Caution: Oil Rising | Green Energy News

May 26, 2009 – Vol.14 No.10

CAUTION: RISING OIL PRICE THREATENS RECOVERY.
by Bruce Mulliken, Green Energy News

No, the Great Recession of 2008 - 2009 isn’t over yet. In the U.S. home prices are still falling and employers are still firing at a greater rate than they’re hiring. The problem is global. When Americans stop spending the world stops working, it seems.

It seems possible that global economies, including the U.S., could keep slipping away until everyone lives at a level of subsistence where people spend money on only what they need – such as food, energy, health and shelter – and the only people working, outside of government, are those in basic necessity industries.

Let’s sincerely hope it doesn’t get to that.

In the past we’ve pulled out of recessions by the next big thing that came along. World War II was a big thing that brought us finally out of the Great Depression. But we slipped back into recession almost immediately after the war until the Cold War started up, then things got going again. The Vietnam War and the space race helped push the U.S. economy in the 60’s and 70’s. Military spending and the rise of personal computers helped us along in the 1980’s. We were saved in mid-1990’s by the Internet revolution and the rise of cell phones. And prior to the collapse of real estate and the current recession, spending on real estate and spending with money borrowed from overpriced real estate kept economies moving forward around the globe.

Right now we really need a new next big thing: Something so compelling, so good, that businesses and consumers won’t be able to resist the temptation to invest or to buy. Energy, and the consumption of it, is probably that next big thing, but the problem is that new energy technologies are disruptive, meaning the embedded energy, the status quo energy, needs to be shoved aside to be replaced with the new energy. The status quo doesn’t like that idea very much and will fight every attempt to be pushed into oblivion. Still, there are ways to do it.

Government can help push established energy away through mandate, regulation, and direct spending on the new technologies. A national renewable portfolio standard would force utilities to install more renewable capacity. Regulation, such as the path just signed by the president to increase fuel economy in cars and trucks, will force automakers to build more efficient cars and use less oil. Less oil consumption in the U.S., which burns more per capita than anyone else, could inflict some pain on companies that provide it, but not that much anymore.

Other ways to replace the energy status quo are the discovery, development and commercialization of new technologies that are so much better and cheaper to operate than currently available technologies that the old technologies are simply made obsolete and sent out to pasture. If energy companies can be convinced that there is money to be made in new technologies, then this could be reason enough to pursue them. (Energy companies aren’t really wedded to any kind of fuel, by the way. They’re wedded to making money – lots of it. It’s the money, not the fuel, they care about.)

It looks like all of the above in bits and pieces are driving what growth there is in the new energy sector at the moment. But that growth is not fast enough to keep the economy from sliding further, particularly when oil is headed back up again. While the crash in the housing boom is blamed for the economic problems we have now, high oil prices a year ago may have helped push consumers into a financial abyss they weren’t able to escape from. Another price spike in oil, perhaps driven by continued economic growth in China, could be a setback for the U.S. and global economies in general.

Nouriel Roubini, the economist who predicted the current financial crisis, said recently that while the recession in the United States may well be over at the end of 2009, another dip is still possible in late 2010, thus creating a W-shaped, or double-dipped recession. Just as we are in the recovery stage from the current recession we could get slammed with another. A combination of rising oil prices, rising public debt and increases in real interest rates, rising concerns about inflation and the expiration of a number of tax cuts in the U.S., would be the cause of the downturn. Another dive in the economy would be Obama’s: he’d get the blame.

With this advanced warning, at least the energy component of a second dip could be avoided. The administration could make repeated efforts to convince consumers (like over and over and over) that oil is expected to rise and that energy conservation should be practiced now as a way to keep prices down. No one has the bully pulpit like the President of the United States: when the president speaks people listen whether they like him or not. Further, if the people aren’t listening directly the media is. The media is the best advertiser the president can get. It can repeat the “conserve now” message.

The administration can also do whatever it can to urge automakers to get high technology vehicles such as hybrids, plug-ins, even clean diesels into the market as quickly as possible. The automakers – all of them, including foreign manufacturers – now know the effect of high oil prices on sales. Auto sales aren’t completely dead; some people are buying new cars and trucks. They should be buying vehicles for tomorrow’s gas prices not today’s. The manufacturers need to sell this message. The Obama administration needs too as well.