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    Oil Prices, Peak Oil, Elasticity, Supply & Demand
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As oil prices continue to lurch upward with no clear end in sight, the PlanetThoughts team has sought to provide our readers with some facts about the oil crises in America. Last month, in the first of three installments, we presented an article by Tom Ordeman, Jr. addressing some of the reasons for the quick price increase of the last several years.  Today, we present a second installment by Mr. Ordeman that analyzes proposed solutions that won't solve the problem, and why. Ed.

In the wake of an unprecedented rise in the price of petroleum since 2003, a diverse array of suggestions have been tabled in a continuing effort to return America to the days of cheap and plentiful energy. Some of these suggestions have a great deal of merit, while others offer no realistic or lasting solutions to the energy dilemma. So what aren't the solutions?

 

Some have suggested artificially fixing the price of oil, or oil derivatives such as gasoline and diesel. While the idea of a strong government approach that protects the common man may be appealing to some, this approach ignores the fact that the price of oil is delivered not only by the global market, but also by oil producers and distributors outside the United States. For better or for worse, the cost of petroleum is determined largely by the free market, and artificial government controls on oil prices would present American consumers with a false idea of how to adjust their lives accordingly. Statistics indicate that the rise in fuel prices over the last several years have had an impact on consumers: the demand for fuel-efficient cars has risen, while the demand for fuel-inefficient vehicles has declined. Also, Americans are driving less in order to save on fuel prices. Artificial government price controls would discourage Americans from adjusting to the market on their own, which would likely worsen the situation.

 

During the 1970s, President Carter enacted both the aforementioned price controls and applied ineffective solutions like reducing the national speed limit. While no suggestion has been made to reduce the national speed limit, it's worth reiterating that this would do little or nothing to alleviate America's precarious energy situation. While reactive measures shouldn't be summarily dismissed as part of the overall approach, speed limit reductions, or the controversial extension of daylight saving time, do nothing to address the real issue of energy supplies.

 

One of the most prominent suggestions for engaging the energy problem head-on involves substituting alternative fuels for petroleum. While some of these approaches are compelling, none of them are yet feasible. Unfortunately, this includes ethanol. The idea of using renewable crops like corn or sugar cane are very attractive, several issues arise as a result. With respect to cane sugar, which is often cited as a major fuel source in Brazil, the amount of cane sugar necessary to provide even an appreciable fraction of America's energy would almost certainly be impossible to provide. Corn ethanol has proven to be a problematic, imprudent response in recent months as Americans have learned not only that corn ethanol reduces overall fuel efficiency, but also that an increased demand for corn affects global food supplies. According to some experts, a single gallon of gasoline is required to produce just 1.3 gallons of corn ethanol. While the possibility of greater efficiency with further research certainly exists, ethanol is still in its infancy. Relying on ethanol as a solution in the near term is, at best, a knee-jerk reaction that has already caused problems of its own.

 

A great deal of focus is placed on vehicles when it comes to the discussion of energy policy.  When Americans see the rising price at their local service station, it's easy to forget that most of America's electricity also comes from burning fossil fuels. Supposedly earth-friendly solutions to this aspect of America's energy needs have been suggested, but pose problems of their own.  Hydrogen has been suggested, but hydrogen currently requires more energy to create than it produces. Hydrogen is also highly explosive, which raises additional safety concerns. Solar energy is also problematic, as it's not yet efficient enough to be used en masse to provide energy (though in some areas it can be a cost-saving way to provide heat for homes). Wind power, which kills birds and doesn't provide a drastic savings in energy costs, is also an inefficient solution for the entire country, although it has certainly proven feasible in some areas. A handful of other "alternative energy" solutions have been suggested, but the majority of them are either too inefficient to address the overall energy problem, or best suited to specific areas of the country (and thus, incapable of being applied as a one-size-fits-all solution).

 

Occasional suggestions of releasing supplies from America's strategic petroleum reserve hit the media in times of rising energy costs. This approach is problematic, as the impact on prices is minimal and the impact on supplies within the reserve itself is often profound. Releasing large supplies from the reserve negatively affects America's supplies in the event of a legitimate energy emergency, and increases prices in the long term by increasing reliance on oil imports to refill the reserve.

 

The solutions to America's long-term energy needs will require real compromises and responsible planning – two things that seem to be less and less prevalent among Americans. These solutions, and their overall approaches, must be environmentally sustainable while simultaneously being capable of truly providing for America's energy needs. While increasing efficiency and attempting to reduce the overall individual energy needs of each American must be part of the approach, environmental activists must understand that the global demand for energy is going to increase, not decrease – protesting the addition of a new terminal and runway at Heathrow, for example, was completely pointless. At the same time, the average American needs to understand that the days of cheap, seemingly inexhaustible are over, and the American lifestyle will have to adjust to the change in the market. Most of all, government leaders must accept the fact that playing political games with America's energy security has gone on long enough – the debate is no longer rhetorical, but now has serious consequences for American citizens.

 

So, what are some of the viable solutions to the energy dilemma? These will be discussed in the final installment.





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