One of the things we’ve seen with ethanol, I’d say, is that most folks aren’t eager to jump into the game without some guarantee of government backing in the form of subsidies or other incentives. I wonder then what chance the markets have of being allowed to blunder along unguided. Where’s konark_girl? Lord knows I’m no economist.
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I think the most obvious guarantee that most of the other investors want is a guard against a temporary drop in oil prices which makes everyone think that era of "cheap oil" is back, and for 6-12 months almost noone buys these alternate fuels. The era of cheap oil is likely gone, but there could be a temporary spike in supply (a few months of peace in Iraq so their oil fields start producing -- before some sectarian grievance bubbles over again). Your avg consumer has a short memory, and a temporary blip when we get $2.50 a gallon might be enough to bankrupt some of those who invest in alternate technologies.
The govt could provide subsidies etc etc, but my personal preference would be if the govt just put a 'price floor' for gasoline, basically saying that it'll be kept at -- say $3 a gallon -- at the pump. So for e.g. there'd be some kind of a tax that would kick in only if prices did go below, and that tax would keep the price folks paid at $3.
It kind of gives the investors in alternate technologies something to shoot for -- tells them that any fuel that can be produced at less than $3 a gallon is a 'good bet'. After that, one can hopefully count on competition between them and eventually even more tech breakthroughs that drive price of those alternate fuels even lower over time....