Five Steps to Solving the Energy Crisis

The high cost of oil, and its effects on the economy have contributed to energy becoming the number one issue of this election. The high price has had an impact on everything from food prices to the health of the airline industry, and is clearly becoming a major restraint on economic growth. Most people have correctly identified at least one party of the problem, but few, if any, have put forward proposals to combat all factors. While the Democrats have [correctly] pointed to market speculators as a key reason, they have also been unwilling to act against the speculative market – at least not without throwing in a bill-killer like additional taxes on the oil companies. Republicans have been pushing for additional drilling and refining capacity, which will help to provide a reliable supply, but may not do much to lower the price if speculators choose to ignore the increase. Solving the energy crisis requires a complete strategy to lower oil prices, ensure a steady and cheap supply of oil, and eventually transition to a cheaper, more local energy source. To accomplish this, the Federal government needs to adopt a five step plan:

Step One – Open the SPRs: America Strategic Petroleum Reserves are virtually full, holding over 700 million barrels of oil. Despite the lack of any shortage of oil on the global market, one of the things supposedly driving up the cost is uncertainty over the the reliability of supplies from certain areas, particularly Nigeria. By promising to cover for any shortage on the market caused by a supply disruption, and by getting other countries to agree to do the same (other nations, including Japan, also maintain large reserves), we could eliminate one of the biggest factors – fear of a shortage – from driving up prices.

Step two – drill:In addition to promising to cover for any shortage caused by a supply disruption, we also need to increase the actual supply. This includes drilling in North Dakota, using the tar sands and the oil shale, and drilling off the U.S. coast and in ANWR. This could, once its fully developed, provide more than a million barrels of oil per day.

Step three – increase refining capacity: This is pretty simple. Even if we could double our oil production, it would do very little to lower prices unless it was actually refined into something useful, like gasoline.

Step four – limit speculative trading of oil: Tight supply aside, the biggest factor behind high oil prices is speculative trading of oil futures. While supply is a factor behind the speculation, much of it is simply people trying to make a buck by jumping into the newest market bubble – and I’m fine with that, except that their gain is slowing the economy, cramping the budgets of American consumers, driving up food prices, and putting people out of work. There was just testimony given on Capitol Hill that stated that, by limiting who, how, and how much can be traded in the oil markets, the price per bbl could drop by 50%, which, in turn, could drop gas to near the $2 level.

In the long term, we need to find a better way to set the price of oil, perhaps by allowing OPEC to set the price (as they did in the past), or by permitting the oil companies to charge what they want, by factoring in taxes, cost of production, etc. There are also other options, though they could be more complicated than either of the things I just mentioned.

Step five – find a cheap alternative: Oil is a limited resource – though not nearly as limited as the Democrats claim. At some point in the future, there is going to be a need for an alternative energy source. The requirements should be that it is cheap, efficient, and easy to transport and produce (on U.S. soil). There are several potential sources, though the most promising is probably biofuels, because there are several things that petroleum is used for that can’t be accomplished with hydrogen or electricity. Corn, unfortunately, has not shown itself to be a very good option, though other sources, including sugar cane and algae, though it still has a long way to go before it can be used as an effective alternative.

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