Posted by: Tony Carson | 8 November, 2007

Oll, making the best of a bad situation

There are many causes for oil prices surging to near $100 a barrel. China and India are voracious new consumers driving up demand, and fear of supply interruptions — principally from conflict between the United States and Iran — might be adding as much as $30 to the price. The falling dollar also makes oil more expensive, states USA in its editorial Like it or not, $100 oil forces new energy policy on U.S.

There are also many potential effects. Rising prices hurt the economy. As people are forced to spend more money on transportation and home heating, they have less for other things. They are also less likely to go on distant vacations or buy other goods and services that cost more because of higher fuel costs. This belt-tightening, combined with falling housing prices and tighter credit, could trigger a recession.

Add to that volatile mix a threat to national security. The biggest beneficiaries of oil at $96 a barrel are countries such as Iran,Venezuela, Russia and Saudi Arabia, places that are, or could become,security threats.

But higher prices do have an upside. They mean that the United States finally has a national energy policy. It might not be one of its own choosing. But it is having an impressive and immediate effect. The possibility of $100-a-barrel oil is forcing the nation to take energy consumption seriously after decades of slumber. This painful wake-up call might just rouse American ingenuity to finally effect real change.

Already, high prices are driving investments in solar and wind power. Buildings are going green. Carmakers are racing to produce more efficient cars. At least two, Honda and General Motors, are even implementing concepts as radical as hydrogen fuel-cell vehicles, which don’t use gasoline.

Notably, all this activity is being driven not by the occasional basket of favors to key lobbies that Congress passes and rebrands as energy legislation, but by the behavior-altering reality of higher energy costs.

The Democratic-controlled Congress is considering energy legislation, centering on such things as automobile mileage mandates and renewable fuels. It goes further than what Republicans enacted, which focused more on tax breaks and domestic oil and gas production. At this point, it is at best an insurance policy for alternative energy to keep it advancing if oil prices decline and stay there.

The reality is that $96 oil will accomplish more than all of the energy bills passed in the last generation combined. Painful, yes. Troubling, absolutely. But perhaps the only force powerful enough to alter the way America fuels its economy.

Think of $96 as $40 oil (which is about what it cost three years ago) plus a tax of about 140%. Had any public official dared to propose such a steep tax, he or she would have been run out of office. But its revenues would have gone to fund services in the USA. Now much of it goes to foreign governments, with some of it being shared with oil companies, related industries and oil traders — at least those smart or lucky enough to bet on rising prices.

As the presidential campaign heats up, expect more efforts to avoid the heat of rising prices. One perennial tactic is to blame Big Oil and demand investigations (which inevitably fail to show conspiracies). The Democratic candidates do so routinely during their debates.

But the interesting question is not why prices have gone up, but how American resourcefulness can be employed to break dependency on oil and maintain the momentum toward alternative fuels.

Oil approaching $100 a barrel is an opportunity, but only if the nation seizes it.


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