The Potomac - Mike Z on The Oil Morass
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December 2006
Wading The Oil Morass

Mike Zasadil Talks About Principles and Realities

In May of 2001 White House Press Secretary Ari Fleischer was asked if Americans needed to change their lifestyle in order to reduce our world record per capita energy consumption. Mr. Fleisher replied, "That's a big no. The President believes that it's an American way of life, and that it should be the goal of policy makers to protect the American way of life."

This January President Bush warned us that America is addicted to oil. There was much rejoicing from those who had long been concerned of the consequences of our ravenous appetite for oil. Naturally, and incorrectly, they assumed that the President's "Addicted to oil" trumped Ari Fleisher's "American way of life." Unfortunately, to date, the most dramatic result of Mr. Bush's speech occurred when the White House discovered that the National Renewable Energy Laboratory (NREL), a stop on the President's Addicted to Oil road show, had just laid off 32 researchers and staff. Within a couple of days the Department of Energy was able to find money to unfire these folks. President Bush described these "interesting mixed signals" as a funding mistake. Just in case that explanation satisfies anyone, consider the seriousness of our addiction to oil.

In 1970 US oil production peaked at 9.6 million barrels per day (bpd). Today we produce 5.1 million bpd. Over the last three decades US oil reserves have decreased by a third from 32 to 21 billion barrels. Oil shocks and the resulting price increases led to temporary reductions in US oil consumption during the mid 70's early 80's, but as prices moderated consumption increased. As a result, we currently import twice as much oil as we did in 1973 (12 million bpd vs. 6 million bpd) which makes us more and more dependent on oil from nations which are unstable, unfriendly or both. Coincidentally, the recent increase in worldwide demand for oil has virtually eliminated spare production capacity. The US Energy Information agency estimated worldwide supply at 84.339 million bpd and demand at 83.970 million bpd for 2005.

Winston Churchill once said, "You can always count on Americans to do the right thing after they have tried every thing else." As someone who stood in the gas lines of 1973, I have to say that it is embarrassing, never mind dangerous, that three decades later Winston is still waiting.
This tight balance between supply and demand is giving oil producing nations growing leverage over the United States. Yes, we import more oil from Canada and Mexico than from the Persian Gulf, but we are still vulnerable to the worldwide price spikes which will result from even a modest production cutback resulting from intentional blackmail, political upheaval or natural disaster which occurs anywhere in the oil producing world.

Even without a dramatic disruption in supply, the cost of imported oil adds a quarter trillion dollars to our annual balance of trade deficit. Financing this deficit requires us to sell a corresponding amount of stocks, bonds or other US assets to foreign investors. It is not overly dramatic to point out that while one group of Americans is overseas risking their lives for this country, the rest of us are selling it off piece by piece to finance our oil habit.

Winston Churchill once said, "You can always count on Americans to do the right thing after they have tried every thing else." As someone who stood in the gas lines of 1973, I have to say that it is embarrassing, never mind dangerous, that three decades later Winston is still waiting. The "home of the free and the land of the brave" is looking more and more like the doe in the headlights.

"Doing the right thing" is not complicated. Our oil addiction is a simple problem: we use too much oil. The solution is just as simple: we need to use less. It is just that simple. Some suggest that we also need to increase domestic production. The United States consumes 25% of the world's oil production and we have 2% of the reserves. Talk of solving this problem by increasing domestic production is dishonest and/or delusional. Worse yet, it is counter productive, because it distracts us from the real solution. We need to reduce our oil consumption not deplete our oil reserves even faster.

There is no doubt that we can reduce oil consumption. It's been done before. In the mid-seventies, US consumption declined by a million bpd in just two years. In the early eighties it declined by three million bpd over a period of four years. Both times the motivation was price. If we are serious about kicking the oil habit, we need to increase the price of oil and that means an oil tax.

In Washington, you will be hard pressed to find a less popular point of view. Everyone there has their own idea about how to solve the problem but they all seem to agree that this is a problem the government should solve. Considering how infrequently we have seen consensus on anything lately, this is truly remarkable meeting of the minds especially for conservatives. There was a time when conservative principles held that government's role was not to solve every problem but to provide an environment in which these problems would be addressed by the private sector. In this case, I suspect all sides have decided to observe the only true principle left in US politics: the American people (except for members of the military and their families) shall not be called upon to make any sacrifice for the common good. This is why you had to come to The Potomac to find an affirmation of traditional conservative skepticism of government solutions.

Let's focus our skeptical minds on some of the inherent problems with government conceived, funded and managed programs.

First, politically conceived solutions can focus on symbolic or fashionable approaches regardless of their promise. Photovoltaic solar energy and hydrogen cars are a good example.

Solar energy is an icon of the environmental movement. Solar cells create emission free electricity from sunlight, but does that justify the generous subsidies the federal government and many states provide to homeowners who install them? Not if you consider that a $1,000 solar system generates the same amount of energy you will save by replacing the porch light with a four dollar compact fluorescent bulb. Solar panels are sexier than bulbs so we have the peculiar sight of liberal legislators voting to give thousands of dollars in subsidies to wealthy homeowners when it would be far more effective to hand out compact fluorescent bulbs to less wealthy renters.

The Hydrogen Economy hype is even worse. Even if we had commercially feasible fuel cells and an infrastructure to distribute the hydrogen, where does the hydrogen come from? Currently, hydrogen is usually striped from fossil fuels. Through electrolysis hydrogen and oxygen in water can be separated out, but a tremendous amount of electrical energy which comes from fossil fuel or nuclear power.

The existence of these ulterior motives makes the political process completely unsuited to weed out unsuccessful programs. Every government subsidy or program is successful in the eyes of those who benefit from it directly.
Besides this tendency to mindlessly focus on bright, shiny or popular programs, politicians sometimes have very deliberate ulterior motives. For example, judging by their voting record on ethanol subsidies, farm state congressional delegations have long been aware that our nation is in desperate need of alternatives to oil. Or, could it be that they like the idea of subsidies going to their constituents? I don't have an answer, but you could probably make a pretty good guess if you ask them how they feel about reducing the tariff on Brazilian ethanol.

The existence of these ulterior motives makes the political process completely unsuited to weed out unsuccessful programs. Every government subsidy or program is successful in the eyes of those who benefit from it directly. The private sector has to do a better job of deciding when it is time to cut their losses on unsuccessful programs because individuals in the private sector are spending their own money to develop these products and they know that the only prospect for a return on their investment is to submit their product to a market which is brutally indifferent to anything but results.

A final reason to be skeptical of government programs is that they are inherently de-motivating. If the government is taking care of a problem, then I don't have to.

This is especially important in the case of our oil addiction which results from countless decisions large and small made every day by every American. It would be nice to think that the federal government is going to take care of this for us by providing the funding to have the best minds in the country develop the most promising technologies, but sitting around waiting for government crafted silver bullets is a charade not a solution.

Time is not on our side. The federal government has neither the resources nor the imagination to address this problem with the required urgency. It is not enough to have the best minds in the country looking for solutions we need everyone. In addition to high profile, high tech solutions we need each of us looking for ways to save energy. Until individual consumers and industry are making energy efficient choices and pursuing alternative energy sources for their own economic advantage we are not serious about solving our oil addiction.

Since our political leaders don't have the courage to tell us that the world we live in is not constant or painless, leadership will have to come from the ground up. No matter how much we all loved cheap oil; we have to let it go. We need to make it clear to our leaders that increasing dependence on a limited resource which we do not control is an unacceptable risk. We owe it to ourselves, our children and to poor ol' Winston to do the right thing.

He expected so little. It would be a shame to disappoint him.

 


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