Hindsight to augment our foresight

By Jared Anderson

I cannot help but think that at least once during the past few weeks, Cuban President Raul Castro has glanced at a news headline concerning the United States and let out a subtle chuckle.  As he strategically auctions off the Gulf of Mexico to China, Venezuela, Spain, India, Vietnam, Malaysia, Canada, and Brazil (as of June 3rd, 2008), his neighbors 70 miles to the north sit back and debate further increasing restrictions on their energy usage.  Halfway around the world, Russian Prime Minister Vladimir Putin was surely amused as he read about the U.S. House of Representatives’ threatening to “socialize” the oil industry, courtesy of Maxine Waters (D-CA). As a reference point, Putin has just announced tax breaks that Russia estimates will save its oil companies $4.4 billion in 2009 alone as part of an attempt to bolster the country’s production.[1]

These nations are facing the same energy challenges as we are. In many cases, they pay even more for gas. The only difference, then, is that their lawmakers are actually taking steps to overcome these obstacles.Congress’ recent futile attempts to address the situation draw a stark contrast with the calculated maneuvers towards energy security taken by China, Russia, and a host of other countries. Our lawmakers’ answers have been, at best, confounded, at worst, entirely inept. As the result of a nationwide outcry over gas prices, the House, on May 20th, rushed to action by passing a resolution giving the Justice Department the authority to sue the Organization of Petroleum Exporting Countries (OPEC), the body that controls two-thirds of the world’s proven oil reserves. Logic seems to point to the conclusion that, after politely rebuffing President Bush’s May 16th plea to increase oil production, Saudi Arabia will at no point be suddenly compelled to raise its oil output. And yes, regardless of whether or not Congress decides to sue them. Our lawmakers act as though they forget that in our current arrangement, Saudi Arabia holds the trump card, not us. They have shown no inclination to relinquish their position any time soon, either. Then, on May 21st, members of the Senate’s Judiciary Committee grilled oil executives about their earnings, seemingly unaware of the fact that commodities, especially popular ones, generally have a history of generating profits. In reality, the hearings did nothing; aside from provide the news media with enticing clips of the oil executives being portrayed as the “bad guys”. So, over the course of less than two weeks, Congress has proved one of two things: it is either completely unaware of the energy challenges our country faces, or it is aware and simply doesn’t care enough to take substantial action. Neither scenario conveys a particularly positive portrayal of our legislative branch, to say the least.

Granted, Congress must be given some credit, if only the most negligible sliver. The aforementioned actions were at least spun very effectively to portray Congress as a sympathetic body demonstrating concern for escalating oil prices, a trap some Americans surely fell into. Point blank, that pseudo-complement cannot be bestowed upon its most recent undertaking.

The Climate Security Act (S. 2191) began debate in the Senate on June 3rd, 2008, and is sponsored by Senators Joe Lieberman (D-CT) and John Warner (R-VA), respectively. The bill calls for a cap-and-trade system designed to reduce greenhouse gas emissions by 66% by the year 2050, as has been touted by its supporters. However, numerous analyses of the bill have exposed it as incredibly detrimental to all aspects of the U.S. economy.  At a time when gas prices are constricting the flexibility of all Americans, the proposed bill would raise the national average of gas prices by as much as $1 by 2030, according to a number of analyses. A Heritage Foundation report predicts that the bill will cause a GDP loss of between $1.7 and $4.8 trillion by the year 2030, and the Energy Information Administration forecasts that the bill would result in a 9.5% drop in our manufacturing output.[2] [3] On an individual level, families are projected to pay an average of $467 extra for gas and electricity each year between 2012 and 2030.2 Finally, the Environmental Protection Agency has concluded that even in a best-case scenario, the Climate Security Act would only reduce global CO2 emissions by 1.4%. [4]

While Congress’ previous acts may be the result of naiveté, the potential of classifying a bill almost universally expected to harm the economy as a solution to our nation’s energy challenges is downright impossible. Rather, the legislation falls squarely in line with a pattern of the past three decades: the trend of Congress’ consistent hindrance of our nation’s energy production.

Today, we are the only country in the entire world that tirelessly places restriction after restriction on itself; the only country that impedes its industry from utilizing the strategic resources within its own borders. At a time when China and India are posturing aggressively to meet the needs of their booming populations, at a time when we have far more restrictions on energy exploration than anyone, Congress quarrels over a cap-and-trade system to add to our restrictions and compound the situation further. Something is truly, truly wrong with what is going on, and something desperately needs be done so that, at the very least, our actions reflect some sort of logic and both acknowledge and address the situation at hand.

However, as so often is the case, for a proven solution to this problem we need only to look to the past. Far too little attention has been given to 1980, when OPEC was just beginning to utilize its ability to control the price of oil. That year, OPEC raised oil prices to $35 per barrel as a result of the 1979 Iranian Revolution and the subsequent Iraq-Iran war, amounting to an astounding 2,500% price hike since 1970.[5] While the increase caused a shock to the world’s economy, the United States, among other nations, worked to divert power away from the cartel. Countries throughout the world underwent massive energy exploration campaigns with the overarching goal of securing sources of oil unaffiliated with OPEC. New technology allowed offshore drilling to be conducted off the coasts Britain, Norway, and the United States, in addition to the tapping of the tar sands of Alberta and Mexico. Additionally, during the 1980’s, a worldwide shift towards the research of alternative energy options occurred as scientists explored the possibilities of energy from geothermal, wind, solar, nuclear, hydro-electric, and natural gas sources.

The efforts to curb OPEC’s hegemony were undeniably successful. The use of alternate energy sources allowed oil consumption in the Global North to decline to 58% of the world’s oil usage by the mid-1980’s, down 5% from 1979.  The increased production of oil from non-OPEC nations caused the cartel’s share of the global oil market to fall drastically, from 63% in 1972 to 37% in 1989.5

In some regards, the effects of all of these measures proved to be too effective. OPEC was forced to lower its prices significantly by the late 1980’s. Major oil firms cut investments in oil exploration from $14 billion in 1983 to $5.3 billion in 1992, as it was simply more profitable to pay for OPEC’s oil.5 Research on alternative energy sources wound down in a similar fashion, and left the international community with inconclusive evidence about the viability of a number of potential options.

Today, we see virtually the same predicament arising. The only thing that has changed is that the limitations of oil loom larger now than ever on the horizon. As was the case 30 years ago, no immediate fix exists to alleviate the problem; oil is simply too interwoven into our infrastructure to facilitate a dramatic shift away from the resource. We can, however, apply the same solutions that worked then.

Clearly, we need a wide range of remedies to confront our energy dilemma. Some will help us in the short term; others must project over the long term. Fortunately for us, the most vital step has already been taken. Americans are shying away from oil-consuming activities and are considering how they use their oil, as evidenced by a May in which Ford, General Motors, and Chrysler all experienced significant declines in automobile sales. This is a basic tenet of capitalism at work: the market simply refused to sustain the oil prices that had ballooned so quickly. With more subtle responses by the consumers, prices will inevitably continue to fall.

However, this brings us back to the crux of our problem. While Americans are indeed doing a great deal, their attempts will be in vein if not supported by our legislators. They, after all, are the ones who we vest authority in to make our laws. Congress must take substantial action, must listen to the 373,500 Americans who have signed Newt Gingrich’s “Drill Here, Drill Now, Pay Less” campaign and begin looking for a solution immediately.

Just as in the 1980’s, the Congress’ most viable short-term option is to diversify where we get our oil from. Not solely in a political sense, but also in a more general, physical regard. We simply need more refineries in more places. As I’ve alluded to before, it is absolutely imperative that we maximize our output here in the United States. That means we must relieve the sanctions that impede our own oil companies from exploring, drilling, and producing our oil, as perfectly summarized by Shell Oil President John Hofmeister in his Congressional testimony: “I can guarantee…$5 will look like a very low price in the years to come if we are prohibited from finding new reserves, new opportunities to increase supplies.” In addition to relieving our forced binds with nations like Saudi Arabia, doing so would create jobs and boost our domestic economic prospects almost immediately, as demonstrated by a comprehensive report on the banned Arctic National Wildlife Refuge’s oil potential conducted by the EIA. [6] And for the environmentalists, drilling on roughly two thousand acres out of ANWR’s 19 million acres will have no significant effect on its wildlife. It is time to stop valuing the “inconvenience” caused to a handful of animals by forcing them to migrate over our nation’s energy production. If Congress wants to actually show that they hold our nation’s energy security in the highest regard, the first place to start is by mending its own nonsensical, repressive actions of the past.

In terms of diversifying the types of our energy sources, there are a number of viable options to turn to with varying future projections. During a time in which Japan, France, South Korea, Russia and China are all lining up to build nuclear plants, there is no explanation for the United States to continue allowing the bureaucratic process to impede our construction of an energy source that has proven to be incredibly clean and efficient.  As the possessor of the world’s largest reserves of coal, we must investigate new ways to utilize the resource efficiently using today’s technology. Potentially most importantly, oil shale must be revisited. According to a RAND Cooperation survey, the United States has an estimated 800 billion barrels of the shale within its own borders, more than three times the proven oil reserves of Saudi Arabia.[7] While the oil shale extraction has not been cost-effective in the past, the RAND study concluded that any oil price of over $95 per barrel would render oil shale viable. Thus, without even considering the technological advancements that would be made were oil shale to be returned to, oil shale is a long-term, sensible solution literally right beneath our feet. All we have to do is get Congress out of the way.

Finally, the most critical caveat of energy security is that we keep in mind the ultimate goal that, someday, we will need to completely eliminate our reliance on oil. That possibility is much more imminent now than it was during the 1980’s, when many of the world’s oil resources had yet to be tapped. Fortunately, we have virtually unlimited sun, wind, and hydrogen resources at our disposal, and that will never change. Although oil prices will inevitably drop in the near future, we cannot make the same mistake we did three decades ago and cease researching other technologies when they do fall. Instead, energy security will require an unwavering commitment to these forms of energy. As everyone who keeps up with technology knows, almost every week new developments are being made in hydrogen technology, and sun and wind power are improving almost as rapidly. All have shown undeniable promise.

No doubt, securing America’s energy future will require incredible flexibility and commitment, as testing will prove certain avenues more viable than others. Naturally, focus will need to be directed towards the more promising options. Regardless of Congress’ recent ineptitude, though, it does seem that the first steps have been made. Americans are making their voices heard. Recent signs show that Congress may even be beginning to get the message, as reports indicate that the overwhelmingly negative projections of the Climate Security Act’s effects have caused its support to effectively splinter. Still, defeating such a bill is only the first in many, many steps along the arduous path to maximizing our own energy potential, and ultimately, completely securing our energy future.

[1] Reuters report on Russia’s tax break for oil companies: https://www.reuters.com/article/rbssEnergyNews/idUSL3125917320080531

[2]

Heritage Foundation’s report on Climate Security Act: https://www.heritage.org/Research/EnergyandEnvironment/cda08-02.cfm

[3] Energy Information Administration’s report on Climate Security Act: https://www.eia.doe.gov/oiaf/servicerpt/s2191/index.html

[4] Environmental Protection Agency’s Report on Climate Security Act: https://www.epa.gov/climatechange/downloads/s2191_EPA_Analysis.pdf

[5] Euclid A. Rose’s article from The Middle East Journal “OPEC’s dominance of the global oil market: the rise of the world’s dependency on oil.”