Friday, March 11, 2005

Oil and Energy Policy, baby!

Larry Kudlow, the CNBC commentator and faithful supply-sider, has a great post over on his blog, Kudlow's Money Politics, explaining why oil is at $55 a barrel and the direction of U.S. energy policy, a topic that cannot be ignored when discussing U.S. national security.

On oil prices:

"Clearly today’s episode is demand-driven, quite unlike the supply shocks of twenty-five years ago. Then, OPEC was withholding oil because of their disagreement with the US policy tilt in favor of Israel.

"Today oil is flowing, but at much higher prices. To a certain extent, we owe this to a favorable development: the global spread of market capitalism in emerging economies such as China, India, and Eastern Europe. At the margin, their increasing oil demands have undoubtedly boosted the price.


"Fortunately, the US economy is much less susceptible nowadays to the tax hike impact of higher oil prices. Numerous studies have shown that greater efficiencies in oil and energy usage have lowered our vulnerability to energy shocks by roughly 50% in relation to twenty-five years ago. Rather than a bad dose of stagflation, today’s economy is quite healthy. Ultimately, the answer to high oil prices is a lot more production. Not just oil production, but gas, liquid gas, clean coal, and nuclear power are all substitutes for oil. At $55 a barrel oil, these substitutes become increasingly attractive." [my emphasis added]

I emphasize the development of "greater efficiencies in oil and energy usage" to make a simple point. The innovation of new technologies that help reduce the environmental costs that come with the huge levels of oil and energy consumption in the United States is directly corollated with our "lowered vulnerability to energy shocks" relative to 25 years ago. This is free market environmentalism. If you want to seriously cut back on pollution and unhealthy energy emissions, the effort should be directed toward developing and sharing better technologies. This is where the Kyoto Pact, which went into effect in the world over last month, is severely flawed. Instead of blaming "climate change" and other over-hyped environmental concerns on American production/consumption, take a better look at the levels of pollution coming from those emerging industrial powers, such as India, China, and Russia, and ask what they're doing to fix the problem.

As Dr. Robert Balling writes at

"With the Kyoto Protocol, greenhouse gas concentrations will double this century. With no Kyoto, greenhouse gas concentrations will double this century, and the time of doubling has almost nothing to do with Kyoto and everything to do with economic development in China, India, Russia, and elsewhere."

This is a similar point Kudlow made above about the rising oil prices and increased demand in these countries.

So what direction is U.S. energy policy headed? Kudlow writes:

"Meanwhile, new Energy Secretary Sam Bodman, has been put in place to implement Bush policies for greater nuclear energy use (along with clean coal, a free trade national electricity grid, and foreign coordination of liquid natural gas). Mr. Bodman is a former chemical engineering scientist who taught at MIT. He was also a venture capitalist. Even more, he was the chief operating officer of the super-sized Fidelity mutual fund company. This is a guy who will quietly manage the US effort to break out of the current OPEC-reliant paradigm and shift to the development of a multiplicity of new energy sources. The Excelon utility company has just gotten an early site permit for nuclear power, and Duke Power has nearly completed its combined operating license permit, including a pre-approved reactor design."

Let's hope Sec. Bodman takes care of business.


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