South-Western College Publishing - Economics  
President Bush Becomes an Environmentalist in his State of the Union, Sort Of.
Topic Environment and the Economy
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Reference ID: A158193627

News Story The President's State of the Union Address in January 2007 indicated that he is in favor of alternative fuels and preserving the environment. But the goals he suggests may not be as attainable as we think.

The President has proposed to increase the size of the Strategic Petroleum Reserve, increasing the amount of stored oil in case of emergency. He also is requiring a mandatory increase in fuel efficiency standards beginning in 2010. Finally, he is requiring that all makers of fuel also produce 35 billion gallons of alternative fuel each year by2017. Such a move would reduce gasoline consumption by about 15% in 2017. the current mandate is 7.5 billion gallons of alternative fuels by 2012, and about 6 billion gallons are expected to be produced this year.

Pie in the sky? Maybe. But it reflects a broader perception that consumption of oil is not sustainable, and that consumption of alternative fuels is more energy efficient. And there are problems. Requiring production of 35 billion gallons of fuel annually by 2017 will require a significant investment in alternative energy before then, as that amount is not available at anything resembling competitive prices.

But as environmental activists suggest, such a move toward renewable energy would be reduce fossil fuel emissions equivalent to taking about 14 million cars each day off the road. And it's a step forward in recognizing the value of alternative energy, and the level of investment necessary to make such fuel more cost competitive.

Discussion Questions:
1. Is the current consumption of fossil fuels efficient? Why or why not? Draw a graph to support your answer.
2. Given that the production of alternative energy is not competitive, what will it take to meet the President's goal by 2017?
3. Suppose instead of the emphasis on alternative energy, a tax on gasoline consumption were imposed. Would that have the same impact as the suggestions by the President?
Multiple Choice/True False Questions:
1. What do you think will happen to the price of oil as the Strategic Petroleum Reserve is increased over time?

  1. Price should increase
  2. Price should decrease
  3. Price should remain the same
  4. Price should become more elastic.
2. The need to reduce fossil fuel consumption recognizes the need to combat the presence of a(n)
  1. External cost
  2. External benefit
  3. Opportunity cost
  4. Explicit cost
3. Fossil fuel consumption is considered too high for soicety's standards because
  1. Private costs of consumption are higher than social costs of consumption
  2. Private costs of consumption are lower than social costs of consumption
  3. Private benefits of consumption are higher than social benefits of consumption
  4. Private benefits of consumption are lower than social benefits of consumption.
Source Andrews, Edmund L and Felicity Barringer. "Bush Seeks Vast, Mandatory Increases in Alternative Fuels and Greater Vehicle Efficiency. The New York Times. January 24, 2007.
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