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11 Shock to Trance: The Power of Price On November 17, 2008, the second Sunday after his election, Barack Obama sat down for an interview with Steve Kroft of CBS’s 60 Minutes. Here is what was said about energy in that conversation: Kroft When the price of oil was $147 a barrel, there were a lot of spirited and profitable discussions that were held on energy independence; now you’ve got the price of oil under $60. Obama Right. Kroft Doing something about energy, is it less important now that . . . ? Obama It’s more important. It may be a little harder politically, but it’s more important. Kroft Why? Obama Well, because this has been our pattern. We go from shock to trance. You know, oil prices go up, gas prices at the pump go up, everybody goes into a flurry of activity. And then the prices go back down and suddenly we act like it’s not important, and we start, you know, filling up our SUVs again. And as a consequence we never make any progress. It’s part of the addiction, all right. That has to be broken. Now is the time to break it. No one can deny the truth of President Obama’s description. When oil prices spike, politicians rush to act; the public scurries to respond to the new situation. When oil prices decline again—as they always have, so far— sighs of relief reverberate through the nation. Old consumption patterns reemerge. During the 1980s and 1990s, the American people entered a long energy policy trance. Relatively low energy prices removed energy from the front policy burner for both presidents George H. W. Bush and Bill Clinton. 180 Chapter 11 The only federal energy legislation of much consequence in the 1990s was the Energy Policy Act of 1992—a response to an oil price shock after Iraq’s invasion of Kuwait and the subsequent U.S. attack on Iraq. There is a difficult dilemma here: higher energy prices may be what we need to achieve energy security and limit climate change, but neither the public nor their political representatives really want these higher prices. On the one hand, higher prices encourage us to consume less energy and emit less carbon dioxide and other greenhouse gases and pollutants, thereby lessening our need to import oil and helping to avoid climate change. On the other hand, they have been associated with recessions, and in the 1970s they were accompanied by a dreadful “stagflation,” the debilitating combination of recession and inflation. In addition, high energy prices are especially burdensome for those on fixed incomes or with low incomes. What we want, what we may really need, is clean, reasonably priced, secure domestic energy, but if we are ever going to get that, we will need to learn to live with higher prices for carbon-emitting and imported energy sources, most notably coal and oil. Fortunately, as we have moved from a manufacturing-intensive economy to one based more on services, we have been able to reduce our energy intensity, and we have become better able to cope with higher energy prices. Prices of oil have long refused to behave as the experts have predicted. Virtually every time oil prices have spiked, energy experts have predicted the increase to be permanent, but then prices have tumbled. Energy projects are typically both capital intensive and long term. Changing our pattern of energy consumption takes time. Porous buildings still leak when heating costs are high. Gas guzzlers get no better mileage as gasoline prices soar. We can cut back the electricity we use by only a little—at least in the short run. When oil prices are high, increasing exploration and investment in alternatives seems wise, but such investments may rapidly turn sour when oil prices fall. And oil price volatility and uncertainty is greater now than ever, due not only to ongoing conflict in the Middle East, but also to the speculative market in oil futures. The quantity of trades in oil futures on the New York Mercantile Exchange every day is ten times the world’s daily oil consumption. Oil is no longer just a fuel; it may also serve as financial protection against declining value in the dollar. Around the world, the total daily trades in oil on paper are often as much as thirty times greater than the consump- [3.147.73.35] Project MUSE (2024-04-25 16:07...

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