Monday, August 11th, 2008
When the oil markets closed on Friday, prices had fallen to a 3 month low. This was in spite of indications that widespread fighting was about to break out between Russia and Georgia, which controls one of the largest oil pipelines in the world. The Baku-Tblisis-Ceyhan pipeline carries oil from the landlocked Caspian Sea to the Mediterranean. As Environmental Capital puts it, apparently the oil markets cannot decide which they fear more-the Russian bear or the economic bear. On Friday, it seems the economic bears won the day. However, that was before general hostilities broke out over the weekend between the two countries. It will be interesting to see what happens to oil markets this week, in light of the escalating violence in that region. Of course, much of Russia’s increasing presence on the world stage is related to their windfall revenues stemming from high energy costs. Although the casus belli for this conflict is national and ethnic strife, the fighting in Georgia, and its effects on global markets, will be just one in a long line of global conflicts to come that stem from, or have an impact upon, limited natural resources.
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Thursday, July 24th, 2008
Russia, which was recently accused of limiting oil flow to the Czech Republic over the Czech’s agreement to host a U.S. anti-ballistic missile radar system in their country, has taken steps to restore the full flow. Russia’s former president and current prime minister, Vladimir Putin, instructed the Russian government to ensure that oil flow to the Czech Republic is fully restored. However, Putin also asserted that Russia was not to blame for the decrease in flow, but was rather due to the behavior of offshore oil trading companies.
Regardless of who was responsible for the decrease in flow, it is clear that in this day and age, the trade of oil and gas will be increasingly vulnerable to geopolitical disagreements. While the Czech Republic was not seriously harmed by these events, future disputes may be much more debilitating for vulnerable nations, such as the United States. This fact acts to further highlight the importance of rapidly and substantially decreasing our dependence on foreign oil.
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Monday, July 14th, 2008
The effort to decrease consumption of fossil fuels, while closely related to environmental issues, also has a strong geo-political component. As T. Boone Pickens has been emphasizing lately, dependence on foreign countries for one’s supply of energy can have dangerous and expensive consequences.
This fact has been highlighted in recent days by a rift that has developed between the Czech Republic and Russia over the Czechs’ decision to host an American antiballistic missile radar system on Czech soil. Russia, which strongly opposes this system (arguing that it will disrupt the current balance of power) is suspected of taking punitive measures against the Czechs by temporarily cutting off their supply of oil. While Russia denies intentionally cutting the flow of oil, both the Ukraine and Lithuania have accused Russia (or Russian companies) of using the flow of oil and natural gas as a political weapon in the past, and it is suspected as a possible explanation in this case.
Either way, this situation illustrates that the risks of fossil fuel dependence extend beyond environmental damage. In the current geo-political world, where much of the world’s fossil fuels are controlled by authoritarian countries, it is dangerous to be beholden to their spigots. And in the Czechs’ case, even though they have a secondary oil pipeline coming from Western Europe, much of that oil originates in the Middle East. While it may be hard to imagine a situation where global politics would lead to a complete disruption of oil supplies, in reality, such a scenario is not that inconceivable given dwindling supplies, skyrocketing demand and the enormous financial and political consequences of petro-policies. As long as these facts remain, and they will for the foreseeable future, the only option is to dramatically decrease our consumption and reliance on oil.
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Thursday, July 10th, 2008
T. Boone Pickens has quickly become the leading proponent for wide-scale development of renewable energy. The “Pickens Plan,” which just launched a social website aimed at mobilizing the masses, aims to break America’s dependence on foreign oil by shifting our energy consumption away from fossil fuels and on to renewable sources, primarily wind power and natural gas. The Pickens Plan estimates that building wind facilities along the high wind corridor that stretches from the Texas panhandle to North Dakota would cost $1 trillion, plus another $200 billion in transmission infrastructure. The wind energy that would be harnessed from this project could replace 20% of that used by our entire country. This, coupled with the fact that we spend $700 billion each year to purchase foreign oil, actually makes the price tag look pretty reasonable.
One of the criticisms we previously leveled at Al Gore and An Inconvenient Truth was that it was a little bit of “preaching to the converted.” Many people that received Gore’s message so favorably were political liberals that were already predisposed to his policies. Political conservatives often disregarded or dismissed his message as propaganda, just because they had a different political affiliation. Pickens, a Texas oilman and strong Republican, should have the credibility with political conservatives, that Gore may have lacked, in order to convince them too that the time to act is now.
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Tuesday, July 8th, 2008
Following up on our post from yesterday, we’ve noted some other interesting facts regarding U.S. fuel efficiency:
- 70% of our consumption of oil is for transportation
- We have 4% of world’s population but use 25% of the oil
- Our consumption of oil from driving is nearly 2 times that of China and India combined.
Now the good news: where government policy has failed, the market is finally working. With gas almost at $5 per gallon, SUV sales have plummeted, with Ford’s SUV sales down 55% from last year. Although our failed policies (and non-policies) have lead to the current situation, high gas prices are accomplishing what our government refused to do– which is to decrease our irresponsibly excessive consumption of oil.
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Monday, July 7th, 2008
Sunday’s New York Times had a great piece outlining the recent history of American policy (non-policy) towards oil consumption. Reading this article, one begins to understand the massive policy mistakes we have made over the past 20 or so years that have led to the situation we currently face. In order to understand the depth of this failure, we have to look back to the oil shortages of the 1970s. In response to those shortages, the U.S. realized that cheap and plentiful oil supplies were not a guarantee, and consequently implemented the CAFE standards (”corporate average fuel economy”), which mandated a minimum average fuel efficiency level for automakers. As a result of those standards, by 1989, the average fuel efficiency for a car sold in America increased from 13.8 to 27.5 miles per gallon. However, our national policy began to fall apart soon thereafter.
Throughout the 90’s, oil prices dipped to lows around $10 per barrel and our consumption increased dramatically. Cheap gas and big SUV’s, that were governed by less stringent regulations due to a loophole in the original 1975 law, led to substantially more oil consumption and waste.
Throughout this period there were a number of attempts to increase fuel efficiency standards and gas taxes, however they were usually rejected or watered down by politicians from oil or car producing states. Not only did the Congress fail to enact tougher standards, they actually included a provision in a 1995 appropriations bill affirmatively prohibiting the National Highway Traffic Safety Administration from spending money to increase the CAFE standards.
At the same time that the government was failing to require car manufacturers to produce more efficient cars, there was also a series of moves to prevent additional domestic oil exploration in places such as Alaska. Additionally, federal gas taxes were kept substantially lower than other countries, which also removed any disincentive to conserve gas.
As a result, we are now faced with the current situation where gas is nearing $5 per gallon, American automakers are in serious financial trouble, and there is no clear solution in sight. While there is no magic bullet for this situation, understanding its causes and identifying the actions/inactions that lead to it, can help us craft better policy in the future. Additionally, politicians who opposed comprehensive and intelligent energy policies should be held accountable.
Given our experiences with oil shortages in the 1970s, and the generally anticipated global growth from countries like China and India, it cannot be said that this current situation was unforeseeable. Consequently, those leaders who refused to enact sensible policy (or worse, actively opposed it), should be held accountable. After all, this is what is currently happening with American automakers who fought fuel standards for many years– they are now suffering the consequences of plummeting sales.
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