Oil: The Bad News in the Good News

(Flickr/Mayhem Chaos)

An oil field near Bakerfield, California

On Monday, the International Energy Agency (IEA) came out with a stunner of a projection. The United States will replace Saudi Arabia as the world’s largest producer of oil by 2020, thanks to the unlocking of massive shale oil reserves. With hydro-fracking technology, the U.S. is riding a boom in natural gas as well. 

Oil production will increase from its current level of about 6 million barrels a day per year to 11 million barrels by 2020. Within a few years, the U.S. will be a net exporter.

Pardon me if I don’t rejoice.

This good news all but guarantees that the United States government, Democrat or Republican, will turn away from efforts to replace carbon fuels with clean, renewable energy. It guarantees another generation of relatively cheap gasoline for motorists—and an increase in the U.S. contribution to global climate change.

Hundreds of thousands of people are still suffering the aftereffects of Hurricane Sandy. But Sandy is already yesterday’s news.

Except that Sandy—and more and bigger super-storms and ocean surges—are in fact tomorrow’s news. Even if we redouble our efforts to remedy climate change, we will suffer worsening weird weather. And if cheap oil redoubles our consumption of carbon fuels, we only accelerate the destruction.

Between the aversion of America’s drivers to paying even a modest gas tax; the electoral politics of coal, gas, and oil; and the phony budget crisis, the United States was already far off track in what needed to be done. Even the low-fruit of energy conservation is unimpressive. At Monday’s press conference announcing the new oil projection, the IEA’s chief economist, Fatih Birol, called the lack of progress on conservation an “epic failure.”

With the U.S. wallowing in oil and refusing to tax carbon, it becomes far harder to promote Third World efforts to skip over the West’s dirty industrialization phase and pursue a clean-energy path.

Environmentalists who had been relying on projections of “peak oil” to spur efforts to cut carbon emissions will now need to redouble efforts to educate the public on the fact that we are destroying our habitat. With newly plentiful oil, prices of crude have dropped from a peak of $147.25 a barrel in 2008 to $85.55 today. Prices are down about 13 percent this year, and a future of cheap fuel will only undercut conservation and a shift to cleaner energy.

By the time peak oil truly arrives, late in this century, we will be that much further down the road to climate hell. You wonder how many more Sandys it will take before Americans get the message. Even for those who doubt that climate change is man-made, there is no doubt that the polar ice is melting and the oceans are rising.

Oh, and one more bit of bad news in the good news. All of this new oil production will only increase the political power of the oil industry and the bragging rights of conservatives.

The Wall Street Journal lead editorial on the subject, titled “Saudi America,” gloats that the green-energy revolution is being overtaken by a new boom in fossil fuels. The editorial never once mentions climate change.

“Saudi America” is unintended irony. This country is becoming an oligarchy—make that oilagarchy.


A few observations. First, the IEA is not necessarily a reliable source for oil production projections, which they have been revising steadily downwards for the past 5 years. The world oil situation is still quite precarious, and this article's description of the change in oil price from $147 to $85 leaves out some important details. For example, oil did not steadily decrease from $147 to $85 as supply increased. Instead, when oil hit $147 per barrel in mid 2008, the world economy crashed, taking demand and oil prices with it. By late 2008, prices had fallen to $40 per barrel, less than half of current prices. Then as the economy began to recover, oil prices steadily rose, until they broke $100 again in late 2010. For the two years since, oil has bounced around between $80 per barrel and $120 per barrel. While WTI, the US benchmark for oil, is now $85, it was at $110 earlier this year, and at $100 as recently as September. This is not a tale of steadily increasing supply. This is a complex interaction between global economic health, increasing supply concerns, and demand fluctuations. The article also seems to overlook the fact that even the IEA's rosy projections have the price of oil rising steadily over the next decades. We are not going back to a time of cheap fuel, and rising oil prices still have the potential to drive a shift to different energy sources. They also remain a serious threat to global economic stability. Regardless of future supply concerns, I do agree that the media triumphantly proclaiming this new golden age of oil all incomprehensibly overlook the IEA's recommendation in the same report that we must leave a third of proven reserves in the ground to avoid catastrophic warming. Peak oil doesn't help with that, because we're talking about reserves that we already know exist - they are there whether oil production begins to decline or not. But peak oil is happening right now, and may yet spur the sort of innovation we desperately need. I don't see anything else that's gonna do it at this point, so we had better hope the oil boom peaks a lot sooner than the IEA predicts.

If we, the people, put pressure on the Obama administration, we can force investment in renewable energy DESPITE the (temporary) reduction in the cost of producing fossil fuels. The fact that gas is getting cheaper can give us some BREATHING ROOM, and provide a way to relieve the interim suffering of poor and middle class workers.

The problem is that adding taxes to raise the price of fossil fuels hurts those who have no choice but to burn them (to get to work), no choice but to burn them INEFFICIENTLY (due to older vehicles they cannot afford to replace), and no choice but to go long distances to work (rural residents, homeowners who cannot afford to move closer to work, or who have to take jobs farther from home). Until this market mechanism actually PRODUCES cheaper renewable energy, and these people can afford to purchase vehicles that can USE that fuel (so far, biodiesel cannot help owners of gasoline cars), these people will be stuck even deeper in poverty. Yet, higher energy prices are the only way to encourage conservation when possible in the short term and make renewable fuels competitive.

The answer, as I see it, is a COMBO package: on the one hand, a tax on fossil fuels that brings them up to a common "pump price" higher than the profitable price of renewable fuels; on the other hand, a tax credit that nullifies that tax on ESSENTIAL travel such as commuting to work, small business (not corporate) travel, college and medical commuting.

For most wage earners, their employers, who know their home addresses and work location addresses, and number of work shifts per pay period, can directly add that rebate to the paychecks and get reimbursed by the IRS. Other taxpayers such as small businesses, and taxpayers reporting medical and educational mileage, can be reimbursed on their quarterly or annual tax returns.

As the proportion of energy from fossil fuels decreases, and the cost of the renewable fuels goes down, the tax could be reduced, eventually being phased out. In addition, just as the government subsides (actually, makes) educational loans, it could have a fund to finance replacement of older, inefficient vehicles with newer, efficient and alternative fuel vehicles.

This would help us to achieve our Energy Renewable Goals, so it could be called the ERG program (scientists will recognize that energy is measured in ERGS). Any discussion of this idea?

One more point about the ERG tax rebate: the rebate is based on MILEAGE and the AVERAGE tax collected per mile, adjusted periodically as the mix of fossil and renewable fuel usage changes. Workers who ALREADY have reduced their fuel costs, one way or the other, can make a PROFIT from the rebate, while those who have not will break even. As time goes on, however, those who do not improve their fuel costs will begin to lose, but they will have time to make that adjustment (especially with public financing for replacement, something anticipated by "cash for clunkers"). REFUSING to adjust out of stubbornness will cost even more.

Even for those who doubt that climate change is man-made, there is no doubt that the polar ice is melting and the oceans are rising. www.yachtchartersardinien.com

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