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The end of the Oil Age, Part II

In part I, I discussed the Economist's assertion that using oil and gasoline produces externalities, and on account of that oil and gasoline should be taxed.

I have some serious problems with the second half of the Economist editorial. The Economist strongly promotes research into alternative energy, specifically fuel cells and bioethanol. The article criticizes both George W. Bush and Congress for not doing something to speed up research in these technologies.

I strongly disagree with the assumption that an oil-free utopia is just around the corner if only George W. Bush and Congress will do the right thing. If there truly were great technologies to be discovered that would provide us with inexpensive and clean fuel, then I'm sure the free market would figure it out without the help of Congress.

First of all there's absolutely no evidence that we need any new technology at all in order to conserve fuel. For example, check out the MSN Carpoint specifications for the Honda Civic. Here's a car that gets 38 mpg on the highway and 32 mpg in the city. And I'm not talking about the more expensive hybrid Civic. This is just the plain old cheap DX Civic, which sells for as little $12,810 MSRP.

When people are choosing to spend more than twice as much money for a car that gets half the mileage of the Honda Civic, this indicates that there is absolutely no need at all for any kind of cars running on alternative fuels.

It's kind of funny how so many people believe the urban myth that the oil companies and the car companies conspired to keep fuel efficient cars off the market. Look, here's a car that gets 38 mpg, and anyone can walk into a Honda dealership and buy one! The reason why cars get low gas mileage is not because of conspiracies, it's because gasoline is cheap and consumers have no interest in buying fuel efficient cars.

The idea that we are on the verge of discovering new technologies that will replace gasoline is farfetched as well. Just because these technologies exist doesn't mean that they will ever be economically practical compared to gasoline, unless maybe the price of oil were the go up to $100/barrel, or maybe even to $200/barrel. Consider the fact that in Europe, people pay twice as much for gasoline than in the United States, but they don't drive cars using fuel cells or ethanol. They just drive small cars that get good gas mileage.

In 1969 we sent men to the moon, but nearly 35 years later, it's still not economically practical. In the 1980s, some scientists thought they discovered cold fusion, but nearly 20 years later there is still no cold fusion. Fifty years ago, everyone thought that nuclear energy was the fuel of the future. But nowadays, no one wants to even talk about nuclear energy.

The preceding examples demonstrate that technologies don't always become less expensive and more practical, despite wishful thinking to the contrary. Moore's Law only applies to computer chips. Hydrogen fuel cells might very well be a technological dead end. What is certain is that hydrogen will never be discovered by itself in nature the way we find petroleum. Hydrogen has to be created in big hydrogen manufacturing facilities that use energy from some other source. Hydrogen is not a source of energy, it's a store of energy.

All this talk about needing to fund new technologies doesn't make any sense. Maybe when everyone is driving cars that get 38 mpg it would be worth talking about it. Until then, it's not something our politicians should be concerning themselves with.

There may be a Part III coming, where I would discuss whether the world is running out of oil.

posted Friday, October 31, 2003