Affecting the Economy: The Oil and Gas Industries - Essay Example

The key point is from the externalities. Oil or gasoline prices paid by consumers do not reflect the full economic cost to society. The true cost is hidden by the myriad direct and indirect public subsidies (UCS report, 1995). The oil price increase will give a negative effect on the third party in the oil importer country and would have no effect or positive effect in the long term for the third party in the oil export country. The oil or gas price's increase as basic materials' increase will increase the buyer's cost definitely, and then in the next consumption chain, the third party's cost must increase.

Meanwhile, the income decrease from the buyer will decrease its payouts, such as employee's salary, expenditure, and income tax. However, in the oil export country, it's the good news of oil price increase. If the country is a government economic administration model, it only increases the profit in its industry and government tax. In the capital economic environment, the higher profit must absorb the capital inflow from other industries. Eventually, the GDP of the country will increase, which means the scale of the whole social economy will increase, but this effect shows up in the long-term.

The main rivals of oil or gas are electricity, nuclear, and even some solar, water, or wind power sources. There is a kind of effect of substitution. Nuclear is the most powerful energy, but it has some disadvantages from the higher danger for the environment and human beings. Some scientists are studying to design the car with a battery from electricity or solar as engine power, but some are still in the R&D stage or some are with higher using cost, which can't be accepted by the market.

The solar, water, or wind power sources exit the unstable fault. Therefore, the oil or gas is still the main economical material all over the world. However, in the long term, the compatible sources will be improved by high technology's development. "The future of oil and gas industry: past approaches, new challenges", P1, Harry J. Longwell, 2002, http://www.worldenergysource.com/articles/pdf/longwell_WE_v5n3.pdf "Money Down the Pipeline: The Hidden Subsidies to the Oil Industry", 1995, UCS report, http://www.ucsusa.org/clean_vehicles/fuel_economy/subsidizing-big-oil.

html "Money Down the Pipeline: The Hidden Subsidies to the Oil Industry", 1995, UCS report This article discusses that gasoline prices paid by consumers do not reflect the full economic cost to society. The true cost is hidden by myriad direct and indirect public subsidies, which include: reduced corporate income taxes for the oil industry lower than average sales taxes on gasoline, government funding of programs that primarily benefit the oil industry and motorists, "hidden" environmental costs caused by motor vehicles, namely air, water, and noise pollution.

This hidden system of oil subsidies has created an energy policy by default -- a policy that is actually the reverse of stated national priorities. The purpose is to allow the public and policymakers to make informed decisions on policies that affect the ability of the United States to meet energy and environmental goals by providing up-to-date cost estimates of these hidden subsidies in tax benefits, Net Government Expenditures, and Environmental Costs.