A comprehensive analysis of America’s Energy Future
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Part I
2009 – The Perfect Storm for All Things Energy Reform
Depending on who you ask, the energy crisis is many things. For the suburban commuter, the energy crisis is the rising cost of gas. For the policy wonk, it’s over-reliance on foreign oil. For the environmentalist, it’s the specter of climate change due to anthropogenic greenhouse gas emissions. For still others, it’s the so-called “Nuclear Renaissance”. Ultimately, all of these complex issues are interconnected and no solution to any of them can exist in a vacuum. These problems require a fundamental restructuring of our energy infrastructure…
On January 20, 2009, Barack Obama will ascend to the White House amidst an unprecedented popular desire for change in America. Unfortunately for the Obama Administration, this demand for the all-encompassing notion of “change” is not without a commensurately staggering number of unique interpretations and expected manifestations for what precisely is to be changed in America. For some, Obama has already succeeded in bringing the change they desired, that being the symbolic changing of the guard, but the majority of Americans remain apprehensively optimistic that he can bring about fundamental improvements in worrisome areas such as the U.S. economy, foreign policy, energy independence and the environment.
Indeed, even the most liberal pundits are fearful that Obama will be too financially constrained to make good on many of his promises made throughout his presidential campaign, but what if I told you that it were possible that in one grand, sweeping plan for change Obama could set in motion a plan to drastically improve America’s future outlook in all four of the aforementioned critical arenas – the economy, foreign policy, energy independence, and the environment. Well, upon first reaction to such a claim you would probably say something to the affect of, “Listen here you zealot you, if there were any practical solutions to fix the economy, and improve foreign relations, and solve our energy dependence all at the same time, even the Bush Administration would already be on top of it.” Even the short answer to such skepticism (the long answer to come in later installments) is somewhat complex.
On one side, the Bush Administration, having committed the U.S. to the reconstruction of Iraq, is far too invested in oil and its politics to change directions at this time. After all, why invest so much in Iraq, Saudi Arabia and the rest of the Middle East if not under the full impression that oil is and will be the cheapest and best solution for transportation and the American economy now and in the foreseeable future? Even if Dick Cheney himself invented a working fusion engine, it would still be difficult for the Administration to let go of the ever growing sunk cost that is our oil-motivated foreign policy agenda.
Another barrier to consider is that until recently the economics associated with oil-based fuel have been far superior to the possible alternatives, and with, as of yet, no tangible price tag placed on environment impact oil continues to be among the most affordable fuels available. This is reflected by the fact that 96% of all U.S. transportation sector energy is derived from petroleum products, which, by the way, also accounts for 70% of all U.S. petroleum consumption.
This is so, quite simply, because for many decades oil remained the most efficient and effective fuel available in massive bulk. As such, it is predictable that a large cross-section of the American GDP has come to be dependent on the substance. Thus, even as our continued investment in oil becomes less and less profitable, we find ourselves so entrenched in the medium of oil that to now shift away would require a down-payment so immense that it could only be justified by incontrovertible proof of long-term benefit for American financial and political interests.
While I do not portend to supply such incontrovertible proof, what follows now and in the weekly installments to come is nothing if not a persuasive argument for change, and I’m not the first person, or organization, to think so.
There is no Time like the Present
While U.S. policymakers deliberate on potential solutions to solve the energy crisis, the American economy continues to stagnate; losing its dynamism and comparative advantage. Many of our largest corporations post record-breaking losses and consumers survive with wallets full of credit cards. The longer we proceed with business as usual, the harder it will be to change.
In order to understand what to expect out of the Obama Administration, it is wise to look not only at the problems they face, but to also consider any precedents the Administration has presented that can illuminate how they, rather than we, might go about addressing these concerns. Before we can consider the ins and outs of the U.S. energy platform, both present and future, one must start by acknowledging the fundamental relationship existing between our economy, foreign policy, and energy consumption that has pervaded American politics since the the WWII era – the time when the U.S. found it could no longer nationally supply its growing oil demands.
This relationship can be best described as an investment feedback loop: First, the U.S. invests in its military to ensure ongoing access to oil abroad, that oil security then guarantees ongoing access to cheap fuel for the transportation industry, which increases the speed and growth-rate of American businesses, thus propping up the economy and allowing for more investment all-around…Wash, rinse, and repeat, and its not difficult to see how the United States has maintained its stranglehold over the Middle East and the global economy for decades.
While America’s oil-based economy fueled tremendous growth in the post-war period, the benefits have largely vanished. The U.S. has become increasingly reliant on foreign sources of oil; funneling money out of the domestic economy and tying U.S. national security interests to unstable regimes. Furthermore, The Big Three automobile manufacturers were built on an antiquated energy paradigm, mainly stable supplies of cheap oil. As a result, they have failed to compete effectively in the global auto market (SUVs anyone?). All of this hinges on the increasingly volatile supplies of oil, prone to supply disruptions and wild price fluctuations.
Obama has said that his first priority upon taking office in January, 2009 will be to jump-start the U.S economy. Although mortgage devaluation and credit contraction are not directly related to energy, these markets might only be the tip of the iceberg if immediate action is not extended to the energy sector as well. Needless to say, the long-term health of the economy requires new energy policies. Obama himself has acknowledged this, and has laid out a new energy plan that he claims will create five million new jobs. If we take Obama on his word, change is coming. However, aside from campaign promises, there is reason to believe that action will be taken.
Reducing the price of energy strengthens the middle class; a key element of Obamanomics. Furthermore, because the domestic auto industry is such a key player in the economy as a whole, making them competitive again will provide the rare opportunity to significantly catalyze American energy policy. What shape should these energy reforms take? And how can they be implemented?
What will follow in the weeks to come is a holistic discussion of the entire U.S. energy economy. Later we will explore various energy policy proposals, from both the private and public sectors, and examine their feasibility. Stay tuned as next week we will begin by exploring (and scrutinizing) the production, distribution, and consumption of energy in the United States.
