Not Serious About Energy Independence

WASHINGTON – “The Stone Age did not end for lack of stone, and the Oil Age will end long before the world runs out of oil”. Thus The Economist (“The End of the Oil Age”, October 23, 2003) quoted Sheikh Zaki Yamani, the Saudi Arabian who served as his country’s oil minister three decades ago. The idea was that new cost effective forms of energy would come about sooner rather than later that would make oil obsolete. Indeed. And he said this in 2003, that is well before the staggering ascent of the price of crude.

While valid in principle, this consideration/forecast about the phasing out of oil due to probable technological innovation is still a distant dream. Notwithstanding the immense added economic burden for all consumers due to the fantastic price increases of the last few years, and notwithstanding the new political uncertainties and increased risks in a new era characterized by increased demand not met by new supply, we (America and the West) have yet to show seriousness about rendering oil obsolete.

We do reasonably well with clever propaganda. BP, British Petroleum, in the last few years tried to become a hip brand with the catchy “Beyond Petroleum” advertising campaign, and its new, decidedly green, logo (a mixture of a flower and a sun); trying to give the impression that an oil multinational is in fact deeply involved in getting us as reasonably fast as possible (“It’s a start”) to a new, sustainable, environmentally conscious era of renewable sources of energy that will indeed take us all “beyond petroleum”.

Well, as we know, “Beyond Petroleum” slogans and clever ads (“What is your carbon footprint”?) notwithstanding, BP got enmeshed in run of the mill, old fashioned oil company problems, from fires in refineries in Texas to pipeline corrosion issues in Alaska that raised doubts about supervision, competence and questionable cost cutting practices. Nothing hip nor particularly green about any of this.

While there may very well be a genuine desire (that is, beyond cheap public relations) to get to another, non carbon based future, the reality is that BP is still fundamentally an oil and gas company –just like Shell, Eni, Chevron, Total, Repsol, Exxon and all the others. The reality is that oil, gas (and coal for power generation), for the time being, are the primary sources of energy.

It will require an enormous effort –of which we have no sign, as yet– to go “beyond petroleum” and it will be much harder to get there without a determined, serious and sustained public policy framework –the USA clearly in the lead– that will provide the necessary guidance to all market players that the time has indeed come to unleash a new “post petroleum” era, a strategic shift that goes way beyond BP’s slogan. Time is not on our side. Incremental progress, even if genuine and sustained, is just not enough, as it will require too much time.

Of course, right now the principal argument for change in energy policies is global warming with all the well publicized attendant disaster scenarios. But despite the solemn declarations, truly decisive action, even on the part of the climate change converts, is not apparent.

Be that as it may, even absent any environmental doom about which the US as a society is less convinced than others, America should drastically change course, because reliance on an ever more expensive, –and ever more scarce– resource for which there is increasing international competition creates strategic vulnerabilities and opportunities for conflict that are simply too great to be wished away, hoping that nothing will happen.

As far as the United States are concerned, the largest economy and the most important military power has to regain the autonomy and flexibility that energy self-reliance can provide. (Of course, what is true for the US is also true, in varying degrees, for the rest of the western world).

But, whatever the others may be doing, it is imperative for the United States to declare and seriously embrace —now— a post petroleum strategy that will make oil as unimportant as the stones left behind at the end of the stone age. Needless to say, should this really happen, the realization that America –the recognized innovation leader and at the same time the largest consumer of hydrocarbon products– has turned a page on energy would send a signal to the rest of the world.

Hints that the signal was coming came via the “America addicted to oil” segment within the January 31, 2006 State of the Union speech to Congress by President George Bush. But the “Advanced Energy Initiative” announced with gravitas by the President in that occasion turned out to be a rather modest increase in federal money for energy research. Hardly revolutionary, and hardly the policy shift that would signal to the country that a momentous strategic transformation is about to take place. Basically, this was business as usual –with a small twist.

Much more recently, another opportunity came and went with the Energy Bill that the Congress (after laborious gestation) just passed and the president signed into law on December 19, 2007. Sure, there is something there: a kick to the auto industry so that it will improve the fuel efficiency of the cars that it makes. And then mandates that will require an increase of renewable fuels for transportation and power generation.

But, while significant, these new policy directives do not signal the unmistakable determination to radically transform the energy equation in the shortest possible time. We can comment piously that “a step in the right direction” has been taken. Yet this is not what it takes to achieve the objectives included in the bombastic title –“Energy Independence and Security Act”– of this new legislation. Given the predicament we are in, this is little; so little to be insufficient.

Indirectly, this bill reflects a basic political fear: who dares telling the public that we really are in a dangerous and unsustainable situation which exposes the country to a fantastic strategic vulnerability, as we import more than 65 per cent of what we consume, while the cost of importing this energy (309 billion in 2006) represents an ever growing, huge item in our trade deficit?

The protectionist populists tell us every day that the deficit with China (232 Billion in 2006) is at the root of our horrific trade imbalances and is to be viewed as a strategic threat. Yet, strangely enough, the huge and growing cost of importing most of the energy we use –arguably a much more significant strategic threat– is almost never mentioned.

Sure, everybody knows (and complains about) the price of gas at the pump. But few understand that the money they pay does not end up in the pockets of Exxon and the other greedy multinational oil companies. It goes mostly overseas, to the producing countries which own the oil fields. And this financial hemorraging is not going to recede, given the steady price increases.

If we were serious about calculating the aggregate cost of oil imports, we would add the indirect cost to our economy of this substantial capital outflow. This is money that could otherwise be invested in productive, employment creating activities. (Sure, some of this oil money is ploughed back into the US via purchases of US products and services by the oil producing countries. But this is only a percentage of the total. Hardly an even trade). Thus, even on  purely economic terms, there should be a solid argument for an aggressive pursuit of alternatives to oil. 

But, beyond the economic cost, we have a huge strategic vulnerability. Simply stated: we have no way to make up for loss of supplies, should they be interrupted or significantly curtailed for more than just a few months (this is the extent of our strategic petroleum reserve) due to political upheavals beyond our control.

It is high time to end the dissonance between often proclaimed fantastic objectives of “energy independence” and very little by way of new resources and new policies aimed at getting us there. If we indeed agree that it is imperative to usher America into a post petroleum era, (otherwise what is the meaning of “Energy Independence” stated as a goal in the new law?), then we need to act convincingly. Of course, this is a gigantic undertaking that would require immense investments over a long period of time and the retooling and reengineering of vast portions of our economy.

If energy were just another economic sector, then it would be wise to let the market devise new cost effective solutions. But energy, unfortunately, due to well known geopolitical factors, is in a category of it own. Waiting for market solutions (even with the added prodding of recent legislation) entails exposure to immense risks for decades to come.

But these risks, while generically acknowledged, are never discussed in detail. It is high time for the political leadership of the United States and for all aspiring presidents in this unfolding campaign for the White House to level with the public and tell America that we should aim at eliminating our strategic vulnerability as soon as possible, being fully prepared to bear the cost and inconvenience that getting from here to there will entail.

But unfortunately it seems that the political leaders’ courage is confined to defining lofty objectives in the headings of legislation (“Energy Independence and Security Act”). It does not extend to the deeds necessary to secure them.

How To Attack Urban Traffic Congestion

By Paolo von Schirach

August 23, 2007

WASHINGTON – Mayor Michael Bloomberg is probably going to succeed in creating a congestion charge for motor vehicles in New York City, following the reasonably successful example of London. This way, Manhattan’s chronic congestion will be somewhat eased. The overall plan includes some upgrades in mass transit, so that reasonably convenient and affordable alternatives to the private automobile will be available to those who do not wish to pay the congestion charge.

This is of course a good idea. What is astonishing is that it is taking so long for administrators and citizens in urban areas –not just in America, Europe or other developed countries, but all over the world– to realize that there is no way to ease traffic congestion with its attendant costs in terms of wasted time, lost productivity, pollution and enhanced stress for millions of people, unless the use of the private automobile is either banned or significantly restricted and alternatives based on mass transit solutions introduced.

This looks like a no-brainer. And yet, these timid first steps notwithstanding, the reality is that the whole world considers the private automobile as the affirmation of attained affluence and as the primary means that grants more and more people “freedom of movement”, the unhindered opportunity to go wherever they want, whenever they want.

But, at least as far as the joy of personal mobility is concerned, it is obvious that the opposite is true. The private car has become the primary obstacle to getting around freely; for the simple reason that too many of us want to exercise the right to get around at the same time; while the space available cannot grow in step with the increased demand for roads and parking. This is painfully obvious all over the world, from Bangalore to Paris, From Washington DC, to Maputo. In fact, increased affluence and consequent car affordability in many developing countries is making the problem worse every day. No need to recite hundreds of well known examples of gigantic traffic jams, increased levels of smog and longer and longer commutes.

To solve this mess we have to break away from the conception that most people all over the world have about cars as symbols of personal achievement and as the primary tools with which they can exercise their mobility needs in urban areas. This model is not working. More and more private cars on the road equal diminishing returns for all users.

Needless to say, people do need to get around with reasonable ease and comfort. The main reason why the car, notwithstanding all the growing disadvantages, still reigns is that the alternatives to the privately owned and operated vehicle appear unappealing or unaffordable. The construction of fast underground rail transportation systems looks good and neat, in principle. But, in practice, they are horribly expensive to build and quite expensive to operate and maintain.

Bus systems are generally inadequate. The supply is limited, while buses travel at the speed of the rest of the surface traffic. For these reasons, many people consider that, if they need to be stuck in traffic after waiting for a bus that comes late and usually does not take them to their final destination, they may as well drive their own car. Indeed, with few exceptions, the bus is an inadequate, somewhat inconvenient, system used mostly by the less affluent who cannot afford a car.

So, we seem to be stuck with the current predicament, unless the controversial approach taken by London, New York and others based on actively discouraging private driving through a tax becomes acceptable in most cities around the world. Of course, the promise of the congestion tax is that, with fewer private cars driving around, the speed and reliability of surface mass transit, mostly bus services, will increase. Better bus service should provide a further incentive for people to leave the car at home and use public transportation. We shall see how New Yorkers will respond overtime to this carrot and stick scheme.

And we could do more than this. There are examples of successful experimentation with new ways to conceive mobility in urban areas. But it is astonishing that the few good, proven, examples have not yet become mainstream. For example, only technical experts and urban planners know well the process that led the city of Curitiba, capital of the state of Parana, in southern Brazil, to develop what is probably one of the best examples of a reliable, bus based, rapid transit system. (With the emphasis on “rapid”). The municipality, overtime, (and after a great deal of trial and error), managed to create and refine a public surface transit system that has the advantages of a seamless underground rail network without the costs. This was achieved through the creation of dedicated bus lanes and a good system of feeder lines and practical interconnections.

In cities that are already built it is probably next to impossible to add new dedicated bus lanes and squeeze them in the existing heavily used roads. In order to make space for bus lanes, at least in many areas, the private car would have to be restricted or banned. And one can begin to hear the howling and the protests of those who feel that their basic human rights would be denied by such drastic prohibitions.

But imagine, if you can, a seamless system of buses that one can board from everywhere within a city and from the suburbs (parking the car at the bus station; in the same way as many park it at the underground metro station) that would be frequent, fast (no more traffic jams) and reliable. This is not inconceivable and not prohibitively expensive. The Curitiba example is there to be looked at and studied by all. (A few cities in Latin America have followed suit).

Unless we are masochistically attached to our suffering in traffic jams and to longer and longer commutes that cost more and more in human, environmental as well as economic terms, it is time to look at the good examples set by others and see how we can develop more sensible and more effective ways of getting around in urban areas. This is not just about practicality and efficiency. It is a major step that will help us in making cities places of enjoyable experience; not urban hells that people want to escape from as soon as they can.

America Addicted to Oil?

by Paolo von Schirach

June 7, 2007

WASHINGTON – President George Bush admonished America to shake its “addiction to oil”. Still, judging by the remedies that he proposes, it would appear that this amounts to a rather minor issue, something like being addicted to chocolate. “You know, too many calories, cut down a little”. Judging by what George Bush proposes, this is an issue, something to worry a bit about; but hardly a matter that requires drastic changes now –and certainly not an emergency.

In truth, we do not have an oil emergency, in the strict sense of the word. For the time being, we have high prices, largely due to increased global demand. However, in some measure, current high prices are also the result of decreased output not due to oil depletion but to political problems, that is non economic reasons. Economic sanctions against Iran and consequent under-investments in the oil sector and the continuing mess in Iraq are examples of how political turmoil causes cuts in production, thus contributing to higher prices.

And here we begin to see the nature of our problem. What are we going to do in case supply is not just diminished because of political turmoil here and there (this is our current predicament); but drastically cut due to a major crisis? Nobody really knows. Our addiction is serious. We produce only 30 to 35 per cent of the oil we consume. We have created a situation in which uncontrollable contingencies (political events or natural disasters) can instantly transform our dependence/addiction to oil into a real emergency.

(I am purposely sidestepping here any discussion about global warming concerns that should drive us to dramatically lower our carbon consumption, because of the dire environmental consequences of greenhouse gases. Global warming is a valid concern; but it is a much more complex issue, requiring multiple interventions and concerted international action at many levels over a number of years in order to produce results in terms reduced emissions. The focus here is exclusively on coming to recognize that our strategic vulnerability requires drastic measures to cut consumption now).

Even the superficially informed know that we import a lot of oil from unstable regions of the world. Yet, if anybody is seriously worried about this dependence, current gasoline consumption patterns do not show it. If the American public somehow believes that, in case of a serious emergency causing supply disruption, we should not be too concerned because the government has a plan for such contingencies, well, then they should be told the truth. We do not have a remedy. True, we have a strategic petroleum reserve and more crude oil is being added to it. But it is limited. In case of a major, prolonged disruption, we would be in serious trouble, as nothing at present and for quite some time can replace oil and oil products, gasoline first and foremost. But nobody seriously discusses the consequences of possible disruptions.

Widespread complacency may be due to the fact that, while people see that gasoline has gotten to be very expensive, it is not scarce. There is no rationing; while many may hope that, in a while, prices will go back to “normal”. Given these misperceptions, until there will be real disincentives regarding the use of gasoline, (the major component of our “oil problem”), people will treat our acknowledged “addiction” to oil just as we treat our food overindulgence. We cannot really price food out of the market in order to make millions of overweight Americans get serious about diet and food over consumption. But for our oil addiction, as painful and unpleasant as it may be, significantly higher price is the only way to both cut consumption and speed up the process leading us to new types of fuel. A substantial, revenue neutral, gasoline tax should be the main driver of any serious energy policy.

President Bush, pursuing his soft approach to get us out of this predicament, counts primarily on technology to do the trick and move us away from an oil based economy. But the incentive to invest massive resources to develop new technologies is in attractive returns. If current high prices are sustained, (60 to 65 dollars per barrel, gasoline above 3 dollars a gallon), then the alternative energy proposition becomes more appealing, as many of the alternatives currently being worked on become economically viable around these prices. The fact is that new ventures in this risky field need the reassurance that there will be large markets many years down the road. High fuel prices guaranteed by a gasoline tax would constitute such an incentive. At the same time, consistently higher prices will at least begin to curb the growth of domestic demand which translates in larger imports and increased strategic vulnerability in case of supply disruptions.

Whereas the administration, after having warned against the danger of our addiction to oil, is pursuing what turns out to be a very soft campaign to diminish it, through woefully insufficient policy measures. Increased fuel efficiencies for automobiles may yield some gasoline savings in a few years, if we are lucky. This is tinkering, just as subsidizing this or that renewable fuel is tinkering. Corn derived ethanol, very questionable in terms of cost effectiveness, is good business for many as it makes farmers and refiners rich; but it cannot radically transform the automotive fuel equation. Federal investments in new forms of energy, though real, are modest. They indicate that energy is an important issue; but not a national priority.

The one measure with a real chance to get America focused on devoting substantial resources to quickly finding  economically viable alternatives to oil is a real (a dollar, as a minimum, phased in progressively) additional tax on oil products, first and foremost gasoline. Of course, gasoline is already taxed at many levels in the United States. But, for the time being at least, existing taxes and historically very high prices have yet to force all players to seriously engage in finding a commercially viable alternative based on renewable sources (or on new ways to extract fuel from old, domestically abundant, sources like coal, assuming a successful solution to the additional emission problems). 

Many have already put forward this idea of a substantial gasoline tax. Such a tax would be revenue neutral, via tax relief in other areas. People would have the same overall tax burden. But very high prices at the pump would send a clear message: “Dependence on foreign imports of oil creates an intolerable degree of vulnerability for the US economy and for our national security. The Government wants to engage the whole country in devising and adopting alternatives as soon as possible. In the meantime, we have to cut back on consumption, hence imports”.

The public will be unhappy. Higher prices will cause unpleasant disruptions at multiple levels. But the gain down the road, once meaningful alternatives will have been adopted, will be in regaining greater control over our destiny, an immensely desirable goal.

But no political leader, from either party, dares to articulate this message. The assumption is that it would be politically suicidal to provoke the anger of the public by hitting Americans in the use of the automobile. Indeed, if the White House engages in half measures, in the early stages of this already vivacious presidential campaign there is no serious talk about a real gasoline tax increase; or, for that matter, about any other really drastic approach to oil dependence coming from anybody, regardless of party. This can be for two possible reasons: either political leaders believe that our dependence on imports does not really amount to a serious strategic vulnerability; or they maintain that the public, if told about the seriousness of our predicament, would just not believe it and would react angrily by shooting the messenger that would propose to mess with the sacrosanct right to gas guzzlers.

A gasoline tax would achieve two objectives: cut consumption by forcing consumers to save and provide a powerful incentive to develop commercially viable new fuels and/or propulsion systems. At the very least, higher gas prices will force people to buy cars that consume less and hopefully find a way to drive less.

In an op-ed piece written last year, Paolo Scaroni, the CEO of ENI, The Italian energy conglomerate, (“To Extend the Age of Oil, We Must Save Fuel Now”, The Financial Times, October 16, 2006) noted that, should Americans drive the same average size cars as the Europeans, (more compact vehicles, far fewer SUVs and light trucks in the mix) this alone would cut US oil demand by four million barrels a day, equivalent to the entire oil production of Iran, the world’s third largest oil exporter.

And this would be only a start. Europe’s fleet of cars is more fuel efficient relative to the US (13 km per litre in Europe, 7 km per litre in the US). But today there are vehicles that achieve an average of 20 km per litre. A hefty gasoline tax, by forcing consumers to shift to low consumption models, could drastically reduce consumption and thus dependence. Such cars are available; but the demand for low mileage models is still too high; largely because the gasoline price, as high as it is today, clearly is not high enough to cause a real shift to more fuel efficient vehicles. The public is obviously not sufficiently focused on the addiction and its ramifications. 

Because of a gasoline tax, the push to develop other fuels and/or propulsion systems hopefully will produce results more quickly. As new technologies will take over, the demand and thus the dependence on oil will lessen and eventually disappear. Meanwhile, as we discourage the excessive use of the private automobile, alternative transportation options, such as mass transit, should be adopted. There are proven, reliable and affordable alternative ways to get around and do what we need to do with reasonable ease, speed and comfort, other than via the individually operated vehicle. In urban environments, fewer private cars on the road and a seamless network of dedicated bus lanes could provide the same advantages of underground mass transit systems at a fraction of the cost. (Broader adoption of these alternatives will also help diminish air pollution, not to mention wasteful congestion that has reached apocalyptic levels in most large metropolitan areas).

Whereas, so far, we see only timid policies focusing on subsidies. A raft of subsidies to the low hanging fruit options, such as corn derived ethanol, may be popular with certain constituencies, but they do not constitute a robust policy aimed at introducing as quickly as we can affordable and environmentally sound alternatives to oil. Subsidies are bad energy policy.

While it is true that our hope to get out of the oil dependence rests on devising new technologies, we should not support anything in particular, simply because we have absolutely no idea which technologies may prove to be truly viable in the long run. The purpose of a gasoline tax is to create a floor that tells markets at what cost an alternative source becomes viable, i.e. profitable. This is what new enterprises need to elaborate their strategies and get to work, hoping to make money with the alternatives that they are working on. We just do not know which solution or combination of solutions will make most sense. Picking winners now through subsidies or other targeted incentives may lead us to back the wrong technologies. This is wasteful and patently unfair. It rewards political skills more than ability. Clever lobbying on the part of those who get the subsidies does not necessarily translate in good energy policies.  

On this, let us consider a little history about the notion of picking winners. In the 1990s, in a different context that involved a fresh look at macroeconomic policy approaches, America looked at and discussed “industrial policy” models, whereby elites made of government, enterprises, interest groups and labor unions would come together and decide where it would be smart to allocate scarce capital; so that we would eliminate wasteful investments and maximize returns for all: corporations, workers and society in general. We looked at this model of “national economic strategies” supposedly practiced by the (then) best world performers  –Japan and Germany. But nothing was done to transform policies in order to adopt their model. 

True, in 1992, then presidential candidate Bill Clinton openly flirted with this notion. In a campaign taking place in the midst of a modest downturn the need for a “national economic strategy” became a key policy component in Clinton’s speeches. (Remember the “It’s the economy, stupid” refrain?) However, in practice, as president, Clinton did little to implement industrial policies. By default at least, as a nation we concluded that top down decision about economic choices would lead to the squandering of resources. What applied then and applies today to economic policies in general, applies to finding alternatives to our energy sources.

Clearly there is a formal contradiction in being against subsidies but for dramatically higher taxes in order to discourage the use of a product. It is easy to object that, if it is appropriate to do away with market distorting subsidies, then we should not engage in other types of market manipulation through heavy taxation. 

In principle this is a valid objection. If market economics work, higher prices due to scarcity eventually should lead to new solutions priced by the market. However, the problem for the US, at the same time the largest consumer and importer, (but for other consumers as well), is that, along the way towards a market solution, energy flows may be drastically reduced for reasons that have nothing to do with the dynamics of demand and supply.

The scenario, (outlined a million times, but curiously not acted upon) is that major political events or natural catastrophes can suddenly and drastically reduce the availability of oil. Not enough oil (whatever the price) to keep the world economies going is a terrifying, rather extreme, yet quite possible scenario. As we Americans are by far the largest consumers in absolute as well as per capita terms, serious disruptions are likely to have devastating consequences internally, while restricting our ability to conduct an active foreign policy. Which is to say that oil is different from T-shirts or auto parts. 

Let us restate what we all know but seem not to take into account when we talk about our oil imports. All the major energy crises that we have experienced were not caused by market forces; rather by political and (very recently, with Katrina and Rita in 2005) natural events. The 1973 oil embargo was a political decision. The 1979 Iran Revolution caused a disruption in oil production and thus oil flows. More recently, hurricanes in the Gulf of Mexico region caused significant (albeit only temporary, in this case) disruption in the ability to receive, transport and refine oil, oil products and natural gas. These disruptions had nothing to do with market forces. (Of course there are similarities with other non economic phenomena that have an impact on markets. A freeze in Florida that destroys oranges will cause the price of orange juice to go up. But in the case of oil there is clearly a lot more at stake than some financial losses and inconvenience for the consumers. Orange juice is optional; until we find something else, oil is vital).  

Of course, we know that after the oil shocks, oil consumption was reduced due to new efficiencies created by the deployment of new technologies and prices shifted lower again. Likewise, in the aftermath of devastating hurricanes the infrastructure was eventually repaired. Yes, of course. We did all this.

But, please, note: reasonable success in dealing with the effects of past disruptions is no indication of the ability to get out of the next one. We have no guarantee that future shocks will be of a manageable size, something that would still allow us the opportunity to retrench and reorganize, as we have done in the past, albeit at a high cost.

Relatively speaking, our predicament is worse today. Due to the rapid depletion of domestic oil resources, our dependence has grown significantly during the past twenty years. What if the next oil shock is of a magnitude that we cannot cope with, so that our economy would be not just badly hurt but choked and devastated? Again, let us not forget that all we have is the strategic petroleum reserve and agreements about crisis management with other consumer countries. This is fine for a short crisis lasting no more than 120 days. For a long one we have nothing.

There is a long list of oil producing regions affected by political turmoil. The Middle East (where most of the known reserves are located) is of course the text book case, because of the bad mix of endemic conflicts and the appeal of radical politics. (Clearly, if all the Middle Eastern oil reserves would have ended up in peaceful Canada, the vulnerability issue would be a lot less pressing). Within the region, insurrectionists and terrorists of all stripes in Iraq have targeted oil facilities, terminals and pipelines since the very beginning of the occupation, thus limiting oil production. There have been terrorist (so far failed) attacks against Saudi oil facilities. Elsewhere around the world, we have the inextricable mess in the Niger Delta that has already caused a significant production cut in Nigeria. Hugo Chavez in Venezuela is an unpredictable populist determined to use oil for his political ends.

Existing political troubles (that is not due to market forces) have already caused significant production cuts. So far, these troubles are limited in scope. They have caused tighter supply and thus higher prices. Still, oil is flowing. However, bigger upheavals could make oil, irrespective of price, simply unavailable in the amounts necessary to run the economy.

In this context of tight supply, finding and bringing more oil to market as soon as possible is important, in as much as it recreates a minimum of slack in a very tight environment. But welcome as they are, new finds will buy us some time, nothing more. Unless we can envisage fantastically large new discoveries in peaceful parts of the world –something that would radically transform the oil supply geopolitical picture– marginal addition to supply is not a long term solution for the world in general and certainly not for the highly dependent US.

On a different level, it is important to observe that oblivion about the impact of oil dependence includes little discussion about the economic impact of the cost of all these imports. Perhaps it is easier to avoid dealing with vulnerability and the implications of major oil supply disruptions. After all this is a terrifying prospect, not a present crisis. But the issue of the colossal and growing cost of our national oil bill -and this is part of our day to day reality–  for mysterious reasons gets very little mention.

While Washington policy makers and commentators tell us daily that our trade deficit is the result of China’s wicked policies, we forget that the price of our imports of unchanged quantity of oil has quadrupled since 2002. Because of the price explosion of the last few years, in 2005 the cost of oil was almost as high as the trade deficit with China (175, and 200 billion respectively), while the price keeps going up, thus contributing more and more to a deteriorating trade imbalance. This is US money going abroad to pay for our gasoline bill. This is money that cannot be used for capital investments at home. (A gasoline tax would keep the oil bill high; but the proceeds would stay at home.)

Much has been said about the sustainability of a large and increasing trade deficit. But we hear almost nothing about the monetary cost of our “oil addiction”. Sure enough, our merchandise trade deficit is easily politicized, because of its more direct correlation to domestic job losses. Oil imports, whatever the price, do not displace US workers. But this does not mean that they have no economic impact. 

As abstract as the issue may appear, it is not impossible to explain to the general public that, by using scarce capital to pay for oil imports, this money is no longer available for productive investments, while the oil is burnt and we have to keep buying more from abroad just to keep things going. This forces us to give up other expenditures and investments.

So, there we have it: “addiction to oil” means a strategic vulnerability with potentially devastating effects which comes at a very high and increasing economic price. This should call for drastic action, starting with a substantial tax on gasoline. Whereas, for the time being, the few measures taken, such as subsidies for corn derived ethanol have amounted to an increase in the price of corn with ripple effects on a series of products and ultimately higher food stuff prices for the consumers, with negligible effects on our addiction to oil. This is the result of a largely ineffective band aid approach motivated by the fear of upsetting a nation unaware of the full implications of our addiction.  

Our oil dependence is a serious matter. Time has come to stop tinkering and half measures and get serious about it.