At Witz' End - Gas Prices - What To Do, What To Do?

Left: "We can't drill our way out of this!"
Right: "We can't conserve our way out of this!"
Chorus: "We must innovate our way out of this!"

(Maybe, but how long will that take? What will it cost? Who will pay?)

Democrats: "Big Oil's fault! Confiscate their profits!"
Republicans: "Environmentalists' fault! Drill here, drill now, pay less!"
Chorus: "Speculators' fault! Pass a law!"

(So, investing in things -- stocks, bonds, collector cars, commodities such as oil -- that may, or may not, increase in value in the future should be illegal?)

The price of just about anything is mostly about supply and demand. This is Rule #1 of Economics 101 -- which they made me take, along with English, history and a few other useful things, in engineering school:
  1. Demand goes up, supply doesn't: price goes up
  2. Demand goes down, supply doesn't: price goes down
  3. Supply goes up, demand doesn't: price goes down
Oil will bring whatever buyers are willing to pay and sellers are willing to take, and buyers are willing to pay very dearly these days. Nearly all economic activity runs on oil, and it is extremely difficult for any society to reduce its usage without cheap and plentiful alternatives.

Petroleum products are not just in transportation tanks; they are in almost all consumer products. Take off your jacket, check your watch, dial your phone, boot up your computer, plug in your iPod – these things and nearly everything else contain them as fundamental elements.

Most things consume oil as they are manufactured, and all things consume it as fuel in shipment to market. And so, as we have been learning all too painfully lately, as the price of oil goes up, the price of everything follows in the same direction. So, given that the price of oil depends mostly on supply and demand, what can we do to drag it back down? Reduce demand? Increase supply? Yes, and yes! Anyone who thinks we can make enough difference by working just one end of that equation is wishfully thinking.

Continue reading after the jump.

Reducing demand

Accelerating both conservation and development of alternatives will reduce demand. Conservation is mostly up to us, and we can accelerate now by turning down our thermostats, unloading our vehicles (fuel economy is mostly about weight and aero drag) and driving them more gently (egg under the pedal) and more slowly (energy = speed2). We can also trade them in for more fuel-efficient ones. But don't make the common mistake of treating fuel economy as your only priority – you'll be investing a lot in that new little car, and living with it for a long time.

Actually, America - through increasing efficiency, conservation and growing use of alternatives - has already been doing a pretty good job of cutting back on petroleum usage despite our fast-growing population and a vehicle fleet that swells by some 10 million a year. So has Europe, Japan and most other developed countries. But the developing world has not.

Myriad other countries, beginning with such hugely populated ones as China and India, have been working hard to pull their people out of poverty by growing their economies, which by definition means growing their consumption of energy, especially oil. So, unfortunately, we Americans can conserve our proverbial brains out with little real impact on global demand.

And, where conservation and growing alternatives means moving toward more expensive energy sources (and most transportation-suitable ones are also more expensive) or reducing economic activity, how much more can our economy take? How many more jobs can we afford to lose? These are questions I'll get to in the coming weeks. In my next column: which energy and transportation alternatives should America pursue? And how aggressively should we address the supply side of that supply/demand equation?

In future columns, we'll explore the pros and cons of battery EVs, hybrids, fuel cells and much more and revisit such emotional subjects as global warming and the competitiveness of domestic vehicles and U.S. automakers. Some of you skewered me (but not my facts) severely for my (fact-based) opinions on those subjects last time; yet some of you (surprisingly) agreed. We'll keep the discussion going.

I'll present more facts, data and opinions for your consideration, and I'll respond to your specific points down the road. I'll also keep in mind what a few of you reminded me in no uncertain terms: whenever my opinions differ from yours, I must be a moron.

Until then, be well, and stay green!

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