Posted by: dstieglitz | May 1, 2011

WE’VE BEEN HERE BEFORE

Deja Vu:  Middle Eastern turmoil, $100-a-barrel oil, skyrocketing gas prices – we’ve been here before. Every president from Nixon to Obama has said the U.S. should be energy independent.  But after lots of rhetoric little was done, and they hit the snooze button when gas prices dropped. Unfortunately, this doesn’t look like a brief excursion in gas prices. Rising oil usage in emerging countries and expanding revolutions in the Middle East make this situation more ominous. 

History Lessons.  In 1973, President Nixon launched Project Independence to “summon the spirit of the Apollo space mission” and become oil self-sufficient by 1980.  In 1977, President Carter said our dependence on foreign oil was “the moral equivalent of war.” He proposed conservation standards and higher gas taxes, and set a goal to cut oil imports by one-third by 1985. The U.S. passed that goal in 1982 when Alaskan oil fields started producing. But when prices fell, conservation was forgotten and imports climbed. In 2006, President Bush again asked Americans to “end our oil addiction.” His plea also was ignored, and in 2008 oil hit $147 a barrel and gas passed $4 a gallon. However, even those prices were forgotten when the recession depressed gas prices.  Earlier this year oil again exceeded $100-a-barrel and President Obama started his “Win the Future” vision for a green, oil-independent economy. Will things be different this time? 

Imports Grow. According to the U.S. Energy Information Agency, the U.S. used 17 million barrels of oil a day in 1973: 11 million domestic and 6 million imported. By 2010, U.S. consumption only increased to 18 million barrels a day, but domestic production fell to 8 million barrels and daily imports grew to 10 million barrels. Two changes slowed the usage growth: (1) airlines reduced their jet-fuel consumption with efficient planes and better practices; and (2) energy-intensive manufacturing moved offshore. Today, 70% of the oil consumed in the U.S. is used in cars and trucks, so higher mileage standards helped too. Gas prices are likely to continue rising because the world is consuming more oil. In 1973 when Nixon was president, the world used 57 million barrels of oil a day. Today, it uses 86 million barrels a day and consumption is projected to be 97 million barrels a day in 2015. 

Instability in Middle East.  Importing oil isn’t just an economic concern, it’s a national security issue. First, it forces the U.S. to befriend countries that don’t share our values and, in some cases, support terrorism.  Second, the U.S. military spends billions every year to protect vulnerable shipping lanes and foreign oil facilities.  Would the U.S. be fighting in Iraq and Libya if they didn’t have oil? Revolutions in the Middle East have pushed oil prices to the highest level since 2008. New governments in Egypt and possibly Libya are likely to extract stiff terms from oil companies. Even relatively stable countries like Saudi Arabia need high oil prices to balance their budgets and finance the demands of their youthful populations. Bottom line: with turmoil spreading in the Middle East, oil prices are likely to hit new records before 2011 is over. 

Drill, Baby, Drill is a partial answer. Admittedly, new drilling permits won’t produce oil for years. Even after the site exploration is completed, deepwater wells in the Gulf of Mexico take months to drill and cost up to $200 million each. But if we’d started drilling in 1973 under President Nixon, 1977 under President Carter, or even 2006 under President Bush, the U.S. wouldn’t be importing oil today! Deepwater wells in the Gulf now produce 1.2 million barrels-a-day, the #2 source of oil after Alaska’s Prudhoe Bay. With oil prices over $100 a barrel, oil companies can afford to extract more oil from old fields with new techniques, drill more wells in the Gulf, and develop new fields like the Arctic National Wildlife Refuge.  Hopefully, this time around triple-digit oil prices will mitigate the stop everything environmental protection policies that put the U.S. in this unfortunate situation. 

The Oil Spill.  Last year’s oil spill in the Gulf reminds me of the reactor meltdown at Three Mile Island: no one was hurt and there was no lasting environmental damage, but the accident derailed our nuclear power industry for over 30 years. I don’t minimize events in the Gulf: the spill was an ecological and economic disaster. But let’s not react like we did to Three Mile Island. Instead, as drilling expands we must: (1) acknowledge the risks, (2) compel oil companies to implement safeguards like computer-controlled surveillance and double-walles ppes, and (3) monitor their performance. BP and other oil companies spent considerable time and money ($40 billion is a lot even for BP!) cleaning up the mess, and it’s in their self-intrests to prevent a repeat performance. 

Forced to Go Green.  Expanding domestic oil production is a stop-gap measure. Eventually, the U.S. must eliminate the use of oil for transportation and fossil fuels for electricity. There’s one favorable aspect of high gas prices: they force us to reduce consumption and seriously consider technologies like wind/solar power, nuclear power, electric cars, advanced batteries, and high-speed trains. Americans probably will buy more small cars when they face sustained $6-a-gallon gas prices like most Europeans do. It’s true that high oil prices don’t stimulate wind and solar energy because oil is rarely used to produce electricity in the U.S. However, if we substitute electricity for gas, all of a sudden alternative energy becomes very important to our pocketbooks! 

An Electric-Car Economy.  There is a silver bullet that could end our need for imported oil, bolster our stagnant economy, and reduce carbon emissions: electric cars and trucks. Today, almost all cars and trucks are fueled by oil, whereas electricity is produced with domestic fuels. With all electric cars, no oil producer could hold the U.S. hostage the way OPEC and third world countries can by threatening to disrupt the flow of oil. Further, an electric-car economy would release billions of dollars for consumers and businesses to spend on things besides gasoline. The technology for electric cars exists. The question is: Who will lead international production? Asian and European carmakers are moving ahead swiftly, while U.S. carmakers dabble with electric cars and wait for consumer demand to increase. The advantages of an electric-car economy are enormous: no oil imports, better  air quality, savings for consumers, and more government revenue. It’s even possible for the U.S. to become a net oil exporter and use the additional revenue to balance the federal budget and erase the national debt. 

    How to Get There. Building the infrastructure to support electric cars is easier than most people think. One reason why gas-powered cars are ubiquitous is there are over 100,000 gas stations in the U.S.  To be a viable replacement, electric cars need the same infrastructure. But we don’t need to start from scratch because distributing electricity is simpler and less dangerous than distributing gasoline. Electricity is available everywhere – gas stations already use electricity to run pumps, light lights, and advertise. A simple regulation requiring gas stations to install standardized electric car battery chargers would quickly make electric cars as convenient as gas-powered cars. That would allow drivers to go where they’ve always gone to refuel their cars and save most of the money they currently spend on gasoline. 

    National Energy Strategy. To build the electric-car economy, Congress must pass a bold national energy strategy with specific goals, policies, incentives, and taxes. You’re probably thinking: “Not much chance of that!” But it’s a natural part of the compromises required to reduce the national debt. For over 40 years Congress has spoken vehemently about the evils of foreign oil, but done nothing. It’s time to change that with a multi-faceted strategy that stimulates the economy, reduces deficit spending, and eliminates oil imports! Such an energy strategy would include:

(1) Regulations that expand safe domestic oil production,

(2) Annual increases in mileage standards for gas-powered cars,

(3) Annual increases in federal gasoline taxes,

(4) Incentives for consumers and businesses to buy electric cars,

(5) Regulations that build the infrastructure for electric cars, 

(6) Clean energy standards that put a cost on carbon emissions,

(7) Increases in federally-funded energy research,

(8) National goals for generating electricity from carbonless sources.

These policies would raise the price of fossil fuels; stimulate investments in solar, wind and nuclear energy; encourage consumers to buy electric cars; and slow global warming. Unfortunately, one or more special interest groups will vigorously oppose each of these provisions. 

    Conclusion.  I’m concerned that it costs $70 for a tank of gas, upset that we send hundreds of billions of dollars every year to countries that harbor terrorists, and angry that we spend trillions more to overthrow their governments like we did in Iraq and are doing in Libya. If Congress fails again to enact an energy strategy, the U.S. risks losing the clean energy race to Germany and China, thereby forfeiting a leadership position in future industries in a futile attempt to preserve 20th century jobs. The same could have been said in 1973, 1977, 1986 or 2006. If we had started then, we wouldn’t have this problem today. I hope we change this time so my youngest grandson doesn’t have to pay $20 a gallon when he starts driving in 2020.

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