Monday, May 12, 2008

It's Time for An Intervention

photo courtesy of The Cartoonist Group

As Daniel J Weiss reported in his article "Up, Up and Away" the escalating oil prices in America can be attributed to a number of factors.

He writes:

Analysts suggest that there are five primary factors contributing to the year-long rise in crude oil prices:

  • the low value of the dollar,
  • increased demand from China and India,
  • dwindling supplies,
  • political instability in some oil producing nations, and
  • an assumption from speculators that prices will continue to rise."
I'd also add to the analyst's list:

  • the lack of a government energy policy that benefits the consumer not just the oil industry
  • a failure on the part of the oil industry to reinvest its profits into the development of alternative energy
  • corporate greed and collusion, and
  • a failure to be honest with the American consumer

The truth that most politicians don't want to tell you is this:
  • the low value of the dollar is tied to the sub-prime mortgage and credit crisis as well as the US trade deficit.
  • demand from China, India and other developing nations will continue to increase and there's nothing that the US government can do about that
  • It took millions of years to create the fossil fuel that it has taken the world a little over a hundred years to consume. There is a limited quantity left in the world and when it's gone, it's gone. So running the risk of destroying pristine wilderness or coastline for centuries will only buy consumers another decade or two of oil.
  • the US should not ( and cannot ) intervene in the political affairs of every oil producing nation just because we need their oil and,
  • in a generation whose mantra is "greed is good", there will always be speculators.
In short, oil prices will continue to go up. As long as Americans are addicted to oil they'll do anything to get their fix and the Oil pushers will bank the profits while they can. Have you heard the phrase "Get It While the Getting Is Good".

It's Time for An Intervention

There is an answer to the problem of high oil prices. It's called adjusting our lifestyles as we switch to alternative energy solutions. Think of it as a form of detox and rehab that involves a serious commitment and a lot of discomfort. But that's not the answer that most people want to hear. And, it's not an answer that will get most politicians re-elected.

Republicans like Senator Mitch McConnell (R-KY) want to convince you that the US oil crisis and consumers'
discomfort will be eased by allowing drilling in the Artic Natural Wildlife Refuge (ANWR) or along the California and Florida coastlines (S.2958). In fact, Senator Lisa Murkowski (R-AL) argued before Congress today that drilling in ANWR is reasonable, environmentally feasible, and will correct the "supply and demand" imbalance that is driving up oil prices. Iaf you buy that argument then you probably still believe that the Iraq oil revenues are paying for the US invasion of Iraq. You are in denial.

At a recent campaign rally Sen. McCain expressed support for drilling for oil domestically, as long as states allow it, and also pushed development of solar, wind, tidal, and nuclear power.

On the other side of the aisle, the Democrats ( and even Republican presidential candidate, John McCain) are suggesting that the government stop adding to the US strategic petroleum reserve. Senator Hillary Clinton has proposed a "gas tax holiday". These two are short term solutions that are beginning to remind me of giving morphine to a dying patient to ease the pain.

Don't get me wrong, I am as financially affected by rising gasoline prices as the vast majority of American consumers. Any idea that will help give me a break at pump, the supermarket, anything that is shipped and on utilities will be welcome but haven't we learned from the credit crisis that the party now and pay later concept just doesn't work.

American consumers need an intervention. They need politicians, journalists, scientists and environmentalist who are willing to speak the truth. Americans need to be told that the pain that they are experiencing today is not going to get easier just by putting it off for a few years.

To borrow a phrase from Al Gore this is just one more "inconvenient truth".

In the following articles New York Times op-ed columnist Paul Krugman explains that referring to the rising price of oil as an "Oil Bubble" is misleading and his colleague Mark Clayton of the Christian Science Monitor reports that economists predicted two years ago that today's oil prices would lead to recession.

excerpt from:
The Oil Non-Bubble
by Paul Krugman for NYTimes
All through oil’s five-year price surge, which has taken it from $25 a barrel to last week’s close above $125, there have been many voices declaring that it’s all a bubble, unsupported by the fundamentals of supply and demand.

Now, speculators do sometimes push commodity prices far above the level justified by fundamentals. But when that happens, there are telltale signs that just aren’t there in today’s oil market.

Saying that high-priced oil isn’t a bubble doesn’t mean that oil prices will never decline. I wouldn’t be shocked if a pullback in demand, driven by delayed effects of high prices, sends the price of crude back below $100 for a while. But it does mean that speculators aren’t at the heart of the story.

Why, then, do we keep hearing assertions that they are?

Part of the answer may be the undoubted fact that many people are now investing in oil futures — which feeds suspicion that speculators are running the show, even though there’s no good evidence that prices have gotten out of line.

But there’s also a political component.

Traditionally, denunciations of speculators come from the left of the political spectrum. In the case of oil prices, however, the most vociferous proponents of the view that it’s all the speculators’ fault have been conservatives — people whom you wouldn’t normally expect to see warning about the nefarious activities of investment banks and hedge funds.

The explanation of this seeming paradox is that wishful thinking has trumped pro-market ideology.

After all, a realistic view of what’s happened over the past few years suggests that we’re heading into an era of increasingly scarce, costly oil.

The consequences of that scarcity probably won’t be apocalyptic: France consumes only half as much oil per capita as America, yet the last time I looked, Paris wasn’t a howling wasteland. But the odds are that we’re looking at a future in which energy conservation becomes increasingly important, in which many people may even — gasp — take public transit to work

excerpt from
Oil Shock 2
by Mark Clayton for CSMonitor

Two years ago a leading economist published a study provocatively titled: "What would $120 oil mean for the global economy?" Answer: a global recession, if the price stayed there for a year.

Now the future has arrived, with the United States and other nations getting a double whammy from both the mortgage crisis and oil futures hovering at $120 per barrel. If oil prices stay stratospheric, the cost of fueling cars and planes could slash US economic growth up to 2.3 percent and global growth by 3.6 percent, says Robert Wescott, former chief economist of the president's council of economic advisers and author of the $120 oil report.

While many energy-security experts worry about a terrorist attack that suddenly crimps global oil supplies and hammers the US economy, Dr. Wescott and other experts say a terror attack is hardly the only, or even the worst, oil threat the nation now faces. "What we are seeing today is more of a slow-motion, rolling oil crisis rather than a sharp shock, yet ultimately we end up with the same sorts of impacts [as a terror attack]," says Wescott, now president of Keybridge Research, a Washington economic-consulting firm.

Unlike the 1970s, when an oil embargo left Americans waiting in long lines at gasoline stations and paying higher prices, today's oil crisis has been stealthy. Its economic impact has been masked by consumers tapping credit cards and home equity to cover the rising cost of energy and some consumer goods.

But where there is awareness of the problem there is hope. Perhaps nobody knows better what the nation could do – but mostly has not yet done – than Amory Lovins. An American energy guru since the gas lines of the 1970s, he has focused like a laser beam on how the nation can save energy. "What we need to do to cut oil consumption is quite clear," says the cofounder of the Rocky Mountain Institute, an energy think tank in Snowmass, Colo. "But attention keeps getting focused on the wrong things – like subsidies for the oil industry to find more oil. That's the wrong way to go."

Congress's move last year to raise vehicle fuel-economy standards to 35 miles per gallon by 2020 was a good first step – but not enough, he says.

In today's slowly unfolding yet serious oil crisis, Mr. Lovins would slash 9 percent of the nation's oil demand in one year with more than 30 fuel-saving measures. Among them:

•Reduce speed limits to 60 miles per hour for light vehicles, 55 m.p.h. for heavy trucks. Expand HOV-lane use to include alternative fuel vehicles (AFVs), hybrids, and all-electric vehicles.

•Encourage mass-transit use by letting all citizens deduct the cost from their taxes. Require "parking cash-out" so employees can take cash instead of free parking at work.

•Extend federal tax credits for AFV, hybrid, and electric vehicles to many more than the current 60,000 vehicles per manufacturer limit.

•Require one-engine-only idling for jet aircraft waiting to take off. Offer US loan guarantees to airlines upgrading to efficient aircraft and tax credits for replacing heavy interior parts with lightweight materials.

Related posts:

Shell and BP's Blowaway Numbers

Big Oil Takes A Page Out of the Pentagon's Playbook

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