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May 20, 2008
Exclusive: A Big Oily Mess Part III: Realistic Solutions
Author's Note: Given that oil prices have seen record highs in recent weeks, I thought it might be helpful to provide FSM readers with some facts, free of polemic or agenda, about the reasons for rising fuel prices in America. This is a revision of an article originally written in 2005, broken into three parts. In the first installment, I reviewed some of the reasons for the quick price increase over the last several years. The second installment dealt with proposed solutions that won't solve the problem, and why. This final installment offers some suggestions for decreasing and stabilizing fuel prices. My review of Chechnya will resume in two weeks.
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It seems that each day, Americans watch as the price of oil increases. With all of the empty rhetoric regarding this issue, it's helpful to understand what could help to stabilize the price of oil in particular - and energy in general - and why.
Although the real price of oil has increased dramatically since 2003, this has been felt disproportionately by Americans due to the decrease in the value of the American dollar during the course of the last five years. While many analysts compare the dollar to the euro, a more static currency has been the British pound. In 2003, the dollar was valued at around $1.60 to £1.00. At the time of this writing, the ratio is $1.96 to £1.00. Although this rate is up from around $2.12 in 2007, this reduction in value compared to international currencies makes oil more expensive for American consumers since oil is traded on a dollar rate. Although many blame the high profile Iraq War for the fall of the dollar, the United States spends only between two and three percent of GDP on defense spending. Far more is spent on entitlements, earmarks, and inefficient/redundant government programs that drive the government into deficit spending. Increasing accountability for state and federal spending, reforming bloated entitlement programs, and eliminating redundant and unnecessary government programs would reduce the deficit spending that has devalued the dollar. Such measures would have a positive impact on the American economy in general, and would reduce the impact of petroleum price increases in particular.
As mentioned previously, most of the supposedly environmentally friendly substitutes for petroleum energy fail to live up to their hype - ethanol in particular has additional international political issues associated with it that few foresaw when the ethanol hype erupted in recent years. Wind and solar energy may one day become feasible as replacements for conventional energy, and the American private sector should continue to research these options; for now. However, one "alternative" energy source that's already proven and ready is nuclear energy. While most opponents of nuclear energy cite the frequently misrepresented disaster at Chernobyl as undeniable proof that nuclear energy is dangerous and unstable, the truth is that the United States has always operated its nuclear energy infrastructure with far better safety controls and better qualified technicians than the Soviet Union ever did. If the United States replaced the lion's share of its petroleum-fueled electricity generating infrastructure with nuclear energy stations, the overall American reliance on domestic and imported fossil fuels would be reduced. Decreased American demand relative to global supply, while not altering the growing global demand for petroleum, would have some impact on the overall price of fuel.
In order to facilitate the construction of new nuclear energy stations, constituents should encourage their elected officials to do two things. The first is to eliminate the unnecessary and cumbersome regulations and administrative blockades that have prevented the construction of new nuclear plants since the Carter administration. The second is to follow through with the creation of the Yucca Mountain Repository in Nevada, which has been planned for years as a safe and secure storage depot for spent nuclear fuel.
One additional note about nuclear energy: its environmental impact is negligible. Assuming the Yucca Mountain Repository is completed, the toxic waste from American nuclear energy generation can be safely and securely stored. The issue of climate change remains controversial in the United States, and rightly so. Legitimate evidence exists to lead environmentally conscious Americans to believe that global warming may be occurring, and that human industry may be contributing to it. At the same time, skeptics also have legitimate evidence to suggest that climate change activists' hysteria is premature, and that industrial emissions have little or no impact on global climate. The jury is still out. Environmentalists should be able to concede, however, that a finite amount of strictly controlled waste is preferable to increased emissions, or radical de-industrialization. Proponents of industry should similarly be able to agree that a decrease in carbon emissions would be beneficial to both the atmosphere and public relations. Nuclear energy should be an option that responsible, discerning, educated Americans of all political flavors can agree on.
For electricity, industrial processes, fuel, and any number of other purposes, America will need petroleum into the foreseeable future. While the overall demand can be reduced, eliminating the use of petroleum altogether is completely unrealistic. This means that the United States must exploit more sources of petroleum, not less. Due to the increase in oil prices, certain domestic and neighboring sources of petroleum (such as Canadian shale oil) are now cost-effective compared to crude oil. While these options are promising, the best way to provide reliable petroleum is to drill it out of the ground wherever it can be found. In the United States, excessive regulations prevent American companies from drilling oil in many locations, both on American soil and off American coasts. That doesn't stop foreign interests, particularly Chinese oil companies, from increasing the amount of drilling they do in places like the Gulf of Mexico. Increasing tensions with China aside, why should countries on the other side of the planet drill in areas adjacent to the United States while American companies are forced to stand idly by? Or worse, called before Congress and accused of price gouging so that congressional leaders can claim to have addressed the issue?
The situation is similar regarding the Alaskan National Wildlife Refuge, where environmental activism and political wrangling have prevented drilling for nearly thirty years. An area of roughly four percent of ANWR was set aside for oil exploitation when the Refuge was created - and this was during the environmentally protectionist Carter Administration! Americans on both sides of the political fence want to preserve our natural spaces. This is not a conservative value, it's not a liberal value, it's an American value. The time has come, however, for Americans to take a long hard look and realize that a compromise must be reached between radical environmental policies and unchecked industrial pollution. The less oil Americans produce within the United States (or neutral territories, such as the open ocean), the more dependent Americans will remain on oil from such countries as Saudi Arabia, Kuwait, Iraq, Iran, Venezuela, Libya, Nigeria, and Russia. Although some of these nations are ostensibly American allies, America's international position grows in strength as it decreases in dependence to other nations.
Another cost-influencing petroleum bottleneck that's often overlooked is refinery output. Observant Americans may notice that when they fuel their cars, they don't pump crude oil directly into their fuel tanks. Crude oil must undergo a refinement process before it can be used as gasoline, diesel, lubricant, or any number of other finished products. Due again to Carter era regulations and bureaucracy, it's currently cost-prohibitive to build a new oil refinery on American soil. As a result, America's capacity to refine domestic and imported crude oil is severely limited, requiring the American market to rely heavily on refineries in other countries. If these antiquated and excessive regulations were trimmed back, American companies could begin to build refineries once more. Increased American refining capacity would reduce the price of oil by reducing restrictions on introducing that oil into the market.
There are many measures that Americans can take at a personal level, both on and off the road, to use less energy; and America's private sector has identified this situation as an opportunity to make money through innovation. However, Americans must understand that global competition for energy resources will continue to increase, and solutions at the citizen level are worthless and empty without addressing the real problem of energy supply. If paying increasingly painful prices for petroleum is truly an outrage, America must find the national unity and resolve to make responsible choices about increasing the supply of petroleum while simultaneously beginning to adopt realistic alternatives.
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