May 1982 - Volume 2, Issue 5

Dirty Results From "Clean Air!"

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:

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:

Year Automobile Gas Usage -billion gallons Price of Regular/Gallon Average Gallons per vehicle used Average Fleet Miles per gallon
1940 16.3 $ .18 584 15.3
1945 13.3 .20 517 15.0
1950 24.3 .26 603 14.9
1955 33.5 .29 644 14.5
1960 41.2 .31 661 14.3
1965 50.3 .31 656 14.1
1970 65.8 .36 722 13.6
1975 76.5 .57 685 13.7
1980 80.0 1.10 638 14.4

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.

Year Avg Mfg wage - $ Reg Gas w/tax - $/gal. Gallons/hour worked Well-head price/Bbl - $ Ratio Crude to Reg Gas
1915 0.52
1920 3.24
1925 1.81
1930 .546 .20 2.7 .99 4.96
1935 .544 .19 2.9 .94 4.99
1940 .655 .18 3.6 1.00 5.43
1945 1.016 .20 5.0 1.21 5.90
1950 1.440 .26 5.4 2.59 9.68
1955 1.860 .29 6.4 2.84 9.77
1960 2.260 .31 7.3 2.96 9.51
1965 2.610 .31 8.4 2.96 9.50
1970 3.360 .36 9.4 3.28 9.19
1975 4.800 .57 8.4 7.64 13.36
1980 7.270 1.10 6.6 21.76 19.56
1981 7.980 1.33 6.0 30.50 22.97

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:

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

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