As they have throughout history, high oil prices are evoking calls for new patterns of energy supply and use. The response comes naturally to markets and politics, unleashing the creative potential those systems represent. If not held in check, though, it also gives way easily to costly excess.
High oil prices help new energy forms migrate from the economic margin into the market. Movement of this type is evident and, for a world with an energy appetite outgrowing its supply menu, beneficial.
Distortions and costs
Inevitably, however, some market participants turn to politics for competitive advantage while politicians turn to markets as tools of influence. Energy forms then advance not because they gain economic footing but because they win the enshrinement of policy. Distortions can result, fattening costs.
Plans central to this process articulate what “we” should do about energy now that high oil prices reveal the failure of whatever “we” did about energy beforehand. And they burrow into public consciousness encased in marketing packages that, even when proposals differ, bear common elements. Examples appear in two otherwise disparate proposals now swooping into the news.
Former Vice-Pres. Al Gore and oil and gas producer T. Boone Pickens both assert crisis. With stratospheric oil prices hurting people and economies, that’s appropriate. But price pain alone isn’t crisis enough when the appeal is for overhauling patterns of energy use and supply.
For Gore, who wants to end the use of fossil energy for power generation within 10 years, crisis stands on three legs: economic problems, global warming, and security threats, all linked by reliance on carbon-based energy. Pickens, who’s promoting wind power to free up natural gas for use as vehicle fuel, heralds a similar three-fold crisis–economy, environment, and security–with US “addiction” to foreign oil as the centerpiece.
Like all efforts to overhaul energy patterns, those of Gore and Pickens deploy extravagant rhetoric. The former vice-president sees a country “awakening to the challenge of a present danger” at what he describes as a “generational moment.” The oil producer hails the US as “the Saudi Arabia of wind power.”
And, of course, both energy plans have dragons to slay. Gore’s include oil companies and “defenders of the status quo,” both of which come under incongruous assault with this delusion: “When people rightly complain about higher gasoline prices, we propose to give more money to the oil companies and pretend that they’re going to bring prices down.” Who’s proposing to “give” oil companies anything? And how can grown-ups still believe oil companies control prices? Pickens is more subtle but nevertheless clear about the beasts he would vanquish: foreign sources of oil.
As do most energy plans born of high oil prices, the Gore and Pickens programs shout their promises but mumble their costs. Gore avers, “This goal is achievable, affordable, and transformative.” In response to those daring to ask about the economics of replacing fossil energy with costlier substitutes, Gore says, “I ask them to consider whether the costs of oil and coal will ever stop increasing if we keep relying on quickly depleting energy sources to feed a rapidly growing demand all around the world.” Pickens cites costs not of his program but of imported oil over 10 years at current oil prices, calling the result “the greatest transfer of wealth in the history of mankind.”
Room to fall
Here, especially, both plans falter, as grand energy plans–not to mention investments–have before. To Gore’s question whether prices of oil and coal will stop increasing, history, economic theory, and the past week’s market news all answer loudly, Yes! The Pickens extrapolation assumes oil prices will stay at currently aberrant levels for 10 years. Prices never stay at any level that long. At present, they have lots of room to fall.
Plans to overhaul energy patterns appear when oil prices rise stressfully and disappear when prices fall–unless they become policy. Unlike today’s prices, policies do tend to last. That’s worth remembering in assessments of the Gore and Pickens plans and others sure to follow.
