Monday, February 06, 2006

Addicted to Oil? Nonsense

OK. I am a few days slow on this. I didn't like the sound of President Bush's "we are addicted to oil." He chose to pander to the environmental extremists. In so doing he turned away from his past emphasis on supply to the strange world of alternate energy sources. Now I favor research and development for alternate energy sources. I just don't have mystical faith in them. Don't make me use one until it makes economic sense. That is, until it is cheaper. And I notice that the current forceful use of ethanol-added gasoline is pure power politics; the farmers and agribusinesses demand a federal mandate. James Glassman at my favorite TechCentralStation, now called, says it better than I can:
America is no more addicted to oil than it is addicted to bread, to milk, to paper, to water, to computers or, in the immortal words of the late Robert Palmer, to love. We use oil -- and other unmentioned but implied addictions like coal and natural gas -- to generate energy that powers our cars, heats our homes, lights our cities, runs our factories. By the standard of what they do for us, fossil fuels are pretty cheap. They provide enormous industrial leverage. But, at least in the short term, they are getting more expensive -- in part because demand is rising (mainly in other nations, like China and India, that want to have standards of living like ours) and in part because supply isn't keeping up.
And the damage this causes:
But maybe I should cut Bush a break. It's just rhetoric, right? In this case, no. The use of the word "addicted" is dangerous. It could end up hiking prices by reducing supply. How? Bush has signaled a new attitude from the White House. If this president can't defend the working of our almost-free market, then who will? If I were in the oil business myself, I would be extremely worried by this speech. One of my responses would be to hold back on planned research and development and capital spending. The three largest U.S. energy companies alone are projected to make capital expenditures of $43 billion this year, up from $33 billion in 2005. But does that make sense if Washington is considering windfall profits taxes, subsidies to alternative fuels and regulatory policies whose guiding principle is that fossil fuels are evil? Instead of concentrating on increasing fossil-fuel supplies at home, the President used all of the energy section of his speech -- four paragraphs -- talking about such exotica as "revolutionary solar and wind technologies," "producing ethanol, not just from corn, but from wood chips and stalks, or switch grass," and "pollution-free cars that run on hydrogen." Of course, since these alternatives have no commercial viability, the government will have to subsidize them. The latest Carteresque concoction, announced in the speech: the "Advanced Energy Initiative."
That will hurt. Glassman continues with more good facts and analysis. Read it.

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