Canada, oh Canada, will your tar-sands oil help or hurt US fuel objectives?

Tar Pit #3I just finished a recent Forbes article by Jude Clemente, “Canada is North America’s Great Oil Security Blanket.” Gosh, it’s good to know that Canada can supply 10 million barrels a day for the next 675 years. Just think of the biblical proportions of Canada’s reserves. Methuselah lived only 969 years! I feel safer already.

I am (fairly) comfortable that the French won’t take over Quebec and act out residual imperial desires and that the British won’t try to recapture their former colonies. So, sleep easy and leave a note in the morning to your children, their children and their children’s children, ad nauseam. Future generations of U.S. residents won’t have to worry about the definitions of peak oil or real oil shortages, and we will always have fossil fuel in our future. Our very valued friend to the north can and will produce whatever oil the U.S. requires for centuries.

Aren’t we lucky?! Our decedents will be able to depend on what the author calls “ethical Canadian oil.” Why? He argues that “Canada is a democracy and a free market sought by investors that desire less risk.” Wow…freedom to choose and capitalism; John Rawls and Adam Smith. I am crying with joy. But my emotional high lasts for only a few minutes.

Do we need to substitute Middle East imports for Canadian imports, even though Canada is a trusted ally? Are Canadian oil reserves a real, long-term, strategic benefit to the U.S. and are they ethical (a funny term used in the context of big oil’s historical behavior, speculation with respect to investment in oil and the perils of surface mining)? According to many analysts, oil from tar sands is among the most polluting and GHG emission causing oil in the ground. Aren’t you happy? In light of reserves, we can tether ourselves to fossil fuels for hundreds of years and a range of environmental problems, including, but not limited to, air pollution, landscape destruction, toxic water resulting from tailing ponds and excessive water use. Many scientists warn of increased rates of cancer and other diseases. While the tar sand industry, to its credit, has tried to limit the problems, according to the Scientific American article by David Biello, “tar sands may be among the least climate- [and health-] friendly oil produced at present.” By the way, conversion to gasoline will likely result in higher prices for the least advantaged among us, not exactly Rawlsian ethics.

We are in a difficult position, policy wise. Sure, we can establish long-term institutional relationships with Canada and its provinces that will assure U.S. on-demand access for Canadian oil sands. To do this would be comforting to vested interests and some leaders who still believe that oil is the key to America’s economic future. But business, academic, nonprofit, community as well as government leaders are increasingly searching for alternatives that will be better for the economy, the environment and national security. Weaning the U.S. off of oil, as the president has sought, will require, at least for the transportation sector, substituting a “drill, baby, drill” mentality for a strategy that includes increased use of alternative fuels, open fuel markets and flex-fuel vehicles.

Alternative fuels are not perfect, but for the most part, they are much better than gasoline in light of national energy and fuel objectives. Many replacement fuels, like natural gas and natural gas-based ethanol, cannot compete easily because of government regulations (e.g., RFS, etc.) and oil company efforts, despite large subsidies to limit their purchase by consumers (e.g., lobbying against open competitive markets, franchise agreements, price setting, etc.). Most alternatives appear to have sufficient reserves to provide the consumer with cheaper and better fuel than gasoline for a long time. For example, natural gas seems to have more than a proven 100-year supply, and that’s without further exploration.

The policy framework is easier to define than implement given America’s interest group politics. It would go something like this: As soon as they are ready for prime time and reflect competitive prices, design and miles per tank, increasing numbers of electric and perhaps hydrogen-fueled cars will appeal to a much wider band of U.S. consumers than they do now. The nation should support initiatives to improve marketability of both thorough research and development. Until then, the good or the better should not be frustrated by the perfect or an unreal idealization of the perfect. Please remember that even electric cars spew greenhouse gas emissions when they are powered by utilities that are fired up by coal, and that the most immediately available source of hydrogen-based fuel is natural gas. Currently, there are no defined predictable supply chains for hydrogen fuel. Perhaps, more important, neither electricity nor hydrogen fuel cells can be used in the 300,000,000 existing cars and their internal combustion engines.

So what’s a country to do, particularly one like the U.S., which is assumedly interested in reducing GHG emissions, protecting the environment, growing the economy and decreasing dependence on foreign oil? Paraphrasing, the poet Robert Frost, let’s take the road less traveled. Let’s develop and implement a strategic, alternative-fuels approach that incorporates expanding consumer choices regarding corn and natural gas-based ethanol, a range of bio fuels and more electric and hydrogen fuel cars. Let’s match alternative fuels with initiatives to increase Detroit’s production of new FFVs and the capacity (through software adjustments and conversion kits) for consumers to convert their existing cars to FFVs. To succeed, we should take a collective Alka-Seltzer and build a diverse strong fuels coalition that will encourage the U.S. to develop a comprehensive, alternative fuel strategy. The coalition, once formed, should place its bet on faith in the public interest and good analysis to gain citizen and congressional support. I bet the nation is ready for success — just remember how Linus of the famous Peanuts comic strip ultimately gave up his security blanket.


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Matching ethics and policy: Free markets, subsidies and fuel

There is probably a reason that ethicists rarely sit at the public policy table with respect to transportation fuel. Let’s think about it for a few minutes in the context of a diverse group of econo-ethicists. Let’s match the ethics of presently monopolistic gasoline markets, the huge oil subsidies granted to oil companies and, yes (for environmental folks), the gift of HOV lanes and tax subsidies for those with the “right” cars, with:

  • John Rawls’ ethical guideline that we should respond to the least among us as we would want to be responded to ourselves,
  • Jeremy Bentham’s ground rule that we should seek the greatest good for the greatest number),
  • Karl Hayek’s admonition that the least government is, generally, the best government,
  • Michael Douglas’ statement in “Wall Street” that “greed is good.”

Currently, oil company policy and behavior with respect to gas stations they own, franchise or influence is very restrictive. Even when they allow alternative fuels to be sold in gas stations, companies play the role of Cinderella’s ugly stepmother. Alternative fuel pumps, often, are placed apart from the gas pumps, sometimes out of sight. If they were human, the alternative fuel pumps, legitimately, would have a discrimination case, need psychiatrists and would probably cry a lot because of loneliness. Lacking choices, consumers must pay an extra tariff for gasoline. Prices for gas reflecting little or no competition are arbitrarily high.

Congress supports the oil monopoly at the pump. It has failed to allow methanol as a transportation fuel and has not passed open fuels legislation.

Certainly, an ethical judgment of the current fuel market and those who establish its limited boundaries should be easy to make. You would get an “A” from both Rawls and Bentham as well as from Hayek if you said, “It is rough on the poor who pay upwards of 15-17% of their income for gasoline and it forces extra costs for all of us at the pump.” Finally, it illustrates Hayek’s warning that too much government restrictions limit freedom. Gosh, who ever thought I would agree with Hayek, even in a limited way? Perhaps, however, Mike Douglas wins this one. Greed has been good for the oil companies.

Douglas also wins big on tax subsidies to oil companies. Yet, despite diverse ethical principles, everyone scores well on the granting of tax subsidies to the oil industry. Both liberal and conservative groups, as well as the Congressional Research Service (CRS) agree that many of the tax subsidies are not needed to secure production and distribution. Why, then, does the industry benefit from such beneficence? History granted them favored status; politics and money give them influence at budget-making time.

I was in favor of (and probably deep down still tilt toward) HOV lanes. But, I do have some real doubts about tax subsidies, particularly subsidies not tied to income.

I am worried about the ethics of both. Most of the benefits of HOV lanes and tax subsidies to secure buyers of cars that use them go to relatively affluent income folks. Both are paid for by general taxpayers, including income-deprived tax payers.

Further, most low and moderate-income households face severe budget constraints if they try to buy new so called clean vehicles that are now allowed in the HOV lanes and secure tax benefits. No preference is granted to other alternative fuels like ethanol, and the federal government does not readily allow the relatively inexpensive conversion of existing cars to alternative fuels — methanol, ethanol. States generally do not permit the small number of converted cars in HOV lanes. Lastly, in terms of debits, HOV lanes do increase congestion, when they are not utilized to the fullest, increasing driving costs for every one of us who are not so lucky to own the “right” vehicles.

So HOV lanes and tax subsidies for favored cars do raise ethical questions. They don’t treat the least among us fairly, they are not good yet for the greatest number of us, and they reflect government behavior that reflects a bit of shooting from the hip before tough analysis concerning efficiency, and effectiveness. Let me see, Rawls, Bentham and Hayek would at least be sensitive to the involved ethical issues.

Alright, are you happy, indifferent or sad that ethicists are not at the policy table? Let me know.