Monday, July 7, 2008

A Look Back At America’s Energy Policy Blunders

Black GoldI was reading the New York Times and came across an interesting article that talked about America’s energy policy, and particularly the political happenings that led us into the energy problems we are now faced with. I found it fascinating to look at the various opportunities we had over the years to address this problem, and that we opted to do nothing about it. So I thought I’d share some of the key points of this article with you.

“Ever since the oil shortages of the 1970s, one report after another has cautioned against America’s oil addiction.”

“Nearly 70 percent of the 21 million barrels of oil the United States consumes every day goes for transportation, with the bulk of that burned by individual drivers, according to the National Commission on Energy Policy, a bipartisan research group that advises Congress.”

“’Much of what we’re seeing today could have been prevented or ameliorated had we chosen to act differently,’ says Pete V. Domenici, the ranking Republican member of the Senate Energy and Natural Resources Committee and a 36-year veteran of the Senate. ‘It was a bipartisan failure to act.’”

“Home to only 4 percent of the world’s population, the nation slurps up about a quarter of the planet’s oil — and Americans’ daily use is nearly twice the combined consumption of the Chinese and Indians, according to an annual energy survey published by BP, the British oil giant.”

“According to energy policy experts, it was in the late 1980s and early 1990s — during the administrations of President George H. W. Bush and Bill Clinton — that things began to go wrong. Before that point, the country reaped the benefits of the first fuel-economy standards, passed in 1975, known as corporate average fuel economy, or CAFE. Between 1974 and 1989, the efficiency of a typical car sold in the United States almost doubled, to 27.5 miles per gallon from 13.8.”

“…oil consumption in 1990 totaled 16.9 million barrels per day, basically on a par with the 17 million barrels per day consumed in 1980, even as the economy grew substantially.”

“In 1990, Richard H. Bryan, a Nevada Democrat, teamed up in the Senate with Slade Gorton, Republican of Washington, and proposed lifting fuel standards again over the next decade, with a goal of 40 m.p.g. for cars. Amid furious opposition from Detroit, liberal Democrats from automaking states, like Carl Levin of Michigan, joined conservative Republicans like Jesse Helms of North Carolina, who died on Friday, to block new CAFE standards.”

“’But had we passed that bill, we’d be using three million barrels less oil a day now,’ Dan Becker then a lobbyist for the Sierra Club said.

“Consumers overseas might not like higher taxes on gasoline, but they’ve adapted, says Jeroen van der Veer, chief executive of Royal Dutch Shell, the European energy giant. In Mr. van der Veer’s native Holland, for example, gasoline sells for more than $10 a gallon, with $5.57 of that going to taxes. Even in Britain, which has substantial North Sea production, gasoline sells for $8.71 a gallon.” Several measures to raise gas tax were shot down during both the Bush and Clinton administrations.

“In 1990, three months before the effort to raise fuel-efficiency standards failed on Capitol Hill, President Bush issued an executive order making large swaths of the continental shelf off-limits to new exploration. That policy remains in effect today.”

“As Paul Bledsoe, strategy director of the National Commission on Energy Policy, recalls it, ‘The 1990s were something of a lost decade for American fuel efficiency.’ With oil prices low, consumers began snapping up pickup trucks and sport utility vehicles, which were governed by less stringent fuel economy standards, thanks to a loophole in the original 1975 law. These carried higher sticker prices and profit margins, and both Detroit and foreign automakers were happy to oblige.”

“In 2007, with oil at $82 and gas nearing $3, Congress finally approved the first big increase in fuel-efficiency standards in 32 years, requiring the fleet average to reach 35 m.p.g. by 2020. That will save one million barrels a day by 2020…”

“Since the 1980s, fuel efficiency has flatlined at 24 m.p.g., while vehicle weight has jumped more than 25 percent and horsepower has nearly doubled. In Europe, on the other hand, fuel efficiency currently stands at 44 m.p.g. and is slated to hit 48 m.p.g. by 2012.”

“Congress, meanwhile, in its bid to explain the run-up in fuel prices, is examining the role of speculation and the increased flow of investor money into commodities.”

I found it very interesting that in the '90s there was legislation proposed that would take fuel efficiency standards to 40 m.p.g. Now today we are hoping to increase fuel efficiency to 35 m.p.g. by 2020. The old saying that hindsight is 20/20 could certainly be applied in this situation, but as the author points out in the article, we all knew that oil was in limited supply. Basic economics tells you that when something is in limited supply, then as demand increases, prices are going to go higher. American auto makers saw an opportunity to make a quick buck off big gas guzzling cars and consumers ate them up.

At the end of the day, it is hard to blame the auto makers because they just produced what consumers wanted. They are businesses, after all, so we can’t expect them to do anything other than what is best for their business. On the other hand, as a nation we rely on our government officials to spot these types of glaring problems and take the necessary steps to prevent them from happening. In my mind the politicians are the main culprits, with ignorant consumers coming in a close second. We can drill in the Alaskan National Wildlife Refuge and we can drill in the Gulf of Mexico, but in the end it will have little effect. High gas prices are here to stay and I’m a firm believer in raising gas taxes. In order for us as consumers to make the necessary lifestyle adjustments, we need stern guidance away from gas. In case you are wondering how high gas prices might go, just take a look at the $8.71 a gallon being paid in Britain. It is not out of the question here by any means.

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