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.
Only in 2007, with gasoline nearing $3 a gallon, did Congress approve the first major increase in fuel efficiency in 32 years, requiring the fleet average to reach 35 mpg by 2020—a measure that would save only 1 million barrels a day by then. Attempts to raise taxes on gasoline to reduce consumption have essentially failed, except for a small tax increase of 4.3 cents per gallon in 1993.
Supply. As costs of oil imports have soared, the benefits of increasing our own supplies have multiplied—while the environmental costs have been reduced by technologies and practices developed over the past two decades. In other words, the benefits exceed the costs.
We can get past the lame repetition of the decades-old argument over the virtues of offshore drilling. Simply put: To refuse to exploit our vast oil reserves is insane. The United States is one of the few countries in the world that choose to lock up their natural resources by dramatically restricting production and exploration. At least, until now. That $4 pump price is changing public attitudes. In a recent Gallup Poll, 57 percent favored drilling in U.S. coastal and wilderness areas that were once off limits. How shocking is that? In the Arctic National Wildlife Refuge, we're talking about a tiny corner of 2,200 acres (an area the size of a small airport) out of 19 million acres. The proposed drilling promises to yield an estimated 10.4 billion barrels, representing well over 20 years of imports from Saudi Arabia. Drilling in ANWR would take place on the coastal plain, a mosquito-plagued tundra and bog in the summer, not in the snowcapped mountains of ANWR that television pictures would have you believe are at stake. In the winter, the area would also be traversed on ice roads that melt in the spring. This would do no permanent damage to an environment in one of the bleakest, most remote places on this continent—except to inconvenience some caribou that might have to find a different place to mate. We cannot lose over $40 billion a year to serve the caribou.
Similarly, the outer continental shelf is estimated to contain some 86 billion barrels of oil, plus 420 trillion cubic feet of natural gas that is overwhelmingly off limits and underdeveloped—even though those reserves could be tapped now with minimal environmental disturbance. This is supported by the fact that there were virtually no oil spills when Hurricanes Katrina and Rita flattened terminals around the Gulf of Mexico. Offshore drilling rigs would be far beyond beach sightlines. The stellar environmental records of eco-sensitive regions such as Scandinavia, the Netherlands, and Great Britain have shown that the greatest oil spills would be avoided because they typically come from tankers importing oil, not from drilling or other offshore locations. The same can be said of the eastern Gulf of Mexico, where there is an estimated 3.7 billion barrels in relatively shallow waters.
If this sounds like a remedy that's a long way off from fixing $4-a-gallon gas, it must be remembered that prices for crude and gasoline are set by future expectations. Any policy that pushes the future supply to increase or leads future demand to drop can cause today's prices to fall or to rise less than they otherwise would. That is why to open up new areas would cause the oil futures markets to respond relatively quickly.
Oil out of the ground is only a start. For new crude to yield lower gasoline prices, we need to reduce the barriers to building or expanding our refineries. Refineries face multiple regulatory barriers in a world of NIMBY ("not in my backyard") and the inevitable litigation from the environmental lobbies.
Here are five more energy imperatives we need to move on quickly:
1. Reallocate resources to concentrate funds on providing the necessary R&D support for energy efficiency. We must do this with the real menace of global warming in mind. James Hansen, the director of NASA's Goddard Institute for Space Studies, frames the issue this way: Our biggest worry is not what we put in our cars but what we put in our power plants. He believes that we should stop the use of coal by 2030, except with those power plants that can capture the carbon dioxide.
2. Fix our mass transit system for both freight and passengers. When you consider rail in terms of energy, steel wheels on steel rails are some 10 times as efficient as rubber on roads. A real rail program could probably have the single greatest impact on our oil consumption and on the release of carbon dioxide. A single locomotive run by two men can haul the same amount of freight as 70 modern semitrailer truck rigs with 70 drivers. One passenger train can take 1,000 cars off the road.
3. Raise fuel economy standards for new cars and trucks immediately.
4. Substantially increase the gas tax, offsetting it with other tax cuts to induce people to buy fuel-efficient vehicles.
5. Pursue alternative energy technologies within the limits of the market.
Such measures as these would send a signal to the world that the United States is no longer putting its fate fully in the hands of foreign nations and that we are determined to reduce the financial drain costing us at least $300 billion a year. None of this will happen without a sensible compromise among liberals, conservatives, and environmentalists. We simply cannot afford a political system that is incapable of addressing such a critical national issue. In other words, we need real leadership in Washington.