Forbes.com
There Is No Energy Crisis
By Dan Ackman
Vice President Dick Cheney, in a speech yesterday in Toronto, said energy is a "storm cloud over the horizon...that has lately
taken on an urgency not seen since the 1970s." He suggested the rolling blackouts in California could "[foretell] a national trend."
Cheney's solution to the "potential crisis," which he blamed largely on the
Clinton Administration, is to drill more, mine more, generate more and build
more nuclear plants. He nodded to "conservation," but essentially mocked it as "a sign of personal virtue"--
Jimmy Carter in his cardigan.
In fact, there is no energy crisis and there is little reason to expect there will be. Conservation is a big part of the
reason why. While California's blackouts are in the headlines, the Golden State's problems are local and,
indeed, do not even cover all of California. Los Angeles, for example, is unaffected because it has its own
municipal power service.
"As a country, we have demanded more and more energy. But we have not brought online the supplies needed
to meet that demand," Cheney said.
But the facts are something different. Between 1980 and 2000, despite a 90% increase in real gross domestic
product (GDP), energy consumption increased by just 25.6%. The massive decline in energy use relative to
economic output was not a function of price increases. Indeed, during that time energy prices rose by 44.8%, and most of that price rise was in the last two years.
The energy price increase was tiny compared to nonenergy prices, which rose by 119%.
Even with the price increase of the past two years, the price of a gallon of gas in real terms has fallen 41% since 1980.
"There is no energy shortage," says R. Martin Chavez, chief executive of Kiodex , which supplies software to companies for managing their exposure to energy
costs. "There is so much oil and natural gas in the ground. There are more known reserves now than there ever has been."
Conservation has played the critical role in managing demand, says John Byrne, director of the Center for Energy and Environmental Policy at the University of
Delaware. "The vice president says conservation is a sign of personal virtue and says we can't rely on that. But that's not what conservation is about," Byrne says.
Conservation, Byrne says, "is not about turning off the lights or unplugging the refrigerator. It is a story about better technology." Industry and economics, not virtue
or government control, are the driving forces.
The reason Americans have become so much more energy efficient is because of appliances, buildings and factories. Refrigerators, lamps, air conditioners and pulp
and paper plants have all become far more energy efficient.
The most important exception to this trend is in transportation. While fuel mileage in cars continues to improve, the fuel efficiency of U.S. automobiles has actually
declined since the mid-1990s. That's because many drivers have switched from ordinary cars to light trucks or so-called sport utility vehicles.
Between 1980 and 1998, U.S. petroleum consumption hardly increased at all, from 34.2 quadrillion Btus to 37.39 quadrillion Btus. The reason here is Americans
used to get 44% of their energy from oil, including foreign oil. Now the figure is 39%, though more than half is imported. Coal supplies a greater share of U.S.
power. Nuclear energy accounted for 3.6% of power in 1980. By 2000, it was supplying 8.1%.
One of the hot-button issues in energy policy is whether to drill for oil in the Arctic National Wildlife Refuge. Whatever the merits of this plan environmentally, the
case remains that just slight increases in automobile fuel efficiency would conserve far more oil than the U.S. could ever hope to extract from the Alaskan preserve.
No amount of drilling in Alaska or anywhere else is likely to have any impact on the crisis in California, a product not of fuel shortages but of a half-baked attempt at
deregulation. Almost none of the electricity in California is produced by oil, Byrne notes. Mostly it's from natural gas, more than 80% of which is produced
domestically.
Also, most of the oil drilled in Alaska is now exported to Japan, which is far more exposed to world energy markets than the U.S.
"No one is likely to make the same mistakes to the extent California did," says Severin Borenstein, director of the University of California Energy Institute.
The idea that there is a crisis or a "situation [that] will take years for us to overcome" was a "stunner," Byrne says. "The objective evidence is just against it."
U.S. Energy Prices, Consumption And OutputSources: Department of Energy Weekly Energy Review; Bureau of Labor Statistics; Bureau of Economic Analysis
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