In one of those “every silver lining has a cloud” kind of situations, state and federal government road maintenance funds are dwindling as people drive less and use less gasoline per mile as they buy more fuel efficient cars. The federal government had to put $8 billion into the Highway Trust Fund because plummeting gas tax revenue, and a Congressional commission put forth one possible solution that is kicking up a lot of opposition.

Instead of paying a tax per gallon at the pump, how about you install an expensive device on your car that tracked how far you drive, and then you get a bill depending on how long you were on the road?

I really tried to come up with some merits for this plan, but frankly this tax per mile plan is just a terrible idea. If there were no other alternatives, then this may work, since we do need money to pay for roads and highways and it makes most sense to tax the actions that cause those roads and highways to wear out. But don’t we already have ways of paying for roads?

We currently pay for our roads mostly through the gasoline tax. Both the federal government and the states charge a certain amount per gallon of gasoline you pump into your car. Essentially what you’re seeing here is a problem where politicians have been reluctant to raise the gas tax to meet the needs of the programs it funds, and are looking for a different way to do so that might not seem as bad to constituents.

Problem is, its much worse than the gas tax.

There is no infrastructure needed to implement the gas tax. It’s added on to every gallon you pump at the gas station. With this plan every car would need to be outfitted with a device (that currently run in the thousands, but could be brought down into the hundreds apparently) that would track your mileage, then you would have to go to some place that you could upload this information every so often (presumably also at gas stations) and you’d get a bill for your mileage tax. So instead of raising an existing tax to fill the budgetary gap, they’d like to raise a new tax and spend billions on the devices needed on our cars, as well as the collection devices needed to get that information to the state.

As if I needed any more reasons, there is the issue of how the gas tax already encourages behavior that not only is good for the country, but also good for the environment… and even good for the roads. Which cars do you think are going to wear the roads down more? Big gas guzzling Hummers, trucks, sports cars and semis, or Smart cars, Priuses and Insights? Gas guzzlers also cause more money to flow to oil producing countries overseas, and send more pollution into the air.

Raising the gas tax to pay for roads makes much more logical sense than making people pay the same per mile if we want to wean ourselves off of foreign oil, get cleaner air and put less stress on the roads. It encourages people to buy lighter, cleaner and more efficient cars, and raising it more would decrease the time it takes to make up the difference in purchasing cost between regular cars and their more efficient brethren. This proposal would literally be a disincentive, counteracting with other government programs designed precisely to encourage purchase of more efficient vehicles.

On the bright side, Obama has come out flatly against the plan, even though his Transportation Secretary Ray LaHood has made comments in favor of the idea. Barbara Boxer supports it, which you might expect from one of the most liberal Senators we’ve got, but the only poll I could find on the subject shows that 70% of respondents (North Carolinians) are against the idea. An older poll that I dug up, showed that while most people are against a hike, 55% would support it if it “reduced the U.S. dependence on foreign oil”. An even larger majority, said they’d support it if it “resulted in less consumption or eased the threat of global warming”.

So I come back to my original problem with this proposal. If the public is against the idea, is it a disincentive for behaviors that the government is already trying to promote with other programs, adds unnecessary infrastructure and of course adds a whole new tax to complicated the already labyrinthine code we have here… then what is a single good reason to support this over a higher gas tax?

The federal gas tax has sat at the same 18.4 cents per gallon for 16 years. That it hasn’t gone up in so long is a clear indication of who is to blame for the Highway Trust Fund running out of money. Its time for politicians to suck it up and tell people they need to either cough up a few more cents per gallon, or learn to live with a whole lot more potholes.

We’ve been hearing about cellulosic ethanol for several years now, generally with the caveat that were at least a few years, and a few scientific breakthroughs, away from it coming to market and helping wean us from foreign oil. Unlike corn, which breaks down into the sugars necessary to be processed into ethanol relatively easily, cellulose is a hardy material that takes time and energy to break down. Its upside is that there happens to be more cellulose present than any other organic molecule on the planet. This is why millions upon millions of dollars has been poured into cellulosic ethanol research, genetically modifying naturally occurring enzymes to break it down faster and looking for ways to bring the price per gallon down closer to the price of gasoline.

Unlike corn, which takes land out of food production, is inefficient as far as how much energy it takes to produce and is a high maintenance crop, finding raw material for a cellulosic plant is easy. Wood chips from sawmills, the kudzu scourge spreading through the hot and humid Southeast, agricultural waste and even up to 80 percent of what ends up in our landfills could be used to make cellulosic ethanol.  Thankfully, the millions of dollars in research and development have begun to bear fruit.

A gas station near Ottawa is the first in the world to begin selling a cellulosic blend, called CE-10, to the public. Iogen, the company behind the demonstration plant that produced the fuel, plans to build its first full scale cellulosic ethanol plant in Saskatchewan. It has reached an agreement with the local government and Royal Dutch Shell to convert an old Mill site to their purposes, with the government even agreeing to purchase any green energy produced at the site. The running demonstration plant only has the capacity to produce about 3 million liters of ethanol each year, using wheat straw agricultural waste, while the new plant will be able to pump out about 75 million liters. It will make use of a more diverse feed stock, including agricultural waste from other crops, grasses native to nearby areas and even wood chips from area mills.

The march of progress continues, with a number of large companies making big investments into these technologies. Last year GM purchased a large share of Coskata, a big player in the emerging cellulosic ethanol industry, who claims to have developed a process that simplefies the complex and costly process of breaking down cellulose and brings the cost of production down to being competitive with gasoline. There are as many as two dozen companies with plans to build plants similar to Iogen’s, but the economic downturn is effecting their ability to finance these projects. Coskata is hoping to get some stimulus money, in the form of loan guarantees, to help finance its plant, with an estimated production of 50-100 million gallons a year.

As President Obama often says, if we intend to be a leader in the green energy industry of tomorrow, we need to move boldly in that direction today. Now is not the time to let companies who wish to lead us in there falter because of financing problems. Some are talking about a new stimulus bill, which most people reasonably see as a terrible idea, that would focus on these kinds of projects and job creation. The first should have done so, and I have little confidence that a new one would make it through congress without being similarly unfocused and pork laden.

We don’t get too many of these chances, where we can kill three birds with one stone. Job creation, independence from foreign oil and environmental progress can all be had with some smart funding priorities. Lets hope the administration recognizes this in time.

Most people don’t realize that the insane gas prices last year had nothing to do with increased demand and had everything to do with market speculation and hoarding encouraged by the top investment banks.

Now True/Slant’s own Matt Taibbi uncovers the truth behind the scam.

Read the rest at True/Slant.

This is a pretty big stake in the ground, because they’ll be using California’s standards…the toughest in the nation.

No doubt you’ll be hearing that this is bad for business, but that’s what they said about seat belts, airbags and every other time CAFE standards were raised. And I think we’re all fairly aware that the car companies who’ve prospered are the ones who offered the highest fuel efficiency standards the earliest.

From NY Times:

President Obama will announce as early as Tuesday that he will combine that state’s emissions rules with the existing corporate average fuel economy standard overseen by the Transportation Department, the officials said. As a result, cars and light trucks sold in the United States will be roughly 30 percent cleaner and more fuel-efficient by 2016.

The White House would not divulge details, but environmental advocates and industry officials briefed on the program said that the president would grant California’s longstanding request to implement its tailpipe standards. Thirteen other states and the District of Columbia have said they intend to apply the same rules. That request had been denied by the Bush administration but has been under review by top Obama administration officials since January.

Yet Mr. Obama is planning to go further, effectively issuing a single rule for both fuel economy and emissions that matches California’s strictest-in-the-nation standards.

Under the new standard, the new combined fuel efficiency standard for cars and light trucks will be about 35 miles per gallon by 2016, roughly in line with the California rule.

In my mind this is a smart move for many reasons, not the least of which is you diffuse the emissions standards argument immediately. Yes, it will upset states rights’ advocates, but how does it makes sense that a state should be able to determine whether or not certain pollution levels are acceptable or how much mileage cars can have in their locale?

In other words, there are some things that must be mandated by the federal government, and this is one of them. Our long term strategic interests, both for the environment and our dependency on foreign oil, rely on one set of standards across the board.

More as it develops…

Oh, and hybrids too.

From NY Times:

The goal, which radiates from the very top of the Chinese government, suggests that Detroit’s Big Three, already struggling to stay alive, will face even stiffer foreign competition on the next field of automotive technology than they do today. [...]

To some extent, China is making a virtue of a liability. It is behind the United States, Japan and other countries when it comes to making gas-powered vehicles, but by skipping the current technology, China hopes to get a jump on the next.

My guess is that this has less to do with the economic advantages and more to do with China’s epic pollution problem. But the story says that, because electrics still have to get their power from somewhere, the greenhouse emissions are only cut by 19%. Still, this could merely be an effort to shift the pollution from the city to the countryside where most of the power plants resides.

But here’s the thing…China’s government can mandate a lot of things we can’t. So a green revolution can happen a lot faster there and they can reap the rewards before we do. Of course, they can also make more mistakes, but what did Edison say about failing?

Here’s more on what they’re doing to ramp this up…

Beyond manufacturing, subsidies of up to $8,800 are being offered to taxi fleets and local government agencies in 13 Chinese cities for each hybrid or all-electric vehicle they purchase. The state electricity grid has been ordered to set up electric car charging stations in Beijing, Shanghai and Tianjin.

Government research subsidies for electric car designs are increasing rapidly. And an interagency panel is planning tax credits for consumers who buy alternative energy vehicles.

China wants to raise its annual production capacity to 500,000 hybrid or all-electric cars and buses by the end of 2011, from 2,100 last year, government officials and Chinese auto executives said. By comparison, CSM Worldwide, a consulting firm that does forecasts for automakers, predicts that Japan and South Korea together will be producing 1.1 million hybrid or all-electric light vehicles by then and North America will be making 267,000.

Regardless of China, the most damning stat in all is that Asia will be outproducing us by almost 8 to 1 in two years. How did this happen? The market for hybrids and electric is white hot right now and Asia is absolutely destroying us.

Question: What would the world have been like had we raised CAFE standards and mandated that the Big 3 start producing electric and hybrids back in the day? After all, GM had the EV1 spun up long before Honda or Toyota had options and if the political will would have been there it would have been a viable enterprise…especially if local and state governments bought the vehicles for use by their employees.

All I’m saying is that government interventionism isn’t always the worst thing in the world, especially when you’re talking about long term strategic goals that we know will benefit our economy, national security, etc.

For complete information on gas mileage rates between different brands, check out GreenHybrid’s list. Very useful.

The moment I heard this idea it sounded like box office poison, and it looks like the administration did too. Because not only does it mean you’d have to have some sort of Orwellian GPS system attached to every car, but it completely negates the benefits of higher mileage hybrids that are in the pipeline.

From Fox News:

Secretary Ray LaHood floated the idea in an interview with The Associated Press.

Gasoline taxes for nearly half a century have paid for the federal share of highway and bridge construction, but LaHood said they can no longer be counted on to raise enough money to keep the nation’s transportation system moving.

“We should look at the vehicular miles program where people are actually clocked on the number of miles that they traveled,” the former Illinois Republican lawmaker said.

Asked about the claim, transportation department spokeswoman Lori Irving immediately shot it down.

“The policy of taxing motorists based on how many miles they have traveled is not and will not be Obama administration policy,” she said.

My question: why did the conservative LaHood propose it? Was he talking out of turn? Did he really think this was a good idea?

I’m confused…

Following up on my earlier post about oil speculation, there’s news that 50 million barrels of oil are being hoarded on supertankers.

The market calls it “contango.”

I call it irresponsible.

From Marketplace…

“Contango” refers to a market condition in which the future price of a commodity is higher than the cost of buying it today. Right now, investors can lock in oil futures contracts to get paid $46 a barrel in March. They can fill a supertanker right now for just $41 and change. It’s pretty cheap to keep the tanker floating around in the ocean. When it unloads in the spring, the investors make a tidy profit: more than $3 a barrel.

Daniel Yergin is author of the Pulitzer-winning book, “The Prize.” He says there’s a glut of oil right now, caused by the global recession. But futures prices are going higher, because OPEC has promised to cut production. And, says Yergin, oil traders are reading something else in the economic tea leaves.

Daniel Yergin: “There’s a bet here that all of the stimulus, new economic programs, are going to work, and that by the second half of the year, we’re going to move out of recession, back into economic recovery, and that demand will start rising for oil again.”

As I’ve said before, only companies that can actually use the oil should be able to buy contracts. Not that hoarding was a responsible practice in the first place, but it’s particularly offensive now that we’ve seen what it can do to the market.

But hey, tell me why I’m wrong.

Gee, that sounds oddly familiar…

Last year I argued time and time again that the energy speculators were the cause and that supply and demand couldn’t cause such massive price hikes. And yet some of you continued to fight me on it and claim that this was a result of market forces.

Well, here we are and I’m guessing you’ve watched the story above by now.

However, I’m completely uninterested in who’s right and who’s wrong. What I’m interested in is a fix so this doesn’t happen again.

I think it’s pretty obvious that allowing speculators to enter into this game is extremely damaging to both our short and long term goals. I’m not suggesting we should abolish the commodities market, but what I am saying is that we should only allow companies that can actually use the oil to purchase the contracts. I don’t think that’s an unreasonable notion, and I hope that’s some common ground we can agree on.

We can talk all we want about how firms like GM have failed in the past couple decades, but they’re right at that point where they can really make a difference and it would be a shame to see them go away now.

Yesterday they cut off their natural gas supply to the Ukraine. Completely.

That also means the supply to numerous European countries has been severely diminished.

From AP:

The Russia-Ukraine natural gas dispute hit Europe with the force of a winter storm Tuesday, cutting or limiting supplies to nearly a dozen nations. Tens of thousands of people were left without heat and governments scrambled to find alternate energy sources.

Shocked by how fast the shortages were spreading, the European Union demanded a quick end to the dispute — a sharp turnaround from their earlier stance, when officials had downplayed the conflict between Moscow and Kiev as primarily a business matter.

A business matter? Ha! That’s rich.

But hey, ya gotta love those free markets, eh? Free to do anything they damn well please…

But by Tuesday evening, gauges on delivery pipelines to six countries — including some depending totally on Russian gas — were pointing toward zero and an increasing number of other nations reported significant reductions. [...]

Bulgaria, Greece, Macedonia, Romania, Croatia and Turkey all reported a halt in gas shipments, and even France, Germany, Austria and Poland reported substantial drops in supplies from Russia.

I’m so glad we ignored Russia the past 8 years and focused instead on detaining and torturing people who may or may not have boasted they knew how to build a shoe bomb for six year.

More as it develops…

I’m glad to see we learned our lesson…

From CNN:

After nearly a year of flagging sales, low gas prices and fat incentives are reigniting America’s taste for big vehicles.

Trucks and SUVs will outsell cars in December, according to researchers at the automotive Website Edmunds.com, something that hasn’t happened since February.

Meanwhile the forecast finds that sales of hybrid vehicles are expected to be way down.

“Despite all the public discussion of fuel efficiency, SUVs and trucks are the industry’s biggest sellers right now as a remarkable number of buyers seem to be compelled by three factors: great deals, low gas prices and winter weather,” commented Michelle Krebs, Senior Editor of Edmunds’ AutoObserver.com.

Well, the one good thing about hybrid sales being down is that those who were on waiting lists will have access to the autos.

Still, this type of news makes me shake my head and wonder how Americans can be so shortsighted. We collectively stopped using as much gas and that forced speculators to drop their supplies on the market and the price plummeted.

Now it looks as if we’ll just start using more again because the price is cheaper and guess what’ll happen.

Ugh.

Massive energy speculation mixed with much lower demand is driving the price down, down, down for the foreseeable future.

From AP:

A report by the Commerce Department showed that sales of new homes fell in November to the slowest pace in nearly 18 years, while new home prices dropped by the biggest amount in eight months.

“The energy markets are reacting first and foremost to bad economic news, and it seems like they’re almost waiting for something bad to occur,” said oil analyst Peter Beutel of Cameron Hanover.

A steady outpouring of gloomy economic news has pushed to the background events that over the summer may have led to price spikes, like OPEC’s announcement this month of unprecedented production cuts, Beutel said.

Prices have fallen 73 percent since July, with massive job layoffs and weak consumer spending eating away at energy use.

Now, I think it’s pretty clear that the economic news is only going to get worse before it gets better (perhaps much, much worse), so what does this do for oil prices?

Will consumers continue to drive less in hopes they can collectively keep their costs down?

Will OPEC continue to cut production to push up the price?

My guess is that it’ll be both and hopefully the energy speculators will stay the hell out of this and not try to game the market the way they did previously. Because I think it’s blatantly clear that Americans didn’t start driving THAT much less to drive the prices down nearly 75%. There had to be a massive dose of speculation going on there and once they saw the demand start to drop, they dumped their stockpiles on the market and the prices plummeted.

And to that point about energy speculation, would it be a good time for us to start putting more regulations on the type of trading that drove the prices through the roof? Especially during these tough economic times we need to know what the price of a barrel of oil will be.

Thoughts?

While recent economic news has been grim, we can at least take a little solace that gas prices have plummeted. Currently, we’re more likely to see $1 a gallon gas than $4 a gallon gas in the immediate future.

Since the price of gas peeked last July, prices have dropped 72% with a 25% drop in just the last week. And there’s no indication that we’ve hit the bottom. January gasoline futures are currently at 90 cents. If you’d claimed last summer that, by Christmas, we’d be talking about gas priced by the cent, you’d have been branded the biggest kind of fool.

Unfortunately, this precipitous decline in gas prices is being fueled by the large job losses. Fewer people working means less driving in specific and less economic activity in general. That’s hardly a welcome solution to high gas prices. For many Americans, less pain at the pump is not going to offset the pain of job loss.

But at least we don’t have to worry about a recession and high energy costs. That’s some comfort in these hard times.

Thoughts?

As purse strings tighten and consumption plummets, the market runs screaming.

Reuters has more…

Oil dropped $6 to below $88 a barrel on Monday on expectations the growing financial crisis will further slow already faltering global fuel demand.

Crude prices have plummeted from a peak over $147 a barrel set on July 11 as high fuel prices and the growing financial crisis slow oil demand in top consumer the United States and other industrialized nations.

“The prevailing macro sentiment is now crystallizing around the notion that we are heading into a synchronized global slowdown, a mirror image of the across-the-board expansion we saw from 2004 to early 2007,” said Edward Meir of broker MF Global.

A silver lining to this crisis or will Americans simply see cheaper gas prices and start consuming more?

I hope it’s the former, but I fear the latter is much likelier.

And as the following graph from The Oil Drum illustrates, prices have dropped over the past 8 7 years, but only momentarily before going back up, up, up.

An average growth of 30% per year over the past 8 7 years. Pretty amazing, no?

Simply put there’s nothing to suggest the bubble has burst yet, and while some say this is due to the basics of supply and demand, I’m still not convinced of that…yet.

Yeah, because that was Obama’s entire energy plan…proper tire inflation.

As Ben Smith points out…

The tire gauge argument, however, seemed to depend on mocking Obama’s suggestion and insisting that it was all he had to say on gas prices; calling it reasonable but saying it’s not enough puts you in more or less the same place as Obama.

Actually, where it puts McCain is disconnected from some easy, real world solutions that could help fuel efficiency immediately. Not only that, by mocking the idea and trying to make Obama look like a fool for suggesting it he has soured probably half the electorate on the idea.

In other words, he put his political interests before solutions that could literally save us billions of gallons of fuel a year.

Moving on…

I’ll give you one guess…

From TIME:

The Bush Administration estimates that expanded offshore drilling could increase oil production by 200,000 bbl. per day by 2030. We use about 20 million bbl. per day, so that would meet about 1% of our demand two decades from now.

Meanwhile, efficiency experts say that keeping tires inflated can improve gas mileage 3%, and regular maintenance can add another 4%. Many drivers already follow their advice, but if everyone did, we could immediately reduce demand several percentage points.

In other words: Obama is right.

So Obama’s suggestion puts some power back in my hands to save hundreds of dollars every year, while at the same time helping keep domestic demand down, which could have the net effect of making prices a little bit more palatable?

Excuse me while I go check my tire pressure…

Obviously this ad has a lot more substance than those the McCain campaign has been slinging as of late, but is it only a matter of time before we see the McCain celeb ad or something equivalent?

In any event, it’s clear to me that McCain has started to change the tone in this campaign and Obama isn’t afraid to go right there with him.

More as it develops…

Cleveland, for instance, is planning to cut drivers and routes after the bus fleet’s fuel costs rose from $5 million in 2003 to an estimated $21 million this year.

Another area effected? Repairing potholes. Not just because the trucks take gas but because asphalt is a petroleum product and its main component has risen in price by 90% since last year.

If fuel prices continue to stay at high levels, look for municipalities around the country to cut back on services or increase taxes. Without prices falling back to manageable levels, we may look back on 2008 as the year in which strategies for city design and management began to change on a mass level.