Cheap Energy is Our Birthright

As the sickening tragedy of the BP oil spill in the Gulf of Mexico plays out inexorably day after day, shutting down working waterfronts, encircling and choking island communities and poisoning fish, shellfish and wildlife across four states sharing that Gulf, it is worth taking a moment to reflect on what this national disaster means for the Gulf of Maine and the three states—and two Canadian provinces—that share our Gulf. The first lesson is a reflection on a course not taken. More than 30 years ago, a couple of lawyers in a tiny organization called the Conservation Law Foundation made common cause with Gloucester fishing organizations, and filed a lawsuit against the august power of the United States government to halt the leasing of offshore oil drilling rights on Georges Bank. The argument was simple: The potential benefit of oil from Georges was small in comparison to its value as a fishing ground—the risks simply far outweighed the rewards. Fishermen and environmentalists ultimately won a landmark agreement that imposed a moratorium on offshore oil leases on Georges and in the Gulf of Maine—an act that looks truly farsighted today.

Although the Gulf of Mexico is almost three times the size of the Gulf of Maine—88,000 square miles vs. 34,000 square miles—our second lesson is a reminder that ocean currents do not respect political boundaries. What goes around comes around. A bait shop owner on a Florida Panhandle beach dependent on tourism hardly feels like he is in the backyard of one of Louisiana’s 4,000 offshore oil rigs, but he learned, too late, that he is. The currents in the Gulf of Mexico are sluggish in comparison with those in the Gulf of Maine—taking a month and a half to drift eastward from Louisiana to Florida. But the same effect obtains here—pollution that occurs in one part of our Gulf can cycle far down current. Red tides are spread on ocean currents. Likewise, the lobster eggs and larvae that are released in Canada or eastern Maine bring bounty to Penobscot Bay and the western Gulf of Maine. Our oceanic fates are deeply interconnected, even though our political structures are ill-equipped to recognize, let alone act, on this fundamental reality.

A third lesson regards pricing of energy. The first time I drove out West with my parents on a family vacation, I remember seeing gas stations in Texas and the Midwest advertising gas for 19 cents a gallon—we were paying closer to 30 cents back East. Wow! We could traverse the endless open spaces of the West in our Desoto station wagon with its big fins and vertical taillights at six miles to the gallon and experience the American Dream like the wagon train homesteaders of yore, but without the pain and hardship. It was like our birthright. Who would not respond to a price signal like that?

A fourth lesson concerns thinking about where our energy will come from. All of us who bought gasoline recently at the relatively comfortable price of $2.83 a gallon benefit from having our energy come out of someone else’s backyard, like Louisiana’s. No one wants any energy source located in their own backyards—better they are in someone else’s backyard. Anyone else’s, really. Part of the debate over the future of alternative energy in Maine is whether it makes sense to wait for the day when new technology will enable us to generate all the energy we need offshore—out of sight, out of mind—although admittedly in the backyards of an indeterminate number of fishermen.

Energy Secretary Steven Chu, in his recent visit to the University of Maine, pointed out that the best way to unleash American innovation in alternative energy is to send a signal to the market that the nation’s energy policy requires that the price of oil reflect all its externalities—including its costs to our air and oceans. He said that a wave of technical innovation could be achieved even if we simply signaled the adoption of such a pricing policy a decade hence; the market would respond. Of course, this is political suicide, so that is unlikely to happen. Cheap energy is our birthright, right?

A related lesson is about peak oil. The peak oil hypothesis, which no one can seriously dispute, is that oil as a “fossil” fuel is inherently limited and that one day the world will reach a point where half of the world’s recoverable oil reserves will have been tapped. Note that we are only talking about the first half of the total recoverable supply—there is still plenty of oil left, but it is in places that become harder and harder to extract. For example, the deep ocean in Mississippi Canyon in the Gulf of Mexico and places like Greenland and the Arctic and Antarctic oceans. (At least the ice is melting!)

After peak oil, whenever that is, the economics of oil will fundamentally change quite dramatically. The era of cheap oil ends with the recognition that oil can only become more and more expensive to find and to pump—not that there will be no more big oil discoveries, just fewer of them and not enough to offset the aging of old oil fields, where production inexorably declines. Analysts quibble whether we have already reached peak oil or are still approaching it. But anyone watching the nightly news can see that the technology required to drill for oil has already become vastly more sophisticated and production in the deep Gulf is already vastly more expensive. Short of catastrophic economic collapse, which western economies barely averted recently, anyone who seriously believes that we will see $40-a-barrel oil again for a sustained period of time is living in a lovely dream world, but a temporary one.

In terms of the price of oil, the market will achieve what we cannot with a thoughtful national policy, although the market’s reckoning will ultimately be swift and brutal.

June 18, 2010