Tired of paying $2 a gallon to fill up your SUV? Here's how America ought to respond to OPEC's crude behavior.
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A COUPLE OF YEARS AGO, Texas Monthly hosted a meeting of editors of city and regional magazines. Most of them came from points north: Boston, Philadelphia, Chicago, Cincinnati, Minneapolis. After the meeting, I ferried several of the visitors to dinner at a local Mexican restaurant. “Several” in this case added up to seven; nothing can match a Suburban when it comes to hauling people around. But my passengers were not impressed. “How can you drive this thing?” one of them asked. “Don’t you realize what you’re doing to the environment?” “What kind of mileage do you get?” another demanded to know. (The answer is 12 to 13 in city traffic, 17 to 18 on the highway, but it seemed prudent not to respond.) I listened to this chorus for a few more moments, and finally I said, “I feel about my Suburban the way NRA members feel about their guns. You can have my car keys when you pry them out of my cold, dead fingers.”
I have driven Suburbans for almost twenty years. My current one is my third. I can’t imagine driving anything else. Or at least I couldn’t, until the day a couple of weeks ago when I filled the 32-gallon gas tank and took a look at the price display on the pump. The digital numbers danced by faster than the eye could register and didn’t stop until they had recorded more than sixty bucks’ worth of fuel. I’m not ready to trade in my Suburban for a Hyundai, but I will make this concession: It’s way past time for America to start doing something about energy policy, and yes, that includes sport utility vehicles.
With one exception—the war in Iraq—U.S. energy policy has hardly changed since the end of the 1973 Arab oil embargo. It consists of encouraging oil exploration worldwide (but not at home, where environmentally sensitive areas remain off-limits); cozying up to Saudi Arabia through diplomacy to keep prices stable and the oil flowing (but also wondering, after 9/11, if the regime itself is stable); trying to get automobile manufacturers to improve fuel efficiency (but not trying very hard); supporting research of alternative energy sources, such as solar (but not supporting it very much); and having a strategic petroleum reserve on hand in case of an emergency (and, judging by the cars clogging Interstate 35 on my recent trip to Dallas, $2 gasoline isn’t an emergency). As for Iraq, I’m not suggesting that oil was the primary motivation to go to war—just that oil was, and should have been, a factor. If Saudi Arabia, with a quarter of the world’s proven reserves, were to fall into the abyss, Iraq would have the next largest amount of reserves, 11 percent. In Saddam Hussein’s hands, oil could have become a weapon of economic mass destruction.
The trouble with this policy is that thirty years have passed since the Arab embargo, and America has not been able to reduce its dependency on foreign oil. Indeed, the trend is in the opposite direction. We entered the nineties importing fewer than 7 million barrels a day and left them importing more than 10 million.
What to do? Everyone ought to be familiar with the two sides of the energy policy debate by now. One side argues that the market will solve the energy problem. If OPEC (the Organization of Petroleum Exporting Countries) raises the price of oil, the argument goes, the market will respond in two ways: conservation (consumers will buy cars with better gas mileage, thus reducing the demand for oil) and exploration (the higher price will encourage more drilling, which will lead to increased supplies of oil entering the market, which will force prices downward). This is what happened in the decade after the embargo, eventually resulting in fifteen years of cheap oil to end the twentieth century. But markets work both ways. Americans fell in love with SUVs, and the nation’s demand for oil began to climb anew. The other side in the energy debate contends that the only permanent solution to high energy prices is for America to kick the oil habit and look to something else to fuel our economy and our lifestyle—solar energy, perhaps, or hydrogen or wind. Anything but bad old oil.
There’s a third voice in this debate: those insistent neoconservatives. The neocons want to bust up OPEC. “Is the OPEC cartel a good thing for consumers?” asks a scholar for the Cato Institute, a staunch free-market advocate. “Given the political and economic angst sparked by the recent spike in gasoline prices, you’d think that the answer would be rather obvious. You would, however, be wrong.” The author assails the idea among “Washington politicos and policy mavens” that OPEC brings stability to oil prices and Middle Eastern governments. “The argument that these undemocratic, oppressive, ideologically bizarre, and terrorist-friendly regimes are propped up by high oil prices is scarcely a strong argument for [OPEC]. . . . Let’s be clear about what’s at stake. If OPEC disappeared tomorrow, oil prices would drop to somewhere around $8 a barrel and gasoline prices would almost certainly be south of $1 a gallon.” Like the neocons’ argument that Iraq was ripe to be refashioned into a democracy, this one is high on wishful thinking. OPEC isn’t the only player in the game. Russia, for example, now trails only Saudi Arabia in oil exports. That the United States could simultaneously insist on low prices and high consumption seems far-fetched.
Still, the neocons are right about one thing: It is not in America’s best interests to be dependent on Middle Eastern oil. What to do, then? What would a sensible and realistic energy policy entail? For an answer, I called up Amy Myers Jaffe, at Rice University’s James A. Baker III Institute for Public Policy. I had heard her speak at an oil conference two years ago on the geopolitics of energy, and I had read a recent article she co-authored on the same subject. I have encountered a number of people who like to hold forth on the subject of energy, in person or in print, but Jaffe is one of the few who doesn’t have an ideological ax to grind. When I asked her about her approach to energy policy, she said, “I don’t want my children to face these same problems.”
Exactly. So here is a sensible and realistic energy policy, with a heavy reliance on the expertise of Amy Jaffe.
Start by admitting our dependence. “The biggest failure of Bush’s energy policy,” she told me, “has been communication, not programs. We need to start from square one. We’re addicted to oil, but we don’t realize it. People don’t understand what oil means to their lives. It’s not just something for your car. You flick on an electric switch and the lights come on. Nobody stops to think that behind every switch is a fuel. That fuel keeps you from sitting in the dark. Only in a blackout do you really understand energy. “
This understanding of oil’s importance is essential, because the cost of reducing our dependency on oil (and natural gas) will be very high—economically, politically, and environmentally. Few will be willing to pay it unless they realize just how vulnerable we are to a disruption of imports.
Increase domestic oil and gas production. The next step toward reducing our dependency is to produce more energy. But environmental opposition stands in the way. “We can’t build dams for hydroelectric power,” Jaffe said. “We can’t build nuclear power plants. We can’t build liquefied natural gas import terminals. We can’t build more refineries to increase the supply of gasoline, which is one reason the price is so high. And we can’t drill in the Alaska National Wildlife Refuge or off the East or West coasts.” Jaffe would allow more drilling, but she would also insist on stronger environmental enforcement. “I am critical of the administration’s lack of attention to beefing up the Environmental Protection Agency,” she said. So her next recommendation should come as no surprise.
Beef up the EPA. “Our domestic political inability to forge rigorous compromises to achieve energy security—with liberals calling for greater conservation and conservatives for increased domestic production—has left official Washington reduced to vocal but fruitless hand-wringing about increasing U.S. oil imports and our continued dependence on Middle East oil,” Jaffe has written. An enforcement plan that would station inspectors at environmentally sensitive sites should be in place before drilling begins, to bolster public confidence. The inspectors should have the power to shut drilling down.
Lobby producing nations for political change. “The resource is politically blocked,” she said. “We have a global economic system, rules for international banking, agreements to get rid of government subsidies, and in almost all manufacturing sectors, open access for investment and banking. But not in oil. Why do we have a system where ten to twelve countries can say, ‘We won’t allow outside investment, and we’re not going to make new investments to increase our production, and by the way, we’re going to charge you more money for our oil?'” She isn’t optimistic, though: “Our energy policy consists of sending diplomats to ask other countries to change their ways—getting Russia to allow outside investment, getting Mexico to drill offshore—instead of changing our ways. If the Russians sent Putin to lobby Congress to act in Russia’s interest, how effective would that be?”
Form a buyers’ cartel. “Rhetoric about ‘breaking OPEC’ is more a wish-list item than a practical aim,” Jaffe has written. Still, she would like to see the four major buyers of oil (the U.S., China, Japan, and the European Union) get together to put pressure on sellers—say, by threatening to institute conservation measures or to discourage consumption with energy taxes. With their combined purchasing power, the big buyers could also refuse to import oil from countries that don’t allow outside investment in their oil fields and vow to favor those that do. “After all,” said Jaffe, quoting an old oil-patch saying, ‘They can’t drink the oil.'”
Create an Apollo-style research program to achieve energy independence. Develop cars that run on hydrogen. Find a way to make solar energy economically feasible. Require that every car in the federal government’s fleet be a hybrid, providing a ready-made market that will induce automakers to convert their factories. And pay for the research with a tax on luxuries. “Are you saying you want to tax my Suburban?” I asked. She was.
Well, I suppose the time has come to downsize. I’m willing to sacrifice for my country. Next time, I’ll get a Tahoe.