Quick: What was the single best thing to happen to U.S. energy policy in the last 37 years? Answer: When spot prices for crude oil shot past $145 a barrel in July 2008. Regular gasoline hit an excruciating $4 a gallon and kept going up.
It was painful and disruptive, and cruel to those who could least afford it. But it did more to briefly reshape U.S. energy policy in a useful way than anything any Congress or president had done since the first oil embargo in 1973. Car buyers were suddenly swarming dealer lots to purchase 50-mpg Priuses, and SUV owners couldn't dump their vehicles fast enough. People with long commutes to work were car-pooling, and home buyers with dreams of the exurbs began to focus on closer-in homes. Solar and wind power, long too expensive to compete robustly with cheap fossil fuels, began to look much more feasible. It felt as if the nation was undergoing a long-overdue transition to a saner energy policy.
Obviously, it didn’t last. Very quickly the price of oil began to drop, as it always does after a spike. Five months later, regular gasoline had fallen back to $1.61 a gallon and spot prices for crude had tumbled to $30 a barrel. Great for all of us suffering through the recession and good for the economy, but terrible for long-term energy policy. Priuses started to back up on dealer lots while SUVs flew out the door again. Two years later, here we are, just as hooked on oil and as far from a sane energy future as we've ever been. Three thoughts on this:
One: The price of energy changes behavior the way nothing else can. Does anyone doubt that if gasoline had stayed at $4 a gallon or kept rising that we'd be living in a very different world today? That the automobile fleet would look utterly different and miles-per-gallon would be much higher, that there'd be a nationwide drive to conserve energy and that solar collectors would be sprouting on more rooftops in regions where homes are heated with oil?
This is as compelling an argument as there can be for raising the price of oil to reflect its true cost to the environment, to national security, to our balance of payments and to our energy future. Of course, no one wants to pay $4 a gallon. Of course it's hard on the economy, hard on low-income Americans and painful for anyone who drives a car. But Americans don't want to be cleaning up a massive oil spill in the Gulf of Mexico or to be importing the vast majority of our oil, either. If raising the gasoline tax would strain a still-shaky economy, do it slowly. Phase the tax in at the rate of 2 cents a month this year, 3 cents a month next year, and so on. That won't hurt now or even soon, but we'd all know that in three years, gasoline would be about $1 a gallon more expensive, and that it would keep rising after that.
Two: This is a question for Bill Gates, who proposed recently on ABC's This Week that the U.S. increase funding for research into clean energy by $11 billion a year, to $16 billion annually. If R&D were the answer, we’d all be driving electric cars and living in wind-powered homes by now. Yes, there's a role for basic research, but without a price signal, who's going to buy this stuff or invest in it? Over the past 37 years the federal government has spent billions on research. Name one transformative product that has come from that. (Some research advocates say the compact fluorescent bulb, but history also says it was invented at GE.) Or explain how R&D has changed our energy picture broadly for the better since the 1973 oil embargo. Answer: In 1973 we imported about 30 percent of our oil. Today we import 68 percent.
Three: This won’t be popular, but once the six-month moratorium on deepwater drilling in the Gulf of Mexico has run its course -- and preferably sooner -- we should get back to drilling there. And we should expand exploration off the East Coast and in other areas Obama had targeted before the current oil spill.
I used to live in New Orleans and spent time in the bayou country near where the damage from the spill is already being felt, so I don't for a minute minimize how horrific this is for people who love the land or make their living there. It’s a nightmare. But the devil’s bargain we’ve made to be able to drive our cars whenever and wherever we want means that we need oil. Desperately.
We're already dangerously reliant on the world market, which makes our economy hostage to the whims of a notoriously volatile system that also enriches nations who are in varying degrees hostile to us (Russia, Venezuela, Iran) or support groups that are. Even though we don't import oil directly from all of them, we're the world's largest consumer, and we work hard to keep the price up and help make them all richer.
U.S. oil production peaked in October 1970 and has declined steadily since then -- it's now only about half what it was 40 years ago. We've been drilling on land since the first commercial oil well in Titusville, Pa., in 1859 and we're pretty well drilled out (there's still a lot of natural gas to be found, but for now, cars, trucks and buses for the most part don't run on natural gas). Drillers didn't go into the Gulf for fun, they went because that's increasingly where the "elephants" -- huge oil fields -- are, and increasingly they're in deeper and deeper water, even deeper than the nearly 5,000 feet the Deepwater Horizon was drilling in. Right now, the Gulf accounts for almost a third of all U.S. oil production, and more and more of that comes from deep water. Bottom line: The only places left to maintain or perhaps increase U.S. production are offshore, in the Gulf and elsewhere.
Much as it would be nice to dump oil and switch to solar, wind and other alternative energy sources tomorrow -- dream on. It will happen eventually -- it has to -- but any sober analysis suggests it will take 10 years, 20 years, even 30 years to migrate significantly away from oil. Consider just this: There are more than 250 million cars, trucks, buses and motorcycles on U.S. roadways, virtually all of them dependent on fuel that comes from oil. I hope the Chevy Volt – the electric/gasoline hybrid car GM plans to begin selling late this year – is a smash success. But GM is projecting to sell only tens of thousands, not tens of millions. And each will cost the government $7,500 in tax breaks to lure buyers. Hmm. Sell a million (assuming everyone gets the tax break) and the budget is lighter by $7.5 billion in foregone revenue – that’s real money. And there are still about 249 million gasoline- or diesel-powered vehicles left to replace. Further, if the Volt and other electric cars are successful, where’s the electricity going to come from to recharge them? Again, solar and wind would be great, but the reality will be more coal and nuclear plants that haven’t been built yet.
Obama was right to devote a chunk of his Oval Office address on the Gulf oil spill to ending the nation’s addiction to oil. Understandably, he didn’t dwell on the tradeoffs necessary to make that happen, except to say this: “There are costs associated with this transition. And some believe we can’t afford those costs right now. I say we can’t afford not to change how we produce and use energy.” Right. We got a glimpse in 2008 of just how high those costs will be, but we also got a glimpse of just how quickly market forces began to enable people to cope. The alternative is to render ourselves hostage more and more to foreign oil suppliers and hope we’ll always be able to buy what we need at an affordable price. That’s a terrible bet.