The Price of Gas
Air Date: Week of June 30, 2000
Host Steve Curwood talks with Harvard Business School Fellow Paul Sabin about the surge in gas prices. Mr. Sabin says that politics often shape the price of petroleum and that the high prices could spur a new economy.
CURWOOD: This is Living on Earth. I'm Steve Curwood. It's been a rough few months for people in the U.S who buy petroleum. First fuel oil prices skyrocketed as winter's chill set in. Then diesel fuel for truckers also spiked. And now politicians have been pointing fingers over surging gasoline prices. But this is nothing new, says oil historian and Harvard Business School fellow Paul Sabin. He says since oil first became commercial after the Civil War, politicians from both parties in America have worked to keep the demand for oil high by keeping the price at the pump low.
SABIN: Lower gas prices historically have resulted from a series of political interventions in diplomatic policy, tax policy, public land policy, the development up of the highways to build consumption for oil and gas.
CURWOOD: Gasoline prices have been pretty low in this country compared to the rest of the world, pretty much from day one. Why is that?
SABIN: One reason is that the United States has been a great supplier of oil to its own consumers and to the whole world, since oil became a product that went to market right before the Civil War. Actually, oil was first extracted in a way that could be produced economically and used for kerosene, which was its original production. And the second reason is that the United States government has adopted policies, and also the state governments have adopted policies, that are very favorable to the oil and gas industry and have resulted in a lowering of the price of gasoline we pay at the pump.
CURWOOD: Just how has government kept the price of gasoline low?
SABIN: Well, there are five major areas in which the government has intervened. One is tax policy, tax exemptions that have allowed the oil and gas industry to write off large portions of their profits and to take immediate deductions. These have provided billions and billions of dollars of subsidies to the oil industry. Another example would be public land policy, the opening up of public lands, very inexpensive areas. If you go back to Teapot Dome, that old, old governmental crisis of the 1920s, that was about oil leases on federal lands that were offered at a very inexpensive rate. Thirdly would be diplomacy. Our intervention in the Persian Gulf in a variety of different ways, including sending the military there. Finally, intervening to build up the infrastructure of consumption, the whole motor vehicle infrastructure. Highways, bridges, interstates.
CURWOOD: What has this meant for our economy, then, and for our energy use?
SABIN: Well, I think it's encouraged our dependence on oil as one of the main sources of energy for our entire economy. I have to be frank and say that it's probably stimulated a tremendous amount of economic growth. It made a front-end investment in cheap energy that's enabled many economic activities.
CURWOOD: Now, if the price of gas is cheap and the rest of the world pays more for it, is there a hidden cost that people are paying here?
SABIN: There are many hidden costs. One is all the great, the billion dollar a year investment that we make in our diplomacy in the Persian Gulf, and even the cost of sending soldiers over there to protect, you know, the peace and safety of the region. Another would be the tax policies. We don't pay the tax write-offs when we go to the pump. We pay them on April fifteenth when we pay our taxes. Because we're paying more taxes because the oil industries and other people are paying less taxes because of these policies. And a final example is the cost of many of the social environmental dislocations associated with the oil economy. Santa Barbara oil spill, Exxon Valdez oil spill, and also many of the social consequences of oil extraction in many ecologically fragile regions, such as the Arctic tundra and Ecuador and the Ecuadorean Amazon, things like that.
CURWOOD: Is this rise in gasoline prices, is this kind of good news in a way? Is that what you're saying?
SABIN: In the short-term it's painful. It has political pain. In the long term I think it is good news. If it were sustained it would encourage investment in the United States in alternative forms of energy and technology, all of which are going to become products of the new economy. For a hundred years people have been talking about price, that it all comes down to price. That this is why we don't have the mass transit system. This is why we don't have solar power. This is why we don't develop fuel cells or electrical vehicles. It all comes down to price, they say. And what I'm saying here is that the price has been artificially lowered, and we should take out some of these interventions, allow the price to rise, and make the shift to a new energy economy.
CURWOOD: Paul Sabin is executive director of the Environmental Leadership Program and a Newcomen Fellow at the Harvard Business School. I want to thank you for taking this time with us today.
SABIN: Thank you. It's been a pleasure.
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