Mitigation of Peak Oil - US Government Debate Over Mitigation Strategies

US Government Debate Over Mitigation Strategies

Part of the current debate revolves around energy policy, and whether to shift funding to increasing energy conservation, fuel efficiency, or other energy sources like solar, wind, and nuclear power. At congressional peak oil hearings, Rep. Tom Udall argued that while rising oil prices would encourage alternatives (both on the supply and demand side), the costs and impacts of other issues involved with petroleum based personal transportation (such as pollution, the economic effects of global warming, security threats caused by sending vast amounts of money to the Middle East, and the costs of road maintenance) should also be taken into account. "Because the price of oil is artificially low, significant private investment in alternative technologies that provide a long-term payback does not exist. Until oil and its alternatives compete in a fair market, new technologies will not thrive."

In 2005, the Congressional Budget Office suggested that, "the federal government could more effectively increase the efficiency of the nation's automotive fleet by raising gasoline taxes, imposing user fees on the purchase of low-mileage-per-gallon vehicles, or both." This would give automakers more incentive to research alternative fuel technology and increased efficiency (through lighter vehicles, better aerodynamics, and less wasted energy).

Hans-Holger Rogner, a section head at the IAEA, warned in 1997 that the level of incentive required for market driven research and development will actually rise. Because production costs are not expected to decrease and because of the continued emphasis companies give to short-term profits, "a regional breakdown for 11 world regions indicates that neither hydrocarbon resource availability nor costs are likely to become forces that automatically would help wean the global energy system from the use of fossil fuel during the next century."

The problems of privately funded research and development are not unique to peak oil mitigation. Bronwyn H. Hall, graduate economics professor at the Haas School of Business, points out that, "even if problems associated with incomplete appropriability of the returns to R&D are solved using intellectual property protection, subsidies, or tax incentives, it may still be difficult or costly to finance R&D using capital from sources external to the firm or entrepreneur. That is, there is often a wedge, sometimes large, between the rate of return required by an entrepreneur investing his own funds and that required by external investors." The severity of the problem for energy is echoed in the International Energy Agency's latest report

In the US, transportation by car is guided more by the government than by an invisible hand. Roads and the interstate highway system were built by local, state and federal governments and paid for by income taxes, property taxes, fuel taxes, and tolls. The Strategic Petroleum Reserve is designed to offset market imbalances. Municipal parking is frequently subsidized. Emission standards regulate pollution by cars. US fuel economy standards exist but are not high enough to have effect. There is also a gas guzzler tax of limited scope. The United States offers tax credits for certain vehicles and these frequently are hybrids or compressed natural gas cars (see Energy Policy Act of 2005).

In order to be profitable, many alternatives to oil require the price of oil to remain above some level. Investors in these alternatives must gamble with the limited data on oil reserves available. This imperfect information can lead to a market failure caused by a move by nature. One explanation for this is Hotelling's rule for non-renewable resources. Even with perfect information the price of oil correlates with spare capacity and spare capacity does not warn of a peak. For example, in the early 1960s (10 years before oil production peaked in the United States), there was enough spare capacity in US production that Hubbert's predicted peak of 1966-1971 was "at the very least completely unrealistic to most people," preventing the necessary steps being taken to mitigate the situation. The absence of accurate information about spare production capacity exacerbates the current situation.

Lester Brown believes this problem might be solved by the government establishing a price floor for oil. A tax shift raising gas taxes is the same idea. Opponents of such a price floor argue that the markets would distrust the government's ability to keep the policy when oil prices are low.