Finishing up an old discussion: The real price of oil

special interests just looking for government money, though, that's another story...

Sometimes this sure seems to be true, and not just that, the President even says outright he wants to "skyrocket" costs to MAKE the alternatives more palatable. Does he not have a clue how much that hurts people, especially the poor? And, beneath our individual costs, there is the rise in the cost to produce things here, driving manufacturers to other places who will not manufacture under the same rules? Does he not realize this also hurts us all, and our economy?

I always ask people who want nothing to do with oil ask them these questions.

How would we produce anything in our factories if we had to rely on alternative fuel such as wind power and Solar?

How would we all keep warm in winter when the alternative energy produced by wind power is turned off due to either lack of wind or too much wind or have had to close because the blades have ice up.

Where would we get what little money we have when the banks have had to close due to the same.

The same with the offices that would have to shut


Where we would shop when the supermarkets have closed because the energy that they use is no more, as the same thing has happened and if they are open how does the transport that brings the food to us get it to us seeing that we no longer use oil just battery power to move two ton or more of transport and goods.

How do we defend ourselves when we are being overrun by our enemy's that use oil to drive their tanks ships and aircraft while we use battery power to mover 52 ton tanks and other transport?

The answer is always silence. They have no answers.

They will though as always still maintain that its best that we do away with oil as the emissions from it are bad for our planet.

On the skyrocket comments, Obama seems to be arguing that it's going to cost us consumers considerably to fight pollution. That's typical of interventionist "solutions" (it might be less typical for such an honest statement about the proposal). We simply can't afford that strategy.

Grahm, to be clear, I'm not someone who wants "nothing to do with oil". You are right, there is no way to continue this economy in the short term without oil. But in the future it could play a much smaller role and pollution could be reduced considerably. Free markets is the answer, unless we want to give up freedom and prosperity.

You left out the externalized costs of pollution by the oil industry.

Where- David's list or my response?

David's list, I believe.

Good point. I wonder if there are any other items that could be added to the list.

Well we could include the exclusion of other sources of energy. :-)

Oil is, for the time being, the easier way to stock and use energy. This is how come that it is, presently, our main source of energy ... despite all related inconvenience.

Highways are not a consumption source but, to the contrary, a way to easy communications while lowering down oil comsumption.

But, if for many mentioned or not mentioned reasons, "free markets" cannot exist, oil market itself cannot be a "free" one due to the many political implications: nowadays, Iran produces STILL light oil, the cheaper one to be converted into gas, and most of it is being sold to China, India and Russia, 20% of the production goes to Europe.

Energy question is a VERY COMPLEX one and cannot be solved easy due to the fact that we have never computed an energy balance on each of our items: the existing balances are based on currencies but not on the energy itself as reference (how much energy do we need to produce how many of it).

What I mean is that no one computes, per example, how much energy is implied in raising, working and desmantling nuclear plants. If so, it cost in currency, would be about a bit more than three times the present price.

So, the disclosed or not subsidies are already destroying the ability to have a free market. On the other hand, energy is the real wealth of any nation. All energies including food, water, human, etc.: the less energy we specifically spend for a same activity, defines our real productivity ... despite that human beings hate changes.

I should have added that health care (consequences incl. pollution) also implies energy to be computed into the cost of it.

The point about highways is the government pays to build and maintain them, enabling more driving to occur and disconnecting use from payments. That increases the use of gasoline.

oil market itself cannot be a "free" one due to the many political implications

Well, you are talking about a worldwide free market there, that's a really long way off, if it ever happens. But such doesn't prevent a freer market at home.

I agree the energy question, like all other goods and services we need, it extremely complex, too complex for a group of people to control. It needs to be left in the hands of the people, i.e. the market.

I concur, about leaving it to the market, Matthew, but how does one go about leveling a playing field already made so un-level by government intervention of the past?

I HATE theoretical considerations: if the same amount of transportation means should take place then time and energy would be far bigger: the problem is that a lot of using cars are needed to justuify the invested energy.

Fees or Taxes? Fees will slow down the number of cars riding on highways and slow down not only the specific highway usage but as well as industrial productivity.

"But such doesn't prevent a freer market at home." is per definition not a FREE market and, to the contrary, any tendency to such a theoretical market will slow down terchnology improvements. Improvements anyway driven by the law of less effort.

The problem is how come America "needs" about 25% more energy to produce a very same item than any other country?

This is directly connected to productivity ... far more than taxes on final profits.

Ajatasutra, I think the answer is to let the market smooth it out. We can't undo history. We built too many houses in the housing bubble, the solution is not tearing down homes or creating a bubble elsewhere, we just have to let the market function to make the best of a bad situation.

Besides, whatever government policy that attempts to make up for oil's past will have similar problems; also, the question will arise, when does the playing field get "leveled"; and of course, such "leveling" programs are really hard to get rid of once started.

I agree, to an extent, but we have serious opposition to spending on the development of renewables that could crush their growth. In part, this is funded by lobbies and the like, but it's also true that there are sound fiscal reasons not to pursue them. But, if we choose not to, we will fail to invest appropriately in the infrastructure necessary to make them contributors to our future energy output.

So how do we prevent corporations and business that already has huge pockets from crushing nascent industries (or simply slowing their progress)? Because I think it's clear that these innovations are necessary for progress, but, as you point out, when government forces the issue, we end up with beasts like the fossil fuel industry is today.

It's a conundrum.

Matthew:

Do you really believe that "The point about highways is the government pays to build and maintain them, enabling more driving to occur and disconnecting use from payments. That increases the use of gasoline." increases the oil consumption?

I believe Europe, where you pay for each traveled mile on highways, would then close them if so as gas and diesel is now exceeding the budgeted costs.

It is quite well-known that cars and trucks are built for a minimum CONSTANT consumption between 56 to 61 miles an hour. Any other speed as well as stops, starts, running the engine on red lights, running the engine just for A/C, etc. enhances the consumption and even if you have a road without any red light, with some curbs, crossing built areas, no one will be able to run the car across at 56 m/h constantly.

The best solution for you to justify your position is to, either, walk, run, use a bicycle or maybe would be cheaper to ride a horse!

That's the major task in front of people like me, which is persuading a critical mass of people that free market environmentalism is what can bring us together and solve the issue. In this situation the oil price is not distorted and alternative energy will become much more viable. Corporations and businesses, large and small, will take the new opportunities rather than crush them.

Gilbert,

First off, it was David K. that noted government funding for roads and highways has increased the use of oil (I completely agree with him).

When government took money from all taxpayers to build roads/highways to be used by some taxpayers, it is essentially a subsidy for driving. Subsidize something, you get more of it, hence, more oil is used.

OK. So you and David are just uttering nonsense!

Same problem type: you should get rid of tunnels, bridges, railroads, large airports and, maybe, even, of elevators in the Empire State building!

Imagine how much space you would save and be able to rent, how easy will be to deliver pizzas to the several floors ... you would just end elarging a bit the stairs for the up and down traffic. It would be anyway far healthier and you would end with much less overweighted people.

And even, you would be able to sell umbrellas for the people willing to leave the tower: this would avoid them to use the stairs down!

LOL LOL LOL

My point is that the price of oil is distorted by all of the funding poured into it from before. You can't give one business a leg up by covering startups and then expect a new business to compete on the same playing field in terms of KWH/$.

I agree with you, Ajatasutra, as this means that "free market" is already utopia as far as energy is concerned. Energy included in each and every market.

My point is that highways are not enhancing consumption but, to the contrary, the oil consumption implies better communications trying to compensate the many oil taxes and subsidies.

Gilbert, you're uttering nonsense. No one ever implied that we "get rid of tunnels, bridges, railroads, large airports..."

I see what you mean, Ajatasutra. That past distortion cannot be removed, but all present and future distortion can be, and that's the important thing going forward. As soon as we stop propping up different forms of energy (esp. oil), the alternative sources will be able to compete.

I think they'll be 'more able' to compete. But, as we've identified, start-up costs with new energy sources are high. It will take some effort, I expect, for them to be competitive. Probably some long-range type research, for which, government is better suited than is the private sector. As long as it doesn't surprise anyone that renewables remain non-competitive due to start-up costing and poor usage technologies (like smartgrids etc), and we make efforts to research ways to overcome those hurdles, I'll probably be as satisfied as can be expected.

There's just too much to overcome. But people whining about the 'costs of renewable energy' ought first to look at the glass house in which they reside.

I don't know, Matthew, who is uttering nonsense as stating that highways enhance gas and diesel consumption is the same thing than uttering that better communications are not saving time and money.

But I acknowledge that you don not understand irony.

It would help, Gilbert, if you understood what I said originally.

I did not say: "highways enhance gas and diesel consumption"

I did say: "government funding for roads and highways has increased the use of oil"

Can you see the difference?

I understood it: if you believe that roads and hoghways are to be created by private people or corporations, you are just out of ....

A government has to fund communications, this is not a private investment to be done.

How come such HUGE expenses have to be done by governments? Just because they save energy (oil included), transportation time, enhance exchanges and productivity, enhance reaearch and development, provide better security.

But no one impedes you to to ride your horse up to Tallahassee ...

Scott already refused to join Tampa-Orlando airports with the fast train which would have save a lot of time, opening central Florida access to many scientists and corporations while enhancing tourism, education exchanges, R&D, etc. while saving even more energy.

Development means improved communications using less energy and saving time.

Any time lost in waiting for communications is an inconvenience for stting up industries and provoke joblessness.

"government funding for roads and highways has increased cars and truck production and decreased the use of oil".

Your way of thinking is alike willing, in New York, to suppress the sidewalks in order to fight prostitution!

I said nothing about whether roads or "communications" should be privately funded or government funded. The only point is that because government funds (completely subsidizes) the building of roads, it makes driving cheaper, which leads to an increased amount of total driving, which means more oil is used than would otherwise be the case.

I cannot believe we are in disagreement over this. Practically everyone acknowledges that subsidies increase the demand of the item being subsidized.

I suppose the sidewalks are, in some way fully subsidized, either by the major, the city, the county, etc. and it is paid out thanks to the taxes we pay, mainly the real estate taxes.

So, at the end of the day, your way of thinking is that you keep creating sidewalks in order to enhance prostitution: the many sidewalks in town enhances prostitution!

Do you really believe that you purchase a car because there are highways? If so, instead of riding a truck or even a small 4x4, you could ride a Smart or a tiny Mini or even ride a bicycle ....

You are reversing things, and state that the conclusion drives to the means (Nietzche), the German philosopher ... but this point of him is questionable for sure ... in some way this is a creationist idea ...

But this is far too complex for you to grasp ...

Subsidies? You better stop it as a gift to the oil industry itself .....

Excellent post and discussion.

Thank you Kenneth.

This is awesome, Matthew, thank you for starting this back up again.

As a student of history, I thought it important to bring to the table the fact that governments have been supporting fossil fuel for centuries. It is important to note that they had, what were at the time, sound geo-political reasons for doing so. Great Britain needed to find ways to make their fleets more nimble and mobile as their possessions came under increasingly widespread pressure from 'up and coming' imperial powers like France, Portugal, the Netherlands, and then later Russia, Germany, the US, Japan, Italy, and others. It was in this period that Great Britain came to rely increasingly on coal. Later on, they'd begin focusing on oil (which was easier to transport from ship to ship), but early on it was coal.

So, of course, business got in bed with British political leadership because the politicians who could master lower prices could also make the engine of the British economy hum better and make the government more popular. This went on and on until only in the last century or so (one third of the time that this process has been going on) have any real attempts materialized to allow market forces to interact freely. Of course, by now, that's simply not realistic because sufficient government money and energy has been poured into the process that fossil fuels' start-up costs in terms of development and technical usage have already been paid. Truthfully, there've been something like seven world wars fought from start to finish with fossil fuels as primary drivers and all of them encouraged incredible innovation in the use and applications of fossil fuels (mostly at government expense).

The upshot of my contention, is that arguments against renewable energy as 'too expensive' and requiring 'too much government intervention to be practical' ignore how much government intervention was necessary to make fossil fuels as practical as they are now. There is no 'even playing field' now for renewable energy unless the same levels of investment take place (which, if applied in less than the three centuries that it took to invest in fossil fuels, would likely bankrupt everyone). That's not to say that we should give up, but rather that we should scratch out places in the budget for them as they are, obviously, the way of the future. The degree to which we have the foresight to place as much effort in planning for future energy as we have in past energy is an indicator of good governance, not a waste of money.

Thanks for that information. I often wonder how many wars are related to oil, whether it is a primary cause or not. How much of the recent/current U.S. foreign policy do you think is driven by oil related interests?

Less than the far left would have us believe but more than the oil industry would prefer that we know. It is true that oil prices and our relationships with the primary exporters plays a role in the way we interact with the Middle East and its primary powers (read Egypt, Turkey, and Iran). The fact that Saudi Arabia is a relatively small player in terms of regional power is one of the things that places us in the middle of all of that (whether for good or ill).

We rely on Saudi oil, so we back them as a regional player despite the fact that their population, military strength, and regional position puts them in a relative backwater status. The Iranians counter that by selling oil to our rivals (making them a counterweight in OPEC to the pricing interests of Saudi Arabia). Egypt and Turkey, being shades of neutral with respect to the US since the fall of the Soviet Union plays into our hand as long as they remain neutral to positive. The fact that they both receive aid from us helps in that respect. So the upshot is a weird triumvirate of the three regional powers with us interjecting ourselves in Saudi affairs, neutralizing Iran by building a powerblock of the other two primary players. Iran counters with their own oil sales and the rhetorical value of attacks through their wholely-funded subsidiaries in Syria and Lebanon.

I expect, given the interconnectedness of the web I just described, oil plays a big role in the decision-making, but it does so in an underlying kind of way. Rarely, should anyone be trying to make an issue of it because, at this point, it's the primary revenue stream for many of those countries (and is, therefore, a sensitive subject for them due to their reliance on its export).

Personally, I think that President Bush ought to have made the case for the invasion of Iraq on geo-strategic grounds rather than on WMD/Terrorist grounds. Fundamentally, the expansion of Shi'ite militantism in the Western MidEast was a competitive factor in the radicalization of the Wahabis. I know that may sound far-fetched, but these groups gain followers based upon who represents the 'truest' Islam. As such, they are appealing to a young, violent, and restless set of populations. Like two rival gangs competing to see who can beat the popo the most in a local hood, these two radical sects gain notoriety and power by representing themselves as anti-establishment and anti-each other.

In that respect, I think the invasion of Iraq could have been more about oil and less about paranoia. But I think that the people who had this on their mind (and there must have been many) at senior intelligence levels, chose not to focus on this in their reporting because they understood what the boss wanted to hear about.

Does that, in part, answer your question?

Yes, thanks for the response. I'm definitely less informed about some of this stuff, so I appreciate your perspective.

I'm surprised that some of the Gather regulars on the environment and energy have not shown up here yet.

It's a strange realm where there's a lot of nuance and layers of meaning. Oil is in there, but it seems to be used more as one of the pieces of leverage (for each of the many sides) than it seems to be allowed to be a weakness. With face saving being so important in that arena, its hard to see what's really going on underneath the surface.