The Real Price of Oil

The Real Price of Oil
Mark Hertsgaard, MotherJones.com
October 15, 2001

Perhaps it's a sign of politics inching back toward business as usual:
Congressional Republicans are exploiting the Sept. 11 terror attacks to push
the Bush administration's plan for an all-out increase in energy production.

Lawmakers first proposed making the administration's controversial plan --
which includes drilling in the Arctic National Wildlife Refuge -- part of a
federal anti-terrorism bill. Though that amendment failed late last month,
drilling advocates are likely to continue invoking terrorism fears as they
argue for more oil development.

Bush, of course, has long maintained that his energy plan will increase
America's "energy security" -- meaning the nation's access to relatively
inexpensive electricity and fuel. To that end, he has proposed a package of
measures intended to encourage greater production of oil, along with other
fossil fuels and nuclear power. In a victory that surprised even
Republicans, the House of Representatives in August endorsed much of Bush's
approach, including $33 billion worth of tax incentives for oil companies.

It's questionable, however, whether these steps will in fact guarantee
stable energy prices. Given the power that OPEC and the international oil
companies have to manipulate production, the usual rules of supply and
demand don't apply to the oil business. And even if Bush's approach works,
it will affect the price of oil only in a narrow sense: what a barrel of
light crude fetches on the London spot market, what a gallon of gasoline for
the family automobile costs at the pump.

What matters more is what should be called the real price of oil. This is
comprised of two elements: petroleum's market price, plus the many indirect
costs that its production and consumption impose on nature, public health,
and future generations.

Under Bush's plan, for example, the real price of oil will soon include not
only those $33 billion in subsidies, but the potential destruction of
Alaskan caribou calving grounds. Increased production also means a growing
possibility of more oil spills like the 1989 Exxon Valdez disaster, as well
as continuation of the less-publicized release of an average of 10 million
gallons of petroleum into the oceans every year from tanker accidents.

Further raising oil's real price will increased air pollution made possible
by Bush's relaxation of environmental regulations. Already, diseases
stemming from car exhaust kill some 30,000 Americans each year, according to
a 1995 Harvard University study. And back in 1993, the Worldwatch Institute
estimated the damage to human and environmental health from vehicle
emissions at $93 billion a year.

For the world at large, the most serious consequence of continued reliance
on oil and other fossil fuels will be accelerating climate change in the
21st century. Though a number of factors contribute to the greenhouse
effect, oil remains a major culprit. Some 40 percent of America's greenhouse
gas emissions stem from automobiles.

Scientists have noted that already -- after a mere one-degree increase in
temperatures over the past century -- glaciers are melting and catastrophic
storms becoming more severe and frequent. They expect the planet to warm an
additional 4 to 11 degrees Fahrenheit in the 21st century, bringing yet more
violent weather, flooded coastlines, killer droughts and social havoc. One
insurance industry study projects that climate change will impose $304
billion of additional direct costs on the global economy every year.

Bush has rightly been criticized for rejecting the Kyoto accord on global
warming. But the truth is, America has never been shy about expecting the
rest of the world to support its oil habit. Presidents and Congresses of
both US political parties have for decades affirmed military and diplomatic
policies aimed at guaranteeing American access to overseas oil; the
CIA-assisted overthrow in 1953 of Iran's prime minister Mohammed
Mossadegh -- who had advocated nationalizing the country's oil supplies --
is but one example.

According to the Rocky Mountain Institute, an eco-think tank that analyzed
Pentagon and Department of Energy spending data for the mid-1990s, federally
funded research and development provided at least $300 million annually in
subsidies for the fossil-fuel industry. And at least $50 billion of the US
annual military budget during those years paid for forces whose primary
purpose is to safeguard Middle Eastern oil fields and shipping lanes -- and
whose presence, especially in the Islamic holy land of Saudi Arabia,
provokes bitter resentment in much of the Muslim world.

Economists use the term "externalities" to refer to costs that are not
included in a commodity's market price, but are borne by society as a whole.
Society, of course, also has benefited from the past century's increase in
oil consumption: The US economy underwent an extraordinary expansion during
the 20th century, when cheap oil fostered first the automobilization of the
nation and, after World War II, its suburbanization. Oil also made possible
a transportation system built around individual mobility and personal
convenience that in many respects remains the envy of the world.

But the impending threat of climate change suggests that our reliance on oil
has reached a point of diminishing returns. It's time for a new strategy --
a shift to energy efficiency in the short term and to solar and other
renewable energy forms in the long term. Such a Global Green Deal would not
only reduce ecological damage, but yield substantially more jobs, profits
and economic prosperity than today's system does. Investments in energy
efficiency create two to ten times more jobs per dollar than investments in
oil and nuclear power -- a crucial concern as the economy slides into
recession.

Bush is betting that the nation is willing to pay whatever it takes to keep
oil flowing, and he may be right. In the House of Representatives, the
president's plan was supported by Democrats and Republicans, labor and
corporate interests. In the Senate, much will depend on what kind of
pressure is brought to bear on its members.

Americans may ultimately agree with Bush that maintaining their oil habit is
worth any price. But we should at least acknowledge the full cost of such a
decision -- not only for Americans, but for the six billion people we share
the planet with. What do you think?

Mark Hertsgaard, author of Earth Odyssey: Around the World In Search of Our
Environmental Future, is at work on a book about America and why it
fascinates, infuriates, and bewilders the rest of the world.


Elson Boles, Ph.D.
Dept. of Sociology
Saginaw Valley State University