Sunday Forum: The era of cheap energy is over
The price of oil is more than $110 per barrel, coal costs more than $75 per ton and natural gas prices are climbing. To those who hope to see a return to $1.50-per-gallon gasoline or a reduction in heating and electricity bills, I have bad news: The era of cheap energy is over.
We've had a century of declining energy prices due to an abundance of oil, natural gas and coal. Supply has kept up as our consumption of fossil fuels doubled, doubled again and now is 10 times higher than it was in 1900. If energy prices stayed low, we would double our consumption again by 2050.
Optimists hope that newfound supplies, such as the oil recently discovered in North Dakota, will drive down prices again. But no matter how much fossil fuel we might reasonably expect to find, if our consumption doubles every 30 or 40 years, the wells still will run dry.
There is a lot of finger pointing at the rapidly developing economies of China and India, since they are driving up demand for energy. But if you want to see the real culprit, look in a mirror.
The United States is by far the largest consumer of oil on the planet -- 21 million barrels per day. We import 12.5 million of those barrels each day at a cost of nearly $500 billion per year. China imports 3.4 million barrels per day and India 1.7 million.
We are the 5,000-pound SUV sucking up the world's oil. And we act as if we are entitled to it. How dare the Chinese and Indians compete with us for oil!
Over the past 25 years, efficiency improvements in engines and drive trains would have boosted the average fuel economy of new American vehicles from 24 miles per gallon to about 34 mpg. But instead of using less fuel, we opted to purchase larger, heavier vehicles that could go more quickly from 0 to 60 miles per hour.
Even as the size of the average family shrunk, the market share of SUVs, minivans and pickup trucks rose from 10 percent to 50 percent. At rush hour, only one vehicle in 10 has more than a single occupant.
You don't have to be a professor of economics to know that as we use more of a scarce resource, we drive up the price.
Research and development continue to improve efficiency. But will we continue to insist on ever larger, ever more powerful vehicles that pander to our inner hot rod? Would it be an enormous sacrifice to choose instead a mid-size car that gets 40 mpg and accelerates from 0 to 60 mph in 11 seconds instead of 10?
We use 25 percent of the world's oil and have 5 percent of the world's population. We use twice as much energy per person and per dollar of economic activity as the nations of northern Europe and Japan.
This means our cheapest energy resource is conservation. It is less expensive than new energy sources and produces no pollution or greenhouse gas emissions.
Denmark uses so much less energy by making vehicles, industries and buildings energy-efficient. Meanwhile, houses in Pittsburgh still have single-pane windows and low-efficiency furnaces. We buy air conditioners of medium efficiency. Most light bulbs are wasteful incandescent rather than compact fluorescent. We erect few energy-efficient buildings. Most construction is aimed at minimizing initial cost, rather than lifetime cost.
Americans also choose goods and services largely on the basis of fashion. One SUV owner told me that the ride was terrible, the additional space was not useful and the gas bills were hideous. So why did he buy it? Because everyone else had one.
If you visit any city in northern Europe you'll see that people sacrifice nothing to save energy. They have fewer cars and drive fewer miles, but they live very well, indeed.
For a middle-income U.S. couple, living in a 2,000-square-foot house and driving a mid-size car would not exactly be taking a monastic vow of poverty.
How can we cut energy use, increase energy security, reduce pollution and greenhouse gas emissions, and send less money to people who fund terrorists and hate-America campaigns?
Here are three suggestions:
• Raise standards. Congress recently required that within 12 years the average new vehicle attain 35 mpg. The Department of Energy requires that major appliances meet efficiency benchmarks. These and other standards could be stricter.
• Inform consumers. Refrigerators, air conditioners and other major appliances are labeled so that consumers can purchase the most energy-efficient models. They should be more ardently encouraged to do so.
• Impose taxes to raise energy prices. Raising taxes is never popular, but the first two approaches have proven insufficient.
Energy prices are going to rise no matter what we do. We can either use taxes to promote conservation or end up paying more anyway by driving up demand for energy to appease our ever-growing appetite. One way we keep money inside the United States; the other way we send more money to those who would do us harm.
How high should such taxes be? On gasoline, how about $4 per gallon?
A $4 gas tax that sent pump prices to about $7.50 per gallon would cause widespread apoplexy. And of course, our politicians are going in the opposite direction, with John McCain and Hillary Clinton seeking votes by proposing to eliminate the federal gasoline tax for the summer. Apparently, they think Americans should use more gasoline and import more oil, thereby pushing up oil prices and sending more money to OPEC.
Keep in mind, Europeans tax gasoline heavily and pay about $8.50 per gallon -- which has encouraged them to buy fuel-efficient vehicles, drive fewer miles and use mass transit -- but their standard of living is high and their economies healthy.
There are ways to handle the downsides of a $4 gas tax -- which includes the burden it would impose on lower-income Americans. For instance, we could use some of the $600 billion in annual revenue a $4 gas tax would raise to exempt the first $20,000 of income from the Social Security tax.
Americans would hate any increase in gas taxes, but the path we are on will lead to higher oil prices anyway, more pollution, a drain on our economy and more conflict in the Middle East.
The era of cheap energy is over. If we don't face up to that now, get ready to beg Iran, Venezuela and Saudi Arabia to have pity on us.
First Published May 4, 2008 12:00 am