America: Still Unserious about Energy

WASHINGTON – Amazingly enough, to this day, America does not have an energy policy even minimally related to the extraordinary crisis the country is facing. The growing global demand for oil, combined with rapidly dwindling resources at home, accompanied by completely unrestrained domestic consumption have caused a serious strategic dependence on foreign supplies; while the cost of imports –due to the higher crude prices– grows daily up to impossible levels.

This predicament is well known. And yet nobody has proclaimed that this is a national emergency requiring extraordinary action. Oil has gone from forty dollars to seventy and than doubled again in no time. So, here we are. America is still by far the world largest consumer. And yet, in a time of conflict and in a time of huge balance of payment deficits, (despite the unhappiness about high gasoline prices), we merrily continue to behave more or less in the same way as if we had a lot of cheap oil, produced in the US. Sure enough, gasoline at four dollars plus a gallon is going to force habits changes, including the types of cars that many people will choose. And this is better than nothing.

Still, we are in the midst of a presidential campaign and energy issues are featured only in a superficial, emotional way. At best, there is a search for culprits, not for solutions. Prices are too high? Well, it is the speculators, or the oil companies, or Bush and Cheney and their big oil friends. Or it is the war in Iraq, or whatever.

And the remedies proposed? From the left we hear that we should provide relief to the poor by taxing the rich and/or the oil companies and their scandalous profits. This way the burden of higher costs will be more equally shared.

The pro-growth crowd has a different but equally inane solution. Let’s drill some more at home; so that we’ll get our own oil. This idea fuels the totally mistaken fantasy that there are substantial reserves still to be exploited. If we only tried, we could get out of this mess. But it is not so. While there is more oil to be extracted at home, unless some truly gigantic new fields are discovered, new extraction would make a very small strategic difference, if anything delaying a bit the inevitable reckoning.

Given our present and projected needs, what we produce (currently about 35 per cent of our consumption), or can realistically produce, is woefully insufficient. Besides, regardless of current production, our known domestic reserves are dwindling fast, indicating even lower production in the years to come. Essentially, we have almost run out of our oil. Half a million extra barrels, or even a million or two added to daily production, even assuming that they existed, would not rebalance the long term supply needs.

And yet, despite these realities, the silly debate about drilling or not drilling some more received an inordinate amount of space, as if were a real discussion about meaningful strategic alternatives. As we continue to argue about these short term, myopic political proposals emerging now from a political campaign acquiring dangerously populist tones, we shall not get very far in creating real alternatives. We have now mostly non strategic approaches to a strategic crisis.

In order to change things, first of all, the tone has to change from emotional to serious. For the moment, while there is visible agitation and malcontent about high energy prices, this is still regarded as a major annoyance, not as a national emergency, indicating a major historic challenge.  Americans need to be told by their current and would be leaders that this country simply cannot continue to be a major economic and military power, being almost completely dependent on energy whose reliable supply it cannot guarantee; while its cost is becoming unbearably high. 

The reality that should be communicated is that, as a minimum, we need to do –right now–two very difficult things at the same time. Consumption needs to be massively curtailed; while the nation needs to embark in an all out effort to develop new technologies that will allow us to dimish and hopefully stop our dependence on oil. Consumption needs to be cut now. A dedicated effort at creating alternatives is more uncertain in terms of results, but it is likely to pay off.

The US economy is now at a historically high risk of being strangulated by any sudden supply disruption; while the cost of the oil bill at these prices is becoming too burdensome for an economy already crushed by a huge trade and balance of payment deficit. Of course, cutting consumption will have to be done in stages, so that we do not destroy the economy. But the message to be delivered is that we must do this as quickly as possible. Using less oil clearly is not a long term strategy. It is a temporary stop gap measure in the same way as cutting spending is a good policy when you are facing bankruptcy. It is not a real strategic plan; but it may create the breathing room to craft one.

But we hear nothing from the leadership of the nation about the need for drastic consumption cuts. Sure enough, current market prices will go a long way in dictating a new behavior that will result in lower consumption. But what is missing here is a serious political and policy consensus, a consensus that should provide guidance, thus helping the people define the situation and its true gravity. There is no coherent, clear message, no attempt to place the higher prices and dependance issues within their appropriate context.

Nobody from the top says to the public:

“Given all this, you have to change your habits today. Stop driving, unless it is truly necessary. Use public transport. If you must drive, ditch the SUVs and all other high consumption cars and switch now to smaller cars, including whatever is available now in the category of hybrids. Indeed, in order to impress upon you that this is a priority, we, the US Government, are going to tax high consumption vehicles and offer tax relief to all those who purchase smaller, low consumption cars. And we are going to introduce this new regime right now. If you thought of spending extra money to take a vacation this year and switch cars next year, revise your priorities. Forget about leisure. Spend the money to switch to a lower consumption vehicle now!”

By making these changes, collectively Americans could start cutting consumption today, without intolerable restrictions. It would take time. Yet just by choosing, as a nation, to drive less, while switching to more efficient compact cars, we could save millions of barrels a day. This would be significantly more than any added output coming from Alaska, should that reservoir ever come to be exploited. Of course, this would take a few years. But precisely because it is going to take time, we should start now. And it would take less time to achieve results if the public and industry received a clear message with clear policy guidance from the government.

As for positive action aimed at finding alternatives, sure enough there is activity, and these oil prices will provide significant new incentives. But again, we hear nothing from the top. Modest policy initiatives aimed at enhancing efforts here and there do not convey a political message of urgency. We spend billions every month in Iraq. Rightly or wrongly, just looking at budgets, Iraq is a policy priority. Looking at public resources expended, finding new energy sources may be considered important, but it is not a national priority.

Senator John McCain, the Republican candidate for the White House, just proposed a national competition with a 300 miilion dollar  prize to whoever would come up with a substantially improved battery that could fuel future electric cars. While this may be a good idea, he did not unveil a new Manhattan Project. 300 Million may sounds like a lot of money. But it is not really such a large sum for whoever may come up with an invention that could potentially transform the whole automotive sector worldwide. And McCain, in explaining his proposal, said that it would be only one dollar per US citizen. Not a major sacrifice –he said– for something so important. Indeed. But this is exactly what is wrong. This soft approach encourages the wishful thinking that somehow there is some kind of clever, cheap, painless way out of this.

Of course, there could be incredible technological breakthroughs just around the corner. This is possible. But, so far, we have dependence and historically high prices with no alternative in sight; while the country is involved in conflicts in the Middle East, the region of the world that holds the most significant oil reserves.

Those who propose increased domestic production affirm that America’s determination to augment supply would send a message to the markets about future declines in US demand and that this would stabilize future prices. Well, theoretically this might be true; but only assuming really huge increases to total supply resulting from massive new US extraction. A little bit more here and there, while useful, would do nothing to change the larger picture.

Whereas a credible national policy to start cutting consumption today would have an impact. America being the largest consumer, the aggregate effect of behavioral change on the part of millions as a matter of long term choices dictated by policy would send a message to the oil markets. Just by switching, as a nation, to smaller cars we could achieve lower consumption. In a few years this could amount to millions of barrels a day. Again, this is not a solution; but it would create some slack, by diminishing the tightness of this energy market.

In the meantime, it is going to take a great deal more than a glorified high school science project prize to transform our energy economy. The 300 million proposed by Senator McCain certainly beats the paltry initiatives of the Bush administration; but it is not that much for the world’s largest economy, spending now billions of dollars every month to finance the war in Iraq. America still has enormous resources. It is time that they are mobilized in order to safeguard, in fact to renew, our economic viability and chance to be meaningful participants in the future global economy.

But if the leadership does not communicate a real sense of urgency, more time will be wasted. In this as in other historic challenges inaction has a price. Beyond a certain point, there may be such a thing as being too late.

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