Strategy vs. Tactics
The lead editorial in yesterday's New York Times criticized the pending congressional energy bill for relying on old solutions to energy security and failing to address climate change, which has large implications for energy. But the editors of the Times also missed a key stumbling block, in their eagerness to cite the prescriptions of various recent reports. Before debating the party of government on tactics, one must convince them that their basic assumptions about energy are wrong, or outdated.

The solution to the energy crises of the 1970s was largely economic, and Republicans are right to recall this. With demand mitigated by reduced speed limits, Corporate Average Fuel Economy regulations, and various energy efficiency incentives, the US then deregulated its oil and gas markets. A flood of new oil production followed. The combination hobbled OPEC's market power for two decades, coincidentally turning oil into just another occasionally volatile commodity.

Today even unfettered access to all the remaining oil resources of this country, including ANWR, will only slow the rate of production decline, while our demand continues to grow. The sole deregulation that would have a truly meaningful impact on oil production would have to take place in the Middle East, and our ability to influence that is a work in progress, at best.

Our other trump card in the 1970s was natural gas. Within a decade, most of the fuel oil consumed in this country was displaced by natural gas, and the fuel oil was converted to transportation fuels in upgraded refineries. Unfortunately, there is no longer a "gas bubble" to tap--unless it comes in the form of LNG that must overcome severe infrastructure hurdles--and any "coal bubble" will be constrained by environmental concerns. In summary, the conventional, supply-based solutions available to us will not prevent the US from importing ever more oil, increasing our vulnerability to foreign suppliers.

Has the strategic dimension of oil grown large enough to override market economics? Even ignoring the possibility of an impending geological peak in global oil production, the global distribution of remaining oil reserves is shifting away from market-oriented countries like the US, UK and Norway and toward the Persian Gulf states, with high-political-risk areas like Russia and North and West Africa holding the balance. Venezuela, one of the key Atlantic Basin suppliers for the US, has turned its solidly professional state oil company into the political instrument of a leader who is starting to look like a Castro with oil. Geopolitics have become at least as import as economics in the oil market.

At the same time, the technology options available to us today are dramatically better than in the 1970s. Hybrid cars and renewable energy are more than just a dream, and alternative hydrocarbon technologies such as coal gasification, oil sands extraction, and gas-to-liquids are becoming mature and proven.

The central question for our national energy strategy is whether the situation we face lends itself to repetition of the successful strategies of the last energy crisis, or if the world and our place in it have changed so much that a new approach is essential. If the latter view prevails, we should be optimistic, because we have a wonderful array of options available to us. Either way the current crisis will eventually end, but it's up to us whether its resolution breaks the cycle or plants the seeds of crises to come.