Wall Street Journal - 17 Nov 08

Prof. Robert B. Laughlin
Department of Physics
Stanford University, Stanford, CA 94305

(Copied 27 Dec 08)

November 17, 2008

How to Kick Our Oil Addiction Despite Plunging Oil Prices

Old habits die hard. So we asked six experts for their ideas on reducing energy demand.

By M. Totty and S. Swartz

The good news: Oil prices have fallen. The bad news: Oil prices have fallen.

Though the soaring cost of oil squeezed consumers' wallets and corporate balance sheets, it had one important benefit: Oil demand in the developed world is projected to decline in 2008 for the third year in a row -- something it hasn't done since the early 1980s -- as motorists kept their cars parked and shifted away from gas guzzlers, and businesses aggressively trimmed fuel costs.

Higher prices also spurred development of alternative-energy sources, like solar and biofuels, that cheap oil made uneconomical.

Now that oil prices are less than half their July peak, what's to keep consumers from returning to their profligate ways? In other words: How do we keep our oil addiction at bay?

We put that question to a group of energy experts. How do they see the problem? And what can be done to keep the conservation and efficiency momentum going, despite falling oil prices?

Their prescriptions, presented below in their own words, run the gamut from government mandates that new cars be fuel-flexible to government repeal of all subsidies aimed at fostering energy efficiency. But all agree that there's still plenty to be done to ensure that energy is used efficiently and conservatively, regardless of the price.

Rep. Roscoe G. Bartlett
(R., Maryland)
Co-Founder and Co-Chairman, Defense Energy Working Group and Congressional Peak Oil Caucus

DIAGNOSIS: American transportation is more than 95% dependent upon oil, a proportion virtually unchanged since the 1973 Arab oil embargo. Americans will have spent $700 billion on oil imports in the last two years. That is more than we spend annually on defense. If that money stayed here, it would generate $7 trillion in economic activity. Clearly, lower oil prices are better for Americans and worse for the governments of OPEC countries, such as Saudi Arabia and Venezuela as well as Russia's military resurgence.

If we reduce our dependence upon oil imports, we eliminate our greatest self-imposed threat to Americans' future economic prosperity and national security. Especially in the absence of price signals, we need leadership at all levels to inspire Americans to continue conserving oil and to innovate to shift our transportation and manufacturing sectors off oil.


R. James Woolsey
Venture Partner with VantagePoint Venture Partners; former U.S. Director of Central Intelligence

DIAGNOSIS: Oil first skyrocketed to over $140 a barrel, and then tanked (well, relatively) to under $60. Will we now forget our earlier resolution to kick the oil habit as we have before?

No. It's true that after oil prices dipped in the mid-1980s and the late '90s, work on several alternative fuels was abandoned. But important developments in the past five to 10 years should enable us to use competition to destroy the 96% monopoly that oil enjoys over transportation. Added taxes on oil or gasoline aren't necessary -- we just need to use government's power to open up competition in the transportation fuel market.


Amy Myers Jaffe
Fellow in Energy Studies, Baker Institute; Associate Director of the Energy Program, Rice University

DIAGNOSIS: For the first time in years, Americans are driving less, and U.S. oil demand is down, helping reduce not only the U.S. trade deficit but the global price for oil. But we want falling oil demand to reflect more than an economic downturn. We want it to be the result of conscious, sustainable policies. If our newfound conservation efforts and energy policies give way to old profligate energy habits when this new round of contraction ends, as happened in the 1980s, we will have lost yet another opportunity to get out of the vicious circle of repeated energy and financial crises.


Amory Lovins
Chairman and Chief Scientist, Rocky Mountain Institute

DIAGNOSIS: Efficiency is one of the highest-return and lowest-risk investments in the entire economy, no matter how low energy prices might go. Concerns about national energy security and about climate persist even if fuel prices drop. Making our energy supplies affordable, secure and climate-safe all require exactly the same actions -- mainly energy efficiency -- so it doesn't matter which of them you care most about. And energy efficiency's side benefits are often more valuable than reduced energy costs: higher labor productivity in efficient offices, higher retail sales in well-daylit shops, faster learning in well-daylit schools, faster healing in green and efficient hospitals, and higher throughput, flexibility and quality in efficient factories.


Myron Ebell
Director of Energy and Global Warming Policy, Competitive Enterprise Institute

DIAGNOSIS: Conserving energy and improving energy efficiency are good things insofar as they contribute to economic efficiency. But I am concerned that much of the public-policy debate is about pursuing energy conservation and efficiency measures that go far beyond any economic benefits. In reaction to the OPEC oil embargoes of the early 1970s, Japan became the most energy-efficient economy in the world, but at much too high a cost, which contributed to Japan's economic stagnation. As for the indirect benefit of reducing greenhouse gas emissions, increasing energy efficiency almost always leads in the long term to higher energy consumption.


Phil Sharp
President, Resources for the Future

DIAGNOSIS: We have security, environmental and economic stakes in advancing efficiency in the production, distribution and especially the use of energy. But uncertainty about the future direction of energy prices is compounded by the credit crisis, which threatens to undermine recent investments in efficiency or renewable fuels, and the fiscal crisis facing state and federal budgets, which raises questions about sustaining government incentives.

Given the challenge of climate change and the risks in the international oil market, we cannot leave all the decisions to an unfettered market. But government policies must avoid highly prescriptive regulation and wherever possible capitalize on the dynamism of markets and the power of price. This is no time for rigid adherence to past ideologies of the left or right.


Andrew Liveris
Chairman and Chief Executive Officer, Dow Chemical Co.

DIAGNOSIS: Demand for oil is outpacing the supply of this precious resource. A new energy policy is just as important to the economy as any rescue of the financial markets. In fact, it's more important in the medium to long term. We are on a pattern to spend more than $500 billion per year to import oil -- nearly the amount authorized one time for the financial rescue package recently passed by Congress. This continued dependency on oil imports has national-security as well as economic consequences. It is also detrimental to manufacturing and energy-consuming sectors -- like the chemical industry. Unstable prices also impact household energy bills and inflation of everyday goods.


Mr. Totty is a news editor for The Journal Report in San Francisco. He can be reached at michael.totty@wsj.com. Mr. Swartz is a senior correspondent for Dow Jones Newswires in London. He can be reached at spencer.swartz@dowjones.com.