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.