Tuesday, April 12, 2011

What Exactly Is America's Energy Problem?

With gas prices moving to $4 a gallon at the pump, we are again reminded of the words of the beloved Yogi Berra -- "This is like Deja Vu all over again". So after +30 years, why has it been so difficult to develop a National Energy Plan? A major reason is the diversions used by so many competing Ideological, Political, and Corporate Interests to create a fog of confusion to the American Public.

In this battle over public opinion, just a few simple facts could go a long way in at least identifying what America's real energy problem is -- our oil dependency with transportation:

  • We do not have an overall "energy crisis". We have an oil dependency problem

  • Only 1% of U.S. oil consumption is used to generate electricity

  • ~72% of U.S. oil consumption is for transportation fuels (primarily cars)

  • U.S. Energy Sources and End Uses

    Since only ~1% of our total oil use is for electricity, the U.S. is already "Energy Independent" from foreign oil for power generation. For transportation, the story is totally different as oil provides ~94% of fuel source requirements, where about 50% comes from foreign oil. The overwhelming majority of oil use is for cars and light trucks, with truck freight hauling and air transportation the other two most significant uses.

    The Diversion of Global Warming: So if America doesn't use much oil for electricity, why does the energy policy debate (and failed bills in Congress) focus so heavily on electricity generation from wind, solar, and nuclear power?

    By looking at the above FACTS, the American Public can see that what has been framed as an "Energy Crisis", is really two distinct issues -- (1) Oil dependency for transportation, and (2) Global Warming/Climate Change through the use of fossil fuels. By combining these two issues in framing the national energy policy debate, public opinion confusion occurs resulting in a "Status-Quo" by:

  • Blurring Policy initiatives between electricity generation (not causing our oil problem) and fueling transportation (which is our oil problem).

  • Unnecessarily drawing transportation policy initiatives to reduce oil use into the Global Warming controversy

  • Even if we put a solar panel on every roof, a wind turbine on every street corner, a new nuclear power plant in every State, and made every building energy efficient (e.g., insulation, light bulbs) -- there would be no real change in our oil dependence. These electricity policy initiatives are to either reduce CO2 and other greenhouse gas emissions, or to advance Special Interests (especially nuclear power).

    Conversely, transportation policy initiatives targeted to the three primary uses of oil would be a huge step toward "Oil Independence":

  • Cars -- Increased Auto MPG, Ethanol, Urban Mass Transit, Electric Vehicles.

  • Freight Hauling -- Creating a natural gas infrastructure for heavy truck hauling.

  • Reducing Air Transportation -- High Speed Rail between major urban areas.

  • Making Global Warming a focal point in the national energy debate creates a diversion of negative public opinion reactions from increased taxes (carbon tax), even more federal EPA regulation, to destroying the economy and job losses (especially to China). According to a recent national Rasmussen Poll only 33% of Americans believe that Global Warming is man-made from increased levels of greenhouse gases.

    But even if Global Warming is the greatest scientific hoax ever created, America still needs to develop alternative sources, uses, and greater energy efficiencies to reduce our transportation dependency problem with oil. We can not simply "Drill, Baby, Drill" our way out of this problem. Americans consume 25 percent of the world's produced oil, but our nation holds less than 3 percent of the world's proven oil reserves.

    The Diversion of "Drill, Baby, Drill": To achieve the commonly used "Oil Independence" catchphrase only through drilling, the U.S. would need to develop and sustain new sources of oil production currently equal to Saudi Arabia. Is this possible? According to Energy Information Agency information, Saudi Arabia has oil reserves 14 times greater than the U.S.
    In addition, an inconvenient truth that "Drill, Baby, Drill" Supporters fail to ever discuss is price. Oil is an internationally priced commodity. No oil company would ever sell oil from U.S. resources less than world market prices. Another fact never discussed is that any dramatic increase in U.S. oil production above proven reserves would require developing non-conventional resources (using some very questionable environmental practices like fracking). The reason that tar sands and shale deposits are not widely used is their very high extraction costs, making these resources economically viable only when oil prices are high. So while increasing domestic oil production in an environmentally safe way will have many benefits, reducing prices at the gas pump will not be one of them.

    The Diversion that Government Shouldn't Choose Energy Winners and Losers: This often heard statement argues that a national energy policy should be based on free market capitalism, not big-government centralized control of providing incentives to "specific" technologies. However, in "Walking the Talk" this principle is only applied to renewable/alternative energy. A recent example of this hypocrisy is Republican members of Congress introducing legislation to keep federal loan guarantees for nuclear power but to eliminate the same guarantees for renewable energy projects. Federal Government intervention into free market capitalism for energy has occurred for decades, including:

  • Price-Anderson Nuclear Industries Indemnity Act: As the World has seen recently in Japan, nuclear accidents can be catastrophic with an economic toll in the hundreds of billion of dollars. In order to remove this economic impediment to stimulate nuclear power in the U.S., Congress enacted the Price-Anderson Act that currently limits the individual liability of a nuclear plant's owner to $300 million.

  • Oil Pollution Act: In the 1990 OPA, Congress limited an oil company's liability to pay for damages to fishermen, property owners and other individuals and businesses, governments (via lost tax revenue) and natural resources to $75 million per incident.

  • Oil and Natural Gas Federal Subsidies: The total amount of federal subsidies for fossil fuels is difficult to quantify. However, President Obama has proposed eliminating $4 billion a year in more than a half-dozen tax exemptions for oil companies. The tax breaks have a long history -- the so-called percentage depletion allowance for wells dates back to the 1920's.

  • Where Do We Go From Here?: America's Energy Policy shouldn't be a Red State versus Blue State issue -- it must be an American issue. From our viewpoint, a national energy policy is being held hostage by two major factions: (1) A Democratic Party overly driven by Environmental Ideology -- especially Climate Change, and (2) A Republican Party driven too much by Corporation Special Interests. Hopefully, the American Public will start to see through the myriad of diversions and demand real change, including:

  • Environmentally Safe Drilling: After the BP Gulf spill, is the solution really just the need for more Government oversight and regulation? We agree with Ron Paul that the answer isn't more regulation. Its just letting the market work by eliminating the $75 million liability cap from the Oil Pollution Act.

    "When a business's liability is limited by law, then they make riskier decisions than full liability would allow. For instance, in this case, BP opted for single wall oil pipe casing, as double-wall was "too expensive." Of course, if full liability is incurred, then the definition of what is "too expensive" changes dramatically." -- Rep. Ron Paul.

  • It's Transportation, Stupid!: If 72% of America's oil use is for transportation (where about half comes from foreign oil), why are we talking about anything other than transportation in a national energy policy debate? Policy initiatives promoting "Energy Independence" through electricity generation is a Red Herring diversion for two reasons: (1) Electricity generation is not causing our oil dependency problem (only 1% of oil is used for electric power); (2) The argument for "electrification" is putting the cart (electricity supply) before the horse (electricity demand). Only after energy demand initiatives (e.g., electric vehicles, high speed rail, etc.) that will achieve significant fuel switching from oil to electricity should new power plants be on the table for discussion.

  • In solving America's oil problem of course we need to develop new oil resources in an environmentally conscious way. But we also need more, much more by developing alternative sources (ethanol), uses (electric cars), and greater energy efficiencies (increased car mileage).

    Without an intense focus on transportation, America really doesn't have a Plan and as Yogi also said, "If you don't know where you are going, you will end up somewhere else."

    1 comment:

    Anonymous said...

    It's nice to see the truth of the matter broken down into basic terms. It is unfortunate that most of the American public spends more time watching T.V. sitcoms than trying to even understand, much less work, to solve this problem. Perhaps the ones who read this, and similar information, will be able to get things going. We are Americans, so there is always hope!