Friday, May 12, 2006

Brookings Institute: An Improbable Cure for Oil Addiction...

The Brooking's Institute has just released a report in which they are advocating for a preset floor on the price of oil in order to allow the US to establish a long term strategy, safe from OPEC price fixing tactics, to achieve energy independence from the noose of middle eastern oil.

Such a "floor price" would be set at about the same price the most promising renewable fuels become economically viable. Not only would this increase investment activity in renewables, but it would prevent OPEC from short term price reductions aimed at killing off alternative fuel growth.

From the Brookings report:

If consumers and industry knew that the price of a barrel of oil would never again fall below $60 per barrel – the level around which US-produced corn-based ethanol fuel becomes economically viable – they could make long-term investment and consumption decisions in a way that makes little economic sense so long as price stability is not guaranteed. Americans will not take long-term decisions to buy fuel-efficient automobiles, create distribution networks for alternative fuels, or invest in technologies like hydrogen fuel cells, flex-fuel vehicles or wind power unless they know that a future sharp fall in oil prices will not undercut them.

The article goes on to make the connection that almost all countries who rely on a single source of export reflect autocratic governments who subjugate their people for the benefit of those in power:

Perversely, our oil dependence is not only bad for us, it is bad for the oil exporters themselves. Countless studies have shown the relationship between rentier economies that live off a single natural resource export and the tendency toward undemocratic rule. It is not a coincidence that many of the world's big oil exporters – Saudi Arabia, Iran, Iraq, Russia, Nigeria, Venezuela – are authoritarian regimes or worse.

Perhaps most importantly, our failure to move decisively away from a dependence on oil and the subsequent high oil prices that failure produces means that we are funding both sides in the war on terror. Many of the extra dollars we spend on energy goes to countries such as Saudi Arabia, which funds the Madrassas that teach extremist Islam in Pakistan, and Iran, which finances Hezbollah. Even friendly Qatar is giving $50m out of the oil revenues it received from us to Hamas.