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Energy

Traffic on 395 near 9th St in Washington DC January 7 

Energy independence is neither possible nor desirable.    Well … it is possible for the U.S. to become energy independent.   We could do it in short order if we were willing to pay the price in terms of money and environmental degradation.    The U.S. has the world’s largest reserves of coal.  We have the technology to extract natural gas from oil shale in our western states.   Of course, we could burn wood to heat our homes.  

Of course, this is not the first time I wrote about this subject.  Follow this link for some of the older stuff.

The best energy policy is “all of the above.”   We should have a diversity of sources and a wide choice of options.   We lean too heavily on oil and especially imported oil.  But if we are to address this problem, it is probably a good idea to figure out how we got here.

Why do we import oil and other sources of energy?  Because it is cheaper and easier than the alternatives.   It is that simple.  It is not the result of mistakes or stupidity.   Importing cheap oil instead of using dirtier or harder to use domestic energy makes perfect sense.   Except that oil is not really as cheap as it seems.

Economists talk about external costs and benefits.    When I plant trees, I personally get only a part of the benefits.   The cleaner air & water as well as the wildlife & aesthetic benefits are provided free to others.    When I burn a gallon of gas, I personally pay only part of the cost. The air pollution & CO2 are part of the cost I impose on others. But oil has other costs. 

It seems like something of a divine joke that so much of the world’s easily accessed oil lies near or under unstable countries run by despots or other nasties that are not particularly attached to the values we hold dear.   It is just not smart to be too dependent on these sorts.  Oil to despots is like steroids to petty thugs.   It makes them bigger.    What kind of threat would Saddam have been w/o oil?  He would have been a pissant dictator like Robert Mugabe – a very bad man, but just a local menace.    W/o the wealth poured in by oil, most of today’s terrorists would be neighborhood bandits.    W/o oil, Hugo would be a second class stand-up comic. 

Anyway, a gallon of gas would cost a lot more if it included more of the expenses associated with its provision & protection, the costs of encouraging despots and terrorists as well as the pollution and CO2 it produces.  I will say again, that while I am not a big believer in raising taxes, I believe in taxing gas, or more precisely carbon.   This has many good knock off effects.

As I mentioned above, we burn gas for good & logical reasons.  It is cheaper and easier than the alternatives.   You cannot convince most people to use less gas or switch to alternatives because using gas makes sense.    Many alternative fuel enthusiasts seem not to understand this and persist in thinking that they just need to explain things to the ignorant fossil fuel users.   Maybe just a few more public service adverts will do the trick – not.  

If you want to change the fuel mix, you have to change the incentives.   Nothing works faster than price, as we saw in 2006, when gasoline consumption declined and U.S. CO2 emissions overall actually dropped.   This is the first time this ever happened in a time of robust economic growth.   Higher oil prices are an automatic stimulus to alternatives.  Alternatives that are money losers when oil is $40, suddenly look really good when oil reaches $80.  We are now seeing the reverse begin to set in as the price of gas plummets.  Already drivers are putting on more miles and looking at those bigger cars and SUVs.   

We have a another big chance to make a dent in the oil addiction, make our air cleaner, encourage alternatives and screw some international bad guys.   If we blow it, this will be the third time.   In the middle 1980s, the price of oil dropped and wiped out lots of alternative investments.    In 1998, oil was at an all time low in dollars adjusted for inflation.   Instead of taking advantage, we bought the big SUVs.  A year ago, experts told us that we would never again see cheap oil.  They were wrong.  Let’s make sure not to fall into that cheap oil trap again. 

We really cannot have cheap oil in the long run.   The only real question is whether we pay it in American taxes and stabilize prices to some extent or pay to oil producers and tolerate wild swings that preclude the development of viable alternatives and enrich and corrupt people who don't like us.  Let’s not make Hugo, Vlad and Mahmoud any happier than necessary.   Opportunities don’t last forever.  This one won’t last very long. 


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