Why soaring oil prices are good for America

February 06, 2006|By STEVE A. YETIV

From Wall Street to Main Street, people hate high oil prices because they cause economic pain. But like coffee, red wine and maybe even chocolate, high oil prices can do some good, too.

Current energy law, which was passed by Congress and signed by President Bush in August, moved America in the right direction, but it has a core weakness. This law, like Mr. Bush's vision of oil independence spelled out in his State of the Union speech, fails to do what higher oil prices can accomplish: Decrease oil consumption in the transportation sector, where 70 percent of oil is used, and diminish our dependence on foreign oil.

The law and the presidential vision encourage the use of power sources such as nuclear, coal, solar and wind. But with the potential partial exception of solar power, they can't run vehicles. Astonishingly, less than one-eighth of that $14.6 billion in energy legislation actually decreased oil use in transportation.

What can high oil prices do that America's energy policy fails to do?

First, sooner or later, high oil prices will spur the development of alternative energy resources because they make it more profitable to produce them. The higher prices go, the more entrepreneurs and companies worldwide work to move us beyond the hazardous petroleum era.

Second, the higher the prices, the more likely automakers will produce more-efficient, less-pricey vehicles. That is precisely what we need to shift the current oil-guzzling paradigm.

A joint report by the Transportation Research Institute's Office for the Study of Automotive Transportation at the University of Michigan and the Natural Resources Defense Council shows that higher oil prices will hurt America's top automakers by decreasing sales of SUVs and pickup trucks. The report calls on them to make fuel-efficient vehicles their top priority to better the country and their bottom line.

Most automakers are experimenting with fuel-cell vehicles that run on hydrogen rather than oil. They are also selling hybrid vehicles that operate on both an internal combustion engine and an electric motor. Depending on the vehicle, these vehicles yield 10 percent to 50 percent better gas mileage than regular vehicles and far better mileage than the ubiquitous SUV.

But hybrids represent a market minority because automakers so far have made their profits by producing less-efficient vehicles. And fuel-cell vehicles aren't expected to reach the market until 2010. High oil prices are an incentive for making efficient vehicles on a mass, affordable scale - sooner rather than later.

Third, high oil prices make consumers less likely to waste gas and more likely to buy hybrids. In Europe, high gas prices - roughly double those in the United States - have led to mass adoption of hybrids. The investment banking firm Goldman Sachs predicts that gas prices would have to hit $4.30 a gallon in the United States to change the gas-guzzling culture. But it is better to see the impact as relative to price.

Fourth, high oil prices benefit the environment. Indeed, one study has shown that a broad energy tax on carbon content in fuels would reduce oil use and carbon emissions by over 10 percent. Vehicles that run on fuel cells emit only water and heat as waste, and hybrids emit less pollution than conventional vehicles. Because carbon emissions cause global warming, we should tip our hats to high oil prices, in this respect.

Fifth, high oil prices are raising consciousness about the hazards of the oil era. A significant number of Americans believe that oil dependence is a serious problem. Although they still act as if oil were an entitlement, pricey oil might lead Americans eventually to put pressure on politicians to move toward greater oil independence, as reflected, perhaps, in Mr. Bush's speech.

Of course, higher oil prices are painful. But over time, they can serve the environment and decrease our dependence on Middle East oil - especially from countries such as Iran, which uses oil money to build nuclear capability - and force us to take actions that make us less vulnerable when oil starts to dwindle.

We shouldn't have to rely on high oil prices to wean us off the oil habit. Taxes can do that.

If Mr. Bush wants oil independence, his useful vision for the future must include taxes on oil consumption (we can use the money to pay down the national debt while offering tax relief to poor people who are disproportionately affected).

Such taxes would enrich Uncle Sam rather than dictators, mullahs and monarchs.

Steve A. Yetiv is a professor of political science and international studies at Old Dominion University in Virginia. His e-mail is syetiv@odu.edu.

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