an impact.  (The first million EVs will replace less than 35,000 barrels per day of gasoline, out of a 8.7 million barrel per day market.)

On Obama 2014 Budget Energy Proposals: Stuck in A Timewarp

John,

I  considered the angle that these tax and royalty increases were a proxy for a carbon tax.  The problem with that is that it's a terribly inefficient, mis-targeted way to go about it.  A true carbon tax would fall only lightly on oil and gas production, which are responsible for only a small fraction of the lifecycle emissions from their use--typically 10% or less--while 80% of emissions are from consumption in vehicles or other end-use applications.  So trying to get at emissions by raising the cost of US production would be multiply counterproductive, resulting in lower domestic output, higher imports, lower GDP, and little or no net impact on global emissions.  It might even have a negative impact on global emissions, if the substituted imported oil is from higher-emission sources.  And of course this does nothing to promote renewables, since wind and solar don't displace oil, and conventional biofuels have their own problems, while cellulosic biofuels are stuck in "real soon now" mode.

Please drop me an email sometime so we can discuss this directly.

On Obama 2014 Budget Energy Proposals: Stuck in A Timewarp

Bob,

The US oil & gas industry pays higher than average corporate taxes even after factoring in the tax benefits in question.  However, profits at the corporate level are the wrong place to focus in this discussion.  What's at stake is the effect on project decisions, which are made on the basis of expected after tax returns.  Raise taxes or royalties too much, and US companies will selectively pursue projects elsewhere.  Their corporate profits won't suffer much, but US output will, along with all the related economic activity in supplier firms and the communities in which they operate, plus jobs, as well.  In short, counter-productive in a weak economy.

What's really needed is comprehensive corporate tax reform, eliminating all sorts of loopholes and incentives like these, not just for the oil industry, but for the full range of other businesses including renewables, in exchange for lower corporate tax rates that are more efficient and transparent.  (Great article in today's Washington Post about how challenging it is to figure out what a company really pays in taxes.)  

On Crude Oil Rides the Rails

Sage,

I know nothing of the sort. If it were true that the "fossil fuel industry owns the government," Keystone XL would have been approved in short order, there would be drilling in ANWR, and we wouldn't be spending billions subsidizing renewable energy.  What derailed stronger climate policy wasn't the fossil fuel industry, but the recession and financial crisis, followed by an anemic recovery.  It also didn't help that special interests turned the last cap & trade bill into an ineffective and unpalatable monstrosity that couldn't get past a Democratic-controlled Senate. 

On Two Energy Revolutions Vie Across the Atlantic

David,

The comparisons are accurate, but attributing the differences to weak US climate policy isn't.  Even at $50/ton of CO2--far higher than the peak level of the European emissions trading mechanism--carbon allowances would only account for $0.05/kWh on a 100% coal-fired mix. The implied cost per ton of German solar as carbon abatement is higher than that, due to their high FIT levels and very low average insolation.  So it's not even good climate policy, let alone good industrial policy.

On Two Energy Revolutions Vie Across the Atlantic

Rick,

This post may have referenced a 1980s visit to Germany, but my perspective is hardly stuck there. One gauge of the effectiveness of Germany's solar plans--motivated as much by industrial policy as environmental concerns--is the long tally of failed German solar firms.  Last month's announced solar exit by Bosch, one of Germany's technology superstars, is hard to parse as an endorsement of the EEG's outcome to date.

On Two Energy Revolutions Vie Across the Atlantic

I K,

Your comment illustrates what can happen when policy makers use the wrong metrics, either for activity or outcomes.  Relying on capacity data made sense when the generating technologies being compared all had utilization rates in the 70-90% range, but it turns out to be an extremely poor gauge of the contribution of renewable energy installations that range from 10-40% utilization.  The result is not just over-investment in low-output installations, but destabilizing volatility in aggregate output. 

I concur that the rest of us will benefit from Germany's choice, however it turns out for them. 

On Natural Gas Vehicles Already Big in Italy, Pakistan

Jesse,

Thanks. I'm not sure the source of the gas would matter as much as how governments choose to tax it, as noted below.  Would other European countries besides Italy keep fuel taxes on CNG low, as some have chosen to tax diesel less than gasoline to promote its use? 

On Natural Gas Vehicles Already Big in Italy, Pakistan

John,

How motor fuels are taxed relative to each other plays a big role and underpins the Italian example.  Wholesale gasoline costs about the same there as here, and natural gas from import pipelines and LNG can't be much cheaper.  But the after-tax retail price difference is huge, as a matter of policy.  So at least there, CNG facilitates avoiding taxes.  If those taxes pay for road maintenance, then that creates other problems, as I've noted elsewhere.

As for range and convenience, if the comparison is to gasoline or diesel cars I agree.  However, among alternative fuels (including electricity) 200 miles between refills isn't bad, and <5 minutes at a fast-fill station beats even level 3 EV fast-charging (480 V, 400 Amps). 

I'll be watching the results of BNSF's test--not their first experiment with LNG--with great interest.