or, Why Fifty Cents Per Gallon is Not Too Much

by Mark Safford

1. What the Future Could and Should Be

There are a large number of reasons for assuming that the 21st Century could be a time of growing prosperity and global progress, if we are, as a society, able to avoid the traditional pitfalls that have bedeviled us throughout our long history. And there is every indication that this growth could benefit the entire planet, but especially the inhabitants of the less developed regions of the world. This is particularly the case for East and South Asia; that includes nations such as India, Malaysia, Indonesia and, of course, China.

I love to look in the back of my weekly copy of The Economist and peruse the statistics pages. There is a lot of very useful and valuable information hiding back there, even for us non-economists. One very interesting comparison I like to make is between growth rates in the developed world – the OECD nations; and the developing world. You can do that by looking for the change in GDP rates compared to the previous year. What I have consistently found is that the growth rates are currently more than twice that of the OECD nations. While the developed economies have averaged around 2 to 3% per annum growth recently, the developing nations are between 5 and 10%, led of course by China, which has managed to sustain a double-digit annual growth rate for longer than many economists thought possible. India is at around 7 to 8%. Even developing nations in other parts of the world are benefiting from this growth. Look at the following GDP growth rate for 2006 (from The Economist, January 20, 2007):

You can see where the real growth is happening.

As the developing world grows economically and starts catching up with us, it also will start using more energy than ever before. The U.S. Department of Energy’s Energy Information Administration (EIA), in fact, pegs shortly after 2010 as the time at which total energy usage in the developing world first surpasses energy usage in the developed world. And it continues to grow at a faster rate after that as well.

All things considered, this is a good thing for them and for the rest of us, too.

2. Why the Future May Not Be What It Could and Should Be

However, there are also a large and growing number of thoughtful people who have come to the conclusion that the continued use of carbon-based fuels – including natural gas and especially petroleum and coal – without commensurate stringent anti-pollution measures threatens to damage the planet to the point where human life itself may be jeopardy. To these people the signs of this occurrence are evident right now, and increasing at a noticeable rate.

It’s all about carbon.

Deep ice core drilling samples in Antarctica now allow scientists to track the level of CO2 and other gases in the earth’s atmosphere back at least one half million years. As you can see, the globe has passed through at least four major ‘ice ages’ in that time. Each swing in average temperatures is accompanied by a parallel swing in carbon dioxide levels that varies between about 180 and 300 parts per million. As temperatures rise so does CO2, and as temperatures drop, so does CO2.

But something different happened after 1800 – or, since the beginning of the Industrial Revolution. Instead of leveling off at 300 parts per million, or ppm, CO2 levels have broken through that level and continue to climb – for the first time in half a million years. This is, purely and simply, unprecedented during our species’ existence on this planet.

Here’s what it looks like in recent years. As you can see, CO2 levels exceeded 300 ppm around 1920, and have continued to rise. By the late 1990s, they reached 360 ppm. They are still rising. Again, remember, this does not appear to have happened before for the past 500,000 years.

Now, there are some who argue, so what? Plants love CO2, so the more CO2 there is, the more luxurious plant life will be on the planet. Maybe so. But there may not be many people around to enjoy the new jungles.

And it’s not just the carbon dioxide. Other greenhouse gases, such as methane and nitrous oxides, have also been rising dramatically since the start of industrialization. Methane has spiked from about 650 parts per billion, or ppb, to over 1700 ppb in the past two centuries or so, especially since 1900. The same thing has happened to nitrous oxides, which have risen from about 270 ppb to 320 ppb in these same years.

One reason that sea levels would rise is the melting of the ice packs and glaciers at both Poles. In fact, scientists are finding that this is indeed happening right now. Greenland glaciers are melting at a faster and an accelerating rate. More and more giant ice shelves in Antarctica are breaking off the continent. What will happen if this keeps up? Thousand and thousands of square miles of land disappear under water. If all the Greenland ice were to melt, global sea levels could rise by as much as 25 feet. That would flood the current homes of nearly seven hundred million people around the globe; that’s one out of every ten persons on the planet. And that’s just the start. When you start messing with the major ocean currents like the Gulf Stream, you also can cause sudden and significant weather changes over wide areas – like North America and Europe. At least the ski resorts there won’t be complaining about a lack of snow.

In short, our modern society will be disrupted; to an extent even the two World wars of the past century did not approach. We are talking major changes in the economy, food shortages, energy crises, massive population displacements, breakdowns in governments.

We see similar phenomena happening at the North Pole. Canadian scientists who track polar bear populations have discovered that the average bear they have captured and measured actually weighs about 20-30% less than previously. And there are more than one story about bears swimming from one ice floe to another drowning from exhaustion because there is so much less ice.

And what is causing this increase? Quite simply, we are. It is humanity, industrialization and the explosion (no pun intended) in the use of carbon-based fuels: oil, coal, natural gas. They have fueled our civilization since 1800, and continue to fuel it today. That is both good . . . and bad.

Now, there are . . . still . . . some people who disagree with the contention that we, mankind, are responsible for this. They believe there is still enough room for doubt. Well, that’s true. But the room for doubt is continually shrinking. Let me quote one observer of the topic, William K. Stevens, who wrote on climate change for the New York Times through the 1990s until his retirement in 2001. In February of this year [2007] he wrote an article for the Times in which he pointed out how attitudes towards global warming have changed, based on the series of reports the Intergovernmental Panel on Climate Change, or IPCC, has put out. Here’s what he said:

In 1990, in its first report, the panel found evidence of global warming but said its cause could be natural as easily as human. In a landmark 1995 report, the panel altered its judgment, saying that ‘the balance of evidence suggests a discernible human influence on global climate.’ In 2001, it placed the probability that human activity caused most of the warming of the previous half century at 66 percent to 90 percent — a ‘likely’ rating.

By 2007, the IPCC was saying that “the likelihood was 90 percent to 99 percent that emissions of heat-trapping greenhouse gases like carbon dioxide, spewed from tailpipes and smokestacks, were the dominant cause of the observed warming of the last 50 years.” Every report raised the level of certainly that global warming was primarily a man-made phenomenon. Every report; until now, we are talking over 90% certainty. In all seriousness, how much more proof do you need?

3. Optimists and Pessimists:

When it comes to the question of how much longer the world’s supply of carbon-based fuels will last, and thus how much longer we will continue causing this damage, there are two schools of thought. One school, which I will term ‘the Pessimists’, projects that the world may be reaching a peak in total production of petroleum sometime in the current decade, and that total production will then begin an inexorable and sustained decline. This will in turn soon create extremely high prices (even higher than today) and shortages of energy in the near future, and that only a dramatic and rapid increase in non-carbon fuels will be able to solve that shortage.

Global Oil Production and Consumption, 1960-2050 (projected)

Since these other sources often are considerably ‘cleaner’ than carbon (including hydro, wind, thermal, biomass, tidal, and even nuclear – although that source is highly debatable), then the appearance of these shortages will, ironically, by necessity help spur the development of cleaner fuels.

If we cannot develop these alternatives, then we must prepare for a radically different life style than that to which we have become accustomed. We may return to a time when local farmers use animal power to grow and transport food to nearby cities; when air conditioning is a thing of the past; and most passenger travel is by foot, or wagon, or train.

Maybe even something like this . . .

I’m not sure this is a particularly viable alternative myself . . .

By the way, this photo was taken by a colleague of mine who was visiting Romania in the 1990s. You could call it a one-horse power Dacia sedan . . . with air conditioning . . .

There is a second school of thought, however, which I term – quite ironically - ‘the Optimists’, and to which I myself subscribe. Optimists conclude that the world will NOT in fact suffer that looming energy shortage in the 2010s, or any time soon. In fact, we have enough abundant and cheap carbon fuels for hundreds of years to come! As long as the cost of conventional crude oil remains at or anywhere above about $40 per barrel, it will be possible to tap these unconventional sources profitably.

These sources include massive quantities of oil tar, oil shale and oil sands – most of which are located in the Western Hemisphere, especially in Venezuela, Canada and the United States (the Caribbean may become the ‘New Persian Gulf’). They include coal, which can be converted profitably to liquid fuels for transportation and electricity generation at these prices. The US has an estimated 250 years worth of coal within our borders. They also include such yet untapped sources as methane hydrates, which are bubbles of gas trapped inside ice crystals in the deep seabed and under the permafrost that covers the globe’s Polar Regions. According to one recent estimate from the US Department of Energy, total carbon-based fuel reserves could equal two orders of magnitude more than known conventional oil reserves. That is one hundred times more.

Remaining World Fossil Fuel Reserves (billions of barrels equivalent), 2000

Frankly, the existence of these abundant carbon sources scares the Hell out of me, and I would imagine most other Optimists as well!!!! It scares me because the existence of these potential carbon fuel sources – which could last for several hundred more years — removes a major incentive to develop cleaner energy that the Pessimists’ approach seems to be counting on, that is, the fear of imminent major energy shortages.

Thus, in reality — well, in the Optimists’ version of reality — the world will NOT be forced into using cleaner energy because of looming carbon fuel shortages. Nor will we be building barns in our back yards. That is because there will BE no carbon fuel shortages; so running out of energy will not help ease the danger because we WILL NOT RUN OUT!! So carbon will continue to be burned — more and more of it every year. And CO2 will continue to be emitted — more and more of it every year.

This actually makes us Optimists much more pessimistic than the Pessimists!

That is the irony.

It also convinces Optimists that it is even more imperative to convince people that we will poison our planet if we keep burning carbon because that is in fact exactly what may happen!! Shortages of carbon fuels will not save us. We can in fact keep burning them until we poison the entire planet before we run out of them.

Just stop and think about this for a moment. Instead of energy shortages helping us to realize the need for cleaner fuel, we will have to convince people of that need without the additional prompting of energy shortages. It makes the job even tougher, and even more necessary.

4. Good News, and Bad News

Now here is the good news; ever since the oil shocks of the 1970s, the developed world has been learning how to grow with a smaller and smaller input of energy. Back before 1980, there was usually a 1 to 1 correlation between GDP growth and energy usage growth. But since that date, the correlation has been falling to about 1 GDP growth for every ½ energy input. That’s a good thing. This chart is from a November 2006 EIA report on US greenhouse gas emissions.

The bad news, however, is that the carbon portion of total energy input has barely budged. Instead of falling along with energy input, carbon has stayed at almost a 1 to 1 relation with energy usage growth. So we are reducing our total use of energy by a much larger factor than we have been reducing the carbon content of our energy.

And that fact is what leads to this projection for the 21st Century. This is from the February 2007 IPCC Report “Summary for Policymakers”. Because we continue to burn carbon, total CO2 in the atmosphere will continue to rise. And that means that the average temperature of the Earth will also keep rising; by up to 4 degrees Celsius in the most pessimistic scenario by the year 2100.

5. What Do We Do?

Now, there is an additional and extremely important corollary to the (now pessimistic) Optimists’ approach. It is that the energy companies are - perhaps incredibly - our primary means of salvation!! They have the raw material sources, infrastructure, people, technology and knowledge to develop cleaner fuels.

We need to convince them that they are the only people who can meet the world’s needs for energy over the next 50 years or so because we will by necessity need to keep using carbon fuels, if we want to maintain even a shred of our current life styles.

There is no reasonable expectation that we can replace carbon fuels and maintain our current rate of energy use. But if the companies continue to sell dirty energy beyond the transition point, they will KILL THEIR CUSTOMERS and human society by poisoning the planet!

Thus, only the energy companies can actually keep their own customers alive by cleaning up their product. Thus, it is in their own best interests (if they want to survive and keep making money) to save their customers’ lives. It will also save civilization.

In a very crude but perhaps helpful analogy, the energy companies are almost in the position of drug pushers, and we are the addicts. Right now we crave carbon fuels, because that is what is available. That is our heroin. The problem is, if we keep using this heroin we will die. That also puts the pushers out of business. Only if we switch to a drug that will not kill us can this relationship continue for more than a few decades. We need to replace our heroin with methadone. We could try kicking the habit entirely, of course.

Do you know how to shoe a horse? I don’t . . . .

The final step in this reasoning is that the customers — i.e., society as expressed through the political process — must pay for the cost of cleaner fuels. No one else will. Therefore, the customers must commit to pay the necessary cost of developing clean fuels. Or die. That is really the choice.

Now, there are many ways that the funds needed to develop clean energy can be raised - the key is that the energy companies themselves will still do it only if they can recoup their costs. Let’s face it, Bill Gates became a philanthropist only AFTER he made his first $50 billion. Either the energy companies will have to raise their prices and use the extra money for this research, or someone else will have to pay the costs of doing it.

That ‘someone else’ is us, the consumers of energy. Either way, ‘we’ pay the price. So here is the ‘grand bargain’ that society and the energy companies must reach: society (i.e., us) must tell the energy companies to give us clean energy as soon as possible. At the same time, we (i.e., society) must also agree to pay whatever the cost is of doing it.

That is, in essence, the Optimists’ message. Ironically, it will actually be HARDER to succeed the Optimists’ way than the Pessimists. But this is what we must do, and we can only succeed if we get the energy companies to agree to help us out of their own self-interest. If we simply antagonize them, the job becomes that much harder. They will keep acting that way if we keep simply blaming them.

We – the consumers of energy — are the problem, not them. We keep buying SUVs that are twice the size that we need and burn fuel so wastefully. We keep moving by the millions to some of the hottest and most arid region of the world and then require massive air conditioners than run almost constantly. We demand all the cheap electricity that we want whenever we want it so all of our gadgets can run anytime we want and run continually on standby, wasting even more power so they will turn on five seconds faster.

We are as much at fault – perhaps even more so — as the energy companies. They are just giving us what we are willing to pay for, on conditions that we are willing to accept. That’s the free market economy of the globalized 21st Century; and we created it, because we wanted it.

But there is still time for us to change. Many utilities allow you to volunteer to pay more for energy from a renewable source like a hydro dam or wind farm. I know my own electric company offers me that choice. I recently signed up for green energy, for an additional 1.5 cents per kilowatt-hour. That’s about 9% more for near carbon-free power; and the additional charge is tax-deductible! I haven’t personally checked on how many households and businesses do this; unfortunately I bet it is a proverbial drop in the bucket.

But here’s the point; blaming the energy companies just makes us feel less guilty. We need to grow up and face the facts. We will pay much more for energy in the future than we want to, but the alternative is to have no energy at all.

The choice is ours. And we will need all the help we can get to make the right choice.

6. Can We Afford It?

What is the potential loss to the U.S. economy alone if oil supplies drop drastically and/or we are not allowed to use them and we lack sufficient alternatives? In other words, what would happen if we were unable to continue supplying the 20 million barrels of oil the U.S. uses each day, and that other nations were in the same predicament. Such a situation could arise if, for example, total global demand for oil were to surge beyond our capacity to produce it, or a natural or manmade disaster were to disrupt oil production and/or shipments.

It could be a new embargo by producers, or it could be severe weather conditions, for example. It could be the consequences of the world surpassing the peak of oiI production and entering a decline in output. It could also be, however, public opinion demanding that we reduce severely on our carbon emissions, even if it meant drastic cutbacks in the amount of carbon fuel we burn, due to fear of the consequences of global warming.

Say that, for example, the U.S. lost access to 1/3 of its total oil supply, or nearly 7 million barrels/day. Let’s assume:

• First, that this event would cause the US economy to lose 1/3 of its output – that’s roughly $4 trillion/year; and

• Second, that the chances of this actually happening are only 1 in 3.

Using these numbers, the potential loss to the U.S. economy alone that would result equals $4 trillion/year times 1/3, or about $1.3 trillion/year. What is that worth? Or, what does it equal? Well, how about nearly the entire global output of oil – 84 million barrels/day at $50/barrel equals $4.2 billion/day or about $1.53 trillion/year.

So, if our estimates of the cost to the U.S. economy and the probability of this happening are in the ballpark, what sort of insurance policy do we need against this occurring? In other words, how much should we pay to try and avert this event? Well, at a minimum it needs to cover the lost 7 million barrels of oil per day, or even better, it replaces oil with a better energy source so that the shortage will not affect our supplies.

Suppose, then we thought along the lines of paying, say, a 5% annual premium as a form of insurance against this happening. We could use this money to develop and deliver alternative energy. Even at a mere 5%, or $70 billion/year, that’s a pretty reasonable insurance policy. Especially when you see that that amount is less than twice one oil company’s recent annual net income.

$70 billion/year could fund a substantial amount of research. In fact, it is one-quarter of the total amount the U.S. now spends on R&D each year, which is about $300 billion. And if it is all focused on alternative energy, imagine how much we could do.

And how could we raise that amount of money? Well, as it happens, the U.S. consumes about 140 billion gallons of motor fuel annually. So, a tax of only $0.50 per gallon could raise that $70 billion each year.

Wouldn’t people scream bloody murder? Well, not if they understood how bad the alternative would be. After all, $0.50 per gallon is how much the price of gas has fallen from previous spikes. Somehow we kept driving during those spikes, and somehow we grumbled but again kept driving when the spike recurred.

Here’s another way to look at it. If gas is $2.50 per gallon, an extra $0.50 is only $3.00 per gallon. We’ve paid more than that in recent years. And you can recoup the higher price by simply buying a more fuel-efficient car or driving less. If you have a 20 mile-per-gallon vehicle, replace it with one that gets 24. If your vehicle now gets 25 miles per gallon, buy one that gets 30. Not only do you end up spending the same total amount for gas, you significantly reduce your consumption too!

So how do we spend that $70 billion? The key is: we decide by a fair and open process that includes all the affected interest groups in the nation.

This includes government, business, consumers, and the energy companies. There are a few basic ground rules, however.

• One: the result must not make the world any worse off than it already is. That is, it should be as carbon-free and as pollution-free and as safe and as sustainable and as affordable as we can make it.

• Two: as long as rule one is met, all possibilities are considered, and all ideas are studied.

• Three: this is a global issue and we engage the rest of the world in the process so that we tap into the best minds and the best technologies we have available to us, and everyone share sin the benefits.

In this scenario, is it not logical that the energy companies are likely to be some of the biggest contributors to finding and implementing the solutions? After all, who else has the same concentration of talent, technology, funds, and knowledge needed to develop clean fuels? This is not to belittle the contribution of others; but it does point out, I hope, how foolish it would be for us to exclude them from this process.

And if it turns out that a big part of the solution is simply to find cleaner ways of using the oil and coal and natural gas that we and they already have, all the better! I really do not care where the fuel in my car comes from, as long as it is clean, affordable and sustainable. It could be ground up gravel, or seaweed, or coal squeezings, or some synthetic sludge, or whatever. It really doesn’t matter.

Some might say that $70 billion/year is way too much to ask the American people to pay for . . . but think about what exactly it is that they are paying for. We are talking about an insurance policy against a known short-term threat to our modern society and economy. This is a threat that scientific evidence is increasingly confirming is real and significant. And, we are not the only people affected, nor are we the only people who could help solve it. We are only 5% of all of the world’s population; other concerned people in other nations are pitching in too. We can work with them to solve this problem.
In fact, you can easily make a competitiveness argument for the U.S. to take the lead in this area. After all, imagine the advantage that the first nation to make breakthroughs into the next generation of clean, affordable energy will have; and the profits that they can make.

We are talking, after all, about less than $250 per year for each American. What is that? In per capita income terms, every American earns $40,000 each year. $250 is 6 and ½ per cent of that. I bet your health insurance costs that, or maybe your car insurance. And we are talking here about insuring your quality of life and ability to have in a modern economy.

We’re talking about 75 cents per day. That’s one-half of a small – I’m sorry, tall – Starbucks. Or three cigarettes. Or a newspaper. Or a pack of gum . . . a small pack. Each day. Too much?

We have spent one hundred billion dollars or more each year since 2003 on the war in Iraq. Seems to me that is an awfully big investment to assure we still have access to Mid East oil. Is that a better investment than $70 billion each year to find independence from Mid East oil? What do you think?

If that is too much for us to invest in our future, then we do not deserve to maintain our society and our current life style. If we are so greedy and so selfish that we won’t spend this amount, then let the next species to dominate the world take over. Now. I think it might be the cockroach.

Do you want the cockroach to supplant mankind as the dominant species?

We could be wrong about the pending danger. What if we are wrong? What if global warming is a fallacy, a natural trend that reverses itself sometime in the next twenty years or so? Then we’ve just spent a lot of money on productive scientific research and maybe found some better energy sources. That’s okay, isn’t it?

But what if we’re right?

7. But Wait a Minute . . .

Some readers have objected to the perceived ‘unfairness’ of this proposal on two counts. First,
they complain that lower-income drivers, some of whom must drive by necessity, will be unable to pay the additional tax and will suffer degradation to their quality of life. A second objection is that this proposal places the entire burden of cleaning up our energy system on the backs of drivers; what about the dirty coal that generates much of our electricity? Should coal not also be taxed more in order to raise funds for the transition?

In response to the first point about low-income drivers, that is certainly a valid concern. And there are steps we can take to minimize the negative impact on these drivers. We could, for example, raise the standard deduction on Federal income tax by $1000 per year. At the low 15% tax rate, this would reduce taxes on the average person by $150 per year. This in turn would pay for the additional tax on 300 gallons of gas, or 7500 miles per year of driving at 25 miles per gallon. This would alleviate much, if not most, of the additional burden on these low-income drivers.

As far as the second point, I do not object to a similar tax increase on coal, or on any other similarly ‘dirty’ energy source, or on carbon in general. But there are several reasons to focus on driving. First, the 2007 Transportation Energy Data Book from the US Department of Energy points out that although only about 29% of US energy comes from petroleum, almost 68% of all oil used was for transportation. In addition, transportation is by far more dependent on oil as its energy source, at 96%, than any other major sector of the economy. And 60% of this oil is imported.

Thus, taxing motor fuels has several simultaneous benefits. It focuses on the most oil-intensive
section of the economy, which in turn is heavily dependent on imported sources. Encouraging a reducing in oil use will thus both help clean up the environment while increasing our nation’s energy independence. It affects nearly every American who drives – which is the vast majority of the population – and is thus an equitable policy. And finally, there are numerous immediate and short-term steps that individuals can take to minimize the impact on them. Plan your trips better. Drive less. Get in a car pool. Buy vehicles with better mileage. Switch to hybrids. Walk and bike more. Use public transportation. None of these are difficult or impossible; they just may be slightly inconvenient; about 75 cents per day of inconvenience.

8. Why Bother?

Why I am doing this? What motivates me personally?

It is to avoid ever having to live through a potentially miserable scene in my own life 20-25 years from now. I see myself talking to my grandchildren and trying to explain why I and my generation knew fully about the dangers of global warming and greenhouse gases and did nothing about it. This left a terrible legacy for them, including a poisoned planet, an economy in depression, and a much lower living standard for all. They will never be able to enjoy the lifestyle and materialism that we did back 20-25 years ago, because of the selfish choices that we made.

That is a conversation that I never want to have.