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Con: Higher prices prod consumers toward green energies of the future

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Michael E. Kraft
February 2, 2012
EDITOR’S NOTE: The writer is addressing the question, “Should the U.S. remove restrictions on domestic oil drilling?”

Gasoline prices rose sharply in 2008 and again in 2011, largely as a consequence of rising global demand and limited supply.


People’s reactions were mixed. Some called for immediate relief in the form of gas tax rebates or increased oil drilling, both onshore and offshore. Others welcomed higher gas prices because they motivate auto companies to design and market more fuel-efficient vehicles, and consumers to buy them.


Even with gas prices now lower than their peak last year, what should the federal government do?


The oil companies and their supporters want the Obama administration to remove some or all of the remaining restrictions on onshore and offshore oil drilling. Doing so should lead to more domestically produced oil and possibly lower prices, but the connection is not that simple.


Many of the same people also have pressed for a quick decision to allow construction of the Keystone XL pipeline to bring Canadian tar sands oil to refineries in Texas. The administration says such a decision cannot be rushed because studies of the pipeline’s environmental impacts will take longer.


But will increased oil drilling or importation of tar sands oil from Canada help consumers by reducing the price of gasoline? And should keeping gas prices low be the main objective of federal policy? I believe the answer in both cases is no.


Experts at the Department of Energy have stated repeatedly over the last few years that increased domestic oil drilling will have no effect on gas prices in the short term and will reduce gas prices by only a few pennies a gallon by 2030.


This is because ramping up production takes time, and also because the U.S. uses too much oil for increased production to make more than a small dent in what we now import.


Higher levels of production, of course, means increased risks of oil spills, as we learned from the catastrophic BP spill in 2010. In addition, importing more Canadian tar sands oil is unlikely to lower gas prices in part because much of it is likely to be shipped abroad.


The U.S. uses about 20 percent of the world’s oil production and we have 2 percent to 3 percent of its proven oil reserves. So even with a strong push for more drilling offshore, onshore, and in Alaska, the reality is that the United States cannot drill its way to domestic oil abundance and lower gas prices. We will still need to import at least half of the oil we use from other nations, and that means that gas prices will reflect global demand and supply.


Without a lot of fanfare, the administration has done something far more likely to help consumers than removing restrictions on oil drilling.


That is its historic agreement with auto companies in 2009 and again in 2011 to raise fuel efficiency standards to 34.5 miles per gallon by 2016 and to 54.5 miles per gallon by 2025.


We are seeing the results already, with great leaps in fuel economy in the 2012 models, and much more to come as the recent Detroit Auto Show demonstrated. A new Ford Fusion plug-in hybrid, for example, is expected to get the equivalent of 100 miles per gallon.


By sipping gasoline more efficiently, U.S. demand for imported oil should drop, but even so this will not likely have much impact on gasoline prices. Rising global demand for gasoline in India, China, and other rapidly developing nations will easily overwhelm reduced consumption here.


So we may as well get used to higher gasoline prices. We can limit their economic impact, however, by buying more efficient vehicles and driving only as much as necessary. We also can support a necessary transition over time to renewable energy sources to power our vehicles.


Michael E. Kraft is a professor of environmental studies at UW-Green Bay. Readers may write to him at 2420 Nicolet Drive, MAC B310, Green Bay, WI 54311; email: kraftm@uwgb.edu.

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