Henri Reynard Speaks Out

Remodeling Our Energy Policy

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Well, here we are with yet another mini-crisis in energy costs, based on a small temporary shortfall in oil supplies. It always reminds me about the old fellow who walked to town every day from his house close to ours. It was nearly a mile to town and I wondered about why he didn't drive his car except on the coldest days of winter. Finally I got up the courage to ask him and this was his answer. He said, "I'm not in any hurry to get there and the walk is the best part of my day". Like most young people I was always in a hurry, and walking didn't seem much compared to the thrill of riding in a car with the wind blowing in your face. His patience was amazing to me. Years later, when he stopped taking his daily walk I asked him why he stopped and he said "I'm suffering from a small temporary shortage of energy lately". A few days later he died quietly in his sleep at 96.

Our addiction to oil is one of those few things that has the power to severely injure our nation and its economy. I know oil is the source of great prosperity in the industrial nations of the world. I also know that we import over sixty percent of our oil and will import nearly seventy percent by the year 2010. We are at the end of a pipeline extending around the world. That pipeline is subject to disruptions and is increasingly difficult to maintain. Terrorists, rogue dictators, demagogues and simple physical forces all are working to thwart our attempts to secure adequate supplies of this commodity. Soon the approaching maturity of the oil industry will start to have its own impact. Will we be ready for the problems that diminishing oil supplies will bring to the industrial world? It currently seems unlikely but who knows the future?

Perhaps our nation will escape the inevitable fate that all humans are subject to, mortality. If it is going to continue to succeed we are going to have to pull our heads out of the oil-rich sands of the Middle East and let the wind blow across our faces and the sun shine down on us. Just a little allegory there to lighten up this heavy bit of verbiage. We are approaching the wall at the speed of sound and no matter how far it is out in front of us it is time to pull the nose up before it is too late. Whoa Nellie; where did that phrase come from? It may be ten years before we face diminishing oil supplies, or twenty or as many as fifty if you believe the optimists. That is hardly an event approaching us at the speed of sound. Besides the new fields opening up can make a difference, can't they? That answer is surprisingly little.

A lot of analysis is done on the problem of when we will reach the point where half of the oil that is accessible to existing technology will have been pumped out of the ground. It is generally accepted that is the point at which supplies will begin to decline relative to demand. Prices will rise to reflect the failure of supply to move up and match demand. They could rise catastrophically. That magic moment is certainly years and may be decades in the future, so what is the big problem? The biggest problem is that if we wait for that moment to arrive before we do something to change our course we will suffer the full force of the painful adjustment process. Our transportation infrastructure, which currently depends on cheap oil will be seriously devalued by a higher cost product. So will much of the home heating industry and our industrial power supply base, much of which runs on oil. We can convert to other fossil fuels but converting will increase CO2 emissions in the case of coal, and put further pressure on supplies of natural gas.

The sensible thing to do is to develop renewable sources of fuel that can supply more of our needs as we continue to invest in them over time. The adjustment can then be spread over a longer period of time and be less disruptive to our economy. If we then have technology to sell the rest of the world when the oil supply starts to shrink we will be the winners. Unfortunately our belief in free markets is so absolute that we are betting the farm on the market's ability to handle this problem. The fact is this is exactly the kind of problem that free markets are unlikely to answer effectively. Markets react to fundamental changes in commodity availability badly. When a great deal of capital is invested in infrastructure dependent on that commodity at a certain price the value of that capital can decline rapidly. The loss of value in idle equipment that has become uneconomic to operate could be huge. On the other hand the value of equipment not dependent of fossil fuels would soar. This is a thorny problem and will be with us for a while. I, for one would like to live in a country that plans ahead in order to prevent disaster, how about you?