The following is an essay I wrote by request for another website. Regular readers won’t see anything they haven’t seen before, but I figured I would go ahead and post here as well. It is a condensed version of some of the topics I have hit here several times.
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Every president since Nixon has promised to make the U.S. energy independent. Yet each successive administration has seen us become ever more dependent upon fossil fuels extracted from foreign lands. Why does a noble goal such as energy independence elude the U.S.? Let’s investigate.
Money Talks
The U.S. is an energy hog. We are 5% of the world’s population, and we consume 25% of the world’s oil. We consume on average double the amount of oil of the average European, and six times the amount of oil of the average Brazilian. I will get to Brazil in a moment, but why should we consume so much more oil than Europeans? Are they simply that much more enlightened than we Americans? One could make that argument, but as someone who has lived in Europe on multiple occasions, I don’t think that’s it. I think it’s simply that people respond to price.
European governments have placed very high taxes on gasoline for many years. And in order to favor more efficient diesel engines, they provided favorable tax treatment for diesel fuel. These policies have had the effect of causing people to demand mass transit, it caused them to drive more efficient vehicles (with far more diesels operating than in the U.S.), and it caused them to live close to where they work. The overall impact is that Europeans use less oil, which also means their economies aren’t quite as sensitive to spiraling oil prices. They are not immune to higher prices, but if gasoline prices increase by $1/gallon, the impact on the average European is far less than on the average American.
Biofuel Myths
One thing high gas taxes in Europe didn’t do was to enable biofuels to gain solid footing as an alternative fuel source. Only mandates have boosted the market share for biofuels. Why? When gasoline prices reached $10/gallon this summer in parts of Europe, why didn’t we see biofuels ride to the rescue? Two reasons. First, the energy inputs into most biofuels amount to a large fraction of their overall energy content. Thus, when oil prices rise, the cost to produce biofuels rises in tandem. Second, the true cost to produce biofuels in most locations is substantially greater than it is to produce oil. Of course many producers and hypesters will claim otherwise. But the truth is that we have directly subsidized corn ethanol for 30 years. It is no closer to being able to stand on its own, subsidy and mandate-free, than it was 30 years ago. We have been working on cellulosic ethanol for 40 years. But the cost of production is too closely tied to the cost of fossil fuels like oil and natural gas because the energy inputs are so substantial.
Brazil Did It
Sugarcane ethanol can be produced efficiently and sustainably. I have been to a sugarcane ethanol plant in India, and I quizzed them intensely on their energy inputs into the process. Their energy inputs consist mainly of bagasse (sugarcane residue) that is burned for boiler fuel. Sugarcane is removed from the field during harvesting, and the bagasse is waste left at the factory after processing. The bagasse is burned for fuel, and the ash is mixed with compost from the process and returned to the soil.
Some claim that this is how Brazil reached energy independence, and the U.S. should follow Brazil’s lead. This is a myth. While Brazil is the #2 producer of ethanol in the world (the U.S. is already the #1 producer of ethanol), fossil fuels still provide 90% of their energy requirements. Brazil did recently declare energy independence – but not because of ethanol. Brazilian President Luiz da Silva made the announcement of energy independence in 2006 on the P-50 oil rig in the Albacora Leste field in the Atlantic Ocean.
So what of it? Ethanol still played a vital role in helping Brazil achieve energy independence. But the U.S. is a different ballgame entirely. The biggest problem is that in the U.S., each person uses 25 barrels of oil each year, but we produce only 6. In Brazil, each person uses 4, but they produce 3. They produce 75% of the oil they use, and in the U.S. we produce 25% of what we use. So sugarcane ethanol – which is produced with much lower fossil fuel inputs than corn ethanol – has a very small gap to fill in Brazil. In the U.S., we have a huge gap between what we use and what we produce. There is no proven biofuel technology that can economically bridge that gap.
Tax Fossil Fuels
If we can’t bridge the gap, perhaps we can make the gap smaller. How? There are many things we need to do, but I will focus on one. This summer when gasoline prices were setting new records, Americans began to conserve. They drove fewer miles. They bought more efficient cars. They embraced mass transit. As a result of high prices, we finally responded. Thus, I would argue that we need to keep fossil fuel prices high. I have proposed that we increase taxes on fossil fuels, and at the same time reduce income tax rates to prevent the taxes from being regressive. I would strive to make the fossil fuel tax revenue neutral, while providing an incentive to conserve.
There are two major advantages. First, people will know that fossil fuels are going to continue to be more expensive, and they can begin to plan accordingly. People who have been holding out for lower gas prices can finally join the people who have already begun major conservation efforts. Second, it levels the playing field for alternatives and for mass transit. Alternative energy is currently expensive relative to fossil fuels, but I would argue that this is partly because we don’t pay the true price for fossil fuels. For instance, we pay no price for carbon emissions. By raising fossil fuel taxes, those alternatives with low fossil fuel inputs will gain an advantage.
Conclusion
Why does energy independence elude us? In a nutshell, because we are unwilling to pay the price. The political parties make energy independence promises, because 1). We love to hear them; and 2). They (and we) are naïve about the difficulty of achieving the goal. Republicans tend to think we can drill our way to independence, and Democrats overrate the ease at which alternative energy can displace fossil fuels. The fact is, we love our cheap fossil fuels (and ironically loathe the companies that bring them to us).
But if we are to achieve energy independence we will need to use less. We will need to sacrifice. We will most importantly require bold leadership, because there is no easy way to get there. This is clear, given the inability of one administration after another to make headway in that direction. The thing that these administrations lacked was a serious policy designed to cut into our fossil fuel consumption. And the only proven method of getting us to collectively use less gasoline is by making it more expensive.
Or,we could just ban internal combustion. Trust me,automakers would come up with something else to sell. If Americans wanted to continue their torrid love affair with gas guzzlers,there’s always the used car market.
Maury, I agree with 100 percent on your last comment.
I just get so disgusted with our “leadership” in this country. I want to be optimistic and I know we can achieve what needs to happen with regards to energy. But, every day that passes, I have a little less optimism than before. Washington is a complete joke.
I don’t know who to vote for because I think both of them are scrubs. I know energy is the single most important issue facing our country today, even more so than the economy but I have absolutely no clue which one is going take this energy situation serious.
Robert:
Thanks for writing you thoughts in such a concise manner again.
The advances in EVs are truly remarkable. Evidently, a 200-mile range is feasible, and rapid recharge at 220v. Obviously, an onboard ICE extends range by several hundred miles.
I would prefer, as a national policy, to use the price mechanism, rather than mandates.
Right now we do not pay the full cost of a gallon of gasoline. The roads are subsidized, the military is totally subsidized, and the air is polluted.
Under conservative economic principles, we should pay a stiff gasoline tax. I suggest $3 increase per gallon, implemented over the next several years.
A tax credit for buying an EV is a good idea too — every EV is worth more than a tank and fighter jet to our national security.
The good news is that pure EVs (no onboard ICE) will likely become cheaper to produce than ICEs at some point. Brushless induction motors are not very expensive.
I suspect lithium battery costs will come down.
It may be that people will use an pure EV daily, and then rent an ICE-EV for weekend jaunts or cross country drives.
The EV looks like it will crush the oil business, by the way. It is much, much cheaper to plug in than fill up.
As for RR’s post today, as usual I agree with everything he says.
Unfortunately, between “no new energy development” Dems, and the “I Want my Baby Bottle and No Taxes” Repubs, we likwly will end up with the worst of both worlds — constrained new energy supply, but demand not dampened by gasoline taxes.
We will continue to transfer hundreds of billions daily to backwards petro-thugs.
The day may come when cities ban ICEs, at least from the central cores. There is no right to pollute the air other people breath — on the contrary, one might assume to opposite, that people have a right to fresh air. As a matter of practicality, we have endured ICEs in cities — but that day may be coming to a close.
Frankly, I think the best day yet for cities is ahead — imagine urban living in fresh air, with quiet streets. Not so bad.
Unfortunately, there will be no “energy independence” in this country until fusion power becomes a reality.
Fusion power should be the real top priority and crash project ~ the Manhattan and Apollo Project rolled into one.
The U.S. is an energy hog. We are 5% of the world’s population, and we consume 25% of the world’s oil.
In fairness, though, the US produces about 25% of the world’s GDP – so from that perspective the US is not such an energy hog. Obviously, much can (and should) be done to make America more energy efficient. But it seems America puts much of that energy to good use.
Sadly, as recent events have shown, the US economy is still the power behind much of the global economy. That may eventually change, the way the US seems to be squandering that leadership. But not just yet…
Or,we could just ban internal combustion. Trust me,automakers would come up with something else to sell.
Now there’s the dumbest comment I’ve heard in a while, and in this political season there’s no shortage of those.
Maury, what if you had a heart attack, but the ambulance couldn’t get to you, because it’s battery’s depleted? Or the cost of groceries tripled due to higher transportation cost? Are you suggesting we give up air travel all together? Why wait for Peak Oil, let’s get to the caves early, and get the best ones before the crowd arrives!
Banning stuff happens in communist countries (and other repressive regimes). In case you haven’t noticed, those don’t tend to work out well. Part of human nature: power corrupts and all that. Also, governement officials tend to be pretty bad at predicting what comes next, and how to prepare for it.
As the authors of Freakonomics indicated, people respond to incentives (such as high gas prices). So RR is right, there is no need to ban anything, just create the right incentives. That way you leave it open to human ingenuity to come up with better solutions than those government officials would have thought of…
“Banning stuff happens in communist countries (and other repressive regimes)”
Only,this is a case of national security optimist. Oil is half of our massive trade deficit. But,if the economy isn’t reason enough,what about Iran? We can’t bomb their nuclear facilities,because they’ve threatened to shut down the Persian Gulf. Even if they failed,taking their 4 million bpd of oil off the market could derail the world economy. Is the right to foreign oil worth armageddon? We banned automatic weapons from American streets,and they don’t present a fraction of the danger oil does.
I agree that we need to tax gasoline more, but the very thought is foreign to most people. What’s incredibly frustrating is that the maintstream in this country isn’t even discussing the real problem. There is so much misinformation out there that the truth isn’t taken seriously.
Robert, how can the message in this article be delivered in a way that people will accept as legitimate? I don’t think a blog is going to work.
I’m a teacher and I am starting to get my students to realize how a higher gasoline tax is great for America. They are starting to come along which is very promising. Just thought I would throw that out there.
Maury said: “Oil is half of our massive trade deficit.”
Right Maury. That’s why ethanol from corn makes so little sense. Why burn and waste fossil fuels to grow corn and convert it to ethanol? It only adds to the trade deficit.
Oh, it’s ugly time on Wall Street. This is uglier than a Cubs playoff performance.
Crude oil futures up today, but that has to be speculator manipulation.
Man, oh man. Get ready for your house to be worth half of two years ago, and your stocks too.
If you rent and own no stocks, try to hold on to your job.
Oil is dead, dead, dead, dead. Even the TOD crowd is suggesting demand will fall faster than depletion, which is their way fo saying oil is dead for years and years, and Peak Oil drama is pushed off again. It is ever future tense for the doom crowd.
As if the price mechanism could not limit demand even more quickly then a recession….
Apart from the incentives created, the other big benefit of a gasoline tax would obviously be the tax revenues generated. At a recent rates of 9,000,000 barrels of gasoline produced per day, plus another 1,000,000 barrels imported per day, a tax of say $2 per gallon would yield (if I did the math right) about $300 billion per year. This would of course be offset by reduced demand the new tax would cause and any corresponding income tax reductions. But we could end up with some big numbers (whether the big numbers would be spent wisely is another issue).
Additionally, reduced gasoline demand generated in this way in the US would have a dampening effect on global oil prices.
Armchair-
Yes, you are right. Demand would be dampened, crushing the price. We can transfer money to thug states, or to the US Treasury.
We could stipulate the gas tax revenues be used only to pay down debt.
It is a remarkable testament to the stupidity of our two parties that this policy option is not even on the table — despite the fact that it is already a reality, and working, in Europe.
Imagine the reaction of oil markets to the news that a $3 gas tax was coming in America — and that EVs would get a $10,000 tax credit.
You may wish to look at living in Australia, Thailand, Sweden, German, France. They have real governments. We are turning into El Bananarama States of Norte Americano.
Benny,
I have lived in Europe before (Scotland) and I didn’t hear so much complaining about prices. Then again, a lot of people there were not so kind to their government. There is a bit of “grass is greener” going on here.
I also lived in a “thug state” if you want to call Qatar a thug state. I thought it was actually very well run and very pro-western in terms of its views on economic development. Dubai, Abu Dhabi, and Oman also seemed to me to be very well managed countries/emirates.
Best of luck to the politician who puts higher gasoline taxes on his platform.
I appreciate the additional details on Brazil. It added some additional perspective on what I heard from Khosla’s presentation.
Perhaps a good use of Algae is not Biofuels but as fertilizers. Have you worked any of the Energy ROI’s with fertilizers that take less energy to produce? Perhaps this is where we should be putting our efforts in the fertilizer sciences.
Also efforts in the renewable swithgrass (or algae?) pellets burning than trying to make forms of oil out of them.
“Oil is dead, dead, dead, dead.”
Not a chance Benny. It wasn’t a shortage that caused the spike to $147. The world had spare capacity,but OPEC chose not to use it. They’re already jabbering about cutting production. If it was a free market,I’d have to agree with you. But it ain’t.
Pop quiz time. Corn is down 45% because…
A] Congress threw out the ethanol mandates.
B} Input costs are down 45%.
C) Cows and chickens changed their eating habits.
I think something got lost here: “The fact is, we love our cheap fossil f[uel]”. However, I don’t know how much more gap there is.
I think something got lost here
Fixed, thanks. I had seen that error in an earlier version, but thought I had gotten it fixed.
RR
Is it just me, or is Obama tooling up to be “The Energy President”? It appears he thinks that’s the best way to tackle both the energy situation as well as the economic one. Robert, he could use your advice, and I hope someone from the campaign is paying attention. All McCain wants to do (with Palin as his energy czar) is drill baby, drill.
I hope Obama is tooling up to be the "Energy President." If we don't have an energy President now, we may be in deep $&@# a few years down the road.
Robert, are you supporting Obama?
Obama’s energy plans aren’t encouraging, though they’re better than nothing. My bet is that following Obama’s course means increased reliance on nat gas for both electric power and vehicles, because he won’t want to drill for more oil, won’t want to increase the use of coal, and will stiff-arm nuclear power.
I agree with the gas tax, Robert. In fairness to the USA, I would make the point about 25% of GDP as well. I would also point out that we are a large country with relatively low population density. A fairer comparison would be to other large, developed countries with low population densities, e.g. Canada, Australia. We don’t look as bad versus those examples.
Maury-
Brent spot price down to $80 today, and some futures prices, out a few years, are trading in the $70s on the NYMEX. Crude oil demand is waning, while biofuels output skyrocketing. Meanwhile, refineries are coming online that handle the heavy and sour crudes, which have been piling up worldwide.
Oil is dead, until the next “story” can be hatched. The speculative price of oil is the market price, sometimes for years on end. Then, the correction. We are seeing the correction. Remember, when oil crossed over $40(going up) the price became high enough to stimulate new production. At more than $60, conservation and alternative fuels look great. At $100? It can’t hold. It can for years, but not forever. The speculators had a field day, as demand for oil is short-term inelastic. Scare-mongering was the order of the day.
OPEC? Now, they crumble. To make more money, they have to pump more, unlike the last few years.
On TOD, they are mealy-mouthing that demand will fall faster than depletion, thanks to the recession. The price mechanism is even more potent.
The oil bull market is dead.
Armchair:
I have never been the Emirates, which are widely regarded as a bright spot. Still, what are the rights of women in those states? Free press? Do they have democratic elections? Are there newspapers in which columnists write “Time to end monarchy and start democracy.”?
Are there two or more political parties? TV stations which condemn the king and his actions?
Do the mass of foreign workers have labor unions?
Do house servants from the Philipppines became unwilling sex workers for house owners?
Yeah, and the Emirates are the bright spot of the Islamic Mideast.
Robert — since you are saying things you have said before, let me add something that I have said before.
There is a fairness issue buried in high consumer taxes on oil products. Who should get the major share of the economic rent? A developing country using up its finite natural endowment, or greedy politicians in western countries?
Beware the unintended (but eminently forseeable) consequences of demanding high taxes on oil.
Instead of increasing taxes, we should be looking for a supply-side solution — promote serious research into a wide spectrum of other large-scale dependable energy sources. Let's find new energy sources which are cheaper & better than fossil fuels.
Kine:
I will give my opinion: I would rather my money go to the US Treasury, then some creepy thug state petro-dictator.
Now that oil is down 50% and gasoline is down 10%,maybe it is a good time to slap a bigger tax on gasoline. Porsche built a hybrid AWD car in 1902,but not a single European carmaker has a hybrid in showrooms today. Maybe they need more gas taxes too.
The Lohner-Porsche Mixte Hybrid was one of the earliest hybrid vehicles, developed in 1901 by Ferdinand Porsche. It was a series hybrid, with four electric motors mounted in the wheel hubs and electricity delivered by batteries and a small generator. In concept and general layout, it presaged the Volvo ReCharge Concept, the Chevrolet Volt, the Opel Flextreme, and other modern series hybrids.
http://en.wikipedia.org/wiki/Lohner-Porsche_Mixte_Hybrid
All we need is higher taxes and a few hundred more years of “innovation” to slay the oil dragon. Or,we could make automakers stop draggin’ their feet and do away with internal combustion altogether.
Benny,
True, these “bright spots” aren’t democratic by western standards. But they are making slow progress. There is some voting for local elections. There is some free-ish press, like “Al Jazeera”. It’s not just the political structure, there is also a heavy cultural influence in their way of life.
The natives in these countries are prosperous. The immigrants are not so well off or well treated. But the fact that they keep coming says something about relative conditions in their home countries.
The point I made is not that these places are beacons of western style democracy. It’s that, as opposed to a lot of countries with dictators and their cronies that drain their countries’ wealth, these “bright spot” countries are well managed, and have seen huge increases in standards of living over the last, say, 30 years. Petroleum wealth has trickled down to the natives. If you want to see true oil thug states, look to places where the people have not really benefited from oil wealth. Nigeria is the poster child.
Also, I wouldn’t say oil is dead. It’s back where it was a year ago, when everyone was loudly complaining it was too high. I’d say more that oil has had its day in the sun, like expensive housing, and will now go back to a more reasonable equilibrium. At $80 the industry can still be healthy. I think the same supply/demand issues that led to $150 oil will happen again down the road, when economies start to emerge from the current crisis.
Armchair-
I wonder what would be world reaction is a country somewhere announced that “blacks can not have a driver’s license or vote.”
Yet women cannot vote or drive in Mideast thug states, and the situation may be going backwards, not liberalizing…..
And we finance this through oil imports….
A Saudi caught with a cross will have his nails pulled Benny. They use our oil dollars to spread their deadly cult around the world. Thanks to Saudi Arabia,80% of American mosques are Wahhabi,the poisonous cult bin Laden subscribes to. Doesn’t stop Bush from smooching with their king though.
BTW-
A $3 a gallong new federal gas tax would raise $400 billion a year…depress demand for crude, reduce imports, nearly balance the budget (maybe not a good idea this year, but in general…)
Benny,
I think you’re stereotyping a bit here. True, some Middle Eastern countries like Saudi Arabia and Iran are very strict and repressive. Others, like Egypt, Qatar, and Dubai, are much more liberal. Women can, for example, drive in these places, and wear pretty much whatever they want. They can go to college and hold professional jobs. Some of the countries have local elections. Mostly though it’s true that they don’t have equal status with men.
This was an ongoing source of debate when I lived there, whether western women should speak out to local women about their relative lack of rights. A lot of local women resented this kind of heavy-handed western intrusion, in their minds, of foreigners lecturing them on what the proper way to live should be. A lot of women (especially the older ones) were I think comfortable with the status quo, because as I said there is a strong cultural component here. But increasingly I saw (particularly younger) women adopting more western lifestyles, and I think these women did feel that they were being held back, just as I’m sure some older women feel repressed.
Bottom line, from my experience there, I think the blanket accusation that all Middle Eastern countries are thug states is unfair, because there are a variety of approaches from country to country, and also because the status quo has deep cultural roots. So I think the definition of thug state is pretty imprecise and is laced with western political and cultural expectations. I can just imagine the reaction I’d get, speaking to a roomful of Qatari women, calling their nation a thug state! I would say Nigeria is a thug state, but I would not say that Qatar or Oman are thug states.
Maury asked:
Pop quiz time. Corn is down 45% because…
A] Congress threw out the ethanol mandates.
B} Input costs are down 45%.
C) Cows and chickens changed their eating habits.
None of the above Maury.
It’s because the corn speculation commodity bubble has burst, and because more and more corn-to-ethanol stills are finding they aren’t making any money ~ even with local and Federal tax credits, rebates, and subsidies.
The fact is that corn ethanol does not have a sound thermodynamic foundation and now those chickens are coming home to roost.
Even “Big Corn,” “Big Ethanol,” their lobbyists, and Corn Belt politicians can’t repeal the Laws of Thermodynamics.
Gateway Ethanol bites the dust, more to follow: Ethanol Plants in Deep Jeopardy
Another instance where subsidies and bad gov’t policies led to unwise business decisions.
I think we could move towards energy independence if we would reduce the coporate income tax and capital gains on companies that produce domestic energy.
We were doing a litle thought experiment, we found that rather than build a plant in the US, we could export the US (40% effective state/federal income tax) raw materials to Ireland (11.5% effective tax rate), turn it into gasoline, then reimport it to the US markets, and make more money than just building the facility in the US.
But it seems that our politicians would rather just smack the oil companies like a pinata until no more candy falls out.
In reality, they would rather keep the marginal tax rates high and get nothing than reduce rates and get some tax revenues from domestic production.
Others, like Egypt, Qatar, and Dubai, are much more liberal.
Egypt more liberal? Wow, that’s setting the bar pretty low:
1. Human rights groups say police brutality is widespread in Egypt. BBC, Thursday, 9 October 2008 12:56
2. Despite the bitter setbacks faced by journalists across different formats trying to expose injustice and improbity at the heart of the Arab world’s largest country, the government’s suffocating grip on the media here is slowly weakening. There is nothing linear about this process: writers and activists whose work is channelled through the net are routinely rounded up; the explosion of foreign satellite channels in recent years has been accompanied by police raids on programme-makers; the rise of independent ownership within the Egyptian newspaper industry is undermined by court cases against non-compliant editors. The Guardian, Thursday October 09 2008 17:30 BST
More liberal than Saudi Arabia…. was my point. But definitely not liberal by western standards.
I’m not really trying to defend these countries, just pointing out that, after spending 5+ years living and traveling in the region, in my opinion western perceptions that these are all brutal dictatorial regimes populated by unhappy and repressed people are not really accurate. There are lots of shades of gray.
“Why Energy Independence Eludes the U.S.”
Nancy Pelosi.