675Praying at the Pump: Ronald Minsk's Thoughtful NYTimes Op-Ed
- Feb 2, 2007We met Ron Minsk at one of the Oil Shockwave
simulations produced last year by Securing
America's Future Energy. Since then he's been
paying more attention to how PHEVs fit into the
national economic and security pictures.
This article presents different ways of thinking
about the world petroleum supply. Plug In America
co-founder Marc Geller, in a blog post entitled
"Why Not Ethanol? Yet Another Reason," at
<http://www.plugsandcars.blogspot.com>, makes the
point that the issue is more broad than price
fluctuations, and that electrifying
transportation is an end-point. Of course, this
is directly implied in Minsk's comment that one
alternative is we could always pursue the option
of developing "cars that need no oil."
Praying at the Pump
By RONALD E. MINSK, Washington
The New York Times February 2, 2007 Op-Ed Contributor
Ronald E. Minsk, a lawyer who represents electric
utilities, was a special assistant for economic
policy to President Bill Clinton.
ONCE again, the price of oil is making Americans
nervous. After falling by more than one-third
since peaking above $75 per barrel last summer,
the price has rebounded to $58 with the
re-emergence of cold weather and news of a
production cut by OPEC. As Congress and President
Bush face off over energy policy, we should
reaffirm a few basic principles. A very important
one is that our most critical goal in enhancing
our energy security is to maintain a stable price for oil.
When we talk about energy dependence or
security, we really mean oil. We do not import
coal or wind or the sun or geothermal steam, and
we import only a tiny percentage of the natural
gas we consume from anywhere other than Canada.
Thus there is virtually no geopolitical risk in using any of these sources.
This is why energy policy statements frequently
begin with the goal of eliminating the import of
Middle East oil. Such aims presume that our
insecurity derives from oil imports, and reflect
our distaste of being beholden to autocratic
regimes in the Middle East and elsewhere that we
perceive as sharing neither our interests nor our
values. This presumption, however, is wrong.
Simply put, our oil addiction undermines our
well-being because the volatility of oil prices
threatens our economy. Because we spend so much
on oil and there are no short-term substitutes,
price spikes wreck household, business and
government budgets alike. Our sense of insecurity
is magnified because volatility is both
unpredictable and generally beyond our control.
If we could predict future oil prices, we could
plan for them. But few people can adjust their
lifestyles to reduce their oil consumption
significantly in response to price spikes.
Likewise, businesses may be reluctant to invest
in efficiency or alternative fuels because the
higher oil prices that make such investments
cost-effective could collapse virtually overnight.
It is important to remember that our insecurity
is related to price volatility and not to the
source of the oil. If OPEC members suspended
exports but the price of oil mysteriously did not
rise, we would not care about the interruption.
It is only because a supply interruption always
affects price that we care about oils uninterrupted flow.
Yes, the oil market does care where oil comes
from, because the political and economic
stability of the supplier informs the market
about its reliability as a producer. And because
there is a world market for oil, supply
interruptions anywhere affect the price of oil
everywhere. Even if we imported oil only from the
most stable countries (or eliminated imports
altogether), so long as unstable countries and
regions supply the world market, we would be
exposed to the risks of a volatile market. It is
precisely the economic risk posed by price
fluctuations that forces us to spend diplomatic
and military capital in oil-producing regions.
This means that the percentage of oil we import
is relatively unimportant. Even the use of
alternative liquid fuel instead of oil-derived
gasoline will not allow us to escape this
volatility, because as direct substitutes for
each other, gasoline and alternative fuels will
be similarly priced, just as gasoline sold by
different oil companies or at different gas stations is similarly priced today.
Accordingly, while the domestic production of oil
or alternative liquid fuels may be critically
important for other reasons it can create jobs,
stimulate development of new technology, reduce
the trade deficit, protect our environment and
lower the baseline price of oil it wont do
much to end oil price fluctuations.
Its true that we can help mitigate the effects
of oil price volatility by increasing fuel
economy standards on cars and trucks. In fact,
the more efficient use we make of oil today as
opposed to 25 years ago has certainly reduced
some of the effects of recent price fluctuations.
But tighter fuel standards cannot eliminate the
effects of volatility, because new business and
governmental budgets already assume increased
efficiency; nor would they protect us from price
spikes brought on by, say, a new military conflict in the Middle East.
The only way to truly address price instability
is to find ways to, in a crisis, quickly and
substantially increase fuel production, or to
develop some means by which consumers could
quickly switch from liquid transportation fuels
to other fuels. Not only would it be remarkably
difficult to develop these new abilities to such
an extent that they could offset the effects of
the largest foreseeable supply interruption, but
achieving them might have an unexpectedly
negative effect: undermining incentives to
increase oil production and decrease demand.
In the short term, technology like plug-in hybrid
cars could help with volatility, because it
allows consumers to choose day to day whether to
power their cars with oil or with the sources
their utilities use. In the long term, however,
if we cannot find a way to increase production
and inoculate ourselves from oil-supply
interruptions, we are either going to have to
develop cars that need no oil, or learn to live
with the risks of the global market.
When Americans fill up the tank, they do not care
where their gasoline comes from they just want
a stable price. And the fact that we import so
much oil does not, in itself, cause its price to
fluctuate so wildly or promote inflation. There
are many paths to take as we seek to improve our
energy security, but all should be based on one
principle: real security can come only through
finding a way to keep prices stable.
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Felix Kramer fkramer@...
Founder California Cars Initiative
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