Join Our Email List
May 13, 2011
Last year the US imported $253 billion in petroleum. We needed to make up our shortfall in this vital resource used mostly to produce the fuel that powers our trucks and cars.
What if Saudi Arabia is also engulfed by the “Democracy Tsunami” now sweeping the Arab Middle East? Is there any doubt that the price of petroleum will skyrocket? Can we rid ourselves of this rapidly growing and taxing debt?
We started with cheap oil 100 years ago. Both business and government grasped at the opportunities created when gas powered cars took over from electric cars. The newly created demand encouraged the oil industry to increase its production of gasoline, which was helped significantly with the implementation of the oil depletion allowance. A subsidy by any other name, the oil depletion allowance incentivized the oil companies to invest vertically. Instead of simply pumping the oil out of the ground, the oil companies made use of the oil depletion allowance to build the infrastructure—refineries, gas stations, pipelines—even the roads necessary for the gasoline era—they were made with asphalt a petroleum by product. As a result of this governmental subsidy, a tremendous synergy developed between Big Oil and Big Auto. They were the primary industries that defined the20th century.
We no longer have a domestic supply of oil to speak of. The “Drill Baby Drill” mantra we have heard so much about refers to untapped and as of now unproven 88 billion barrels of offshore oil. But this prospective supply won’t be cheap to extract and would provide a mere 7 to 10 years of our present needs. These widely dispersed fields would need to be surveyed extensively to ascertain their commercial value. Some are in the Atlantic, where we have yet to actually locate any oil. Others are in the Pacific, where there is considerable resistance to further oil drilling. The best estimate is a minimum of 5 years before any drilling could begin.
We are now in an era when the large oil fields are past their peak. Today scientists, including the ones employed by Big Oil, agree that we have reached “Peak Oil”—an industry term that denotes that supplies of this precious commodity will slowly diminish. As supplies deplete, oil will become more costly. And contributing to greater cost will be the extraction of this oil from increasingly more challenging environments. The BP accident is a harbinger of things to come.
Given that we are still tethered to the gas-powered automobile infrastructure, we can expect that the current annual $1,000 bill per person is going to continue to rise. For example, if the price of oil goes back to pre-recession highs or higher, the oil bill will easily vault to $2,000 and beyond. We can think of this levy as a tax, but unlike ordinary tax dollars which our government can make use of, these dollars are leaving the US permanently. Our dollars will fund the needs of Venezuela, Saudi Arabia and Iran from whom we buy the oil. We will have absolutely no say on how these dollars will be used. Clearly this economic and political path is not consistent with our economic, let alone national interests.
What is to be done? The tax incentives that created the synergy between Big Oil and Big Auto have remained in place and are with us today, even though few can argue that they are necessary now. In fact, the tax advantage enjoyed by Big Oil keep us shackled to the gas powered automobile by giving gasoline providers lower cost basis not available to alternative fuel producers which they have to overcome.
Of the alternatives, by far the most advanced and practical alternative is the electric car. If we want the electric car to succeed rapidly we need to treat batteries like fuel and make it possible for different battery manufacturers to supply them on the road, just like the present different gas companies now provide fuel to cars. This will incentivize rapid development of even better batteries and concomitantly reduce the price of the electric car to be on par or less than the current gasoline automobiles—keep in mind the only way to get us to buy an electric car is for this car to be as cheap as or cheaper than the gas driven car.
These new governmental programs must also include long term incentives for the utilities to develop an electric infrastructure necessary for the transformation to electric driving —constructing charging stations, developing on-the-road solar generation technologies, building robotic systems for battery pack exchanges, and researching battery technologies. We also need to develop securities that will pass the costs (as well as the profits) of electricity generation, much like the ones in use by the oil and gas industry. For example, if the flow from Solar generated electricity could be packaged into MLPs (Master Limited Partnerships) as is done for gas and oil pipelines then investment capital would increase significantly to these currently cash starved projects. This is but one example of many incentives currently enjoyed by the oil industry.
If we take these steps and others and make the incentives as generous as those created for gasoline-powered transportation and infrastructure, we could see a rapid adoption of the electric automobile and concomitantly, the rapidly declining debt will free up capital that now leaves the US. That capital becomes available for our own use. These newly freed funds could also seed a host of new industries that are as yet unforeseen much the same as the auto industry did in the 20th century.
Because this new industry relies initially upon building a new infrastructure here at home, it will create jobs here at home, fueling our economic engine and replenishing our state and federal treasuries with taxes paid instead of unemployment benefits disbursed. And as more households switch to electric vehicles, our transportation sector will use less oil, thereby halting increases in petroleum prices—and perhaps even drawing those prices down. In the process, the oil portion of the costs of most goods and services in the United States will decrease. As the number of electric cars grows on America’s roads, our trade deficit will recede and eventually disappear. Taken together, these infrastructural and societal changes will create reductions in international tensions traceable to the needs to secure oil supplies and foster profound economic and technological advances here at home as well as abroad.
We have a choice: we can continue schackle are economic wellbeing to external geopolitical forces over which we have no control and pay for foreign petroleum, sending money out of America or we can provide the incentives for making the switch from gasoline to electric and once again restore America to a leadership role. The choice is in our hands.
Ran Kohn is Executive Director of Cleantech Corridor