Oil import fees with exemptions

Resources

and Energy

11 (1989) 215-239.

OIL IMPORT

North-Holland

FEES WITH

An Empirical

EXEMPTIONS

Examination

James L. SWEENEY* Stanjbrd University, Stanford, CA 94305, USA Received

December

1988, final version

received

May 1989

Thts paper reviews and quantities arguments for and against oil import fees. It concludes that expected exemptions from the fee imply that net economic costs to the U.S. of a fee would exceed economtc benefits. In addition, welfare losses from a large fee would greatly exceed losses normally associated with instruments designed to raise tax revenues. Coupled with the noneconomic assessment, the economic analysis suggests that the adoption of an oil import fee would be poor public policy.

1. Introduction

Since the oil market disruption of 1974, proposals periodically reappear to levy a fee or tariff on U.S. imports of oil. Typically such proposals would apply the fee to both crude oil and refined products. Some explicitly envision exemptions to the fee while others fail to clearly specify sources or uses of oil which would face the tariff. For example, in the most recent U.S. Presidential primaries, Jesse Jackson proposed an oil import fee with exemptions for Latin American nations. And recently, the idea has gained strong intellectual support through papers by Broadman and Hogan (1987, 1988). The Energy Journal published three papers as a special feature debating the merits of an oil import fee [Broadman and Hogan (1988), Nesbitt and Choi (1988), and Tussing and Van Vactor (1988)]. This paper reviews arguments for and against the fee and concludes that if exemptions from the fee were allowed in significant volume, the net economic costs to the U.S. of an import fee would exceed the economic benefits. Canadian imports would necessarily be exempt under the Free Trade *Funding has been provided through Stanford University Center for Economic Policy Research. with a grant from Exxon Education Foundation. I would like to thank Perry Beider. John Boatwright,EIizabeth Browne, Peter Lilienthal, Tom Lyon. Pegaret Pichler, Henry Rowen, Pablo Simonetti, John Weyant, and David Wood for helpful comments, Of course, all errors remain the responsibihty of the author. 01654572/90/$3.50

mp 1990, Elsevier Science Pubhshers

B.V. (North-Holland)

216

J.L. Sweeney, Oil import &es with exemptinns

Agreement and Mexican imports probably would be as well. Thus significant exemptions could be expected. If a large import fee were implemented to raise federal tax revenues, welfare losses would be greater than those associated with typical tax instruments. Additional non-economic arguments strengthen the conclusion that an import fee would be harmful to the U.S. z-hepros Several motives for an oil import fee are typically cited. The first is the desire to reduce the U.S. vulnerability to international oil supply interruptions. Although dramatic crude oil price increases are quite unlikely in the near term, in the longer run such disruptions may well occur. The fee would promote energy conservation and encourage domestic oil exploration and production, thereby reducing U.S. oil imports. Import reductions would increase U.S. energy security through reducing both the economic consequences of rapid oil price jumps and the probable tnagnitude of future disruptions [Broadman and Hogan (1987, 1988) Energy Modeling Forum (1982) and Hickman, ~untin~on and Sweeney (19X7)]. A second motivation is a belief that the U.S., as a major importer of oil, has suflicient market power to reduce world oil price by limiting quantities of imported oil. An oil import fee would reduce U.S. oil import demand, place downward pressure on the world oil price, and thereby reduce the amounts of U.S. goods and services which must be exported to pay for a given volume of oil imports. These terms-of-trade gains, while not reflected in measures of real GNP, arc nevertheless economically beneficial to the U.S. This terms-of-trade motivation, generally relevant to most imports, has been extensively discussed in the economics literature. While use of tariffs to gain such advantage is generally prohibited by GATT, most observers argue that oil is different from other commodities. International oil markets are not characterized by free competition but rather by a cartel-like institution OPEC - which has attempted to maintain price above the market clearing level and which has aften succeeded. OPEC members from time to time have tried to use oil as a political weapon. Oil is important enough in the U.S. economy that disruptions in its supply can lead to deep economic losses. It has therefore been argued that the United States is justified in using its market power as a counte~ailing Force against OPEC market power, even in a free trade regime [Broadman and Hogan (1987, 1988), and Nesbitt and Choi (1988)]. Third, advocates argue that an import fee would reduce the balance of trade deficit. Since oil currently accounts for almost $30B of U.S. net imports - a signi~cant fraction of our trade deficit - reductions in import price and quantity, when taken alone, could measurably reduce this deficit. But this argument ignores the macroeconomic identity that the balance of

J.L. Sweeney, Oil import .frrs with exenipiions

217

trade surplus must equal the government deficit plus the excess of private investment over savings. Fourth, the increases in federal tax revenues could reduce pressure to raise other taxes or could decrease the growth of the national debt. Since most tax instruments lead to welfare losses, one might compare welfare gains or losses associated with an import fee with welfare losses associated with typical tax instruments which could be enacted in the absence of a fee. A $10 per barrel fee applied to all oil imports could raise significant revenues. Some estimates are provided in a later portion of this paper, but the total budgetary effect of a fee remains uncertain. Fifth, some proponents see a fee as providing economic benefits to the oil producing states and the oil industry, both currently facing reduced employment and diminished incomes stemming from declines in oil prices from their historic peaks. Such proponents argue that oil prices are too low for U.S. producers to remain viable. However, any such economic benefits will be gained directly at the expense of the rest of the U.S. In addition, an oil import fee, if adopted, would probably remain in place for many years, even though the current regional and industry depression is a transient phenomenon. Finally, some see U.S. oil consumption reductions as desirable on environmental grounds. Higher oil prices stemming from a fee would reduce driving and would thus reduce mobile source emissions. Higher prices would also motivate shifts toward coal and natural gas in industrial sectors. On net, whether these shifts would increase or decrease environmental consequences is not clear. For the rest of the world, the reduced oil prices would have effects moving in directions opposite from those in the LJnited States. Broadman and Hogan provide arguments closely related to the first three above. They see a tariff as motivating oil users to account for social costs not currently included in the market price of oil: increased oil imports may lead to in~ation, balance of payments deficits, energy and economic security problems, and increased prices of imported oil. These marginal social costs external to the oil importer or user, when measured on a per-barrel basis, are referred to as the ‘oil import premium’ or the ‘import premium’. They see a tariff, equalling the import premium, as a means of raising private marginal costs of oil imports to match social marginal costs. In essence, these proponents see an oil import fee as a mechanism to promote economic efficiency, but not primarily as one to increase tax revenues, redistribute wealth to oil producing regions, or to solve environmental problems.

Arguments against a fee include ~dead~weight’ economic efhciency losses, decreases in international competitiveness of IJS. industry, further move-

218

J.L. Sweeney, Oil import fees with exemptions

ments toward protectionism, increases in government management of the energy system, terms-of-trade losses, and international relations difficulties. In addition, some short-run benefits of a fee entail compensating losses at later dates. Dead-weight losses would occur because an import fee would increase the domestic price of oil relative to the world price. As a result, some oil consumption for which oil is worth more than the world oil price would be curtailed, while some domestic supply activities which produce oil more costly than the world oil price would be promoted. Each such change would lead to further dead-weight economic losses. Other such dead-weight losses would occur as well. The fee would increase current U.S. production of oil and gas, leaving fewer resources for the future, ‘draining America first’. It would hasten the time at which capital intensive synthetic fuels would be brought into large scale commercial operation (or would hasten a return to higher import levels). Such adjustments could be very costly to the U.S. in the long run,’ while appearing beneficial in the short run. A fee would increase costs for energy intensive U.S. industries while decreasing or leaving constant costs for competing industries operating in other countries. In that regard, an oil import fee would be very different from a simple increase in the world oil price, since the world price increase would affect costs of foreign firms similarly to costs of U.S. firms. A fee would thereby decrease competitiveness of oil intensive U.S. industries and would motivate such activities to relocate abroad. The petrochemical industry is an obvious example but this effect could be felt for all energy intensive industries. Such movements abroad, taken by themselves, would increase the balance of trade deficit. The U.S. is now witnessing a rising body of protectionist sentiment. Congress has recently passed a trade law allowing easier protection of U.S. industry facing strong foreign competition. One industry after another finds some special reason it needs protection. Implementation of an import fee would be another step towards protectionist policies. Even a fee justified using non-protectionist arguments, w~~~~provide financial protection to the U.S. petroleum industry. As such, its existence could be used to justify similar treatment in other industries. Most protectionist pleas are based upon arguments that foreign competitors have made significant inroads into U.S. markets, that they engage in ‘unfair’ competition, often by keeping their prices for export to the U.S. ‘too low’, and therefore that U.S. producers cannot successfully compete without ‘A fee would also have partially compensating effects, in that it would increase the amount of non-U.S. 011available in the long run. These various long run issues are modeled by Nesbltt and Choi (1988) and will not be examined here. The Nesbitt-Choi results suggest that its exclusion here signi~cantly biases upward the estimated benefits of an oil import fee.

J.L. Sweeney, Oil import fees wtth exemptions

219

protection. Tariffs on imports are a normal remedy for foreign products sold ‘too cheaply’ in U.S. markets (dumping). Yet OPEC market power implies world oil prices are higher than expected in a competitive market.* Hence an import fee would provide protection for an industry facing prices which are already too high. As such, an import fee could provide a precedent for a whole new class of protectionism. A tariff, often a remedy for ‘too low’ import prices, might well become a remedy for ‘too high’ prices as well. Since the 1970s the U.S. government has made great strides in reducing its degree of energy system management. Witness: oil prices and distribution channels have been decontrolled, natural gas markets are being deregulated, experiments in electricity bulk power market deregulation are being pursued. An import fee, however, would provide a strong impetus for renewed Federal government involvement. Large wealth redistributions among industries, such as an oil import fee would cause, typically justify more governmental oversight or control of the industries apparently benefiting from the redistributions. Such additional involvement undoubtedly would accompany an import fee. Exemptions for oil imports originating in specific countries would lead to terms-of-trade losses on petroleum imported from those countries. Oil from . exempted countries would sell at the tariff-inflated U.S. price. Although the world oil price would drop, leading to terms-of-trade gains on non-exempted oil, terms-of-trade losses would occur for exempted oil. Such losses will be examined in greater detail. In principle, the U.S. could adopt a fee with no exceptions. Yet such a policy seems infeasible in practice. Under the U.S.-Canada Free Trade Agreement, the U.S. could not impose the fee on Canadian indigenously produced oil or refined products. Imposition of such a fee would be tantamount to abrogation of the agreement. And the imposition of a tariff on Mexico, particularly during a time of staggering Mexican external debt, would probably be deemed unacceptable, both in terms of destabilization and possible default. Thus Mexico and Canada - at least - could be expected to be exempted. If Mexico and Canada were exempted, the U.S. would have to decide whether to impose the fee on specific allies such as Venezuela, United Kingdom, and Norway. A decision to impose would appear as a hostile act. And with U.S. efforts to strengthen presence in the Middle East, could we impose a selective tariff on Saudi Arabia without harming our relationship with that nation? Unless the U.S. were to allow no exemptions, thereby avoiding the need to differentiate among trading partners, but tinancially damaging all exporters of oil, it would face important international relations *In fact this idea explicitly

underhes

the Broadman-Hogan

analysis

220

J.L. Sweeney, Oil import fees with exemptions

difficulties. If the U.S. chose which countries would face the tariff, the fees would be perceived as selectively imposed. U.S. international energy initiatives normally proceed multilaterally through the International Energy Agency (IEA). The U.S., through the IEA, has encouraged its allies to build strategic petroleum reserves. IEA members have agreed on common targets for import reduction and on open communications mechanisms for energy emergencies. A unilateral policy, such as adoption of an import fee, may well undercut the multilateral strategy. An oil import fee would entail both beneficial and harmful consequences. An overall assessment could be posed in either of two ways. We could assess whether there would be welfare gains of a fee and, if so, whether those gains would be great enough to compensate for the adverse non-economic consequences. Alternatively. if an import fee were being evaluated as a mechanism to raise federal tax revenues, one could assess whether the welfare gains or losses of a fee, relatiue lo welfare losses from typical taxation instruments, would be adequate to compensate for the adverse non-economic consequences. For large import fees, the analysis will show that welfare costs would exceed those of typical tax instruments and therefore that such fees would be undesirable from either perspective, even without the non-economic adverse consequences. For small fees, quantifiable economic benefits may be positive. Thus it is necessary to weigh quantifiable economic benefits against the non-quantifiable economic and non-economic adverse consequences. The judgment offered here will be that the quantifiable benefits relative to costs of taxation instruments will be too small to justify the important non-quantified adverse consequences. Thus, as energy or economic policy, the imposition of an oil import fee would be undesirable.

2. Broadman-Hogan

analysis

The most comprehensive assessments of the economics of an import fee were published by Broadman and Hogan (1987, 1988). Their papers provide quantitative estimates of five components of the oil import premium.3 They refer to three - inflation, exchange rate, and market power - as ‘economic’ components, and to two - changed vulnerability and changed disruption size - as a ‘security premium’.4 Their ‘optimal’ tariff is the total import premium, obtained by adding together the five components, estimated at that level which maximizes the economic benefits of a fee. 3The ‘oil import premium’ or ‘import premium’ refers to the portton of the marginal social cost of oil imports which IS external to the oil importer or user, measured on a per-barrel basis. 41n the terminology of this paper, all of these components are related to the economy consequences of a tariff. The consequences referred to above as ‘non-economic’ have not been quantified by Broadman and Hogan.

J.L.

Sweeney,

011 import

Table Broadman-Hogan

fees

with

exemptions

221

1

analysts

of optimal

tariff.

Cases Component

of optimal

tartff

Low price

Secure imports

$1.45 $0.69 $1.11

$0.98 $0.68 $3.82

$1.52 $1.49 $2.07

($,‘bbl)

$3.25

$5.48

$5.08

vulnerability dtsruptton size

$2.28 $4.96

$1.77 $5.30

$0.00 $0.00

lnflatton Exchange rate Market power Total economic Changed Changed

High prtce

Total security Total premtum

($;bbl) ($/bbl)

Cost of free market ($B per year)

$7.25

$1.07

$0.00

$11.03

$12.55

$5.08

$12.44

$25 77

$2.43

policy

__

Broadman and Hogan examine three cases: High price (world oil price of $27 per barrel), Low price ($15 per barrel), and Secure imports (High price but no threat of supply disruptions). Table 1 shows the various components of the optimal tariff Broadman and Hogan have estimated for the three cases,’ with the three columns each corresponding to one of the three cases. The analysis suggests that the import premium, and hence the optimal tariff, may range from $5.08 per barrel to $12.55 per barrel, with the combined premium exceeding $10 per barrel unless imports are secure. Table 1 also includes the Broadman-Hogan estimate of the ‘cost of free market policy’. This figure, ranging from $2.43 B to $25.77 B per year, represents the welfare gain they estimate would accrue with the imposition of the ‘optimal’ import fee.6 When imports are not secure, this estimated welfare gain ranges between $12.44 B and $25.77 B per year. The estimates lead Broadman and Hogan to conclude: ‘The size of the premium is large. And a tariff is the most direct means of internalizing the premium. . . . the direction of the policy is clear: higher tariffs can be justified’. The bases for this conclusion will be challenged in what follows.

3. Assessment and analytic foundation In order to assess the various analysis, it is useful to differentiate

components in the Broadman-Hogan among several generic mechanisms

of

5Data on the total economtc. total security . and combined tariff are pubhshed in Broadman and Hogan (1988): the other components appear in spreadsheets Hogan has gractously supphed. “They estimate the ‘cost of free market policy’ as equal to 365 ((I,-I,),‘21 T. where IT and I, are daily Imports with and Imports without the tax, respectively, and T is tariff rate. The factor 365 converts daily values to annual values.

222

J.L. Sweeney, Oil import fees with exemptions

import reduction. U.S. energy demand can be reduced by actions which use less energy (these will be referred to as ‘energy conservation’) or by actions which relocate U.S. industry abroad (these will be referred to as ‘industry relocation’). Near-term supply can be increased by actions which increase cumulative quantity of energy produced over all time (‘cumulative supply increases’) or by actions which simply shift the production profile across time (‘intertemporal shifts’). Economic evaluations of these various mechanisms wili differ. 3.1.

rn~~fio~

component

The Broadman-Hogan inflation component is based upon the idea that more imports imply higher inflation for a given monetary policy regime. More oil consumption implies a greater value share of oil in the economy; hence a given oil price increase leads to more inflation. And greater nonOPEC demand for oil, net of supply, leads to greater oil price increases and hence more inflation for a given value share of oil. Monetary policy designed to reduce inflation leads to reductions in economic output as well. Broadman and Hogan assume that inflationary pressures will be only partially accommodated by monetary policy; they use predicted economic output reductions to estimate the in~ationary component of the oil import premium.’ But the relationship between oil imports and inflation does not imply that an oil import fee would reduce inflation and would thereby lead to economic benefits. Increases in domestic supply, motivated by an import fee, would have no effect on value share of oil and thus, for a given rate of oil price increase, would do nothing to reduce inflation. Intertemporal shifts in supply which increase production in early years will decrease production in later years, thereby redu$ng oil prices in early years at the cost of increasing prices at later times. The temporal pattern of inflation would change, decreasing in some years and increasing in others. U.S. demand reductions stemming purely from industry relocation to abroad would have no effect on the rate of price increase since such changes would leave the world oil supply and demand unchanged. In addition, the oil import fee itself will raise domestic prices above world prices and thus will increase domestic prices. To the extent inflation is influenced by changes in energy prices, the average rate of inflation between introduction of the fee and any future time would be greater with an oil import fee, even though the instantaneous rate of inflation may decrease for some time periods. Although oil import reductions might provide benefits through reduced ‘They assume that some fraction of the inflation is accommodated by monetary unaccommodated portion leads to economic output reductions. These reductions measure of economic losses.

pohcy. The provide the

J.L. Sweeney, Oil import fees wirh exemptions

223

inflation, the instrument proposed to reduce imports - an oil import fee will entail costs, not benefits. Put another way, if the problem is inflation, a price increase for a ubiquitous economic input is not the solution. The inflation component should be negative, not positive. In what follows, however, this component will be assigned a zero value, thus biasing the analysis in favor of oil import fees. 3.2. Exchange rate c~rn~~nent The exchange rate component is based upon the idea that increases in the trade deficit will ultimately result in declines in the exchange rate between the U.S. dollar and other currencies. Those declines would give rise to termsof-trade losses, similar in concept to the losses associated with risesin the dollar-denominated world oil price, but stemming directly from changes in currency exchange rates. Hence even if the dollar-denominated world oil price were to remain constant, increases in oil imports would generate termsof-trade losses. Similarly, decreases in imports would provide benefits. But import reductions stemming from industry relocation, taken alone, will increase deficits and will thus incur costs. Since an oil import fee will increase cost of energy use for U.S. industries, relative to costs for industries operating abroad, it would reduce the competitiveness of energy-intensive U.S. industry and motivate industry relocations abroad. Intertemporal shifts in energy production will decrease deficits at some times and increase deficits at others, Without more complete knowledge of future conditions, one cannot tell whether such intertemporal shifts lead to net benefits or costs. There currently is insufficient information to determine which of the phenomena above will dominate. Thus one cannot tell whether the exchange rate component should be positive or negative. In what follows, this component will be assigned a zero value. 3.3. garret

power ~~rn~~nent

The market power component arises because the U.S., as a major oil importer, can reduce world oil price by limiting export quantities and can thereby obtain terms-of-trade benefits. Terms-of-trade benefits to the U.S., per barrel of oil imported, just equal the induced change in the import price of oil. Thus if the U.S. imported 2 billion barrels per year, all of which faced a price reduction of $2 per barrel, the U.S. would derive a benefit of $4 billion per year. This gain would accrue only for imports not exempted from the tariff. Terms-of-trade losses will occur for all oil exempted from the import fee, since each such barrel will command the domestic oil price, which will equal the world oil price plus the import fee (P, + T).

J.L. Sweeney, Od import fees with

224

exemptms

Table 2 Illustrative

Quantity

terms-of-trade benefits for various exempt imports. exempted

gains (represented

of

benefits (daily)

$2.10 = $20 $2.9 -$8,1 =$lO $2.8 -$8.2=$ 0 $2.7 -$8.3=$10

None 1mmb/d 2 mmb/d 3 mmb/d

Total terms-of-trade are thus approximately

Terms-of-trade

quantities

million million million million

by 6G) of a smalls tariff increase

a~=-Z,,dP,-z,(cW,+Xf),

(1)

where 1, I SF, 6T

represents represents represents represents

the the the the

quantity quantity induced increase

of imported oil exempt from the fee, of imported oil not exempt from the fee, change in the world oil price, and in the tariff level.

The first term in eq. (1) (-I,, 6P,) is positive, representing a gain, since world oil price would decline as a result of the tariff. Because the decrease in world oil price would be much smaller than the import fee, the term -1,(6Pw +6T) would be negative. In addition, (6Pw+6T) can be expected to be larger in absolute value than 6Pw. Thus even relatively small exemptions can compensate for all gains available through reduced world oil price. A numeric example shows the importance of exemptions. Assume that a $lO/barrel tariff drives world oil price down by $2/barrel. The domestic oil price thus would increase by $8 per barrel. Assume that the U.S. were importing 10 million barrels per day (mmb/d) of oil. Table 2 displays termsof-trade benefits for various levels of exempted oil imports. Table 2 shows that with even modest levels of exemptions, the apparent terms-of-trade gains of an oil import fee become losses. With no exempt imports, the U.S. gains $20 million per day, $7.3 B per year. However, if 30% of the imports are exempt (3mmb/d), the U.S. loses $10 million per day, or $3.6B per year. Table 2 and eq. (1) show that exemptions do not simply scale down the terms-of-trade benefits but they subtract from benefits an amount disproportionately greater than the quantity of oil exempted. sThis expression holds only for changes small enough that exempt and non-exempt imports are roughly constant. For larger tariff changes, eq. (1) must be Integrated, taking into account the impact of price changes on oil imports. The 6G is integrated in later sections of this paper.

J.L. Sweeney. Oil import fees with exemptions

225

In order to evaluate eq. (l), it is necessary to estimate the impact of the fee on the world oil price. It will be assumed that every 1 mmb/d import reduction leads to a reduction in the world oil price of /l dollars per barrel,’ as expressed in eq. (2).

(2) where imports supply:

are the difference

I=D-S.

between

domestic

demand

and

domestic

(3)

Apparent terms-of-trade gains may be further reduced from those predicted using eq. (2). Oil import reductions from relocations abroad will have at most a mitigated impact on oil prices, since these industries will continue to use oil, although at changed locations. Eq. (2) implicitly assumes that all demand reductions are energy conservation and none are derived from industry relocation. Although this assumption exaggerates the market power benefit of an oil import fee, eq. (2) will be used in what follows.

3.4. EnergJs security component The energy security component arises because a fee would reduce U.S. oil imports and would thereby increase U.S. security through reducing both the economic consequences of rapid oil price jumps and the probable magnitude of future disruptions. Hogan and Broadman assess security benefits through a stochastic model of world oil disruptions. Assessment of benefits depends upon many subjective factors; reasonable people can easily disagree about magnitudes. Here, the Broadman-Hogan estimate of security benefits is used, although it is higher than I would estimate: it is assumed that each 1 mmb/d of oil import reduction reduces the expected value of economic losses during disruptions by $2.6B per year. This figure implies a security component of $7 per barrel, consistent with table 1. ‘The parameter /I will depend m general upon the supply/demand balance m the world oil market. When there ts httle excess capacity, p can be expected to be larger than when there 1s much excess capacity. In addition, because this parameter is highly dependent upon behavior of the OPEC members, tt can best be represented as a stochastic variable. For what follows, however, this parameter 1s treated as determmistic. Its value is meant to represent an expected value of the correspondmg random variable.

J.L. Sweeney, Oil importfees withexempttons

226

3.5.

Economic

efficiency

losses

Economic efficiency losses occur because a fee would force a wedge between the domestic and imported prices of oil: the domestic price would exceed the world price by T. The domestic price approximates the marginal value to the U.S. of using a barrel of oil and the world price represents the marginal cost to the U.S. of obtaining a barrel of imported oil.” Every barrel of reduced imports would save the U.S. an amount equal to the imported oil price and would cost the U.S. an amount equal to the domestic price (independent of whether the import reduction were made up by domestic supply increases or demand reductions). Absent a tariff, these two amounts are equal. But with a fee, the marginal cost to the economy exceeds the marginal gain by an amount equal to the tariff rate.” The above discussion implies that economic efficiency changes (represented by 6iE) of a small import change can be approximated as 6E=

T61,

(4)

where 61 is the change in imports and T is the existing tariff. The effkiency losses from a large change are obtained by integrating eq. (4). 3.6. ~u~tbinafio~ qf impacts The various components can be combined into an economic assessment of the fee, once oil imports as a function of the fee level are estimated. For this purpose, it will be assumed that domestic oil supply and demand are constant-elasticity functions of the domestic oil price:r2

D=

Do.@‘, + T)/‘P,o) -a,

where S and SO are domestic supply with and without the fee, respectively, “This cost is absent terms-of-trade losses associated wtth changes in the world oil prtce. The terms-of-trade losses will be treated separately. ’ ‘Thts analysts derrved from conventtonal welfare economtcs, is discussed more fully in Sweeney (1978). ’ t2The demand response to higher oil prices mcludes several quite dtfferent phenomena. Higher oil prtce may motivate: (1) energy conservation, (2) substitution to fuels such as coal or natural gas, or (3) industry relocation abroad. Interfuel substitution in turn leads to mcreases in prices of natural gas and possibly of coal. These further price increases lead to increases in supplies of these other fuels and to substitution back toward oil. The price elasticity of demand for oil in eq. (6) must be chosen to represent all of these disparate phenomena. Clearly the constant-elasticity formulation 1s a gross slmpli~cation of realtty.

J.L. Sweeney, Oil import fees wth exemptions

221

Table 3 Parameters

used in the simulations.

Parameter

Value

elasticity of supply elasticity of demand initial world oil price Pwll World 011 price responstveness to import B Expected value of disruption cost reduction imttal domestic supply & Initial domestic demand &I initial 011 Imports 10

0.5 0.6 $20/barrel $OS/bbl per mmb/d $2.6 btlhon per mmb/d 8 mmb/d 18 mmb/d lOmmb/d

0

a

reductions

D and D, are domestic demand with and without the fee, respectively, P, and P,, are world price with and without the fee, respectively, T is the magnitude of the tariff, and 0 and c( are elasticities of supply and demand, respectively. To assess long-run impacts of the fee, parameters correspond to those which might be the case several years after tariff implementation. These parameters are very similar to those underlying the Broadman-Hogan analysis. In particular, oil imports are assumed to be lOmmb/d, corresponding to the situation which could come about at the turn of the century, while Broadman and Hogan assume 6mmb/d, corresponding to 1985 data. Table 3 summarizes these parameters. For the economic evaluation which follows, eqs. (1) and (4) will be numerically integrated as T increases from zero to various possible levels of the fee. Eqs. (2) (3), (5), and (6) will hold at all values of T. The analysis will allow estimations of changes in deadweight efficiency losses and terms-oftrade gains or losses.

4. Economic evaluation Fig. 1 graphs estimated economic gains of an import fee as a function of its level, using assumptions comparable to those of Broadman and Hogan. No exemptions are included. Inflation and exchange rate benefits are assumed to be $3 per barrel of oil import reduction, the average of the notariff and the full-tariff values of these benefits from the Broadman-Hogan analysis. This graph confirms the Broadman-Hogan analysis for their assumptions. Fig. 1 shows an optimal fee exceeding $13 per barrel, providing an economic

J.L. Sweeney, Oil import fees with exemptions

228

WELFARE CHANGES ($EVfR)

SECUhTY

TERMS -$5

OF TRADE

DEADWEIGHT

LOSS

-$lO I 0

1

2

3

4

I

I

1

I

1

1

I

5

6

7

6

9

10

11

12

13

TARIFF ($/BBL) Fig. 1. Components

of Broadman-Hogan

analysis

gain exceeding $16 billion per year.i3 The welfare gain lies between that estimated for the Broadman-Hogan Low price scenario and their High price scenario. The optimal tariff exceeds their estimates, primarily because the level of oil imports here exceeds their assumed level. With the $13/barrel fee, the deadweight loss exceeds the market power (terms of trade) gain. The inflation plus exchange rate benefits bring about net benefits above zero. The large security benefits lead to the net gains which would accrue with a fee. Fig. 2 is based upon zero inflation and exchange rate benefits. It has been argued above that these benefits should actually be negatioe. Thus fig. 2 provides an overestimate of the net benefits from an import fee. Here the optimal tariff is $11 per barrel and the maximum net benefits are $11 B per year. At this level, deadweight losses plus terms-of-trade gains lead to negative net benefits. Again, it is the security gains which lead to estimated benefits exceeding costs. To examine an import fee with exemptions, it will be assumed that 2mmb/d of oil imports would be exempted from payment of the import fee. The 2mmb/d exemption level has been chosen somewhat arbitrarily. That level of exemptions is less than what could be the oil and natural gas imports from Canada under the Free Trade Agreement. However, for this analysis the i3In this and subsequent graphs, various component benefits (or costs) are built up to the total The total benefit appears as a heavy line. Magnitudes of individual benefits are represented by verttcal difference between lines. The market power gain is combined with losses due to exemptions and labeled ‘terms of trade’.

J.L. Sweeney,

229

Oil import fees with exemptions

WELFARE CHANGES t$B/YFl)

$10

$5

$0

3.5

I -$lO

DEADWEIGHT

LOSS

I

NO EXEMPTIONS \

t

I 0

1

I

1

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TARIFF ($/BBL) Fig. 2. Components

with no inflation

or exchange

rate benefits

2mmb/d might include some exemptions from Mexico.14 Clearly the magnitude of allowable exemptions would be greatly influenced by the particular laws and regulations implementing an oil import fee. But I believe that, were an import fee adopted, exemptions would be at least as high 2mmb/d. Figs. 3 and 4 illustrate the effects of exemptions, paralleling figs. 1 and 2, respectively, except that 2mmb/d of imports are exempted from the fee. The terms-of-trade component is negative for all tariffs. Terms-of-trade losses add to deadweight losses, giving a combined loss from these two terms of $21 B per year for a $lO/bbl tariff. Fig. 3, corresponding to the Broadman-Hogan analysis, adds inflation and exchange rate benefits to the losses. This analysis shows an optimal tariff of $3/bbl. With a $3/bbl tariff, the annual terms-of-trade plus deadweight losses totat $4B. Once inflation, exchange rate, and security benefits are added, the annual net benefits accruing from the fee are only $1.6B. If a $10 per barrel tariff (the level proposed by Broadman and Hogan) were imposed, net benefits would be negative. Fig. 4, which eliminates the inflation and exchange rate benefits, shows the optimal tariff further reduced to $l/barrel. The maximum annual benefits are $0.3 B. Deadweight plus terms-of-trade losses are slightly less than security gains if the tariff is set optimally. However, if a $10 per barrel tariff were imposed, the economy would face a net loss of $9B per year, composed of “?mported natural gas prices can be expected to increase in response to changmg oil prices in the U.S. The economic cost to the U.S. IS identical to that of increasing price of exempt oil imports.

J.L. Sweeney, Oil impart fees with exemptions

230

WELFARE CHANGES ($B/YR) $5

-$15 -

2 MMBlD EXEMPT

-$20 -

-$25 -

-$30.0

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TARIFF ($/BBL) Fig. 3. Components of welfare change: 2 mmb/d exemption.

WELFARE CHANGES ($EVYR)

$0

t -$5

TERMS OF TRADE

2 MM~D EXEMPT -$25

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TARIFF ($/BBL) Fig. 4. 2 mmb/d exemption: no inflation or exchange rate benefits.

J.L. Sweeney,

Oil import feeswith exemptions

231.

/ $10 -

NO EXEMF=ftON

NO

-$m-

IN~~T~U~ OR

EXCHANGE RATE BENEFITS

-Km-~ 0

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TARIFF ($/BBL) Fig. 5. Welfare

changes

for four dlN’erent exemption

kvels.

$20 B deadweight and terms-of-trade losses batanced against a $1 I B security gain. The long-run role of exemptions is further illustrated by fig. 5, which graphs net economic benefits of a tariff for four levels of exemptions: none, 1 mmb/d, 2 mmb/d, and 3 mmb/d. Here inflation and exchange rate benefits are taken as zero. The graph summarizes the basic point: an oil import fee, which might lead to economic gain in the absence of exemptions, would lead to large economic losses if exemptions were granted. Discussed so far are long-run economic benefits of an import fee. However, short-run benefits would be smaller and costs greater. Fig. 6 provides estimates of short-run benefits and costs, but does not include macroeconomic losses associated with a sudden increase in world prices.15 Fig. 6 is based upon assumptions that: (1) elasticities of supply and demand are both reduced to 0.1, and (2) each I mmbjd reduction of oif imports reduces world oil price by only ~~.~~~arre~. These assumptions reflect the slow adjustment of supply and demand to changed prices and the sluggish adjustment of world oil price to changed supply and demand conditions. The exemptions of 2 mmb/d remain.

15See analyses by the U.S. Department of Energy (1987), which estimate large short-run adjustment costs of a sudden imposition of an oil import fee. If the fee were phased m gradually, such macroeconomic losses could be avoided

J.L. Sweeney, Oil import fees with exemptions

232

WELFARE CHANGES ($EWR) DEADWEIGHT

LOSS

t

TERMS OF TRADE

-$15 -

-$20 -

$25

2 MMB’D EXEMPTION

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TARIFF ($/BBL) Fig. 6. Components

of short-run

impacts.

Fig. 6 shows that in the short run any oil import fee would impose net costs. Security gains would be small, since imports would decline little in the short run. These gains would be dwarfed by large terms-of-trade losses, since the domestic oil price changes would occur almost instantly. The larger the tariff, the larger the short-run losses. A tariff of $10 per barrel would cost the U.S. $18 B per year for the first several years. Thus in the adjustment period, which could be several years, the oil import fee would be more costly than in the long run. And if the fee were imposed suddenly, the macroeconomic losses [see U.S. Department of Energy (1987)] would make the situation worse.

5. Federal tax and tariff revenues The analysis of oil import fee has taken the perspective that the fee should be evaluated primarily as an energy and economic policy measure, not as a measure designed to raise federal tax revenues. This perspective seems consistent with that articulated by many fee proponents. However, since the fee would raise significant revenues for the federal government, it could be assessed in comparison to the alternative measures to raise tax revenues. Such an assessment requires estimation of the net tax revenues which could be raised by an oil import fee. Net real (inflation adjusted) tax

J. L. Sweeney, Oil import fees with exemptions

233

revenues include five’ 6 components associated with the change in nominal tax revenues: (1) the total revenue from the fee itself (R’), (2) the increase in taxes paid by oil producers as a result of the increase in domestic oil price (RO), (3) the change (decrease) in taxes paid by firms other than those in the oil industry as a result of the increase in energy costs they face (R’), (4) the increase in taxes paid by firms not in the oil industry as a result of the increase in price they charge for their products (R’), and (5) the decrease in taxes paid as a result of relocation of industry abroad (RR). In addition, the impact on all federal taxes of induced changes in overall inflation (R’) must be subtracted in order to approximate the impact on real tax revenues: R=Rf+Ro+RC+RP+RR-R’,

(7)

where R is the net increase in real federal tax revenues. Although such a complete assessment has not been completed, it is possible to roughly analyze net tax revenues. The first component - the gross revenue from the fee itself - is simply the tariff rate multiplied by the annual non-exempt imports: R’= Tl,,. Higher tariff rates reduce imports but will have no effect on the quantity of exempt imports. Thus gross revenue would not increase linearly with the rate; for high enough rates gross revenue will decrease as the tariff rate increases. If imports were 10 mmb/d and 2 mmb/d of imports were exempted, gross annual tax revenues of a $10 per barrel fee would be $29 B. However, such a large increase in the U.S. price of oil would greatly reduce imports. Using the parameters reported above, such a fee would reduce total imports below 6 mmb/d and non-exempt imports below 4mmb/d. Tariff revenues would be reduced to $13 B annually. l7 Gross tariff revenues which would accrue under the assumed parameters are shown as the uppermost curve in fig. 7. The second and third components - (2) the increase in taxes paid by oil producers, and (3) the decrease in taxes paid by other firms resulting from “A stxth component (which would reduce revenues) has not been included. An import fee would reduce gasoline consumptton and thereby decrease federal gasohne tax revenues, which are assessed on a per-gallon basts. A $10 per barrel fee would increase retail gasoline prices by 20”,,-259,. However, the price elasttcity of gasoline is smaller than for all petroleum since the fuel eftictency of new cars is constramed by the corporate average fuel efficiency standards. Thus the $13 B annual federal gasohne tax revenues would not dechne more than 54;. “If the price elasticittes of supply and of demand were lower than those assumed, then the revenues would be larger. However, in that case. the welfare losses from the tariff would also be larger: (I) the security benefits would be reduced, (2) the world oil price reduction would be smaller, and therefore, (3) the terms-of-trade losses would be larger.

J.L. Sweeney, Oil import fees with exemptIons

234

REAL FEDERAL REVENUES ($B/yr) $14 GROSSREVENUES

NET REVENUE CHANGE: 100% COST PASS-THROUGH

NET REVENUE CHANGE: NO COST PASS-THROUGH

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TARIFF ($/BBL) Fig. 7. Range of possible

federal revenue changes.

energy cost increases - can be combined for analytical purposes under an assumption that the marginal tax rates for oil production are equal to the marginal tax rates for other industries. l8 For a small change in the domestic price, the second component (additional tax paid by oil producers due to the price increase) would increase by a product of: (a) the domestic production level, (b) the domestic price increase, and (c) the corporate tax rate.” Similarly, for small changes, the third component would decrease by a product of: (a) the energy consumption level, (b) the domestic price increase, to obtain a and (c) the corporate tax rate. 2o These terms can be combined tax revenue decrease which is a product of three terms: (a) the oil import level, (b) the domestic price increase, and (c) the corporate tax rate: 6R0+SRC=

-r1(6Pw+6T},

(9)

‘*These marginal corporate tax rates are taken to be 35”/, in the numerical examples, consistent with current tax law. “Taxes paid by oil producers will mcrease also because production of oil increases. But this mcrease m production is simply a shift m economic activity from other industries to the oil industry. With marginal tax rates in the oil industry assumed no different than in other industries, such shifts will not mcrease total tax revenues. For that reason, tax consequences of these shifts can be expected to be small. “This estimation assumes full employment m the economy so that induced shifts in economic activity among industries have no impact on tax revenues.

J.L. Sweeney, Oil

importfees wth exemptions

235

where Y is the corporate tax rate, {6P,+6T} is the change in domestic oil price, and I is the rate of oil imports. The fourth component - the increase in taxes paid by other firms as a result of increases in their output prices - and the sixth component - the impact on all federal taxes of induced changes in overall inflation - are highly uncertain. It is unknown what fraction of the cost increases would be passed through to ultimate customers. Two extremes can be examined, however. If all the cost increases are passed through, the nominal increment to tax revenue from the fourth component would be a product of (a) the total consumption of oil, (b) the domestic price increase, and (c) the corporate tax rate: (10) If none The inflation federal passed all cost

of the cost increases are passed through, 6RP=0. reduction of real tax revenues associated with induced general (RI), equals the product of the induced inflation and the total tax revenue. The induced inflation is simply the total cost increase through to final output, expressed as a fraction of nominal GNP. If increases are passed through, the increment to R’ would thus bezl dR’=(FR/GNP)D{6P,+dT},

(11)

where FR/GNP is the ratio of total federal revenues to GNP.22 If none of the cost increases are passed through, there would be no impact on inflation and 6R’ would equal 0. The fourth and sixth components, both associated with the passing through of costs into final product prices, can be combined. When none of the costs are passed through, their sum is exactly zero. When all costs are passed through, their combination equals 6RP-6R’=

(r-(FR/GNP))D{GP,+6T).

(12)

It follows from eq. (12) that SRP-6R’ is positive when domestic energy prices rise because the marginal tax rate on corporate profits exceeds the average tax on all economic activity. If these two tax rates were identical, the sum of these terms would be zero, independent of whether costs were passed through to tinal product prices. The effects on federal tax revenues can be assessed by use of eqs. (8), (9), and (12). The small changes in eqs. (9) and (12) must be integrated in order 2’Thls equation assumes that taxes are perfectly Indexed. an assumption well to current US. tax laws “‘For the numerlcal analysis, this ratlo 1s $857 B/$4.487 B, corresponding

correspondmg to 1987 data.

quite

236

.I L. Sweeney. Oil import fees with exemptions

to obtain the impacts of large changes. Eq. (12) will be included in calculating an upper estimate of changes in real federal tax revenues. This equation will be omitted in calculating a lower estimate. These upper and lower estimates of total federal tax revenue changes23 (including tariff revenues) are also plotted in fig. 7. If there were no costs passed through, taxes (other than the tariff) would decrease as the tariff rate increased. For tariffs smaller than $10 per barrel, net federal revenues would increase because the tariff revenue would increase. For larger tariffs, however, increases in the tariff rate would reduce nonexempt imports more than proportionately to the rate increase. Tariff revenues and total federal revenues would be decreasing functions of the tariff rate for further rate increases. If loo:/, of costs were passed through, taxes (other than the tariff) would increase as the tariff rate increased. Increases in the tariff shift federal taxes from individual incomes to corporate profits. Since corporate profits are taxed at a higher rate than individual income, this shift leads to increases in tax revenues. However total federal revenue - tax increases plus tariff revenue - reaches a peak at some tariff rate and declines for greater rates. Fig. 7 shows that peak at a tariff of $11 per barrel. It could be expected that for some products, for example, gasoline, a large fraction of costs would be passed-through to the final product price. For others, for example, petrochemicals competing in an international market, virtually no cost pass-through would be possible since energy costs of international competitors would be decreasing, not increasing. Thus, the average fraction of cost which would be passed through is unknown. The fifth component - the decrease in taxes paid as a result of industry relocation abroad - is even harder to evaluate and has not been included in fig. 7. In general, however, incorporating such relocations would reduce the tax revenues from those indicated in fig. 7, perhaps significantly. In general, tax collection involves welfare losses since taxes distort economic activity. Thus, if the oil import fee were assessed as a mechanism for raising federal tax revenues, its welfare losses should be compared against average welfare losses associated with tax collections of similar magnitudes throughout the U.S. economy. Welfare losses may be as large as 30% of the tax revenue raised.24 Thus the welfare losses of an oil import fee could be compared with 307; of the total of tax revenues raised as a result of the fee. The estimate so obtained provides an approximate range of normal welfare changes associated with taxes of the magnitude as might be raised with an oil import fee. Such a range is plotted in fig. 8 and compared with the 23These curves have been calculated as if natural gas prxes, either imported or domestically produced, are unaffected by the 011 price mcreases. lnclus~on of a prxe increase for natural gas would broaden somewhat the range of estimated federal revenue changes. 14Private commumcation with John Shoven

237

.I.L. Sweeney, Oil import fees with e.-iemptzons

WELFARE CHANGES ($B/YR)

“\\

WELFARE CHANGE FROM IMPORT FEE \

0

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TARIFF f$/BBL) Fig. 8. Welfare

losses vs. normal

losses from tax collection.

welfare changes estimated for an oil import fee. Fig, 8 suggests that an import fee of less than $5~_$7/barrel might lead to quantifiable welfare losses that are less than the normal range of total welfare losses for a taxation instrument. Thus welfare losses would be less than normal for tax instruments, if the various non-quantitied costs of an import fee were insignificant. However, the net gains of the fee, even relative to normal costs of taxation, remain small - less than $2B annually. And these relative gains could be obtained only if the tariff were set optimally, or nearly so, and only $ the various non-quantified costs turn out to be very small. For example, a tariff of $2 per barrel might increase real federal receipts between $3 B and $5B annually. The normal welfare cost of raising such taxes might be between $0.9 B ns $1.5 B. An import fee would lead to welfare gains of S0.2B minus the non-quantified adverse consequences. Fig. 8 also suggests that large import fees would lead to more welfare losses than normally associated with tax instruments, even disregarding the non-quantifiable adverse consequences. For example, a $10 per barrel fee would lead to welfare losses $5 B to $7 B per year greater than normally associated with tax instruments. Hence such large fees would definitely not be desirable from a U.S. perspective. 6. Discussion and conclusions

Central to the analysis is the role of exemptions if an oil import fee were

238

J.L. Sweeney. Oil import fees wfth exemptions

adopted. Would a fee without exemptions be desirable? I think not. While one might imagine an exemption-free fee, the consequences for U.S.-Canada and U.S.-Mexico relations would be severe. Imposition of such a tariff would be tantamount to revocation of the newly ratitied Canada-U.S. free-trade agreement. And as Mexico struggles with a staggering external debt, much of it owed to U.S. institutions, the imposition of a tariff on its major export could jeopardize the eventual repayment of that debt, both by weakening the Mexican economy and by severely chilling relations with the U.S. If a fee with exemptions were imposed, Canada could choose to impose tariffs comparable to those in the U.S. But that possibility would not undercut the conclusions. Such an action would simply allow the Canadian government, rather than private industry, to capture the benefits. But as long as the Canadian tariff would not reduce the quantity of exempted oil moving to the United States, such actions would have no effect on U.S. losses. An agreement whereby Canada and Mexico would return to the U.S. any gains they obtain as a result of the fee would undercut the estimates of the losses. While such an agreement seems unlikely, any funds transferred from Canada or Mexico to the United States should be added as benefits of the fee.25 In addition to the quantifiable economic consequences, an oil import fee would lead to adverse international relations consequences and would further encourage protectionist policies. It would invite government management of the U.S. petroleum industry. It would seriously reduce the competitiveness of U.S. industry and encourage energy intensive industries to leave the U.S. These factors, while not quantified here, also argue forcefully against the adoption of an oil import fee, even one without exemptions. Undoubtedly, such a fee would benefit specific industries, regions, and individuals, but because the nationwide effects of a large fee are negative, this benefit would be at a greater cost to other industries, regions, and individuals. While it is argued here that an oil import fee would be counter-productive for the United States, the basic motivation underlying the fee is not being attacked. The social cost of importing oil does exceed the private cost faced by oil users. This point, so ably made by Broadman and Hogan, has been fundamental to energy-economic analysis [Broadman and Hogan (1987, 1988), Energy Modeling Forum (1982), Hickman, Huntington and Sweeney (1987), Nesbitt and Choi (1988), and Sweeney (1978)]. In addition, the

*%imrlarly, if the U.S. were to mclude as its economic benefit gams accruing to Canada and Mexico, these gams should be added to the calculations, thereby greatly reducmg the stgmlicance of exempttons. Broadman and Hogan seem to go further: ‘given the broad Interests to impose these losses on others may be unacceptable If this is true, of the United States, then current high payments to oil exporters must be viewed as a benefit to the Umted States’ [Broadman and Hogan (1988, p. l3)]. However, one may be unwilhng to violate the spirit of the free-trade agreement and yet not consider payments to others as benelits to the US

J.L.

Sweeney,

Oil import

fees

with

exemptions

239

analysis is specific to oil import fees and is not directly applicable to other energy tax proposals. However, the existence of an ‘import premium’ - a differential between private and social costs - does not imply that a specific policy instrument an import fee - will have net economic benefits for the U.S. as a whole. When a realistic fee which includes reasonable levels of exemptions is assessed, most benefits disappear and the optimal size of the fee becomes very small.“j This conclusion holds even though the analysis assumes large security benefits from oil import reductions - imported oil is assumed to impose security costs of $7 for each barrel imported - and ignores the costs of increased inflation and reduced U.S. industry competitiveness. If the nonquantified impacts were included, a fee would look more unattractive. If the oil import fee were proposed as a mechanism to raise federal revenues, a small fee might appear justifiable on the grounds that other tax instruments impose even greater costs on the U.S. economy. However, it must be remembered that the analysis throughout this paper has been designed to overestimate the benefits of the fee and underestimate its costs. In addition, many non-quantifiable disadvantages of an oil import fee have been discussed but not systematically incorporated into the analysis. I believe the costs of these non-quantifiable disadvantages would not be small. Hence, even if the oil import fee were considered as a mechanism to raise taxes, it would seem to not be a wise public policy choice. 2”Dtfftculties of exempttons are recognized by Broadman and Hogan: ‘A large number of exemptions and exceptions or a very small tartfl would result in little gam for the economy as a whole’ [Broadman and Hogan (1988, p. 13)J. However, contrary to their vtew, limiting ‘the exemptions to inframarginal oil imports’ [Broadman and Hoga (1988, p. 13)] wtll not eliminate the problem Financial losses to mframarginal imports are no different than Financial losses to marginal Imports.

References Broadman, Harry G. and Wdliam W Hogan, 1987, Oil tariff policy m an uncertain market, Discussion Paper Series E-86-11 (Energy and Environmental Policy Center, John F. Kennedy School of Government, Harvard University. Cambrtdge, MA). Broadman. Harry G. and Wilham W. Hogan, 1988, The numbers-say yes, in: Special feature: Is an oil tariff justified? An American debate, The Enerav Journal 9. no. 3. Energy Modeling Forum, 1982, World oil (Stanford UnGerstty, Stanford. CA). Htckman, Bert G.. Hillard Huntington and James L. Sweeney, eds., 1987, Macroeconomic Impacts of energy shocks (North-Holland, Amsterdam). Nesbitt. Dale M. and Thomas Y. Chat, 1988, The numbers say no, m: Special feature: Is an oil tariff justified? An American debate, The Energy Journal 9, no. 3. Sweeney. James L., 1978. Energy and economic growth, a conceptual framework, Symposium Papers: Energy modelmg and net energy analysis (Instttute of Gas Technology, Chicago, IL). Also in: B Kursunoglu and A. Permutter, eds.. Directions in energy policy: A comprehensive approach to energy resource decision-making, 1979, Fall, 115-140. Tussing. Arlon R. and Samuel A. Van Vactor, 1988, The reality says no, m: Special feature: Is an oil tariffJusttIied? An American debate, The Energy Journal 9, no. 3. U S. Department of Energy, 1987. Energy security (USDoE. Washington, DC).