Testimony before the Senate Foreign Relations Committee March 30, 2006. Reprinted with the permission of the author.
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Open Access Article Originally Published: April 03, 2006
So, where does that leave us?
In 2003, as noted, we estimated that the "hidden cost" of imported oil totaled $304.9 billion. When we revisited the external costs, taking into account the higher prices for crude oil and increased defense expenditures we found that the "hidden cost" had skyrocketed to $779.5 billion in 2005. That would be equivalent to adding $4.10 to the price of a gallon of gasoline if amortized over the total volume of imports. For Persian Gulf imports, because of the enormous military costs associated with the region, the "hidden cost" was equal to adding $7.41 cents to the price of a gallon of gasoline. When the nominal cost is combined with this figure it yields a "true" cost of $9.53 per gallon, but that is just the start.
Because the price of crude oil is expected to remain the $60 range this year, expenditures for imports are expected to be at least $320 billion this year. That amounts to an increase of $70 billion in spending for foreign oil in just one year. That increase would raise the total import premium or "hidden cost" to $825.1 billion, or almost twice the President’s $419.3 billion defense budget request for fiscal year 2006. If all costs are amortized over the total volume of imports, that would be equivalent to adding $5.04 to the price of a gallon of gasoline. For Persian Gulf imports, the premium would be $8.35. This would bring the "real" price of a gallon of gasoline refined from Persian Gulf oil to $10.86. At these prices the "real" cost of filling up a family sedan is $217.20, and filling up a large SUV $325.80.
But, can anything be done about this enormous drain on our economy?
The answer to that question is yes.
Solving the Problem
The simple truth is that we do not suffer from a lack of energy resources. Rather, what we suffer from is a lack of the political will and public consensus to use them.
As Pogo said, "We have met the enemy and they is us."
What then can we do?
The first step is to recognize that we face a two-fold problem. The first part entails assuring adequate fuel supplies for the 220 million privately owned vehicles on the road today. These vehicles have an average lifespan of 16.8 years and the average age of our vehicle fleet is 8.5 years. Therefore we will require conventional fuels or their analogs for at least a decade, even if every new vehicle produced from this day forth runs on some alternative.
The second part of the problem is how to affect a transition to alternatives to conventional petroleum. This transition will take much longer than a decade – perhaps a generation or more – but the longer we delay beginning to make the change, the longer it will take to accomplish.
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7 comments so far...
08-Apr-2006
17426
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The value of this article is to underline the dangers in dependence on foreign oil supplies, especially those from unfriendly or unstable countries. It shows the insupportable burden petrol consumption is putting on us economically, and the compulsion it places on us to secure petroleum supplies by military entanglements. It shows the future pressures on the US as China and India "gas up".
The story also mentions the tremendous amount of fossil fuel in the form of methane hydrates, or clathrates, in deposits near our coastlines. The problem is, as stated in a comment above, that this does nothing to wean us from our dependence on polluting, global warming fossil hydrocarbons. We must decrease our energy WASTE by using more efficient housing, factories and transportation means. We must supply our nation with energy from non-polluting, renewable, carbon neutral sources. External costs have to be paid, and we are lying to ourselves if we think we can have cheap $3.00/gallon gasoline, when we are burning $12.00/gallon gasoline in reality. The cost should be paid at the pump, not at the tax return. If (WHEN) gasoline costs $12.00/gallon, not only will hybrids make economic sense, but wind, solar and ocean thermal energy will be so appealing that they will happen.
Posted by: Richard Easton
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04-Apr-2006
16797
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Milt didn't seem to include reneqwable energy or efficiency. He also thinks Uranium is good which is nuclear that has been a disaster in cost over runs , safety, decommissioning, insurance and disposal of all the tons we already have.
Maybe he just needs a few more pages to really get into an answer without more problems. Solar, Wind and Hydro are our best sources of power. Efficiency is the only smart thing to do in every area.
At least he mentioned hybrids and plugin hybrids. He just needs to ride in a new EV to understand the ultimate vehicles.
Posted by: Jim Stack
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04-Apr-2006
16828
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Why do you not mention straight EVs? Why are there only hybrids? I think GM used to make an electric vehicle but they took it off the market.
Posted by: Paul LeRoux
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04-Apr-2006
16836
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GM's EV was the EV1. Honda had the EVPlus, Toyota had the RAV4EV, and Ford had the Ranger EV. All gone. Sad.
Posted by: Sledge _
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04-Apr-2006
16858
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Milton indicates we should use our 1,430 trillion cubic feet of domestic gas reserves. According to the EIA, the US has proved reserves of around 200 trillion cubic feet. In general, production of natural gas in the US has been declining since its peak in the early 70's, even though we are drilling more natural gas wells than ever before. The tripling of natural gas prices over the last few years underscores the existing supply and demand gap (and the shutdown of many petrochemical plants which used NG as a feedstock --- we now have to import a large portion of NG based agricultural fertilizers) Also, we are moving forward with many LNG projects to overcome expected shortfalls in meeting basic domestic gas demand. Looks like we need to conserve our natural gas to even meet existing usage. Wonder where he got the big reserves number?
Posted by: bud rice
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04-Apr-2006
16861
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I think he should have said "Making" instead of "Design". The impulse to alliterate betrayed him.
Oil mostly fuels transportation these days. We will not run out of electricity if the oil imports end tomorrow. Instead, we will run out of food. We need substitutes with comparable energy densities.
Posted by: Bob W
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04-Apr-2006
16943
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There are four elements to the problems posed by the over-use of fossil fuels in general and oil in particular. 1) Financial, 2) security, 3) Health, and 4) global warming.
The author says a lot of things to illustrate the financial and security problems, which are very compelling. But his proposed solutions are doomed to be short term and disappointing to our children (and probably even to us). Most of all, his solutions do not address the last two elements of the problem, and they must to be of real value.
This kind of stuff is the same old resource exploitation and consumption thinking. He might have as well said "Only if you can dig it up and hold it in your hand, it's worth something."
If and when the miracle occurs that we as a society simply stride forward and take advantage of the renewable energy bonanza staring us in the face we will look back on this era with the same bemusement as we did of "a time before the invention of the airplane", or electricity, or indeed, the automobile. Our energy future is that much better than the one we have, if we will only act upon the potential.
Posted by: Kevin Hill
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