So I read page 2 (and no more) of the NYTimes story John pointed to this morning (John read page 1) and it raises an interesting economic puzzle for environmental advocates:
Simple economics suggests that if the nation is producing more energy, prices should be falling. But crude oil — and gasoline and diesel made from it — are global commodities whose prices are affected by factors around the world. Supply disruptions in Africa, the political standoff with Iran and rising demand from a recovering world economy all are contributing to the current spike in global oil prices, offsetting the impact of the increased domestic supply.
But the domestic trends are unmistakable. Not only has the United States reduced oil imports from members of the Organization of the Petroleum Exporting Countries by more than 20 percent in the last three years, it has become a net exporter of refined petroleum products like gasoline for the first time since the Truman presidency. The natural gas industry, which less than a decade ago feared running out of domestic gas, is suddenly dealing with a glut so vast that import facilities are applying for licenses to export gas to Europe and Asia.
...
This surge is hardly without consequences. Some areas of intense drilling activity, including northeastern Utah and central Wyoming, have experienced air quality problems. The drilling technique called hydraulic fracturing, or fracking, which uses highly pressurized water, sand and chemical lubricants that help force more oil and gas from rock formations, has also been blamed for wastewater problems. Wildlife experts also warn that expanded drilling is threatening habitats of rare or endangered species.
Greater energy independence is “a prize that has long been eyed by oil insiders and policy strategists that can bring many economic and national security benefits,” said Jay Hakes, a senior official at the Energy Department during the Clinton administration. “But we will have to work through the environmental issues, which are a definite challenge.”
The increased production of fossil fuels is a far cry from the energy plans President Obama articulated as a candidate in 2008. Then, he promoted policies to help combat global warming, including vast investments in renewable energy and a cap-and-trade system for carbon emissions that would have discouraged the use of fossil fuels.
More recently, with gasoline prices rising and another election looming, Mr. Obama has struck a different chord. He has opened new federal lands and waters to drilling, trumpeted increases in oil and gas production and de-emphasized the challenges of climate change. On Thursday, he said he supported expedited construction of the southern portion of the proposed Keystone XL oil pipeline from Canada.
Mr. Obama’s current policy has alarmed many environmental advocates who say he has failed to adequately address the environmental threats of expanded drilling and the use of fossil fuels. He also has not silenced critics, including Republicans and oil executives, who accuse him of preventing drilling on millions of acres off the Atlantic and Pacific Coasts and on federal land, unduly delaying the decision on the full Keystone project and diverting scarce federal resources to pie-in-the-sky alternative energy programs.
via www.nytimes.com
In the simple economics of a depletable resource, higher prices caused by increasing scarcity lead to exploration/drilling/technological advances that make higher cost deposits more economically attractive to deplete (as we are seeing now). As these newer deposits become more scarce, prices will rise further causing incentives to explore and deplete other harder to reach deposits. The cycle continues until we reach the point where exploitng more deposits is economically less attractive then switching to a relatively cheaper alternative form of energy, like nucular or wind or solar or coal or natural gas or walking.
So where's the conundrum?
It lies in the decrease in supply--or perhaps better put the lack of increase in supply--advocated by environmentalists. Environmentalists would like to prevent drilling in the hard to reach deposits as there is a high correlation between where these deposits are located and and the environmental sensititvity of the areas. If drilling is prevented in these areas, it makes existing deposits--in traditional areas--more attractive and will increase the extraction rate of those deposits, putting further/faster upward pressure on energy prices. In terms of a switch to alternative fuels, this is a good thing from an environmental perspective as it may speed up the switch to more environmentally friendly energy sources, but at the same time, the more rapid increase in the price makes drilling in the environmentally sensitive areas even more economically attractive, putting more pressure on politicians to allow drilling in the sensitive areas.
If environmentalists were successful in restriciting access to higher cost depositis, the timing of the price rise due to the environmental restriction and the pace of technological innovation in renewable fuel industries would be critical. If the price rises rapidly while alternative energy sources are still relatively expensive, the higher fuel costs could have significant detrimental effects on general economic productivity and ultimately quality of life.
So the question becomes, what is the value of environmental preservation relative to economic growth.
I'm sure you have a preference.
And it is probably different from mine.
And that is the conudrum.
