October 2005 TIME Magazine Article: How To Kick The Oil Habit
It doesn't take a Ph.D. economist to figure out why that's happening--just a stop at the gas station, where prices are roughly 25% higher than they were a year ago, and where, despite a slight easing as the effects of hurricanes Katrina and Rita recede, they will probably go higher still before too long. Home heating oil is 50% higher than last year too, and natural gas will probably jump similarly. Those dramatic increases, Federal Reserve Chairman Alan Greenspan said in a speech last week, will create a significant drag on economic growth "from now on."
The silver lining, said Greenspan, is that as oil gets more expensive, other energy sources and technologies that use less oil will become more competitive. And that's exactly what's happening. Says Daniel Yergin, chairman of Cambridge Energy Research Associates and author of The Prize, the 1991 best seller about the history of oil: "There's a lot of technological innovation kind of bubbling that really has captured the imagination and obsession of a lot of people." The question is, Are we moving fast enough?
As consumers, we need time to make adjustments--often very expensive ones--to the new technologies. Not everyone can afford to junk a two-year-old SUV to buy a new hybrid. Most people can't afford to abandon houses built in developments 100 miles out in the countryside when oil was cheap. And although energy and power companies are investing in new technologies, they can't create a massive new infrastructure overnight. Coal liquefaction, nuclear power, wind power--"all of these things need an enormous lead time," says Heinberg. The problem with the free market, in short, is that while it may sort things out over the long run, people have to cope in the short run. "Price signals," he adds, "come much too late, and we will endure a tremendous amount of economic and social hardship that could have been averted if we'd acted sooner. We could see the equivalent of the Great Depression, fueled by extreme oil and natural-gas prices."
Things would have been different if we had been pouring money into alternative energy for the past couple of decades, as we did in the aftermath of the oil shocks of the 1970s. Back then, despite the ribbing Jimmy Carter got for appearing on TV in a cardigan and calling for sacrifice, there was a clear sense of national emergency. That crisis receded, thanks in part to conservation and investments in energy efficiency and in part to the worldwide recession the oil shocks helped trigger. As a result, a barrel of oil costs 30% less today, in inflation-adjusted dollars, than it did at its peak in 1981. This is not the first time the world has run out of oil. Yergin says it's the fifth or sixth.
But this may be the real thing. Matthew Simmons, chairman of Simmons & Co. International, an energy-industry investment-banking firm, says, "This is a shortage where demand actually exceeds supply. The two shortages in the '70s were artificially induced." Back then, OPEC was powerful and disciplined enough for Middle East oil producers, angry about U.S. support of Israel and the Shah of Iran, to be able to simply turn down production. But now a confluence of trends has made oil shortages inevitable, not optional. One is the unexpectedly rapid expansion of India's and China's energy needs. Fadel Gheit, senior vice president for oil research at the New York City investment firm Oppenheimer & Co., says, "They created the tight market we're in."
Beyond that, the supply of crude is not unlimited. Opening the Arctic National Wildlife Refuge or the coast of Florida for drilling, which congressional Republicans have been pushing for, is a relatively short-term fix. And the more oil that is removed, the more expensive the cost of extracting the remaining oil becomes. At some point--possibly as early as 2010--production will therefore reach a peak, though not necessarily a sharp one, and then gradually start to decline. "The problem," says Simmons, "is that the global economy and the U.S. economy are structured on the assumption that the oil supply will only increase."
The upheaval could be alleviated significantly if the government had a long-range policy for moving beyond oil. . Republican Representative Richard Pombo of California, chairman of the Resources Committee, says, "There is already an incentive to develop new technology. You just have to send a real clear signal that the Federal Government wants to." But a wholesale push to change our highway culture is unlikely. European countries decided long ago that it paid off to interfere in the free market by discouraging oil consumption and subsidizing mass transit, but that's not the American way.
The one thing that will probably cushion the blow of this new and permanent energy crisis is something old, with an air about it of discomfort and duty: conservation. There's nothing particularly sexy or chic about consolidating shopping trips, carpooling, turning the thermostat down in winter and up in summer, or biking to the office and back, but it does work. In the early '80s, in the midst of soaring oil prices, we doubled the average efficiency of cars, furnaces and insulation. Katrina and Rita might not have pushed us into another energy-crisis mind-set yet. With the inevitable price jolts to come, though, we're heading that way soon enough.
Source: (TIME Magazine 10/05) - Leave your email address if you would like a full copy of the article