April 03, 2004

Oil Alternatives

The boys over at FT putting on the blinders and putting forward the same old conventional response to any oil price difficulties. It would all be better if we just raised taxes, they sadly say. Hogwash!

Given its domestic oil output is in long-term decline, the US needs to focus on curbing oil demand, and here Mr Kerry has so far failed as badly as Mr Bush. He dare not substantiate the tax accusation by proposing a rise in the federal gasoline tax (all of 18.4 cents per gallon, though state excises usually double the total tax). He is soft- pedalling his previous call for tighter fuel efficiency standards, because he wants to carry car-making states. Yet only by showing that it could make do with less Opec oil will the US ever increase its leverage on the cartel.

There are several missed points here. The first is that the actual objective is to secure energy (not necessarily oil) supplies over the long term at reasonable prices to ensure that economic growth will not be energy constrained. Gaining influence over the OPEC cartel is, at best, a tactical goal in a larger strategic plan. It can be important, but making it the be all and end all of your energy policy is just stupid.

Decreasing demand and threatening to impoverish OPEC nations is simply not very smart geopolitics. Sure, efficiency gains should be adopted as they come online but there are several other ways to work the supply side.

1. Increase non-OPEC output: This can be done by providing security and technology to non-OPEC producers.
2. Reduce OPEC membership: If Iraq were to pull out of the cartel, it would strike a severe blow to the cartel's ability to control prices
3. Reduce transition costs to new energy types: Put simply, the hydrogen economy takes all energy inputs and gives them a common form that they can transfer to. This provides a much larger sphere of indirect competition to OPEC oil as a multitude of potential competitors no longer have to build their own distribution systems to come on line.
4. Technology spending to bring new energy sources to market: orbital and lunar solar, core taps, tidal generators, etc. are all possible new sources (and the list is by no means exhaustive)
5. Separate nuclear fear mongering from nuclear reality: nuclear pebble bed reactors that physically cannot melt down need to be separated in the public's mind from old style designs with different problems. Nuclear waste needs to finally start being put into permanent storage

But raising taxes is a much simpler (and simplistic) "solution" to the problem of OPEC. After all, it's worked so well for Europe. Oh, you mean it hasn't? What a surprise, that the EU's experiment in high oil prices hasn't turned the trick after all these years.

Posted by TMLutas at April 3, 2004 02:09 PM