Wall Street History

---

Wall Street History

05/25/2007

The Environment...more facts and opinion

Continuing with my environmental theme of the past few weeks,
following are some notes I found in separate articles for a new
publication called The American.

“Fact and Opinion on Energy and Environment”

Question: Thinking specifically about the environmental
movement, do you think of yourself as ?

Active participant in the environmental movement 14%
Sympathetic, but not active 48%
Neutral .29%
Unsympathetic toward the movement 7%

[This was from a Gallup/USA Today survey in March 2006 so
I imagine the numbers are tilted even more to “active
participant” one year later.]

Question: Thinking about what is said in the news, in your view
is the seriousness of global warming generally exaggerated,
generally correct, or is it generally underestimated?

Generally exaggerated 33%
Generally correct 29%
Generally underestimated 35%

[Source: Gallup Organization, March 2007]

U.S. Primary Energy Consumption by Source, 2005

Petroleum 40.1
Natural Gas 22.6
Coal 22.9
Renewable Energy 6.1
Nuclear Electric Power 8.1

U.S. Energy Consumption by Sector

Transportation 28.0
Industrial 20.9
Residential & Commercial 11.2
Electric Power 39.9

When Americans are asked about the top priority for
policymakers today, only small numbers choose the
environment.

Question: Which one of the following issues do you think should
be the top priority of the federal government?

The war in Iraq 35%
Healthcare 15%
Job creation 15%
Terrorism 13%
Illegal immigration 8%
Reducing the deficit 5%
Environment 3%
Energy/cost of gas 2%

[Source: NBC News / Wall Street Journal, Jan. 2007]

Question: How would you rate the overall quality of the
environment in this country today?

Excellent 5%
Good 35%
Only Fair 49%
Poor 11%

[Source: Gallup Organization, March 2006]

Steven Hayward, scholar at the American Enterprise Institute (a
conservative think-tank) had a separate Q&A for The American,
from which I’ve selected just a few.

What is energy independence?

Hayward: “It’s usually a synonym for energy self-sufficiency –
the idea of the United States supplying all, or nearly all, of its
own energy needs. The public reacts enthusiastically to the idea
in polls, which is why every president since Richard Nixon has
announced independence as a distant goal.

“We seldom hear self-sufficiency lauded in connection with
other essential goods, like automobiles, airplanes, food, or
medicines. The U.S. currently imports about one-fourth of its
timber-required for building homes and printing newspapers,
books, and magazines. But we don’t hear calls for ‘ending our
dependence on foreign timber.’”

Why do some people think we should worry more about where
we get our energy than about where we get other important
resources?

“The short answer is OPEC, the Organization of Petroleum
Exporting Countries. From the first oil shock of the 1970s,
American consumers have disliked the fact that Middle Eastern
oil exporters can manipulate prices by acting as a cartel. In
addition, there’s political concern that American oil purchases
from corrupt Arab and Muslim countries may be funding
terrorism. These concerns have been extended to Venezuela,
Nigeria, and other shaky or erratic regimes, which could cause
disruptions in supply.

“There are some large misperceptions behind this popular view.
Much of the public, for instance, believes we get most of our oil
from Saudi Arabia and other politically troubled nations. In fact,
in 2005, the most recent year for which the Department of
Energy has statistics, the U.S. imported 5 billion barrels of oil,
with only 11 percent coming from Saudi Arabia. [Canada is the
leading foreign supplier at 16 percent and Mexico is second at 12
percent. Venezuela is essentially level with Saudi Arabia.]
[Source: Energy Information Administration, U.S. Department of
Energy]

How important is oil, compared with other kinds of energy?

“Oil certainly poses unique political challenges, but it accounts
for about two-fifths of total American energy use, almost entirely
in the transportation sector. The main use of energy in the U.S.
is to produce electricity, where oil plays a tiny role. Half of our
electricity is generated from coal, which the U.S. has in
abundance. Natural gas and nuclear power together account for
almost 40 percent of our electricity. Hydropower and other
renewables (solar, wind, etc.) supply the last 10 percent. A small
amount of U.S. natural gas and coal is imported – the gas from
Canada, the coal mainly from Latin America – but nearly all the
energy sources for electricity are homegrown.”

Since we actually get only about one-eighth of our oil from
Middle Eastern countries, why not just stop buying from them?

“Oil is a fungible global commodity. If we stopped buying oil
from Saudi Arabia and the Gulf States, and made up the
difference with more from Canada and other nations, the effect
on the world oil price would be negligible. And switching our
suppliers would not reduce our vulnerability in the event of a
Middle East disruption.

“Imagine that the U.S. is not buying any of Saudi Arabia’s oil
and the Saudis, attacked by terrorists, have to stop selling oil
altogether. Then other countries that depend on Saudi oil –
Spain and France, say – will scramble to buy Nigerian oil to
replace Saudi. The excess demand will push up the price of oil,
not just in Nigeria, but also around the world. Indeed, even if the
U.S. were completely supplied by its own domestic oil, the
domestic price would still rise sharply in the event of a Saudi
disruption because other oil importers would be desperate for our
oil.”

How should we think about energy security going forward?

“A sensible policy goal would be not independence, but
diversification: a portfolio of energy technologies and global
supplies that minimizes the economic and political risk of
disruptions from any particular region or energy source.

“A diversification strategy can recognize that, even if supplies
are precarious, the case for free trade in energy is just as strong
as for any other commodity or economic activity. Energy
independence, which could also be described as energy
protectionism or isolationism, is a counterproductive goal. By
limiting ourselves to only what we can make at home, we make
ourselves poorer.

“If a desire to reduce greenhouse gas emissions motivates us to
discourage oil consumption, we should avoid the temptation to
provide specific subsidies to particular alternative approaches. A
carbon tax, which would use the market to decide how and where
to reduce greenhouse gas emissions most efficiently, would be
preferable.”

---

One last segment on this general topic next week.

Brian Trumbore

---