Conference information U.S.-China relations are among issues that will explored Wednesday at the 13th annual Global Economic & Investment Outlook Conference at CMU's McConomy Auditorium in the University Center. For more information on the joint effort by the Carnegie Bosch Institute and The Gailliot Center for Public Policy at the Tepper School of Business, call 412-268-7344.

Oil prices hit $70 per barrel and have remained high because we want what we want and don't much care what it costs.

The rise from $1.50 to $3 per gallon shows that the demand for gasoline isn't responsive to price. Traffic jams from New York to New Delhi prove that we want cars, buying them as soon as we have a bit of money. We are more upset about traffic jams than gas prices.

One reason that gas prices are not important is that they are a small portion of the cost of driving. The cost of owning a Ford Taurus over its 150,000 mile lifetime is estimated to be $60,000 in purchase price, insurance, repairs and taxes. At $1.50 per gallon, the total cost rises to $71,000, of which only 15 percent is gas. At $3 per gallon, the total cost goes to $82,000, of which 27 percent is gas. The point is that if you want a Taurus, or even a Hummer, the price of gasoline makes little difference in whether you can afford the vehicle.

Americans buy almost as much gas at $3 per gallon because we need to get to work, to school, to the doctor's or to church, and we can't (or won't) walk or use public transportation. Higher gas prices motivate us to buy more fuel-efficient vehicles, but they don't reduce our gas purchases much until we trade in the current vehicle. The market does react to higher prices, but it takes years.

The $70 barrel of oil has not caused a recession because our economy has become less sensitive to high oil prices and only a bit more sensitive to high natural gas and coal prices. Energy is about 7 percent of U.S. Gross Domestic Product, about half of the 1981 level.

The Persian Gulf nations produce oil for less than $10 per barrel -- oil sold for as little as $10 in 1998. The current price results from our enormous appetite for gas and our insensitivity to its price. In effect, we have a "kick me" sign on our posteriors as we bow to the Organization of Petroleum Exporting Countries.

Alternative fuels are one solution: There are large amounts of hydrocarbons in Canada's oil sands and Venezuela's heavy oil. Both cost less than $30 per barrel to produce. Natural gas can be transformed into ultrahigh-quality diesel, while ethanol can be produced from grasses and trees as well as corn. Current price levels will stimulate production of alternative fuels, eventually cutting the price by half -- unless our demand grows faster than production.

Petroleum companies have been reluctant to invest billions of dollars in alternative energy facilities fearing that OPEC would slash prices. To take control of our energy supply, we need to invest in alternative energy, which means committing ourselves to pay high prices for energy, even if world oil prices fall.

Absent government action, I predict oil prices will remain high but fluctuate widely as they have in the past. Geophysicist M. King Hubbert predicted the maximum production of world oil will occur this decade. ExxonMobil predicts that oil and natural gas will supply about the same proportion of world energy in 2030 as they do today. This debate misses the point.

If world demand for petroleum and natural gas continues to grow at 1.6 percent per year, it would double every 45 years: 142 million barrels per day in 2050 and 284 million barrels per day in 2095. We cannot continue along this path.

In the next half-century, we will have an oil crisis. If world energy demand grows at only 2 percent per year for the next century, we would use seven times as much energy. Producing energy leads to air and water pollution, solid waste and greenhouse gases. We will run out of environment before we run out of coal and oil.

Increasing energy efficiency is not an impossible goal. Denmark has income comparable to ours but uses less than half the energy per person and per dollar of output. About half of this difference in energy use is due to greater efficiency and half is due to differences in life style (fewer cars and more public transportation).

We have talked for many years about energy independence, all the while increasing our oil imports. For considerably less than $70 per barrel oil, we could stop importing oil by increasing efficiency (switching to hybrid-electric cars) and producing more biofuels.

Ending oil imports requires us to stop complaining about $3 gasoline and commit to keeping gas at $3 in order to induce greater efficiency and production of alternative fuels.

Beyond the gains from energy efficiency, we have hard choices: Changing our consumption patterns or having smaller cars, lower incomes or fewer people. That is a discussion for another day.