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When it comes to #WhiteHouse proposed oil fee, #CRS myopically sees only costs & not benefits?

February 11th, 2016 · No Comments

UPFRONT NOTE:  President Obama’s proposed 21st century clean transportation program, funded by a $10 fee per barrel of oil, would likely have significant positive return on investment: reduced fossil fuel pollution impacts, improved economic activity in areas with mass and other transit investments, reduced economic vulnerability to oil market volatility and price shocks, reduced oil imports, reduced climate impacts, …. Those benefit streams, however, aren’t entering the public discussion …

Cost-Benefit Analysis …

There are those, such as Frank Ackerman, who see cost-benefit analysis as perverting of government regulatory decision-making (especially related to environmental issues). With some strong analysis and reasoning behind them, they argue that the practice should be abandoned. No matter the power of their work, there is a simple truth to deal with: ROI (return on investment) and other business concepts are so embedded in decision-making culture that an abandonment is unlikely to occur.  Thus, the discussion returns to a lesser of evils: what can be done to foster analysis that provides accurate and useful support for decision-making.

When it comes to cost-benefit analysis (environmental, energy, or otherwise), a simple touchstone: evaluate both costs AND benefits.   And, importantly, avoid stove-piping and provide a window on systems implications for a fuller look at those costs and benefits. Regretfully, it is extremely rare to find a serious systems’ look.  Even more abysmally, there is a robust tradition when it comes to energy and environmental issues of looking at “costs” with little to no discussion of benefits. (For example, here, here, here, …)

In a quick-look at the “macroeconomic impacts” of President Obama’s proposed $10 fee on a barrel of oil, the Congressional Research Service (CRS) joined a long legacy of cost-only looks at climate and clean energy policy options.  In its three-page memo to Congress, with substantive large discussion of potential costs (increased gas costs, reduced oil exploration, etc), CRS essentially wrote off that there are potential benefits. A word search provides a quick touchstone:

  • Cost: five uses
  • Benefit: nilch, nada, zero guest appearances.

Within its “macroeconomic” discussion, CRS lets us know that the fee might reduce domestic oil exploration, might weaken energy security, might cost jobs in the oil and gas sectors, might hurt consumer confidence, might create inflationary pressure, might …, mightmight

Amid all those mights, CRS included one sentence on “benefits”:

Jeff Zients, director of the White House National Economic Council, pointed out that the Clean Transportation System programs would generate transportation infrastructure jobs as a partial offset to the effect of higher petroleum product prices.

As long as CRS was speculating on costs, perhaps speculation on benefits would have been in order.  The proposed 21st Century Clean Transportation Program, including the $10 fee on oil, might:

  • Strengthen the economy: foster innovation in oil-dependent products (from cars to plastics) to create more value from every barrel (which, by the way, would increase export competitiveness of US products); create growth around transit paths (as is seen in areas with transit, as real estate values sky rocket near new transit stations); etc…
  • Make transportation work better for Americans across the nation, from transit systems to better lighting controls to improved highway traffic (due to more people/goods moving by rail, etc …) with the potential to take a bite out of the 7 billion hours/year Americans waste due to transportation bottlenecks and problems.
  • Reduce pollution, with concurrent benefits in reduced health costs and reduced climate risks.

A true systems’ analysis likely would show that a $10 fee on a barrel of oil, with appropriate protections for U.S. producers against foreign competitors, would have a significant set of benefits for Americans that would outweigh (potentially by an order of magnitude in value) the costs.  To arrive a meaningful understanding of that fully-burdened cost-benefit analysis, however, you first have to recognize that there are benefits.  Regretfully, in this case, CRS didn’t take that first step.



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Tags: analysis · Cost-Benefit Analysis · Obama Administration · oil · transportation