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April 29, 2005

China and Us

The Oil Drum gets it right:

Simplistically there are two approaches a government can take to a crisis. They can do something about it, or they can do nothing. Back in the days of President Carter the nation tried the first approach when faced with an energy crisis, this time we are trying the second.

For a detailed analysis of why that is, check Michael O'Hare's analysis of Bush's energy proposals. The basic problem is that Bush is abandoning energy reform to the free market, which really isn't going to do the trick. The idea that we can simply drill our way to safety is flat insane, and here's why: No expert believes ANWR, or anywhere else in America, will provide the sort of superwell capacity that'd free us from foreign oil. It just won't happen. That means we've got to discover more foreign oil, even though discoveries are falling, the size of the discovered wells are falling, and many of the sites we currently rely on are slowing their production.

But let's bracket all that for a minute. New oil discoveries don't just need to sustain our mostly flat consumption -- they need to feed the growth of China and India. China, for their part, is using 850,000 more barrels per day. That means, every morning, China's need for oil is 850,000 barrels higher than it was the day before. So while we're trying to supply ourselves with petroleum in a world where discoveries are drying up and production is dropping, China is demanding an absolutely staggering, and ever-growing, amount of crude.

And this isn't just an energy issue, China's needs have serious, and seriously problematic, geopolitical consequences. Because they have to get more fuel, and because most suppliers are tied up meeting our demand, China's having to cozy up to providers who we've left alone, which means countries we've tried to economically isolate. So Iran is now a major trading partner and a key source of China's oil and natural gas. That means Iran now has a non-EU customer that allows them to blunt the economic pressure Europe and America can apply, making our efforts to kill their nuclear program essentially hopeless. Not only that, but China's got a security council veto, which has not only found itself working in Tehran's favor, but also in Sudan's, another important source of China's fuel imports.

Bush's efforts don't move us off oil, they just pretend we can find more. We can't. And even if we did, it wouldn't be enough. There's too much demand emerging for a resource whose supplies are falling -- the economics don't work out. So what we're doing, in the final summation, is essentially nothing. We're hoping things change, or that the market does the work on its own. But the market can't go drop because China and India ensure demand is going to continue skyrocketing. The only sane option is to try and reduce our oil usage, thus freeing up more stable providers for China; and to try creating technologies that can help both us and developing nations exit the oil era. Simply doing nothing, alternatively, is a very, very, bad strategy.

Update: By the way, want to know the easiest test around for judging the seriousness of an energy plan? Watch for whether or not it mentions an increase CAFE standards. If it doesn't, you have another "let the market do its magic" piece of politician pabulum. Bush's didn't.

April 29, 2005 in Energy | Permalink

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Comments

Further to your stagflation post, this is something that hits the futures market. Economic analysts pressure trading values. An aside on your newspaper interest http://journalism.nyu.edu/pubzone/weblogs/pressthink/2005/04/25/tp_ltrs.html

Posted by: opit | Apr 29, 2005 2:50:01 PM

Between this and stagflation, this blog is getting pretty depressing.

Dems are never going to get ahead with a "sky is falling" message, no matter how true that message may be.

Posted by: Neil Paul | Apr 29, 2005 3:11:45 PM

Neil...if nothing else, we'll be the ones who told you it was coming and maybe, just maybe, we'll get enough people to listen such that we'll be able to fix a few of the problems before the sky really does fall.

Posted by: Balta | Apr 29, 2005 4:26:46 PM

Raising the CAFE standards is not going to help much. People will drive more; new cars will get more expensive causing people to hold on to their old cars/trucks longer; and will do nothing to impact demand for oil for other uses. Plus it probably would put a stake in GM and Ford, but that's going to happen anyway. In any event, it will have zero impact on China's relation with Iran.

Posted by: Ugh | Apr 29, 2005 5:06:34 PM

great post

Posted by: kate | Apr 29, 2005 6:24:57 PM

Thoughtful post.
However, in defense of market solutions, the market is, indeed, the most powerful force for change. If you wish to move to alternative energies, just wait until oil hits $100 barrel and see how quickly things actually change. Tiny cars such as the SMART car currently popular in Europe where prices are high, mopeds, innovative fuels, etc. You will be amazed at how fast it can be.

Posted by: Robert Zimmerman | Apr 29, 2005 8:03:50 PM

The basic problem is that Bush is abandoning energy reform to the free market, which really isn't going to do the trick.

This is so spectacularly wrong I hardly know what to say.

Nothing -- nothing -- about energy in the U.S. is governed by anything approaching a free market. Different forms of energy production and consumption are heavily subsidized, both directly through tax breaks and subsidies and indirectly through other public policies on everything from trade to infrastructure. Cheap oil has been propped up long past the point a free market would have tolerated it. Coal has wreaked billions in dollars in health and cleanup costs on this country that the industry has never had to bear. The nuclear industry wouldn't exist without heavy government insurance and subsidies.

A truly free market in energy, one in which each industry was responsible for its own construction, generation, clean-up, and insurance costs, would be galloping toward sources that are small-scale, renewable, and capable of graceful degradation. I'm with Bobby Kennedy -- a free market sounds great, let's try one.

The public policy that is pushing us toward an energy crisis is active, not passive.

Posted by: Dave Roberts | Apr 30, 2005 1:17:49 AM

Ezra, there are two ways that you can accomplish the same goal here. You can lay down a strict standard, as you propose, or you can give an incentive to meet the standard on their own. You tax the gasoline. The increased price WILL make them respond with more fuel-efficient cars.

How much economics have you taken? An overwhelming number of economists, according to a poll that appeared in the NY Times two weeks ago, support incentive-based solutions rather than flat standards. You achieve the same goal, but incredibly more efficiently.

The problem is that a gas tax is very visible, whereas the tax resulting from a fuel standard is hidden, directed at the companies instead of you. But all economists know that in everything but name, taxes on producers and taxes on consumers are the same damn thing.

Posted by: Chris Meyer | Apr 30, 2005 11:24:54 AM

Well... we can make oil out of pig shit, and we can make deisel cars run on used cooking grease, if necessary.

For fixed power generation, we can try allowing breeder reactors (with solid regulation). Some solar and some wind would be good too.

How much of the problem is technological, how much of it political, and how much of it economic? I'm going to roughly say 50% political, 30% economic, and 20% technological. What do you think, Ezra?

Like Chris Meyer, I favor Pigouvian taxation over CAFE-type regulation, but I'll take CAFE-type regulation over nothin'. Lets not let the perfect be the enemy of the good.

I just try to imagine: what if we took the roughly $150 billion a year of excess military costs in Iraq, and devoted them to picking the lowest-hanging fruits of reducing oil depedendency? Well, no point in weeping over sunk costs.

Posted by: Julian Elson | May 1, 2005 3:50:51 AM

I'm with you Julian on willing to take CAFE standards over nothing... but meanwhile let's convince Ezra Pigouvian is the way to go. ;)

Posted by: Chris Meyer | May 1, 2005 11:01:48 PM

I've generally thought higher gas taxes were a good idea, but no longer do. The extreme cost of gas in Europe and Asia (Africa, etc) doesn't make people buy smaller cars, especially not the rich ones. CAFE standards are a good thing, because the Hummer phenomenon just proves those who can afford to pollute freely don't care about costs. I agree with Chris about biodiesel. We should be running toward that as fast as possible for two reasons: 1) Veggie oil need not be imported, especially from desert countries. It's renewable and we have plenty of excess agricultural capacity. 2) Burning oil puts ancient carbon into the atmosphere. Biodiesel puts back yesterday's carbon, taken up by plants, back in the atmosphere with no net gain of CO2. In fact, since a soy plant uses more CO2 than soy biodiesel puts back, even huge cars and trucks would have a negative net contribution to greenhouse gases.

Posted by: GreenDreams | May 2, 2005 6:45:15 PM

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Based on over 135,000 miles of testing on their trucks, the IonTechno Catalytic Converter is being installed on each of the 789 refrigerated trucks equipped with Digital Tachograph in a fleet of trucks in Japan. They found that fuel consumption was reduced an average of 22.5% because of combustion efficiency and Nox was reduced by over 89% because of catalytic activity. In addition to the fuel savings and environmental benefits of more efficient combustion, the increased horsepower output plus the reduced cost of maintaining a clean engine offered significant fringe benefits based on tachograph analysis.

The IonTechno Catalytic Converter induces high energy electron activity in the air just before it enters the combustion chamber. This activated air breaks molecular bonds regardless of temperature or pressure. When this air is compressed and heats up in the combustion chamber, it reacts with the long chain hydrocarbon molecules in the diesel fuel to form short chain hydrocarbons. Combustion of these short chain hydrocarbons releases more energy and burns clean—smoke and particulate emission are greatly reduced. The same engine using the same fuel puts out more power and discharges an environmentally friendly exhaust.

The installation cost on a heavy-duty truck is nominal because it does not require any modifications to the air filter, intake manifold or engine. Plans are in place to retrofit trucks in the US for evaluation by fleet owners concerned about the high cost of fuel and environmental restrictions.
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