The Up-Side to High Oil Prices: It’s a Downer for Globalization

August 16, 2008

This article appeared a few days ago, but thought it was worth a look.  It’s the first analysis I’ve seen of the effects of high oil prices on trade.  I raised this issue a while back when I posted “U.S. Imposes Tariff on Chinese Hangers“, and questioned this very thing – whether it makes sense to consume millions of barrels of oil to ship products around the world that can be made right here at home.  It seems that if we want to cut oil consumption, this is some really low-hanging fruit!

I found the following excerpts particularly revealing:

“Globalization is reversible,” says Jeff Rubin, an analyst at CIBC World Markets in Toronto.

Well, maybe. No one predicts a wholesale return of manufacturing jobs to the United States. And there are other forces at work, including a weak dollar, which boosts exporters. But today’s oil prices act like a tariff on global commerce, discouraging long-distance shipment of some components and finished goods, Rubin says. Shipping a standard 40-foot container from Shanghai to the U.S. East Coast in May cost about $8,000, vs. $3,000 eight years ago, when oil was around $20 a barrel.

If long-term trends push oil prices near $200, as some analysts expect, sending that shipping container halfway around the world would cost a staggering $15,000.

First of all, of course globalization is reversible.  If the U.S. ever admits that it was a mistake to abandon its highly successful tariff policy in favor of an untested and fatally flawed free trade theory, then the reimposition of tariffs would reverse the adverse effects of globalization so quickly that factory managers in overpopulated nations around the world would be closing the doors and wondering what the heck happened!

Secondly, isn’t the second paragraph above a tacit admission that tariffs would breathe new life into America’s economy?  If so, then what are we waiting for?  Let’s impose them now and collect the tariff money ourselves instead of letting the oil exporters collect them!

So perhaps there’s an upside to high oil prices.  Maybe they will do for the American economy what our political and economic leaders don’t seem to have the courage or brains to do themselves!

Congressman Rogers’ Energy Independence Plan

August 8, 2008

By pure coincidence, as I was replying to comments on Offshore Drilling:  Do We Need It?  How Much?, the mail man arrived with a flyer from my congressman, Mike Rogers, touting “Mike’s Energy Independence Plan.”  The stated objective of the plan is to achieve energy independence by July 5, 2015.  The following is a copy of the flyer.  (Click the image to view it more clearly.)

First of all, let’s give Congressman Rogers’ credit for recognizing that achieving energy independence should be a high priority.  There’s some good stuff here.  Congressman Rogers has also been strongly opposed to any immigration “reform” that smacks of amnesty. 

However, this plan falls woefully short of achieving energy independence (which he seems to define as eliminating our dependence on foreign oil) by 2015.  Even the draconian measures I proposed in the above-mentioned previous post would be lucky to achieve such a goal by 2050.  By comparison, Mike’s plan is extremely timid.  Overall, each point in the plan seems more designed to pander to Michigan voters than to make a serious attempt at breaking our dependence on foreign oil. 

Let’s analyze the plan.  We currently import about 13 million barrels of oil per day.  Since Mike’s plan contains no provision for reining in population growth, then we have to assume that the population will continue to grow at its current rate of about 1% per year.  By 2015, this will add 22 million more oil consumers, adding about one million barrels per day to our imports.

Mike proposes:

  1. Increase production of American energy.  This will add nothing by 2015 since all experts agree it would be at least ten years before new offshore oil fields or even oil fields in ANWAR could begin production.  And at best, their yield would be more like 1.5 million barrels per day, not 3 million, and that’s assuming that offshore fields on the east and west coasts as well as a field in ANWAR each yielded as much as the Gulf of Mexico.  (By the way, I’ll hold my nose and agree to drilling off-shore, but remain opposed to drilling in ANWAR (Arctic National Wildlife Refuge).  We’ve compromised away as much of the environment as we can afford. 
  2. Loan guarantees for green technology.  He’s assuming we can reduce oil consumption by 2 million barrels per day through improved automotive technology.  That’s about 10%.  Sounds reasonable.  Let’s give him that one.
  3. Research into tomorrow’s fuels.  We certainly need to do it, but it’s not as though no research is underway.  We’ve been researching nuclear fusion for decades (with little to show for it).  Fuel cell research is well advanced and may appear in cars in a few years but, guess what?  Guess where the hydrogen will come from.  Few people realize that it will be stripped from the carbon chains that make up oil and natural gas.  So it won’t do anything toward reducing oil consumption.  I’m afraid we can’t bank any oil reductions by 2015 from this step.  This is a step to appeal to the Michigan universities.
  4. Tax credits for the purchase of clean, new cars.  This would be taking credit again for step 2.  Sorry.  No additional oil reductions here.  Tax credits may help to get these cars on the road faster, but we’ve already taken credit for that.  Again, this is a step to appeal to Michigan auto-workers.
  5. Switch military jet fuel to run on coal-to-liquid.  Fine, but the oil reduction would be miniscule.  Too small to count.
  6. Intelligent Transportation Systems technology.  He seems to be saying we can find ways to make traffic flow more smoothly.  Highly doubtful.  With 22 million more Americans on the roads by 2015, traffic congestion can only get worse, not better.  No oil savings here.
  7. Promote wind, solar and nuclear energy.  Yes, we definitely need to do this but, since most electricity is generated by burning coal, it will do little to reduce oil consumption.  It will go a long way toward reducing our carbon emissions by eliminating the burning of coal, but won’t do much to stop the burning of oil. 

All told, there’s only about 2 million barrels per day of reductions here, compared to the 14 billion barrels per day that we’d otherwise be importing by 2015.  Nice try, Congressman, but much more is needed.  Even to achieve energy independence by 2050 we need dramatic action to:

  1. Eliminate illegal immigration and reduce legal immigration by 95%.
  2. Implement a population plan that will reduce the birth rate sufficiently to reduce the population by 0.5% per year.  We need to reduce our population to less than 250 million by 2050.
  3. Reduce the per capita consumption of oil by at least 3.6% per year.  This may mean forcing the cuts by rationing, forcing people to change their life styles.
  4. Increase domestic oil production with offshore drilling, as you’ve proposed. 

Again, I give Congressman Rogers credit but he clearly doesn’t have an appreciation of just how very difficult it will be to achieve energy independence with more drastic measures, including reducing our population. 

By the way, I’ve challenged him on the population issue and the response was predictable.  He sees the people of Michigan as a valuable resource in finding ways to solve our problems.  Whenever I hear this response (it’s the same response used by all pro-growth folks), I think my head will explode!  Perhaps only when every Michigander is telling him the same thing:  “We need to address overpopulation!”, will he realize that maybe his “resource” has already, in fact, come up with the solution!