Green Update: What to Do About Energy? Part 1

November 29th, 2011

BP Gulf oil spill

We need an energy revolution in this country, and it doesn’t look like we’ll get it any time soon. Not to mention an energy policy from the government. The world is desperate for clean energy sources, and real solutions seem far off. Yet big oil price spikes are not only possible but likely. Their effects could be shocking, and the auto industry is on the front line.

Above is a summary of what I’ve been reading over the last weeks about oil and renewables, supply and demand.

One of the interesting facts that emerged is that car buyers in Germany and the United States actually rank fuel economy outside the top ten attributes they consider when buying a car. This is from a valuable McKinsey study (subscription but free) on the likelihood of another oil shock in the next few years, one lasting for years.

To ease the shock, the authors suggest:

Governments would need to raise auto fuel efficiency standards further, and consumers would need to place greater emphasis on fuel economy when they bought new cars. Policy makers in several developing countries would need to abolish fuel subsidies so that consumers felt the real price of oil. Around the world, we’d need to see deeper reductions in the use of oil for heating, power generation, and chemical manufacturing. Some transport by ships and heavy trucks would need to start shifting toward more reliance on natural gas as a fuel.

Well, the chance of any or all of this happening soon is simply nil, in my view, unless people get really scared. We’ll follow up in Part 2 of this story with ways to scare them.

As the study suggests, and a New York Times discussion confirms, there are two major aspects to the problem—specifically, supply and demand, and changing consumption attitudes and patterns.

How bad do you think the supply problem really is?
There is plenty of undrilled oil out there, right? What about shale and natural gas? Can’t we get more out of the ground until renewable sources get more available and cheaper?

Renewables at a reasonable price and supply are pretty far down the road unless government really pushes them (with subsidies, tax credits and policy changes), and you know what chance we have of that happening. We can’t even get a modest gas tax increase.

Americans are spending around $490 billion a year on gasoline and driving a lot of inefficient vehicles. There’s no incentive for oil companies to drill more, as the economics don’t make sense, and the little that could be added to the world supply would be a drop in the bucket. It’s a world market, after all.

As one writer put it, thinking about cheaper gasoline is a trap to avoid concentrating on the long-term costs and damage that fossil fuels will continue to cause. Extracting natural gas by means of fracking, for instance, would put our water tables at peril and impose tremendous costs not only on the environment but on the public treasury.

We’ll continue the discussion next week in Part 2. Till then, tell us whether you think a prolonged oil price hike could spur needed energy reforms.

—jgoods

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  1. Randy
    December 1st, 2011 at 17:28 | #1

    If you want some real facts, here are a few:
    1. The USA claims a “free” economy when, in fact, is is highly controlled and manipulated, mainly to make money for a small number of very wealthy people.
    2. Much of the problem in the energy industry is that is is essentially being controlled and manipulated by speculators (the nice way to say gamblers) who contribute nothing to our economy while stealing billions from the pockets of consumers.
    3. Our own government subsidizes the energy industry in various ways while that industry has been making record-breaking profits for more than fourty years now. In essence, the taxpayers are punished twice by paying higher costs due to speculation and manipulation, and boosting profits for private companies by giving them unneeded taxpayer money.
    4. Worst of all, our government has a long history of supporting brutal regimes and dictators who are willing to keep the supply of oil coming, often resulting in extreme violations of human rights.

    There are some straightforward ways put our energy industry on an enthical and honest footing:
    1. Outlaw all forms of speculation on energy.
    2. Eliminate all subsidies and tax breaks for the energy industry.
    3. Tax energy profits at the same rate that individuals pay for income taxes. Why isn’t if fair for Exxon to pay 38% on billions in profits when their own workers pay the same rate on their earnings?
    4. Change the capital gains tax rate to match the highest individual income tax rate.
    5. Use the extra tax income to reduce our deficit and help poor Americans with their energy costs.

  2. NDMNTX
    November 30th, 2011 at 16:00 | #2

    I knew you didn’t have the huevos to post my previous entry. Nothing like unbridled honesty.

  3. panayoti
    November 29th, 2011 at 16:43 | #3

    FACT: Americans love their cars. They will go hungry and live in tents before they give up their cars.

    FACT: We have a very serious energy problem that is very difficult to solve. Yes we can increase domestic supplies and build the Xcel pipeline, but our supply of oil is not close to providing our daily usage.

    FACT: There is no stomach by any politician to raise gasoline prices in a broken economy and 25 million unemployed.

    FACT: Demand exceeds supply.

    FACT: Americans have little interest in hybrids, electrics, or any other kind of propulsion systems. Even if they did and bought tons of them, we would still have a severe energy problem. The major abuser of energy remains the military and industry, both of which are perceived to be in our national interest.

    FACT: McKinsey studies are as reliable and dependable as those of Fitch, Moody’s and Standard and Poor, meaning they’re not.

    FACT: Environmental impact studies and weather related climate change studies share the same degree of confidence as McKinsey.

    FACT: No one has the balls to start talking about a rational national energy policy and the economic ramifications resulting therefrom.

    FACT: Can’t wait for Part 2. Nice job Senor!

  1. November 30th, 2011 at 11:38 | #1
  2. December 13th, 2011 at 14:02 | #2