Thomas Donlan of Barron’s explains that taxes and mandates targeting energy do nothing to make the laws of economics go away.
Gasoline, diesel, and jet fuel are dense with energy and light in actual weight, unlike coal, natural gas, and hydrogen. And most electric vehicles depend on fossil-fuel power plants.
So oil drives the ebb and flow of the world. It is the world’s most traded commodity; it powers the carriage of everything else that’s traded. There are no practical substitutes for it as a transportation fuel.
Demand for oil is also inelastic: It doesn’t respond immediately to price signals, which means that small changes in supply, for better or for worse, can produce large changes in price. Wild swings in oil prices have plagued the industry and its legions of consumers since the time of John D. Rockefeller Sr., which testifies to the importance of oil production and the intensity of demand for cheap oil.
Decades of research into new transport technologies such as electric vehicles, and new substitute fuels such as alcohol, have failed to create efficient alternatives. The new technologies have only come close enough to entice politicians into making vain attempts to offset their disadvantages. …
… Energy reformers still believe that governments can change the economics of energy use with a wave of a legislative wand. Reformers hold that the power to tax is not the power to destroy but the power to create, and they definitely want to create a new world order.
This new order is so attractive that some reformers are willing to draft the market.
“The price signal most relevant to slowing climate change is a tax or fee that puts a price on the greenhouse gases that are emitted when fossil fuels are consumed,” said Deborah Gordon and Jessica Tuchman Mathews of the Carnegie Endowment in a policy analysis published last week.
“Economists from across the ideological spectrum virtually unanimously hold the view that pricing carbon in this way is the most effective, most economically efficient, and least costly way to achieve the needed transformation. Since mid-2015, the urgent need for such pricing has been voiced by, among many others, the heads of the World Bank and the International Monetary Fund, the governor of the Bank of England, and the CEOs of six of the world’s major oil companies.”
There’s the tip-off: A policy that attracts oil companies to their own destruction is a political policy whose chances of success are less than slim. Endorsing a suicide tax is what CEOs do when politicians and regulators must be pacified. Under such circumstances, they stand before a congressional committee and swear that black is white.
