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Preview: RealClearPolitics - Articles - Steve Stein

RealClearPolitics - Articles - Steve Stein

Last Build Date: Sat, 05 Aug 2006 08:38:07 -0600

Copyright: Copyright 2007

Breaking the Oil Habit

Sat, 05 Aug 2006 08:38:07 -0600

The stubborn facts of geology and economics rule out the possibility of the United States' achieving energy independence based upon oil -- or upon natural gas, since gas deposits are mainly found in the same areas. But can other energy sources replace oil in key economic sectors just as oil, in the past century, frequently replaced coal? The iron age didn't end because the world stopped using iron, but because iron lost its relative importance. If the "oil age" can be brought to a similar conclusion, the country's economic power might again achieve parity with its geopolitical power. Of course, the reverse would also be true: If we don't find oil substitutes, a growing thirst for petroleum may sap our military, economic, and diplomatic strength. Energy-independence hawks claim that this is already happening. The vision of energy abundance is appealing, but scenarios for achieving that goal haven't captured the popular imagination. Since few Americans want to contemplate the opposite future -- gasoline lines, brownouts, and reduced living standards -- the politics of energy remain in a chronic a state of denial. The ceremonial exhortations found in State of the Union speeches and election campaigns have lost their credibility as statements of policy. The past 35 years have made the public skeptical that government will ever address energy problems successfully -- or will work effectively with markets toward that end. When President Jimmy Carter said, in 1977, that energy independence was "the moral equivalent of war," he had broad support for programs that both spurred an increase in fuel efficiency and jump-started research into alternative fuels. But he also confounded markets. Stuart Eizenstat, Carter's chief domestic policy advisor, later told an energy seminar that "one of the worst things I ever recommended to the president was in the midst of the Iranian crisis suggesting that we maintain price controls on gasoline at the pump. It was an absolute disaster." Even before that fiasco, other price controls on domestic crude kept local supplies off the market, thus increasing dependence on foreign sources. Carter finally changed that policy, but it wasn't until his successor, Ronald Reagan, pursued even more robust deregulation that domestic oil production helped to reduce the opec cartel's power. Markets can be chaotic, and government policy can be incoherent. But markets contain built-in corrective mechanisms, whereas governments can deny reality for a long time. Events can occasionally shock governments out of denial, but rhetoric can't. Calling for a "Manhattan Project" to wean the country from oil won't work; the original Manhattan Project occurred during a life-and-death struggle, and the singular objective was clear from the outset. A return to energy abundance needs no such crash program, nor -- given the enormous range of policy choices and technical alternatives -- could one be devised. A dramatic government policy is much less important than a clear and consistent one. To give market forces a chance to redirect the energy industry, entrepreneurs need some assurance that risks won't be enhanced by a government that cannot set or maintain priorities. What should take oil's place? Upon that subject, today's markets are utterly confused. The Politics of Avoidance The energy policy act of 2005 has few admirers. Senator John McCain suggested, as he had of an earlier version, that the bill should have been subtitled "No Lobbyist Left Behind." Other lawmakers criticized the bill for what had been omitted. It contained neither new corporate average fuel efficiency (cafe) standards nor a decision to allow for oil drilling in the Alaska Wildlife Refuge. Few legislators thought both provisions should have been in the bill, but having both made more sense than having neither. The July 28, 2005, New York Times said "this is a bill that leaves most of the hard questions for later." The Wall Street Journal wryly noted the next day that "It doesn't pick energy winners or losers. Everyone who produces so much as a kilo[...]