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.

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