Business Insight Zone

Lately I’ve seen this idea in several places, that governments should intervene to ensure that gasoline (or coal etc.) stays above a certain price — $4.00 per gallon of gasoline, for instance — so that consumers, entrepreneurs, utility companies, auto makers et al. will know that they can never expect a return of lower fuel prices, and therefore ought to turn their efforts to conservation, alternative energy sources, and so on.

Whether the idea should be pursued, I don’t know. Its political feasibility, I certainly doubt. But with it in the back of my mind, I was intrigued to come across the following passage from Anthony Sampson, The Seven Sisters: The Great Oil Companies and the World They Shaped, which was published in 1975:

In February 1975 Dr. Kissinger [who was then Secretary of State] came out with another brand-new policy, formulated by his new energy expert at the State Department, Thomas Enders . . . Kissinger now proposed that there should be an agreed “floor price” below which the industrialized countries would not allow oil to be sold, so that new investments and alternative fuels would be safeguarded. The scheme had powerful logic behind it, but it was very difficult to decide what the floor should be. While a floor of $6 to $7 [per barrel of oil] seemed appropriate to protect coal or domestic oil, a figure of $12 seemed necessary to protect such innovations of [Colorado] oil-shale: so that the floor seemed in danger of meeting the ceiling. . . . In any case there was little chance of agreement from most Europeans, who saw little prospect of developing serious alternatives. The definition of the floor price was never fully worked out, and the idea was virtually shelved by March 1975.

The timeframe of this idea — two months in 1975 — reminds me of what we’ve seen happen lately to the price of gasoline in the United States. Its precipitous drop over the past couple of months has, among other things, spurred sales of pickup trucks.

But what the long-term implications are, it’s impossible to tell. If they’re anything like they were in the 1970s, it could be a long while yet before we see any serious policy initiative in the direction of renewable energy sources. (Then again, President-Elect Obama has at least talked a good show about renewables, though only time will tell how that plays out.)

My guess is that there’s more momentum these days for renewables, and that the price of oil (ergo gasoline) will rise from its current (relative) depths. But with recessionary headlines like the ones we’ve been getting, I wouldn’t bet on it.