Excerpts from an op-ed piece in the Washington Times, titled “Rising Oil Prices Threaten Economic Crash” by Robert Zubrin, detail the economic jeopardy we are placed in as fuel prices rise. The author relates that more US drilling and other carbon-based fuels are a possible answer.
In recent days, oil prices have climbed above $100 per barrel. As chaos spreads through the Arab world, we could soon see much worse.
The distress to American workers caused by such events is manifest, but the economic damage goes far beyond the impact on the unemployed. A sustained oil price of $100 per barrel will add $520 billion to the U.S. balance-of-trade deficit. Furthermore, there is a direct and well-established relationship between unemployment rates and the rates of mortgage defaults.
Thus, the $130-per-barrel oil shock of 2008 didn’t just throw 5 million Americans out of work, it made many of them default on their home payments and thus destroyed the value of the mortgage-backed securities held by America’s banks. This, in turn, threatened a general collapse of the financial system, with a bailout bill for $800 billion sent to the taxpayers as a result. But that is not all. The destruction of spending power of the unemployed and the draining of funds from everyone else to meet the direct and indirect costs of high oil prices reduce consumer demand for products of every type, thereby wrecking retail sales and the industries that depend upon them.
Indeed, the world today is already in deep recession. Yet as a result of the systematic constriction of oil production by the Organization of Petroleum Exporting Countries (OPEC), which is limiting its production rate to 1973 levels of 30 million barrels per day, petroleum prices stand at more than four times what they were in 2003. This has imposed a tax increase on our economy of $500 billion per year, equal in economic burden to a 20 percent increase in income taxes, except that instead of the cash going to Uncle Sam, it will go to Uncle Saud and his lesser brethren.
The only way out of this mess is forcefully to expand production of liquid fuels from sources outside OPEC control, particularly our own. That means unleashing our own domestic oil supplies through expanded drilling and also opening our vehicle-fuel market in a serious way to alternative fuels, such as methanol, which can be made cheaply from coal, natural gas or biomass and used in flex-fuel cars.
It may be too late already to stop the crash that will follow the current oil price run-up, but we still have to get started without further delay. Otherwise, while the crash itself will bring down world fuel demand and thus oil prices for a while, they will just rise once more when the economy begins to recover and slam us right back down again. And again. And again.
I hate to be pessimistic, but all that does is buy us some more time, and despite the push to alternative energy, I think we’re fighting a losing battle. The current energy needs of the US, and the rest of the world, will continue to out-pace the availability of viable fuel sources.
In spite of the recent push to ethanol, which has contributed to the rising cost of corn and foods made from it, the focus on solar, wind, and nuclear energy, and the various other alternatives, I believe the demand will continue to grow while war, natural disasters, and general political bickering with put the US further in the hole.
The summary of a very well written, excerpted chapter from The Post Carbon Reader: Managing the 21st Century’s Sustainability Crises, Richard Heinberg and Daniel Lerch, eds. (Healdsburg, CA: Watershed Media, 2010) as posted by Oilprice.com, backs up my perception that nothing short of a comprehensive approach, founded on decreasing energy consumption in general, will help solve this problem. I recommend reading the whole report for a list of advantages and obstacles faced when considering alternative energy.
How Will Society Evolve in a Post-Carbon World?
Alternative energy forms are crucial for a global transition away from fossil fuels, despite the myriad challenges of their development, scaling, and integration. In face of the peaking of global oil production—to be followed by peaks in natural gas and coal extraction—and of the need to reverse trajectory in carbon emissions, alternative energy sources will need to form the backbone of a future energy system.
That system, however, will not be a facsimile of the system we have today based on continuous uninterrupted supply growing to meet whatever demand is placed on it. As we move away from the energy bounty provided by fossil fuels, we will become increasingly reliant on tapping the current flow of energy from the sun (wind, solar) and on new energy manufacturing processes that will require ever larger consumption of resources (biofuels, other manufactured liquids, batteries). What kind of society we can build on this foundation is unclear, but it will most likely require us to pay more attention to controls on energy demand to accommodate the limitations of our future energy supply. Moreover, the modern focus on centralized production and distribution may be hard to maintain, since local conditions will become increasingly important in determining the feasibility of alternative energy production.
While it is great to hold out hope, how many Americans that you know will part easily with the freedom of movement and luxury of unlimited energy expenditure that we currently enjoy? Perhaps it will happen. Perhaps we can change, but I wonder if we can do it in time or if it is already too late. It’s going to take some significant changes in methods and perspective. Personally I think we’ll keep on trying to control oil resources, while trying desperately to play catch-up.
Oh geez, I’m doing it, I sound like the Doomers. :)