One financial writer opines that high oil prices help alternative energy

(from the article “High prices will fix what politicians cannot”

By Trevor Houser, published by Financial Times. Full article can be found at: )

 …There is also little hope that new (oil) supply will bring much (consumer price) relief. OPEC countries control an increasing share of global reserves and are not inclined to increase production just to give consumers a break. With most new onshore resources in politically unstable countries, the International Energy Agency predicts that over the next two decades the lion’s share of new non-OPEC production will occur offshore, much of it in deep water. The real lesson of the Gulf spill is that drilling the deep Macondo well reflected the reality that there are few cheap and easy options elsewhere.

The only silver lining on a painful future for consumers is that expensive oil is just what is needed finally to kick-start the petroleum detox. The fact that high oil prices survived the crisis excises the ghosts of the 1980s, and gives entrepreneurs and investors confidence to support cleaner vehicles and develop alternative fuels. Nearly all of the world’s largest vehicle manufacturers now plan plug-in hybrid or fully electric vehicles within two years, with General Motors rolling out the Chevy Volt last week. At $20 per barrel, powering the Volt with electricity costs more than filling a comparable car with gasoline. But at $80, Volt drivers save enough on fuel to offset the vehicle’s high price. Faced with expensive oil, the chemicals industry is turning to natural gas, increasingly abundant thanks to the shale gas boom, and venture capitalists are betting on advanced biofuels.

Make no mistake, clean-energy deployment driven by a tight oil market will be slower, more limited, and less pleasant in the absence of good policy from Washington. And as oil accounts for only a quarter of global greenhouse gas emissions, high prices will do little to address climate change compared with the cap and trade proposals Congress put on hold. But today’s oil markets make public investment in clean-energy research and development, just now returning to 1970s levels, more palatable – and a change in America’s relationship with petroleum seems possible at last.

The writer is a fellow at the Peterson Institute for International Economics

 Our Take: 
We don’t call it cheap, though biofuels increase supply and therefore blunt high gasoline prices. And we don’t call it easy. The oath to ethanol and biodiesel development has been fraught with pitfalls for its pioneers. But ethanol is an alternative to offshore drilling. One that exists today. One that works well in complement to technologies like the Chevy Volt, which, though it is an electric vehicle, still depends on liquid fuel to extend its range beyond commuting distance. That liquid fuel can be an ethanol blend.

 Congress members of all stripes should realize that a forward-looking energy policy that really gets behind biofuels expansion can help all states—red, blue, (and even purple, as some people call states like Minnesota that seem to split party-loyalty right up the middle). It’s time to reach across the aisle and make it happen.


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