Tuesday, July 22, 2008

One more example of why our energy policy sucks

There was a debate today in Congress about a law concerning speculation on oil prices. All evidence from the news reports is that the esteemed debate quickly turned into this:

Democrats: The problem's speculation.

Republicans: Well, that might be part of it, but it's really supply and demand.

Democrats: Um, no, it's speculation.

Republicans: Did I say supply and demand? Forget that last part. Just supply. I'm sticking to that. Let's not think about the demand part anymore. That doesn't play well anywhere.

Democrats: Speculation.

Republicans: Supply.

The answer, as I understand it, is of course that it's both. There is rampant speculation in the oil futures markets, a majority of which is not from people in the oil business at all, and there are true supply issues. While I realize that price is very likely not a linear system, if you look at supply and demand charts for petroleum, the demand has not increased at a rate equivalent to the increase in prices. Prices appear to be outstripping simply the supply and demand chain. (Note: Never taken an economics course.) However, simply because speculation is a factor, as Democrats were arguing (and Republicans used to until they've now switched, but that's a different issue), it doesn't mean that supply isn't also a factor. Again if you look at the charts, demand has continued to rise, while supply has not. Increasing supply will certainly, as the Republicans were arguing, also help lower oil prices. The Dems like the speculation part because it's a seeming easy governmental band-aid without addressing deeper issues.

What was infuriating was the false dichotomy that both parties represent. The Dems don't want to drill and so they have to pretend that drilling is completely irrelevant and that a simple speculation law will do the trick. Instead, what they need to be saying is that increasing supply would of course help lower oil prices, but it also has a significant cost, the most obvious of which is the very likely effects on world climate. With a few foot rise in sea level, much of my state's economy would be wrecked (tourism, rebuilding Pearl Harbor, the home of the entire Pacific fleet), and large parts of the island (such as Waikiki) would be under water. Lay out the problems with drilling and let people decide. Don't pretend that more oil won't lower prices (in a decade or so). For the Repubs, they need to be saying that speculation and supply are both issues as well (assuming I haven't heard incorrectly and that they are indeed both real factors), and that they will give the Dems the speculation issue if the Dems give them some increased supply targets -- and why lower prices today is more important than flooding parts of the nation. Or whatever. Ironically, the only way that leasing territories for increased domestic drilling would affect immediate oil prices (because getting billions of barrels from the ground's gonna take a few years) is the influence such a plan would have on... oil futures speculation.

But instead it's all a political game for both parties. Which is why there's no coherent energy policy that addresses supply, demand, the energy markets, and the price of the dollar.

2 comments:

pjd said...

It is impossible not to make the whole oil think apolitical. Cheap energy versus the environment. Al Gore versus Dick Cheney. Detroit versus Japan. Protectionism versus free market. Terrorism. Luke versus Darth Vader.

I was nearly out of my mind pleased yesterday when my local newspaper ran an editorial supporting Gore's challenge. It said Gore's goals are perhaps a tad unrealistic, but frankly I don't see any reason this country can't be producing 100% of our own electricity within 20 years and running the majority of our vehicles on environmentally friendly energy.

Maybe it's just because I live in a sunny state, but I fail to understand why we can spend a trillion dollars on killing people in the Middle East (while not finding bin Laden, by the way) yet we can't find the political will to invest a trillion dollars in kicking the oil habit through solar and nuclear power.

We can have it both ways: cheap energy and clean environment. And I believe it can be done within 25 years if we prioritize correctly. Oh, by the way, that trillion dollar investment would also go a long way to creating jobs and pushing the USA back to the pinnacle of technology innovation.

The whole debate about drilling off the coast of California and in Alaska is missing the point.

Oh, by the way, your post is superbly written and well argued, and quite reasonable.

Sarah Laurenson said...

No, it isn't

Yes, it is.

No, it isn't

Yes, it is.

Oh. Did you want a thoughtful discussion?