Oil and Energy

Kevin Drum with an excellent post on Oil. Upshot: Prices are going up. Fluctuations aside, they’re not going back down. Depending on who you ask, production has peaked in the last few years, or will peak in the next few years. The ratio between OPEC’s production and capacity is alarmingly close to 1:1.

This is, of course, a serious problem and a global problem, and one that Bush administration, for a series of rather obvious reasons, is shockingly ill-equipped and uninterested in dealing with. But I hardly need to state the obvious.

A few nits to pick.

Kevin gives us the five options, and his list seems about right (the sixth, of course, is to do nothing, and act surprised when high oil prices trigger a global recession). Here’s what he has to say about the third option, alternative renewable energy sources:

Wind and solar are great, but their use is limited in a practical sense (it’s not always windy and it’s not always sunny), limited in a financial sense (both are more costly than conventional power), and limited in a temporal sense (building serious new capacity will take decades).

This isn’t entirely unfair, but it is rather glib. Solar and wind energy can be stored, and can be moved from place to place, just like other kinds of energy. And on the financial side of things, he’s right again, but context is important here. The relative cost of alternative energy sources has plummeted in the last 30 years or so. Existing wind energy resources is currently very close to competitive with traditional sources in price.

And, this has all occured despite the enormous subsidies that Oil receives, which depresses economic incentive to generate new, better and cheaper technologies in these areas. Excuse me for a minute with I don my dusty ol’ Adam Smith hat….there we go. Folks, we’re good at responding to economic incentives. Create them, really create them for major industries, and we’ll see tremendouse innovation. Renewable energy entreprenours will get rich. The big Oil companies will horn in on the action (BP and to a lesser extent Shell are clearly ahead of the curve here). Things will start happening faster when we reach a tipping point in the pricing.

What annoys me most about Kevin’s discussion, though, is how assidiously he avoids the elephant in the middle of the room: global climate change. While the cost of energy and the impact of that cost on the economy are of enormous importance, this crucial issue, the biggest challenge the global commuunity will face in the 21st century (sorry, terrorism), ought to be pushing us in the direction of option #3 all the more quickly. I’ll post more about this later at some later date.

Finally, a comment on Kevin’s proposed trade-off: ANWR drilling for CAFE standards. Given how much environmentalist energy and sentiment is bound up in the ANWR battle, this seems unlikely. If the CAFE standard improvements were significant, and did something about the SUV/”light” truck loophole, this would clearly be a very, very good trade. But I think the oil lobby realizes that. There are smart people on the other side who know that ANWR is largely symbolic politics just as much as we do.