Monday, November 17, 2008

Stabilize Energy Prices

In the U.S., we like to have our something, for nothing.

We want energy independence, we want reduced carbon emissions, and we want low gas prices.

Sorry, can't have all three.

The surest, quickest way to reduce our dependence on foreign oil and reduce our carbon emissions is via higher energy prices, especially for oil and its derivatives (i.e., gasoline). Higher prices cause Americans to conserve energy. Higher prices also encourage investment in alternative energy, more fuel-efficient cars, and new technology.

Yes, high gas and other energy prices are painful, but low prices have huge costs that many would like to ignore. If, whenever you pulled up to a gas station to fill up, you had to fork over the money to an Arab sheikh in a checkered headdress, you'd surely look to buy a more fuel efficient car.

Likewise, if after every mile of driving you had to heave a one-pound brick of carbon dioxide out your car window, you'd also think twice about that gas guzzler.

Unfortunately, Americans can be blissfully ignorant of those costs. How many times have you seen a huge gas-guzzling SUV hurtling down the road, with one occupant, bearing a "support our troops" sticker? But for oil, our troops wouldn't even be over there!

A whole lot of talk, however, won't solve this problem. Higher prices for oil will. Better yet, stable prices for oil will send the right signals to markets, especially to investors in alternative energy options.

One of the things that needs to emerge from the new administration is a bill that will stabilize the price of oil to consumers in the U.S. at roughly $100/barrel. If markets drive the price higher, so be it. The $100/barrel needs to be a floor. As a nation, we can't afford to pay the hidden costs of cheap foreign oil (yes, $60/barrel is cheap) any more.

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