UA dean believes rising global demand will force U.S. drivers and automakers to adapt
By Tony Davis
ARIZONA DAILY STAR
"You can never say that prices won't go back down, but I believe that what we're seeing right now represents a fundamental shift in the market. Two little words: China and India."
Paul Portney
Dean, Eller College of Management
Paul Portney, head of the University of Arizona's Eller College of Management, is not the typical business-school dean.
In his 33-year tenure at a Washington, D.C., think tank, Portney, a Ph.D. economist, authored, co-authored or edited 10 books dealing with energy and environmental issues. He spent the last 10 years at the group, Resources for the Future, as president.
In 2001, he also served as chairman of a National Academy of Sciences committee dealing with the future of fuel-economy standards for motor vehicles.
On Thursday, Portney discussed the high price of gasoline and what we should do about it.
Q: With gasoline at $3 per gallon, what are the one or two things you think this country needs to do just to begin to get out from under this mess?
A: Well, I think to begin to get out from underneath the mess, the most important thing that we can do is improve the fuel economy of vehicles that we drive. America currently accounts for one-fourth of global oil production, and nearly half of the oil we consume goes into the vehicles we drive to work and to play on the weekends.
So the reason we're such a big oil consumer is due principally — not exclusively — to personal transportation, and if we were driving more fuel-efficient cars, we'd use less oil and prices at the pump would hurt less.
Q: But every time we ever talk about that, the car companies say they can't do it, can't afford it and that the fuel standards have been sitting idle for 20 years now. What's going to change that?
A: Look, people respond to higher prices, and now that gasoline is back in the vicinity of $3 a gallon and there doesn't seem to be any relief in sight, sales of the largest SUVs have fallen off fairly significantly. People are either downsizing to smaller pickup trucks or minivans or SUVs, and in some cases they're moving out of that what's called the light-truck segment of the new-car market and going back to good old-fashioned passenger cars.
Q: This has happened in the past where gas prices go up and then the prices will drop again, and we will go back to our gas-guzzling ways. Is there something going on that could make that different this time?
A: You can never say that prices won't go back down, but I think there are several reasons to believe that what we're seeing right now represents a fundamental shift in the market. Two little words: China and India.
Their economies … have been superheated for some time, growing in the vicinity of 8, 9 10 percent per year. They're envious of our lifestyle, and newly affluent Chinese and Indians are beginning to buy cars. And that's created a new demand in the crude-oil market that has not been there before.
Q: So is the solution not to try to bring down gasoline prices but to make the increase less painful on us because we use less gasoline?
A: As I say, we use one out of every four barrels in the world every day. If we were to drive much more fuel-efficient cars, it would make a big difference in global demand. It would actually pull prices down to some extent.
Q: But if that happens then won't people go back to driving their SUVs and their big, heavy trucks?
A: One concern is that if we practice crude-oil abstinence and it has the effect of reducing global prices, then people in other countries will drive a little bit more. So you'll give back a little bit of the gain, yes.
That leads me to the second point … I said we could drive more fuel-efficient cars. There are two ways that we could do that. One is — and you can imagine how politically popular this would be right now — we could increase the federal excise tax on gasoline, because that reinforces the demand for more fuel-efficient cars that we have begun to see when gas prices have gone up. As you might imagine, not too many politicians are clamoring to increase the federal excise tax on gasoline.
So the other thing that we could do would be to tighten fuel-economy standards. We haven't done it in the passenger-car segment of the fleet for a long time, not since the late 1970s. The Bush administration has pushed through two increases in fuel-economy standards for light-duty trucks, for pickups, minivans and SUVs. So there has been a little bit of tightening in that segment of the market.
Q: What about this bill that Republicans pushed for, a $100 rebate for higher gas prices, while Democrats try for a windfall oil-profits tax on oil companies? What do you think of those ideas?
A: Not very much. A $100 rebate, I think, is ridiculous. That doesn't deal with the fundamental cause of the problem, which is that we consume a hell of a lot of petroleum, and as a result, we're dependent on a handful of countries that are either politically unstable or whose interests are inimical to those of the United States.
So, just mailing $100 to consumers I think is kind of pathetic Band-Aid.
Q: What about a windfall profits tax?
A. Well, at a time when oil companies are reporting all-time record profits, you know I understand the impetus for it. But I don't think that that's the solution to this problem.
Suppose they make record profits and and we tax the profits? That doesn't make more petroleum available. And you could even argue that if you did that, they would have less money to invest in new exploration and production, which is one of the things that we need. So I don't see that as a solution that is going to make a big difference in gasoline prices.
Q: So, the root of the problem is that we consume too much.
A. The root of the problem is that relative to the world supply of oil, demand has grown dramatically, in part because we consume a lot, in part because there are some newly developing countries that are beginning to consume a lot themselves, and right now demand has grown faster than new sources of supply have grown.
Q: So what can Tucsonans do, other than lobby Congress, to try to do something about this situation, besides shake a fist when we go to the gas pump?
A: Well one thing you could do is that my guess is many Tucsonans have two cars in their households. They could use the more fuel-efficient car when they're making trips rather than choosing to use an SUV or something that gets 9 or 10 miles per gallon.
Second, you can think about the prospect of carpooling, and I think we begin to see stories of people who are looking around, trying to share rides, combine trips on the weekends so you don't make a separate trip for everything that you have to do.
A third thing is to make sure that you keep you car in tune and your tires are properly inflated. That makes a difference in your fuel economy.
In the longer term, as people begin to buy new cars, they're going to have to say, "How much is that towing capacity on my SUV really worth? Am I willing to give up four or five or maybe 10 miles per gallon to have that ability to tow a boat or something like that?"
Q: You spoke at the UA economic forecast and said that maybe a hydrocarbon tax might not be a bad idea. How would that work?
A. It would be a tax on all hydrocarbon fuels; not just gasoline but it would include natural gas and coal. And the reason you might (try) something like this rather than just taxing gasoline is out of a concern about the greenhouse-gas emissions that result when we burn gasoline, natural gas and coal. It would be taking a broader view of the hydrocarbon problem than just focusing on world oil markets.
Again, let me very clear in saying that while you can make good arguments for them, at a time when natural-gas prices have gone up dramatically and petroleum prices have gone up dramatically, you're not going to see a long line of politicians racing to propose taxes on the carbon content of fuels.
"You can never say that prices won't go back down, but I believe that what we're seeing right now represents a fundamental shift in the market. Two little words: China and India."
