'TIS ONLY MY OPINION!

May 1982 - Volume 2, Issue 5

Dirty Results From "Clean Air!"

• In 1930, the Austin Bantam automobile cost $395 and at 55 MPH would go over 250 miles on its 5 gallon gasoline tank (50+ MPG).
• The 1951 Hudson Hornet (24 MPG) met all of 1980's pollution control requirements.
• In 1952, the Volkswagen Bug exceeded 28 MPG.

General Motors spent $3-5 billion in engineering and tooling costs on its MPG EPA marketing disaster similar to the Edsel. Evolution like this would seem to question the ultimate success of the industrial and technological revolutions.

Another example of the "Quick-Fix" mentality!

Beginning in 1952, unhealthy smog conditions in London and Los Angeles were the catalyst which started a clamor for laws to improve air quality. The necessity for action was apparent but the long-term implications of the proposed solutions failed to receive careful thought.

Lawmakers and scientists were enamored with glamorous, idealistic technological concepts rather than practical engineering solutions -- as a result, automobile pollution was to be measured in emittants per gallon of gasoline burned rather than in emittants per mile traveled. Theoretical concepts of "pure air" were written into law. Cost/benefit ratios were not considered important. Industrial concentrations, population densities, and the unique geographical terrain which intensified smog were ignored by the lawmakers. The "Clean Air Act" provided the same solution for the Los Angeles basin as for Salmon, Idaho or Wink, Texas.

By 1982, the economic costs caused by bureaucratic zeal to obtain absolute "clean air" for our society were becoming apparent:

• Pollution control devices added $950 to the cost of a domestic automobile in 1981.
• The amount of gasoline recoverable from a barrel of oil was reduced by 5% with the development of low-lead fuel.
• Gasoline consumption increased about 15% due to the lower efficiency of automobiles equipped with pollution control devices.

If the "Clean Air Act" had merely required all automobiles to obtain within five years a minimum of 30 MPG with no increase in pollutants, world oil reserves would have almost doubled and our air would be just about as clean.

Recent trends in automobile gasoline usage in the U.S. since 1940 are shown in the following table:

Source : US Federal Highway Admin., Highway Statistics.

These factors added to declining domestic oil production and federal price regulations that encouraged the continued use of "cheap oil and gas" contributed to a supply/demand situation that OPEC exploited with dire results for the industrialized world.

A comparison of crude oil's per barrel cost at the wellhead in Texas and the retail price including taxes since 1915 is shown below. Clearly, gasoline for the U.S. wage-earner was an increasing bargain up to 1970.

Sources: US Bureau of Mines; Texas Almanac; Statistical Abstract of the US; Survey of Current Business.

The ratio between crude oil cost and gasoline price exploded following OPEC;s oil shock. The magnitude of OPEC's and the oil industry's greed is shown by the 2.5 increase in this ratio since 1970.

Recent economic conditions have demonstrated that oil prices are not totally elastic. OPEC (primarily Saudi Arabia which in 1981 produced 43.7% of OPEC's production) has reduced oil production to bolster "spot market" prices caused by declining industrial energy demand and widespread conservation efforts which have reduced total worldwide consumption 10% in two years. The "oil glut" developed despite the war between Iran and Iraq which reduced world oil production by 7-8 million barrels/day. Saudi Arabia has reduced its production in six months from 10.5 to 8.5 million barrels/day and has also exerted considerable pressure on other OPEC countries to restrict oil production. The Saudi's could probably lower their production to 6.5 million barrels/day without endangering their internal development plans or invading the $200 billion plus financial surplus acquired during OPEC's existence.

Slow world-wide sales of new automobiles have given OPEC an opportunity to balance its production with demand. New cars with EPA ratings of 18-54 MPG replace cars rated 8-13 MPG. A major improvement in the average fleet MPG of between 25-40 can be expected in the next three years depending upon new car sales levels. Higher MPG auto's will conserve a significant amount of oil energy.

Crude oil quality largely dictates the refinery output mix from a given barrel of oil within certain predetermined ranges. Refineries are currently running at the low end of the gasoline yield spectrum. Further decreases in gasoline demand during the next 5-10 years will intensify the production/marketing problem of the oil industry as gasoline is the largest single oil refinery product.

With the auto industry in the doldrums and OPEC in partial disarray, here is a proposal to:

• Reduce unemployment and OPEC's economic power;
• Invest money in Individual Retirement Accounts (IRA's), thus, increasing the U.S. pool of investment capital;
• Reduce our balance of payment problems with Japan, the OPEC countries, and western Europe; and
• Recycle Eurodollars back to the U.S.

Replacement of low EPA-rated vehicles could be accelerated through the following program.

• The U.S. government could organize a self-liquidating loan program financed with 6% tax-free U.S. Government Bonds for a limited period of time - say six years.
• Individuals, not corporations, could finance 100% of any U.S. - built vehicle at 6% interest for 36 months which replaces a vehicle whose EPA rating is less than 50% of the new cars.
• The government would purchase at appraised wholesale value the old vehicle, pay off any note, and give the remaining equity to the owner.
• The entire equity amount would be invested in an IRA and the amount deducted from the owner's income tax.
• Replaced vehicles with EPA ratings in excess of 15 MPG would be wholesaled in the U.S.
• Otherwise, the replaced vehicle could be scrapped or sold overseas to LDC or Latin American countries with payment to be made in Eurodollars.
• All scrap revenues and Eurodollar payments would be used to reduce the national debt.
• Each U.S. licensed driver would be eligible to participate only once during the six year life of the program.

The above program would probably create the greatest boom in automobile history. The following conditions would have to be met prior to implementation of the program:

• The government would freeze the MPG/Pollution program at 1982 levels;
• The auto unions would sign a six year no-strike, no pay-increase agreement; and
• The domestic auto industry would be required to reduce vehicle sticker prices by 20%, and not introduce any new models for six years. Each domestic auto company would also agree to reduce its advertising budget to 50% of 1981's level.

The above proposal will certainly revitalize the economy. In addition, the following would probably happen:

1. Oil prices would remain under pressure despite OPEC's production cutbacks;
2. World-wide oil reserves would increase;
3. Federal and state tax revenues from oil might decrease;
4. Income tax revenues from other sectors would increase;
5. Unemployment and its associated costs would decrease;
6. Migration from the north to the south would slow; and
7. You can add your own ideas.

The "oil glut" will not continue if the U.S. fails to keep pressure on OPEC. The combination of increased economic activity and reduced oil production from OPEC, mandates continued conservation measures to offset future increases in oil prices. The above proposal will send OPEC a loud and clear message, we intend to reduce our reliance on foreign oil.

The oil cartel's stranglehold on the world's economies can only be broken by increased conservation efforts and/or life style changes in the industrialized world along with continued development of all types of alternate energy sources including synthetic fuels, soar, wind, geothermal, nuclear, etc.

OPEC was successful partially as a result of the demand/supply problem created by federal price controls and the "Clean Air Act." Now's the time to increase the pressure on OPEC.

But then - - 'Tis Only My Opinion!

Fred Richards
May 1982

This issue of 'Tis Only My Opinion was copyrighted by Adrich Corporation in May 1982.

It is intended to provoke thinking, then dialogue among its readers. Quotation with attribution is encouraged.

'Tis Only My Opinion Archive Menu

Last updated - June 29, 2008