We have a set of goods that we define as strategic and we are willing to pay more to ensure that we have access to them in case of war. There is, in my view, nothing of more strategic importance than energy, but we rely on enemies and nations of dubious friendship for one of our most critical energy sources. Russia and Saudi Arabia are two of the largest producers of crude oil. They are both run by despots. We see the fragility of the supply chain now. We are even reaching out to Venezuela out of desperation to drive down the price of oil. Instead of panicking, we should be utilizing public sentiment to push forward sensible long-term reform and taking targeted action to relieve demand pressure.
The price rises will not be stemmed by new drilling right now. It is far too late for that. Ramping up a well takes six months to a year minimally and deep-sea wells can take multiple years. We have two problems to solve, then: the immediate problem of a shortage and the longer-term problem of reliance on complex supply chains for our energy needs.
The short term, while painful, is rather simple. Bottom line: demand needs to be tamped down. Price is the best mechanism for that. We have insufficient supply to cover the resurgent demand after years of pandemic-related dampened travel. Higher prices are cutting into the demand already, but the most effective solution would be to slap a temporary federal tax on fuel. This is, unfortunately, a regressive tax, so we’d need to offset that somehow as well.
The simplest solution would be to include a booster for the earned income tax credit payable monthly to people who are projected to receive EITC money (monthly, because they can’t afford to wait on a tax return). We’d have to expand eligibility a little bit as well, but not significantly. Most higher-income folks have the option of working remotely now and those that don’t also aren’t spending a very high percentage of their budget on gasoline.
The long term is multifaceted. Existing infrastructure promotes the burning of fossil fuels, which are both damaging to the environment and rely on the supply chain that currently snakes across the globe. About 1.5 billion internal combustion engine vehicles blanket the earth. Almost 275 million of them are in the US. Given the investment they represent, they won’t be going away any time soon. Battery electric vehicles, while promising in some ways, do not give us a magic wand to take ICE vehicles off the road. In many cases, BEV production is just as damaging as the lifetime of an ICE vehicle because of the strip mining used for some of the rare earth metals used in large quantities on BEVs.
The difficulty of this problem should not weigh us down with defeatism; instead, we must recognize the full extent of what must be done if we wish to truly strive for greatness. Burying our heads in the sand, whether in denial of climate change or of the difficulty and cost of solving the crisis, solves nothing. Accepting the facts on the ground narrows our focus. It is through constraints that the most brilliant ideas spring forth.
There are many, many solutions to the numerous problems presented by climate change. Scientists all over the world are trying to figure them out. If we are careful, many of them will surface and their mutual existence will drive down prices and emissions through competition. The key is supporting nascent markets. Carbon pricing will be necessary. We will have to pay for results, not for methods. Grants and loans are great, but they need to be applied in ways that do not crowd out other solutions. The outcome we want is abundant energy with low emissions. Let’s start there and let the market sort out the rest.