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The Politics of Petroleum Prices and Our Energy Future

Posted: 03/ 5/2012 8:25 am

Gasoline prices have been rising for three months and according to the AAA, the average price nationwide was $3.76 last weekend.

Rising gas prices prompted Newt and Rick to blast the Obama Administration and promise that if the federal government would just get out of the way, we could "drill baby drill" back to $2.50 per gallon. Last week, I was part of a discussion of this issue on a terrific New York City cable show called Inside City Hall, hosted by the incomparable Errol Lewis. After watching clips of the candidates promising cheap gas, I described their statements as "idiocy." On reflection, I think I was being easy on those guys.

Oil is part of a global market. If you "drill baby drill" in the United States, there is no guarantee that the oil will stay in the United States. It will enter the global marketplace and be sold to the highest bidder. The fundamental fact of the oil market is that demand is growing. Supplies are growing too, but the market is volatile. Prices vary due to the political factors that interrupt supply-like wars and revolution in the Middle East and by rapid increases in consumption, especially in Asia. Speculation also has an impact on the volatility of gasoline prices.

The increases in petroleum consumption over the past thirty years have been dramatic, as has the relative shift in consumption from the West to the East. According to the U.S. Energy Information Agency, in 1980, the world consumed a little more than 60 million barrels of petroleum every day. In 2010 that number topped 80 million barrels a day. That's an awful lot of new "drill baby drill" in three decades. Perhaps as important as the total consumption of oil is the global distribution of that consumption. In 1980, North America consumed about one third of all petroleum and Asia only 16 percent. In 2010, we consumed 27 percent of the daily supply of oil and Asia consumed 29 percent. The competition for the world's oil supply is a major cause of higher gasoline prices. However, as we all know, what goes up also seems to come down, as well.

In fact, an indication of the volatility of gas prices is that according to the AAA, average gasoline prices today are actually lower than they were on May 1, 2011 -- when they peaked at $3.94 a gallon. After May 1, and despite the fact that more Americans drive in the summer than in other seasons, prices dropped last summer, hitting $3.54 a gallon on September 1, 2011.

I know we don't want to confuse this year's Presidential race with any facts, but the story of gas prices is one of rapid increases and decreases. It's a mark of the desperation of Gingrich and Santorum that they use the price of gasoline as the basis for an attack. They must know that the price of gas will probably decline after Labor Day, and keep declining until Election Day. I assume they are not worried about that since the Republican Convention in Tampa will end on August 30, and in all likelihood so will their candidacies. Nevertheless, while I certainly don't expect a presidential campaign to serve as a time of great national debate and dialogue, 2012 seems to be about as far as you can get from a meaningful, substantive discussion.

There are, of course, great issues of national policy being introduced, but the discussions are dominated by symbolic gestures and non-stop and deceptive media attacks that refuse to take the opposition's views as legitimate and substantive. Our nation needs to develop a consensus on the role of the state in the national economy, the nature of the social safety net, the role of money in politics, the limits to privacy rights, national security strategy, and the role of the state in defining and enforcing public morality. Compared to the gravity of those issues, energy seems almost trivial, but while energy policy does not require deep, philosophical analysis, it does require us to do more than pander about price and pretend that more drilling will really make a difference.

Energy is a part of everyday life in ways that only become clear to us when we are denied energy during a blackout. When we lose light, refrigeration, air conditioning, heat, the Internet and television, we get a sense of our dependence on energy. If you also consider our use of cars, jets and trains and the use of energy to distribute and store food, you might develop an even deeper appreciation of the centrality of energy to modern life. Then think of what the absence of energy would do to the electronic security systems in our prisons or the operation of water filtration and sewage treatment facilities. Think of how much energy is used by fire, police and ambulance services -- not to mention healthcare facilities. When you take all of that into account, you might want a more substantive and compelling energy policy than "blame Obama" or "drill-baby-drill." In fact, you might want to start thinking about what we will do when the cost of extracting and burning fossil fuels starts to exceed their benefits.

Consider these facts. In the 1960s there were three billion people on the planet, today there are seven billion, and when population finally peaks it will reach ten billion. More and more of the planet's population is starting to live like us and use more and more energy all the time. For all practical purposes, the fossil fuels now on the planet are all we will ever have here. While we will not run out of fossil fuels in our lifetime, some day they will become so scarce or risky to extract that they will be too expensive to use. The sooner we discover a cheaper form of energy that is not finite and not buried underground, the better off we will all be. We need an energy policy that acknowledges the centrality of energy to modern life and focuses scientific and corporate attention on developing fossil fuel free energy.

What we have instead is an interest group-dominated battle over subsidies and ideological warfare over drilling vs. protecting the environment. The great irony is that the more valuable use of hydrocarbons may be in construction and manufacturing. Our grandchildren will wonder what we were thinking when we burned, rather than used, all that oil and coal we extracted from the crust of the earth. Despite the absence of substantive discussion of energy issues in the 2012 campaign, I remain hopeful. Somewhere in a garage in America, or a laboratory in China, there are scientists busy inventing a form of renewable energy that will transform our economy and re-direct the policy conversation. Like the auto, radio, TV, Internet, personal computer and smart phone, this renewable energy technology will be transformative. Unlike those other technologies it will produce, rather than consume, energy. Let's hope it happens soon.

 

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