By Larry Marsh, Kansas City Star Midwest Voices columnist

The volatility of crude oil prices will undermine Barack Obama’s big effort to promote green jobs. The energy policies of past administrations failed because they failed to address this volatility.

Cheap oil makes alternative energy relatively expensive.

It takes only a few months of defaults on interest payments before lawyers for creditors force alternative energy companies into bankruptcy.

In the sell-off of assets, billions of dollars of alternative energy investments go right down the drain.

For example, after investing a billion dollars in alternative energy, VeraSun Energy recently had to declare bankruptcy because of cyclically low oil prices.

Standard Oil, under John D. Rockefeller, would occasionally set prices below cost to drive out competitors. The Soviet Union collapsed when oil prices dropped dramatically in the early 1990s.

To ensure the viability of alternative energy, the price of crude oil must be kept high enough to give reasonable alternative energy projects a chance.

However, we want the price obtained by anti-American countries and terrorists to be as low as possible.

The answer to this dilemma: Impose a variable tariff on imported crude that would bring it up to a target price. All revenues from the tariff would be given to American families in a monthly “energy allowance.”

Here is how it would work:

Say the world price for oil is $60 a barrel, and the U.S. had set a target price at $70. This results in a tariff of $10 on each barrel of imported oil.

The tariff depresses demand. Since the United States is the top oil user in the world, this may drive the world price down to $50 a barrel. The tariff would then rise to $20 a barrel to keep the target price at $70.

The system would work even better if we set the target price at a higher level, such as $80.

Demand would fall further, forcing world oil prices down to $40 a barrel. The tariff would then automatically rise to $40, keeping the domestic price up to the $80 target.

American refineries would pay $80 a barrel but foreign oil companies such as those in Saudi Arabia, Iran, Venezuela and Russia would get only $40.

The higher the domestic price target, the larger the monthly energy allowance going to American families would be.

The variable tariff stabilizes oil prices by dampening both upward and downward price changes.

Will this violate World Trade Organization rules? Possibly.

If so, this would give the petro-dictators the right to retaliate by imposing tariffs on their imports.

Since these oil-exporting countries produce little else, however, they are unlikely to impose import restrictions. They import an insignificant portion of our total exports in any case.

Their more likely response would be another OPEC attempt at production cuts.

Let’s give alternative energy a chance to succeed. If we drop the 54-cent-a-gallon tariff on imported ethanol and pass a flex-fuel mandate, prices at the pump would drop quickly as more ethanol is used.

A $40 coupon towards a flex-fuel conversion kit for used cars would also help. The new sugar-corn ethanol will help, too.

During a recession, which causes oil prices to fall, we need to keep them up to protect alternative energy.

If our lawmakers fail to protect green jobs during occasional market dips, they will condemn America to perpetual foreign oil addiction.

Why wait and watch more alternative energy companies go bankrupt? Congress won’t act until you tell it how we can break out of this foreign oil addiction trap.

Larry Marsh is professor emeritus (retired) at the University of Notre Dame, where he taught economics for 30 years. He served with the U.S. Army in Vietnam. He lives in Kansas City. To reach Midwest Voices columnists, write to the author c/o the Editorial Page, The Kansas City Star, 1729 Grand Blvd., Kansas City, MO 64108, or send e-mail to

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