I ran across two very interesting articles today. The first is titled “As Green as a Neocon: Why Iraq Hawks are Driving Priuses.”
Read the piece, but in it author Robert Bryce notes that super-neocons James Woolsey and Frank Gaffney are born-again advocates of fuel efficiency in cars (Woolsey now drives a 58 mile-per-gallon Prius) and plant-based bio fuels.
My former New America Foundation colleague Ricardo Bayon made the link between America’s SUV culture, ravenous oil consumption and terrorism some time ago in this Atlantic Monthly article, but lots of others have made the exact same case. Almost all of them, however, are progressive, pro-environment types. Woolsey, Gaffney & Co. are certainly odd bedfellows.
Then, I read this Wall Street Journal article (which I cannot link) titled “Oil, Oil, Everywhere. . .” by authors of a new oil book The Bottomless Well Peter Huber and Mark Mills on the cost and politics of oil extraction.
Here are the opening grafs:
The price of oil remains high only because the cost of oil remains so low. We remain dependent on oil from the Mideast not because the planet is running out of buried hydrocarbons, but because extracting oil from the deserts of the Persian Gulf is so easy and cheap that it’s risky to invest capital to extract somewhat more stubborn oil from far larger deposits in Alberta.
The market price of oil is indeed hovering up around $50-a-barrel on the spot market. But getting oil to the surface currently costs under $5 a barrel in Saudi Arabia, with the global average cost certainly under $15. And with technology already well in hand, the cost of sucking oil out of the planet we occupy simply will not rise above roughly $30 per barrel for the next 100 years at least.
The cost of oil comes down to the cost of finding, and then lifting or extracting. First, you have to decide where to dig. Exploration costs currently run under $3 per barrel in much of the Mideast, and below $7 for oil hidden deep under the ocean. But these costs have been falling, not rising, because imaging technology that lets geologists peer through miles of water and rock improves faster than supplies recede. Many lower-grade deposits require no new looking at all.
To be crude (pardon the pun), they and I think that the problem is clearly cheap oil. Cheap oil inhibits the search for alternative fuel sources.
I recently heard a superb lecture at a semi-secret leadership retreat of Sandia National Weapons Laboratories in New Mexico (they watch over the nation’s nuclear stockpile) given by Cal Tech professor and Out of Gas: The End of the Age of Oil author David Goodstein in which he said flatly, “America has an oil crisis problem — not because it is too expensive, but because it is too cheap.” He said, “The Perrier in your refrigerator is more expensive than oil.” Goodstein’s book, by the way, is an amazing read — highly recommend it.
I am not an expert on the politics or the economics of oil extraction, refinement and distribution — but I have sat through countless meetings on the subject and feel that some core realities are seeping in to my consciousness about the subject.
And I guess that at some level I have been of the view that oil has been cheap for a very long time — and that access to below ‘real market cost’ oil and gas by American firms and consumers have built vested interests, stifled innovation, and made us all a bit lazy and complacent about the subject.
Europe and Japan operate their economies with a price of consumed gas at the pump that is three to four times the cost here in the U.S. When I was last in London, a gallon of gas was $8.00. Most of the cost of gas in Japan and Europe is an enormous tax — but still, these economies have self-imposed a harsher energy consumption cost on themselves and are still growing pretty soundly.
This all brings me to a dinner discussion hosted by the Heinrich Boell Foundation here in Washington a couple of months ago. The Boell Foundation is a political foundation based in Germany, with offices around the world — including Washington, and it is affiliated with the Green Party in Germany. All of Germany’s leading political parties have such foundations, and they perform similar work in civil society building as their American counterparts, the National Democratic Institute and the International Republican Institute.
The dinner speaker that evening at Restaurant Nora (known for high-end organic cuisine) was a Member of the German Bundestag one of the founders and former Chairpersons of the Green Party, Fritz Kuhn. Kuhn is a thoughtful, very smart guy.
That night though, we politely wrestled over the topic of the cost of oil. He argued that America and the world had a problem: the cost of oil was too high.
Since the cost of oil was too high, as he put it, he argued that we needed to move more expeditiously on alternative fuel source development — and made a lot of suggestions — and said that we bore a moral responsibility to developing nations to keep the price of oil low. Otherwise, these developing nations would be unable to build their economies, and accumulate wealth to drag themselves out of poverty.
I asked Kuhn a genuine question (that I really did not ask rhetorically, or as if I already knew the answer. . .which I didn’t); I asked him whether he had the oil cost problem reversed. I said that by keeping the price of oil low, every user’s dependency on oil is maintained with little real incentive to move to alternatives. Raising the price of oil would increase the investment and interest in renewables and alternative fuel and energy sources if access to oil were squeezed.
Furthermore, the developing world needs to know that the infrastructure investment costs required in an oil economy vs. a hydrogen economy or vs. some other energy generating source can be enormous and can kill flexibility. I asked Kuhn why we were helping to addict China and India to cheap oil consumption, rather than raising the price and access so as to get these economies to build a new 21st century energy infrastructure.
Thirdly, I noted that Europe was already operating from such a base rate for the cost of oil to consumers and firms that it could easily absorb a serious price rise by decreasing taxes in tandem with the rise — and America, on the other hand, would be compelled to adjust.
It seemed to me that the only negative downside to this was that higher oil prices now would put more money in the hands of feudal chieftains and terrorists in the Middle East, which Woolsey, Gaffney, and Ricardo Bayon think is bad.
I encouraged Kuhn to think more creatively about this and said that the Green Party movement could have a huge positive environmental impact if it could find a way to acquire oil leases and future contracts, forcing a squeeze on them, and drive global prices significantly higher.
Fritz Kuhn didn’t buy my logic — but didn’t convince me I was wrong either. I think he didn’t see the disconnect I saw between low oil prices on one hand and changed consumption habits on the other.
I know that there are probably a ton of problems with my formulation — and feel free to throw critiques (constructive ones) my way. But if the problem with oil-dependency is real, then one way to get progressives and neocons to think differently about alternative sources of fuel is to drive the price up.
And in the end — developing economies, our environment, and our geopolitical dysfunction with the Middle East could be improved.
— Steve Clemons
P.S. For those of you interested, I will be meandering through Montreal for the next several days with lots of students who are at McGill University for an annual Model United Nations fest. It’s interesting to see so many young people — conservatives, centrists, and liberals — get into the United Nations as a hobby.
I will be back in time to join a panel discussion on Monday afternoon — sponsored by the American Institute of Contemporary German Studies — on “Transatlantic Relations after the Inauguration.” Details here on the website of the Coalition for a Realistic Foreign Policy.
— Steve Clemons
