Energy (an Economic Issue)
Our current industrial and technological civilization was made possible with the help of large quantities of cheap coal and oil. Our current lifestyles and the world economy are now dependent on having an ample supply of secure, dependable and inexpensive energy. Could an interruption in our energy supply disrupt our economy and throw our civilization into a great depression or collapse it completely? Yes, and we can see some evidence of this by looking at some resent history.
In 1967, the United States was hit with an oil embargo, which turned out not to be very well organized nor very effective. Part of the reason for this was that up through the mid-1970s, the United Stated imported less than 20 percent of the oil that it consumed. Even so, a better organized oil embargo in 1973 initiated gas price increases and led to a series of recessions and high inflation that lasted through the early 1980’s.
By 1979, the United States was importing about a third of its oil, and the Iranian Revolution sparked an oil crisis that led to long lines at gas stations, and that kept gas prices high until 1986. For decades after that, our oil imports continued to increase. By 2006, the United States imported almost 60 percent of its oil.
In 2011, with our increased dependence on imported foreign oil, our economy was even more at the mercy of foreign oil suppliers than it ever was before. At that time, the growing unrest in the Mideast was causing disruptions in supply and price increases that were threatening to derail our economic recovery. If our future oil imports continued to grow, it seemed obvious that any future oil crisis could have been much worse than anything that we had seen in the past.
More recently, things have gotten more complicated. Higher energy prices have made it financially feasible to go after more expensive sources of oil and natural gas. We are now producing oil from shale and tar sands, and oil and natural gas from hydraulic fracking. This has reduced our need for imported oil. However, these extraction methods cause a lot more air and water pollution, and hydraulic fracking has been shown to cause earthquakes
Then, Saudi Arabia through a monkey wrench into things for a while, by greatly increasing their oil production to lower prices, which they hoped would allow them to regain their share of the world oil market. Although their actions did drive down world oil prices, it did not allow them to regain their market share. All it did was make them and many other oil producers lose a lot of money. They have now once again limited their oil production, and oil prices are once again rising.
In 2022, the rise in demand after the pandemic and the world decrease in supply due to the war in Ukraine, caused oil and natural gas prices to soar. Prices did come down some from their highs after the higher prices caused us to reduce our consumption due to the higher prices.
This all highlights the volatility that can occur when we rely too much on oil and natural gas as our sources of energy. This is especially true given that many of the major producers are in countries that have authoritarian governments that like to use oil and natural gas as weapons.
Can we count on obtaining enough energy to meet our future needs? The short answer is that we are already in a deepening energy crisis, and we need to start making some big changes right now to avert an impending disaster. The complete answer to this question is quite complex and depends on what our true energy needs will be, what forms of energy we will be using, what changes to our lifestyles we are willing to make, and when we finally get serious about doing something to fix our energy problems.
We can get energy from many different sources such as oil, natural gas, coal, uranium, wood, water, sunlight and wind. In some forms, energy can be stored for long periods of time. The oil, natural gas, and coal that we use today were created hundreds of millions of years ago.
Some sources of energy are transient and must be captured and converted into new forms of energy or it will be lost forever. For instance, the energy in any given quantity of sunlight or wind must be extracted when it arrives.
Other sources of energy can be stored for short periods before it must be used. For instance, we can capture water behind dams and convert it into electricity when we let it flow, but a given dam can only hold back so much water in its reservoir at any given time and the water is prone to evaporation.
Whatever its source, some forms of energy can be converted, captured and stored for short periods of time before use. For instance, energy converted into electricity can be stored in batteries and capacitors but must be used before it leaks out.
We use these sources of energy to provide the power needed to perform various tasks like moving, modifying, warming or cooling things. We also use them for cooking food, providing light, producing sound, and transmitting and storing data. Each of these tasks needs energy that is in the right form for the equipment that is doing the work. For instance, a natural gas furnace needs natural gas, but an electric furnace needs electricity.
When needed, some forms of energy can be converted into a different form. For instance, natural gas can be burned to create the steam that is then used to run a generator that produces electricity. Unfortunately, some energy will be lost when converting it from one form to another, so it is best to convert energy only when it is necessary.
In general, energy sources can be classified as either renewable or nonrenewable. A nonrenewable energy supply is one that comes from a finite energy source, which is not being added to and with continued use, will run out. A renewable energy source is one where more will or can be made available over time.
Theoretically, any energy source could be considered renewable, but the time periods for what we consider to be nonrenewable sources would be measured in the millions or billions of years, whereas the time periods for renewable sources might be measured in just months, weeks, days or even seconds. Of course, most of our energy traces back to our sun, which will eventually start to run out.
Before the industrial age, we mostly used renewable energy from sources like wind, water, wood, and human and animal muscles. With the discovery and use of large quantities of nonrenewable coal, oil and natural gas that could be produced and distributed cheaply, our civilization grew larger and more complex. The use of this relatively low-priced nonrenewable energy has allowed us to create the modern lifestyles that we currently have.
However, the idea of this nonrenewable energy being inexpensive is a myth. We are simply not considering all the indirect costs to our civilization and to the world from things like pollution, climate change, resource depletion and political unrest. We end up paying for some of these indirect costs in other ways and some costs are being pushed onto future generations, who will eventually have to pay them.
The burning of fossil fuels puts tons of pollutants into our air and water, which destroys our environment and causes many health problems, which leads to higher health care costs and many premature deaths. Although we are finding ways to reduce future pollution, we are still dealing with the problems that it has already caused and trying to determine to what extent it has led to climate change and other environmental changes.
In addition, as our reserves of nonrenewable energy become harder and more expensive to produce, and then start to run out, supply will not be able to keep up with the increasing world demand. We are already seeing large increases in the cost to extract these energy sources, but costs could skyrocket as more of these nonrenewable supplies become depleted.
We are also seeing increased competition between nations for the remaining nonrenewable energy supplies, which could lead to more worldwide political unrest and war. This situation is especially dangerous for the United States, given our dependence on foreign oil and our current foreign relations problems.
To come up with the true cost of using these nonrenewable energy sources, we need to consider the subsidies given to energy companies and the higher costs we end up paying for health care, food, water and security. The most detailed analysis available of indirect costs is probably found in The Real Price of Gasoline by the International Center for Technology Assessment. In 1997, these indirect costs were estimated to be somewhere between 5 and 14 dollars per gallon of gas. If we were to add these indirect costs to the direct cost of 3 to 4 dollars a gallon that we are currently paying, we would need to pay somewhere between 8 and 18 dollars per gallon.
When we look at both the direct and indirect costs of nonrenewable energy, we can see that the reality is that it is quite expensive. If we had considered the real costs of nonrenewable energy, our civilization would have developed in a much different way than it has. Although we cannot change the past, we can start to raise the taxes on nonrenewable energy to shift more of the indirect costs to those of us who cause them, and to get us to use less energy and to shift to more renewable sources.
Until recently, the cost to produce energy from most renewable energy sources appeared to cost more than energy from nonrenewable sources. Although the direct cost to the consumer may have been higher, the indirect costs would have been much lower. In fact, for most renewable sources there are little or no costs for pollution, resource depletion or political unrest. There are also many indirect benefits to using renewable energy including improvements in safety, reliability and national security.
For instance, we do not have the same danger of fire or explosion with solar, wind or water that we have from fossil fuels. We would also improve our national security situation when we become energy independent, which is only possible if we use the renewable energy sources that are available to us and that are more than sufficient to meet our needs. In addition, the direct costs of renewable energy sources are coming down as we continue to increase our production of them.
Given our recent (2007) usage rates, where exactly do we stand with respect to our nonrenewable energy supplies?
- We have enough uranium to last for centuries, but it is dangerous to work with and it creates radioactive waste. Although, if we switched to molten salt reactors instead of water-cooled reactors, we could eliminate most, if not all, of the radioactive waste, and the power generation would be safer.
- We have enough coal to last about 150 years, but it is a major source of pollution, and it is difficult and dangerous to mine.
- We have enough natural gas to last for another 60 to 70 years with some recent discoveries possibly pushing our reserves out to more than 100 years, but it is hard to transport and so most of it must be used near where it is extracted.
- We only have enough oil to last about 40 years, but production levels will be falling in the coming years and more of our supply will be coming from less friendly and more unstable countries, and from extracting it from sources that are more expensive and that produce more pollution.
- We also have large reserves of shale oil and tar sands that could add another couple of hundred years' worth of oil, but it is currently not very economically feasible to mine and would produce huge quantities of waste material and pollution.
Currently, oil is the most important energy source to our economy. It is used in products such as gasoline, heating oil, and plastics. The consensus among most leading experts is that oil production is near its peak, and that unless something is done soon there could be major oil shortages and price increases sometime before 2030.
Without oil or some new energy source, our global transportation network would fall apart, which would lead to a meltdown of the global economy and a major decline in our way of life. We cannot ignore the fact that, with continued use, we will run out of oil and all nonrenewable energy sources. The faster we convert to using renewable energy sources, the better our chances of not suffering a major energy shortage.
On the one hand, demand for energy is still increasing, which could reduce our supplies much faster than at recent usage levels. On the other hand, we are increasing our use of renewable energy sources, so that should help to reduce the rate at which we are using up our nonrenewable sources, which will make them last longer. The question is whether the switch to renewable sources will happen fast enough or not.
One form of renewable energy that is already being increasingly talked about and used is ethanol. We can produce ethanol from corn and other crops, which we can plant and harvest every year. Unfortunately, the conversion of all the available crops in the world would not come close to producing enough ethanol to replace the oil we currently use. The production of ethanol also eats into our food supply, which increases food costs and could lead to more starvation. In addition, some researchers have calculated that it may actually take more energy to produce ethanol than the energy you can get back from it.
What about other renewable energy sources? Given the low cost to consumers for energy from nonrenewable sources, there has not been a strong enough push for developing renewable energy sources. In addition, sources of renewable energy are limited as to when, where and in what form they are available, and to how efficiently they can be converted into a usable form. Nevertheless, energy from renewable sources that made up only about 7 percent of the energy consumed in the United States in 2006 had grown to about 12 percent by 2020.
Solar energy is only available during daylight hours and can be blocked by clouds. Energy from wind is only feasible where sufficient periods of strong winds exist and only when it is windy enough to turn the wind turbines. Hydro requires enough rain and a large enough dam and reservoir, but it is a steady supply except for when there are extended draughts. Geothermal energy can only be obtained from geological hot spots that are usually associated with volcanic and seismic activity, which could endanger this energy supply. However, Geothermal can be used on a small scale in many more locations to heat offices and homes.
In the past, the main drivers for renewable energy came from a desire to reduce pollution and a need to provide power in remote locations that were not part of the power grid. In the future, nonrenewable sources will be scarce and expensive, so more and more renewable sources will be needed. This should provide some of the incentives needed to get us to invest the additional capital needed to develop more efficient means to capture, to convert and to store renewable energy, which will eventually lead to lower costs.
Given the intermittent nature of renewable energy supplies, we will need to get our energy from a variety of sources. We will also need to have sufficient storage capacity to store and to release the energy during periods when these energy sources are not available. For example, energy can be converted into electricity and stored in batteries or converted into hydrogen and stored in pressurized or cooled storage tanks. There is also work being done on solid state batteries and newer sodium-sulfur batteries that can handle thousands of kilowatts of energy at a reasonable cost.
There is also work being done to find other ways to store energy. For instance, energy can also be stored by lifting bricks or concrete blocks to the top of a tall tower. Another promising method for storing energy is heating carbon blocks or cement blocks to high temperatures in insolated chambers.
Luckily, the great advances being made in energy storage systems may soon make even the most unreliable renewable energy source seem reliable. When it is available, some or most of the energy would simply be stored and then used over the time when the renewable energy source was not available.
In addition, we may need to convert a lot of our current equipment to use the energy that can be generated from renewable sources. For instance, our current transportation system is dependent on gasoline and diesel fuel, which come from oil. Without oil, there is no way to produce enough fuel, so cars and trucks will need to be converted to be electric, or to run on some other energy supply like maybe hydrogen, or we need to restructure our civilization so that we do not need as many cars and trucks.
With renewable energy costs coming down and efficiencies going up, and with nonrenewable energy costs increasing and supplies becoming depleted, we are now crossing over to a time when renewable energy will begin to win out over nonrenewable energy. Given our problems with nonrenewable energy, we must make it our goal to move as close as we can to using 100 percent renewable energy sources as soon as possible. Luckily, with a little innovation and hard work, we can put together a combination of solar, water, wind, geothermal, and a few other renewable sources that could easily supply all the world’s energy needs.
When we talk about conserving energy, we are talking about saving it. If we use less energy, then we have lower energy costs. When we talk about saving nonrenewable energy, we are also talking about stretching out our limited supplies and having more energy available in the future. For renewable energy, the less we use the more that is available for others to use or the less we need to produce, and the sooner we can reach energy independence. Energy can be saved by using it efficiently and prudently.
When we talk about the efficiency of energy usage, we are talking about the amount of energy needed to perform a task. When a device uses less energy to perform a task than another device uses, it is said to be more efficient. For instance, if refrigerator A uses half the energy to keep our food cold as refrigerator B, then refrigerator A is twice as efficient as refrigerator B.
Usually, our goal would be to have a task done at the lowest cost that meets some optimal level of quality. This entails evaluating all available devices that perform the task to compare their performance, durability, purchase price, maintenance cost, and energy consumed when in operation and when not in use. If this was not hard enough, we also need to look at the future energy costs, since we know that they should continue to rise until we get closer to being energy independent. Therefore, we should pay extra attention to finding devices that use the least amount of energy possible.
When we talk about the prudent use of energy, we are talking about using energy only when we really need to. If something does not need to be done, then it would be prudent not to do it and to save the energy that would have been used. For instance, it would be prudent to turn lights off in rooms that are not being used, to combine trips to reduce diving and to use timers to reduce the energy used for heating and air conditioning when no one is at home or in the office.
Eventually, nonrenewable energy supplies will run out or become too expense to produce or to consume. Therefore, it is inevitable that the world will eventually need to turn to using all renewable sources of energy. Our goal must be to convert over to renewable sources before we have a major energy crisis.
Here in the United States, our first intermediate goal must be energy independence. For instance, our dependence on foreign oil puts us at the mercy of foreign suppliers who can easily sell more of their oil to customers like China and India, which are increasing their demand for oil.
Any major disruption to our oil imports would cripple our transportation network, leave many of us without heat and hot water, weaken our electric grid, and throw our economy into a recession or even a depression. It will be much easier to convert our energy supplies while we still have a strong economy than it would be during a recession or a great depression.
What must we do to become energy independent? The first thing that can be done is for everyone to start conserving energy. Every barrel of oil that we do not use, means one less barrel that we need to import. We also need to dramatically increase the production of renewable energy. This will take a major commitment from our government. One option would be to raise taxes on nonrenewable energy so that the money could be used to provide incentives to do renewable energy research, development and production. I will talk more about this shortly.
We may also want to put a moratorium on building energy plants that are dependent on nonrenewable energy supplies. It does not make much sense to invest huge amounts of capital to build plants that will soon be useless. It is better to build plants that get energy from renewable sources and that will therefore last much longer.
In the United States, our transportation network is the biggest user of oil at about 70 percent or about 180 billion gallons of gas each year. Therefore, this is the area in which we need to do the most work. Some of the things that we can do immediately would include eliminating unnecessary trips, moving closer to work, walking, riding a bicycle, using mass transportation, trading in vehicles for ones that get better mileage, and keeping our cars and trucks well maintained.
In the long run, we need to redesign the relationship between where we live, work, shop and play. I will talk more about this in an upcoming section on transportation. In addition, we need to move towards more electric vehicles, which are more efficient and can be powered with electricity that is produced by renewable sources.
With over one billion gallons of gas consumed each year, lawn mowers are significant users of oil. They also produce a disproportionate amount of pollution and noise. Moving to more efficient gas or electric mowers would be a big help. On the other hand, many homeowners have small enough yards that they could switch to manual mowers. These mowers are quiet, do not pollute, and I have found them to be easy to use and to do almost as good a job as, and in some ways a better job, than power mowers.
One other very important consideration is population growth. Every new person who comes to live in the United States will consume energy. This means that we will need to produce more energy for each new person, which will make it harder to become energy independent. Therefore, we need to limit our population growth while we are working towards becoming energy independent, so that we do not make it any harder to do than it needs to be. I will talk more about this in an upcoming subsection on overpopulation.
One of the biggest incentives for conserving energy or for shifting from nonrenewable to renewable energy sources would be the financial one. There has always been a financial incentive for conserving energy, but higher energy costs should be increasing this incentive. Renewable energy will need to cost less than nonrenewable energy before there is a strong financial incentive to invest in renewable energy.
Over the past several years, given the increasing demand and decreasing supply of nonrenewable energy, we have seen a big jump in the price of nonrenewable energy. This should have greatly increased the financial incentives to conserve and to invest in renewable energy. The problem is with the way in which energy prices are currently rising. Instead of rising in a somewhat consistent and predictable way, they often fluctuate up and down by considerable amounts.
With wild price fluctuations, we are investing too much effort into timing when to buy energy and not enough effort into finding ways to conserve. In addition, we and businesses are reluctant to invest in renewable sources, because we cannot predict how much they could make or lose as the price of nonrenewable energy rises and falls. We will need to stabilize nonrenewable energy prices at a high enough level so that it will encourage us to conserve and to invest in renewable energy and to convert our world into one that does not waste as much energy.
The first step would be to eliminate the subsidies given to energy companies for nonrenewable energy and to invest that money in renewable energy sources. In addition, given the fact that we are using up our nonrenewable energy, we should be imposing a depletion tax instead of giving a tax deduction. We also need to tax nonrenewable energy usage to help offset some of the indirect costs of using nonrenewable energy. By recouping some of these costs through an energy tax, we would be able to reduce other costs and taxes, since they would no longer need to cover as much of the indirect costs of nonrenewable energy.
Since there is a wide range in estimates for the indirect costs of nonrenewable energy, we would want to initially aim for the lower cost estimate. For gasoline, this would mean that we would use the lower 5 dollars per gallon estimate as opposed to the higher 14 dollars per gallon estimate. Even so, we would still end up paying less per gallon of gasoline than many other individuals around the world. In 2011, with our gasoline prices near 4 dollars a gallon, a 5 dollar per gallon tax would still leave our gasoline costing less than what it does in many European countries.
To prevent a big spike in energy prices, we would gradually implement this nonrenewable energy indirect cost recovery tax over several years. For instance, to get to the 5 dollars per gallon tax for gasoline we could raise the tax 2 or 3 cents per month for about 20 years. This would give us and businesses plenty of time to plan for the higher nonrenewable energy prices and to make the switch to renewable energy or to reduce our energy needs.
Although we have been talking about taxes on gasoline, we would want to also raise the taxes on other nonrenewable energy sources like those for coal and natural gas.
By bringing the costs for nonrenewable energy closer to their true higher costs, we would help to stabilize nonrenewable energy prices at high enough levels where conservation and investment in renewable energy would be encouraged. With prices for energy closer to their true costs, we and businesses could better manage our energy costs and plan for our future energy needs. In addition, the tax revenue could be used to provide additional incentives for conservation and investment in renewable energy, and to reduce other taxes.
Labor -
Ways to better utilize our labor and to improve our productivity.
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