The alternate approach to the gas problem

Simplistically there are two approaches a government can take to a crisis. They can do something about it, or they can do nothing. Back in the days of President Carter the nation tried the first approach when faced with an energy crisis, this time we are trying the second.

When asked specifically last night as to whether his proposals would affect the nation's gas supply and prices, President Bush in essence said no. The price, and supply, of enough gas to feed the nation and the world is out of his hands and there is nothing he intends to do about it that will have any effect within the next five years.

This is after opening his press conference with the comment that
because of higher gasoline prices. My administration is doing everything we can to make gasoline more affordable.

In the near term, we will continue to encourage oil-producing nations to maximize their production.

Here at home, we'll protect consumers. There will be no price gouging at gas pumps in America.

We must address the root causes that are driving up gas prices.

BUSH: In the past decade, America's energy consumption has been growing about 40 times faster than our energy production. That means we're relying more on energy produced abroad.

To reduce our dependence on foreign sources of energy, we must take four key steps.

First, we must better use technology to become better conservers of energy.

And secondly, we must find innovative and environmentally sensitive ways to make the most of our existing energy resources, including oil, natural gas, coal and safe, clean nuclear power.

Third, we must develop promising new sources of energy, such as hydrogen, ethanol or bio-diesel.

Fourth, we must help growing energy consumers overseas, like China and India, apply new technologies to use energy more efficiently and reduce global demand of fossil fuels.
While these are valid goals, there was no indication that the effort will include anything beyond the Energy Bill that the President hopes to sign this summer. And that does not really address any significant new efforts in regard to the first two of the steps, which is unfortunate since these might have some effect on the demand:supply ratio that is developing.

The choice to let market forces drive the price, and the hope that this will induce further supplies to come on the market is unlikely to generate much more oil, since most producers have been providing as much as they can at the existing higher prices. But as the Crown Prince said the other day, there are also constraints in that the transport system to move the oil, and the refineries to process it, are becoming fully employed. This issue is not quite yet that of Peak Oil, rather it is one of supply and demand. It will become a Peak Oil issue when the suppliers such as Mexico, the North Sea countries and many others continue to see a decline in their production and their current customers go onto the market to find an alternate supply and find that there isn't one. And that may or may not yet happen this year. And if we lost the opportunity to do something about that situation ten years ago, as the President pointed out last night, we obviously are not making much of the opportunity to change that situation now.
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When the market is your god, then you rely on the market to solve all problems.

We're entering a time when many people will have to accept changes they don't like--environmentalists will have to live with much more aggressive exploration and development, and businesses will have to cope with more regulation. As for the free market worshippers, they'll be faced with the surest proof yet that while the market is indeed very good at short-term resource allocations, it's terrible at preventing an overshoot condition--the price signals don't appear until far too late. Our best hope in the coming years is to use a combination of the centralized decision making (strategy) and the market (tactics).

On my blog today I linked back to the "A Complete Waste of Energy" article by Jerry Taylor of the Cato Institute and Dan Becker of the Sierra Club. It seems to be a good quick summary of why we don't have a free market in energy.

I'm really concerned that what we have is a market distorted by both party's pet projects.

I do think we need to get ahead of the dual problems of peak oil and global warming ... but "continuing funding" isn't going to do it.

I was not particularly suggesting that anything be funded, rather pointing out that while the President had talked about "incredible technological advances that will make energy more abundant" he did not actually specify anything that might help with the developing gas problem.

Investing in R&D to find answers can produce them, but only if it is tried. Apparently, over and above current investment, we are not going to be doing that.

I'm mad at "them," not you ;-)

We've got this jumble of local, state, and federal programs. I think all the research is good. Some might promise better payoff than others, but none is genuinely bad.

On the other hand, I think production subsidies are hiding our progress at best, and drag us off into supporting inefficient "constituencies" at worst.

My summary of Bush's energy talk, FWIW:

1. Don't blame me for high gas prices, Clinton should have started something 10 years ago.

2. On the other hand, ten years from now, magic tech will rule the earth and solve all our problems. So you might just as well give me my energy pork bill this summer. Party on!

This gets at a point I was trying to hammer home a few days ago...

part of having an energy policy, at least in my opinion, is a coordinated effort in R&D, conservation programs, and tax increases, etc., that is clearly stated and funded at the federal level.

but the right is so far from believing in that...that it cannot happen until at least 2006 or 2008. That's a scary prospect if the peak is now or soon, isn't it?

Also, the states don't have any freaking money to make any real investment in energy policy (thanks to the policy devolution that has occurred since Reagan) other than "service" programs (coordinating rideshare, setting speed limits, etc.) that are cheap.

another point this hits that I mentioned a few posts back: market solutions are not the way out of the tragedy/governance of the commons. you need some sort of central coordination and enforcement of consumption or demand destruction to make policy change (Carter's solution).

Bring me a Shrubbery! *ugh*

Note that Bush doesn't mention anything about low-energy development and mass transit. The US was able to ration motorists to 3 gallons per week in WWII. What's more, per capita motor vehicle registration then was only a sixth of what it is now. The only reason that was possible was because the auto-centric development of the US hadn't started yet. Public transit, railroads, streetcars, and buses, was an order of magnitude better in the country as a whole in the 1940's than it is tody. Cities and small towns were laid out so that most travel could be done on foot. The rest was by public transit. The average person didn't have access to an automobile, nor did they need it. Those with automobiles that came up against strict wartime rationing, had a public transit alternative. That alternative is mostly gone in the US today.

Most US environmentalists are also on the same side as Bush in this. They keep citing alternative fuel sources and better mileage for cars. But the one thing that has really caused Americans to use more than twice as much energy as Europeans is that they've structured their communities around autombiles and easy motoring.

Go back to the dense communities served by good public transit if you really want to save energy. Go back to the model of 60 years ago. That's really a very brief interval as history goes. If car-centric development is not abandoned for a traditional model, the US won't be able to make the energy savings needed for this century. If it takes you an hour or two to walk to the nearest store, and there's no other way to get from your home to work by driving, we're screwed. We can't keep the late-20th century US lifestyle and make it. It's a development model predicated on cheap energy, and there's little room for adapting it to conservation. If the per-capita motor vehicle registration and per capita motor vehicle miles are not lowered, it will all be too little, too late.

Maybe 2008, if we're lucky. Here's what I see:

1. The oil corporations do not at this time want to develop alternatives in a big way, whether EOR, hydrogen, anything. It could be because they're making large amounts of money just by standing pat, or they do not want to make the long-term investment of billions, or they still think that they have a shot at $1.50/bbl Iraqi oil someday, or some combo of reasons.

2. The Republicans like tax breaks for private industry rather than funding anything.

3. If the oil corporations do not want to invest in anything, they will use all their pull to make sure that nobody else does either. This is just basic CYA, they do not want any competitors if they've guessed wrong. You saw some of this in the 80's (yeah, I'm that old). And Republicans do few things better than following the wishes of their business constituencies, especially oil.

Just a note, that while I'm down on "prodction funding" for new sources, I definitely see the need to tax old dirty fuels.

In my opinion the combination of three things will yield optimum results:

- taxes on "bad" energy
- reserch into possible replacements
- a free market in those replacements

That would seem to guarantee that the bad goes away, and the most efficient replaces it.

The problem with the status quo is that the corn lobby fights the hydrogen lobby, and the winner will likely be political rather than practical.

FYI - Tim is on the mark here. The following is a direct quote from a senior level meeting which I overheard:

"Hell, we made more money this year by finding less! (laughter) Think the contracts guys can tell folks we're all out with the flu? (bigger laughter) If this keeps going on, we may have to pay the drilling guys to stay home! (REALLY BIG laughs) Then somebody closed the door.....

The high prices are raising share prices tremendously vis higher profits regardless of reserve position.