This week the Economist's cover story talks about the "olioholics," America and China.
It is easy to point a finger at China's growing oil demand (which has in fact cooled off this year), but America remains the biggest consumer, using one-quarter of the world's output of the black stuff. America uses 50% more oil per dollar of GDP than the European Union, largely because consumers pay less. As petrol prices have hit $3 a gallon in some cities, there has been an outcry from motorists. Even so, petrol remains dirt cheap in America, compared with Britain or Germany where prices are above $6 a gallon. America's heavy dependence on oil not only leaves the economy more vulnerable to a supply shock, it also pushes prices higher for the rest of the world.There is a good reason why tighter fuel efficiency standards don't lower gas consumption. Here is an explanation:
The best long-term solution—for America as well as the world economy—would be higher petrol taxes in the United States. Alas, there is little prospect of that happening. America, unlike Europe, has preferred fuel-economy regulations to petrol taxes. But even with those it has failed abysmally. These regulations have been so abused that the oil efficiency of its vehicles has fallen to a 20-year low. This week, the Bush administration announced proposals for changing the fuel-economy rules governing trucks and sport-utility vehicles, but failed to close loopholes that allow these gas guzzlers to use more petrol than normal cars, a shameful concession to carmakers.
America and China, in their different ways, are drunk on oil consumption. The longer they put off taking the steps needed to curb their habit, the worse the headache will be. George Bush once learned that lesson about alcohol. It is time for him to wean America off oiloholism too.
"The pursuit of efficiency," write Peter Huber and Mark Mills in "The Bottomless Well," their superb book on the future of energy, "has been the one completely consistent and bipartisan cornerstone of national energy policy since 1970."The conclusion, it seems to me, would be that to lower oil consumption it would be necessary for the United States to raise taxes on gas. I am not sure whether this is a good idea, and it will surely not happen in the near future, though I must admit that the Economist makes a good point.
We're told that higher mpg can even defeat our enemies. In a recent article that linked oil dependency with terrorism, Fareed Zakaria, editor of Newsweek International, concluded, "It's true that there is no silver bullet that will entirely solve America's energy problem, but there is one that goes a long way: more fuel-efficient cars. If American cars averaged 40 miles per gallon, we would soon reduce consumption by 2 million to 3 million barrels of oil a day."
Increases in energy efficiency have been the rule in the United States for a century -- and especially in the past 30 years. But, as Huber and Mills write, "Efficiency doesn't lower demand, it raises it…. Efficiency has come, and demand has risen apace."
In this graph, the authors show how the "energy cost" of transportation in the U.S. fell by nearly one-third between 1973 and 2003; that is, we used to use nine gallons of fuel for every vehicle mile, now about six. But over this same period, total fuel use did not drop by one-third (as it would under the silly static analysis employed by Mineta and Zakaria); instead, fuel use rose by more than half, from a little under 120 billion gallons per year to over 180 billion gallons.
This result is predictable in the world of economics. Only in the world of politics can it be ignored, or distorted.
When something works better or more efficiently, it is, by definition, cheaper, so we want more of it. Demand for computers rose sharply, for example, as faster microchips and better software increased the machines' ability to do more.