THE BLOG
03/01/2009 05:12 am ET | Updated May 25, 2011

Cheaper Oil Will Improve the Economy, but...

...deleteriously influence investments in next generation renewable energy systems. The U.S. uses about 20 million barrels/day of oil. In 2008, the average price of this oil was close to $100/barrel, or $730 billion/year.

However, the average price of oil is predicted to be about $43/barrel this year. Thus, if true, we will be paying only $328 billion, saving $402 billion, which then, effectively, will enter the U.S. economy. How this multiplies into lower gasoline, airline tickets, food, fertilizer, and so on is beyond my analytical capability, but there must be a multiplier effect that increases the true windfall. Thus, in addition to the upcoming Obama stimulus package seemingly headed towards $1 trillion, just on lower oil prices alone, there will be another $402 billion sum provided to individuals, companies and governments. There should probably be a meaningful multiplier, maybe sufficient to bring this unexpected benevolence to a second trillion dollars, which will again be largely repeated in 2010 because the U.S. Department of Energy predicts that oil prices will then average $54.50/barrel.

Thus, the effective stimulus of more than $3 trillion (and up to $4 billion when you add on the Bush rescue package) over the next two years will probably boost the U.S. economy well beyond expectations. Similar advances will occur world-wide. The only ones to suffer will be those oil-exporting nations. It will be interesting to see what imaginative solutions OPEC will foist on the world to again embarrass the U.S. Department of Energy, which, granted, has been woeful in predicting the future price of petroleum.

Further, about two-thirds of the oil we use is imported. Thus, there is also the matter of $220 billion that we will not be paying to foreign oil suppliers in 2009. Somehow, there is then another nice multiplied sum you can add to the above each year until the anticipated next oil shock happens. Finally, any reduced Middle East war costs will further provide enhancement. Even now, we might be up to $5 trillion over the next couple of years to pump up the national economy.

On the above conditions, some optimism can be expressed about our future:

1. By the end of next year, the Dow Jones Industrials, which could, of course, slide a bit over the next few months, could well be 50% higher than today.

2. Also in that time frame, don't be particularly surprised if crude oil crashes through $100/barrel.

Yet, as the Sun will rise again tomorrow, you can expect skyrocketing crude prices, if not next year, then, surely, sometime within this coming decade. After all, our Energy Informational Agency has been regularly imperfect. In the meantime, as energetic as President Obama has been in his support for renewable energy -- surprising because with oil below $50/barrel, you would think that his foci would be limited to the economy and the Middle East -- with generally reinforcing comments from the Congress, I can only fear that the anticipated withdrawal of major industrial investments in sustainable resource projects will result in only admirable, but insufficient, action from our Congress.

To repeat, from my HuffPo on Do It Now, Congress needs to take advantage of the moment and immediately add a $1/gallon gasoline investment surcharge. We moaned at $4/gallon gasoline when Europeans were paying more than $10/gallon. The national price for premium today is less than $2/gallon. A whole dollar only kicks the price up to $3/gallon. This fund would accrue about $125 billion/year. Work out the rebates and subsidies, but spend most of the revenues on renewable energy research, demonstration and commercialization.

Secondly, on a global scale, the G8 nations need to agree at their 2009 Italian Summit on a 1 cent/pound carbon dioxide remediation duty linked to crude oil at $30/barrel, to proportionately increase such that the levy would be 5 cents/pound carbon dioxide at $150/bbl crude. The sum collected could amount to about $200 billion/year just in the U.S. Funds should be used by each country to install smart grids and accelerate renewable energy investments. At 2 cents/pound (when oil reaches $60/barrel), coal-fired electricity would almost double, making unnecessary any renewable energy tax credits, bringing into competitiveness wind power and utility scale solar thermal power.

What are the prospects of a $1/gallon gasoline investment surcharge and a one cent/pound carbon dioxide remediation duty (both, incidentally, also known as taxes) becoming real over the next year? One or more of you reading this posting could well be that galvanizing spirit to make this happen. Just read my Epilogue in SIMPLE SOLUTIONS for Humanity and be inspired.