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Praying at the Pump: Ronald Minsk's Thoughtful NYTimes Op-Ed

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  • Felix Kramer
    We 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
    Message 1 of 1 , Feb 2, 2007
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      We 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
      http://www.nytimes.com/2007/02/02/opinion/02minsk.html
      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 oil’s 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 won’t do
      much to end oil price fluctuations.

      It’s 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
      http://www.calcars.org
      http://www.calcars.org/news-archive.html
      -- -- -- -- -- -- -- -- -- -- -- --
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