Why We Can't Afford Cheap Gas


With the cost of crude oil again nearing the $100-a-barrel mark (even after last week’s financial meltdown) and this summer’s record gas prices in the rearview mirror, automotive executives and industry analysts are already heralding the return of gas-guzzling trucks and SUVs. Car makers are rolling out new truck models, and even Republican presidential candidate John McCain, in a new Michigan TV spot, promises to "spur truck sales." Never mind that only months earlier, these same analysts, as well as auto executives and consumers alike, insisted that the future of the automotive industry lay in more fuel-efficient models like hybrid and electric cars. Now, however, it seems that many involved are slowly slipping back into the pre-$100-per-barrel mindset that was so popular when pump prices were under $4 a gallon and drivers of SUVs and trucks roared down the roads with clean consciences.

But if history is any indication, this period of relief and a possible shift back to gas-guzzling cars must be met with cold-eyed skepticism. Sure, cheaper gas means much needed short-term financial relief. Looking past the next year or two, however, cheaper oil and a resurgence of gas-guzzling vehicles would be seriously detrimental to the United States, as similar oil crises in the past have shown that the periods immediately after a spike in oil prices -- not the crises themselves -- have arguably inflicted far greater damage on the country. During these relief periods, critical efforts to develop alternative energies and fuel-efficient technologies -- begun under the culture of urgency that an energy crisis instills -- have been squashed, allowing Americans to revert to the same old habits, tendencies and behaviors that got them into trouble in the first place.

Take, for example, the October 1973 U.S. oil embargo. After a group of African and Middle Eastern countries briefly stopped supplying the United States with oil, prices in early 1974 climbed from $3 to $11 per barrel, setting off a nationwide energy panic and resulting in massive lines at gas stations. In response, President Richard Nixon proposed lowering speed limits on federal and state highways and temporarily banning the sale of gasoline on Sundays. Nixon also announced his "Project Independence," a set of energy-related recommendations aimed at achieving the quixotic goal of making the United States energy independent by 1980.

Though Nixon succeeded in lowering speed limits and imposing the Sunday ban for a brief period, Project Independence floundered. As oil prices began to drop after the '73 embargo, Nixon's vision of a United States "that will not be dependent on any other country for the energy we need to provide our jobs, to heat our homes and to keep our transportation moving" was reduced to a flimsy "blueprint" passed on to his successor, Gerald Ford, in late 1974. Time reported that the weakened blueprint would "not be an action program, but rather a listing of options for debate within government and eventual White House decision." Under Ford, Project Independence soon disappeared, and although Ford renewed his predecessor's goal for making the United States energy independent (this time, by 1985), Americans quickly reverted back to good old reliable oil.

In 1979, this same narrative of an oil crisis, a subsequent "commitment" to energy independence and then an immediate scrapping of alternative energies research played out once more. After the Iranian Revolution and the ousting of the Shah of Iran, a worldwide oil panic ensued in which the cost of a barrel of crude oil in April 1980 shot up to a record $39.50, or $103.76 in today's money when adjusted for inflation. Like the '73-'74 crisis, the lines at gas pumps grew, rationing measures were implemented, and hysteria quickly spread throughout the country.

In response, President Jimmy Carter took swift action. Three months after oil costs peaked, Carter signed into law the Energy Security Act, a sweeping piece of legislation he described as the "keystone of U.S. national energy policy." Then-House Majority Leader Jim Wright said at the time that the Energy Security Act was one of the most important pieces of legislation of the entire decade. In committing hundreds of billions of dollars toward developing alternative energies, the act's goal was to decrease U.S. dependence on foreign oil by creating the United States' first solar bank and investing in biomass, geothermal and ocean thermal energies.

The Energy Security Act's backbone, however, was the Synthetic Fuels Corporation, an organization created to spur the development of synthetic oil equivalents by funding private companies developing synthetic fuels. Carter's legislation set a goal for the SFC to establish enough synthetic fuel research and development projects to produce at least 500,000 barrels per day of oil equivalent by 1987. And to meet this goal, the Carter administration invested heavily in the SFC. The Energy Security Act authorized an initial $20 billion in funding over five years for the SFC, with the possibility of Congress spending another $68 billion after 1985 to encourage the further production of synthetic fuels.

As it turned out, SFC was doomed from the start. The corporation was plagued by management problems. Numerous front office officials took criticism for what outsiders saw as excessively high salaries. And once the Reagan administration came into power, bringing with it a zealous belief in unfettered free markets, SFC was perceived to be an unwelcome interference. "The Reagan administration might not object too loudly if SFC is shelved," Oil and Gas Journal reported in 1984 as the corporation found itself under fire. "It never has been fond of SFC, which runs counter to its free market philosophy."

But what truly signaled the death knell for SFC -- as well as other ongoing alternative energy research efforts -- was the return of cheap oil. Just as the wheels of SFC began to slowly turn, a worldwide surplus in crude oil developed, and the urgency that once fueled the drive for new energy sources dissipated. When, in December 1985, Congress terminated all funding for the much-loathed SFC, the New York Times reported that SFC "was a victim of falling world oil prices." And in what can be read as SFC's obituary the following April, the Times stated that "the decline in oil prices over the last few years led members of Congress to question the wisdom of pouring millions of dollars into what have been termed questionable projects."

David Cole, the chairman of the Center for Automotive Research in Ann Arbor, Mich., and an automotive industry researcher during the 1970s, explained in a recent interview that "research on batteries and alternative fuels instantly stopped after the Iranian crisis. Fuel economy was just the furthest thing from anyone's mind when the crisis ended."

Looking now to the present, what concerns analysts like Cole is a similar disaffection and abandonment of alternative energies research due to cheaper oil. "It would be particularly tragic now if we had a collapse, because we're so far along in the basic technologies," Cole said. What's different about the periods after the 1973 and 1979 oil crises and this year's, he explained, is that in the 1970s and 1980s the key inventions needed to really bring to the market technologies like biofuels, lithium batteries and other alternative energy sources hadn't been made. Today, citing ongoing projects like the lithium battery-powered Chevrolet Volt, Cole said that "the inventions are in place."

Thus it's even more critical that existing alternative energies research continues to receive support, even if that research is costly and slow moving. This perceived lack of progress in part doomed the SFC: A year before the corporation went belly-up, lawmakers criticized SFC for its "desultory progress" in meeting its goals and its "slow decision making." Yet such research will always be slow, and critics of such programs need to trust that long-term progress is being made even if it isn't immediately perceptible.

To prevent a similar energy relapse and end the United States' addiction to domestic and foreign oil, many analysts, executives, industry experts and journalists support increasing petroleum taxes and implementing an oil price floor. This would set a minimum price for the cost of a barrel of oil so that even if the market cost of oil dropped past the floor, gas prices would remain at a set price. As Philip Gordon, a senior fellow for U.S. foreign policy at the Brookings Institution, argues, "Americans will not make long-term decisions to buy fuel-efficient automobiles, create distribution networks for alternative fuels, or invest in technologies like hydrogen fuel cells, flex-fuel vehicles or wind power unless they know that a future sharp fall in oil prices will not undercut them."

Cole said that if an oil price floor is to be considered, it must be done somewhat soon, as Americans are more likely to agree with implementing a floor when oil prices are still high. A minimum gas price, he added, would also bring new fuel-efficient cars -- among them more efficient hybrid models and fully battery-powered cars -- into large-scale production and onto dealership lots far sooner.

However, the likelihood that Congress would increase gas taxes and establish an oil floor -- a move sure to draw the ire of many, many Americans -- is nonexistent. "Congress has been absolutely afraid of raising fuel taxes, and has a history of avoiding taxes on fuel," Cole said.

In all fairness, it's unclear whether the recent decreases in oil prices are part of a larger downward trend or are instead anomalous. Some believe the "great oil bubble has burst;" others warn of more high prices on the horizon. Thus it's too early to tell if the cheap oil mentality starting to reappear today will last as long as it did after previous crises.

But even if the current relief is short-lived, as some analysts and experts say, there's still very much the possibility that even this short period could hinder or shortchange critical research and development on alternative energies and fuel-efficient cars. And this cannot happen. Surely the need for alternative energies and reducing the United States' -- and the world's -- dependence on oil has never been greater, as evidenced by the impassioned pleas of climate change scientists who argue that global warming will kill off vast numbers of animals and plants in our lifetime and, ultimately, humans as well. The American Petroleum Institute strongly emphasized, "We cannot solve our major energy problem, the nation's heavy reliance on foreign oil, unless we continue to develop all economical forms of U.S. energy." That statement could easily apply to the present moment; in fact, it was made more than 24 years ago, right around the time the SFC was nearing its demise. Still, it's never too late to heed such wisdom.

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