Stop the Energy Insanity

We are in a hole—and still digging. We have oil at a catastrophic $140 a barrel yet no sign of a bipartisan energy policy assured of passage—let alone the forceful execution needed to expand domestic supplies and restrict domestic consumption. Instead, we have the blame game about greedy speculators, careless consumers, and cowardly politicians, inevitable maybe in an election year but a betrayal of the promise of America.

In the meantime, as gasoline soars over $4 a gallon, the availability of credit for enterprise shrinks, home values collapse, and food and fuel prices skyrocket, afflicting the American consumer with a triple whammy so devastating that the economic stimulus of the $120 billion tax rebate has been wiped out. And where is the wealth going? To enemies of America, to some of the world's worst leaders, such as the oil autocrats of Iran, Venezuela, and Russia.

It's pathetic that we have had to beg a begrudging Saudi Arabia to pump a few more barrels. Ever since the oil crisis of the 1970s, report after report has warned us about the U.S. addiction to oil. The United States may constitute 4 percent of the world's population, but we account for around one quarter of worldwide oil consumption—twice the combined rate of the Chinese and the Indians. The core of the problem is parked in U.S. driveways. Nearly 70 percent of the 21 million barrels of oil we burn every day goes to transportation, most of which is used by individual drivers.

The American people are not foolish. Every day we have a lesson in the surging cost of oil; we know that the dream of energy independence is really just a delusion for a country that produces only a third of the oil it uses. Whatever the rhetoric, no combination of solar, wind, ethanol, biodiesel, or anything else will allow us independence in the foreseeable future.

The public also sees the role of our special-interest-driven politics. The farm and ethanol lobbies have succeeded in getting Congress to pay huge subsidies to farmers to grow corn to be converted into ethanol—at the same time, we set high tariffs to keep out cheaper, imported ethanol. Americans see that acreage once devoted to growing food now grows corn for fuel, thus contributing to higher food prices; they see the oil, gas, and nuclear power lobbies winning for their industries the lion's share of government support, compared with the relatively modest support for U.S. alternative energy approaches; they see that the strength of the oil lobby has only increased the subsidies and tax breaks under the Bush administration—and they are disgusted.

What is to be done?

Our politicians—led by the presidential hopefuls—must focus on real solutions, not on scapegoats or the political repetition of the tired nostrums of the past. Sen. John McCain's Lexington Project was a start. Alas, Congress in its wisdom (a charitable thought) has focused its attention instead on whether speculators are profiting from price hikes. The problem with this convenient thesis is that speculators do not own real oil but are merely buying paper contracts for future delivery. Every barrel they buy they have to sell again before the contract ends either to settle it for cash or to sell it to legitimate consumers. No oil is kept out of the market, and there is no evidence, according to the chief economist of the Commodity Futures Trading Commission, that the growth in speculation in oil futures has caused prices to rise.

The fundamental fact is that oil prices are set in the world markets. Sharply rising demand has met sluggish growth in production, so there is minimal slack in a market already at the mercy of small disruptions, be they bad weather in the Gulf of Mexico or political clouds over the Persian Gulf or the Nigerian delta. China and India between them account for about 70 percent of the rise in global consumption over the past couple of years, and oil-producing countries themselves account for much of the rest. In these markets, regulations and subsidies hold down prices, and their economies are growing so fast that even steep price rises in fuel are seen as affordable. The clear implication for the United States is that the age-old standoff on whether domestic drilling or conservation is the solution is now irrelevant. We must have both.

Consumption. The first fuel economy standard law, known as Corporate Average Fuel Economy, or cafe, was passed in 1975—a mandate that doubled the fuel efficiency of the typical car sold in the United States between 1974 and 1985 from 13.8 mpg to 27.5 mpg (even though these measurements took place in favorable controlled conditions rather than on actual highways). It has flattened out since then, in contrast to Europe, which now demands 44 mpg. An effort here in 1990 to lift the fuel standard to 40 mpg for cars aroused furious opposition led by Democrats from automaking states, like Michigan's Sen. Carl Levin and Rep. John Dingell. Had that bill been passed, we would be using 3 million fewer barrels a day.