Opinion Archive

What to Make of Why Energy is the Key to Everything

December 24, 2008

This is a very strange recession. Just like in the 1970s, the price of oil spiked, but this "supply shock" didn't cause the economic meltdown. At the same time, the world became aware of the fact that its fossil fuel addiction is causing, and will cause, incalculable human suffering. But that wasn't what reduced demand for oil. The car companies finally focused on building fuel efficient and alternative-energy cars... just when prices at the pump collapsed.

Governments have yet to come to terms with these global economic and social crosswinds. The answer, both to the economic downturn and to a large part of the environmental Armageddon, lies in energy. Specifically, in how we transform matter (hard stuff) into power (ethereal, now-or-never stuff). But no one has proven him/herself up to the task, yet. Proper policy means wielding both the carrot and the stick with Jedi accumen.

First, show them the money. Markets work according to incentives; basic reward and punishment. Unfortunately, oil's $147 dollar price spike and subsequent collapse throws proper energy planning into a tailspin. Projects are being cancelled and opportunities lost because there is so much uncertainty with respect to the cost of the inputs of generating power. It's time to stop that. A carbon tax, which would kick in when oil prices drop below, say, $90 dollars a barrel, would go a long way towards weaning American dependence on the black, gooey, messy combustible. It would suddenly make iffy projects viable and would send all the right signals to a scared alternative energy industry. It's time to put a dollar value on the environmental and military cost of oil.

Second, bite the bullet. There is no such thing as "clean coal", no matter what West Virginia would like to think. But environmentalists must also maintain their (easily ruffled) composure, because nuclear power is an important part of any intelligent analysis of future energy policy. A proper energy policy should be criticized by every vested interest because it must ask concessions of everyone.

Curiously, in this respect, the Mexican government finally got something right and nobody is giving it credit. Mexico has a pseudo-carbon tax. It's called IEPS, according to its Spanish acronym, which is the unfortunately generic "special tax on products and services". It is a revenue-balancing mechanism and it kicks in when oil prices decline. It is applied to gasoline, which helps offset the shortfall in revenues from oil exports. Paradoxically, although it is good policy, this tax, in addition to the fall in the peso, are probably responsible for the fact that Mexico's inflation has been rising despite the fact that prices of goods have generally fallen. For different reasons, the US needs something similar.

President-elect Obama is wrong to avoid a carbon tax. There has to be some feedback mechanism from the market to push the economy to where you want it. Further, a carbon tax would generate revenue for the government at a time when it sorely needs it. As he pressures Detroit to build fuel efficient cars, the market is going to be going exactly the other way because of cheap gas, which is counter-productive. Without a carbon tax, the Big Three will be stuck between a government rock and a consumer hard place: mandated efficiency and demanded profligacy. This might even allow foreign companies to, (irony of ironies) fill their showrooms with desirable SUVs because they will have no government commitments to do otherwise.

Closer to home, energy is the key to the economic development of our despondent border area. The US has yet to recognize that its poorest counties lie along the border with Mexico and Mexico has yet to realize that its greatest immediate hope for development lies along its northern frontier. Part of the solution to both problems can be renewable energy. It turns out that our 3,169km demarcation line happens to receive some of the most copious amounts of solar radiation in the world. Instead of building dumb fences, we need to build intelligent solar-based electricity grids. A bi-national project of this sort could be a huge confidence-building measure just when our beleaguered continent needs it.

Energy is the key to prosperity in the short term, security in the medium term, and sustainability in the long term. It is not unreasonable to picture a day when virtually unlimited, virtually free, non-CO2-producing energy fuels economic prosperity. Further, change would allow tribal societies, such as those in the Middle East, to get on with the task of modernizing without the corrupting influence of oil. Mexicans, too, would be given the chance to finally get rid of their silly fetish with PEMEX. And low-lying coastal areas would stop disappearing, to boot.

For the latest thought-provoking article by Agustin Barrios Gomez please go to our Opinion Column page

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