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By Robert Rapier on Jun 19, 2010 with 123 responses

The Cost of Energy Independence

I have noted before that every president since Nixon has talked about the need to get the United States off of foreign oil and moving toward energy independence. Jon Stewart recently captured this theme in a very funny, but troubling segment:

An Energy-Independent Future


The Challenge

While Jon does a good job of demonstrating that this idea of reducing our dependence on foreign oil has been unsuccessfully pursued by eight consecutive presidential administrations, the question he asked but did not answer was why this has been such a challenge. So I will pick up where Jon left off and explain why we couldn’t get it done and what it would take to get it done. The technical issue isn’t really all that difficult, but the political challenge is enormous.

Production Peaks, Demand Increases

U.S. oil production peaked in 1970 at 9.6 million barrels per day, and today stands at 5.3 million bpd (Source). The average rate of decline since 1970 of U.S. oil production has been about 1.5% (an impressively low decline rate). But by the time U.S. oil production peaked, our oil consumption was already over 15 million bpd, and today stands at 18.7 million bpd (off from the high in 2005 of 20.8 million bpd). An increase in demand at the same time U.S. production has been falling is not a recipe for energy independence.

It is immediately obvious that if we use 18.7 million bpd and produce only 5.3 million bpd, we have to find a way to either

  1. Cut petroleum consumption by 13.4 million bpd (a drop of 72% from current rates);
  2. Raise petroleum production by that amount;
  3. Some combination of the two.

Economic Difficulty and Standard of Living

Since oil production in the U.S. only ever achieved about half of our current consumption rate and has fallen for 40 years, I think Option 2 is out of the question. In fact, I would go so far as to say the U.S. can’t raise production rates much beyond current rates, and with the public souring on offshore drilling we may find it very difficult to maintain current rates.

So that leaves us the option of reducing current petroleum consumption by 72% from current rates. This is of course why energy independence has eluded the U.S. For all of the talk of getting off of foreign oil, who is willing to cut their oil consumption down to about a third of what you currently use? I am not saying it can’t be done, but I am saying it can’t be done painlessly and without making some major adjustments. And that is ultimately why our political leaders have not managed to get it done. They are selling a sacrifice-free pipe dream.

The Game of Politics

In the clip above, presidents mention many different options for reducing our oil dependence. The problem is that they are all more expensive than oil, aren’t fungible with oil, and/or are themselves dependent upon oil. So politicians ultimately only pay lip service to the idea of energy independence (very popular) but don’t take tough measures (very unpopular) to actually achieve the goal.

But if energy independence is something that is very important to us, there is good news. We can probably do it by trimming away a lot of fat. Here is the speech that President Obama needs to make in order to explain how it is going to get done:

My fellow Americans. It has not escaped my attention that we use a lot of oil. Further, I have noticed that we consume over three times what we produce. This is a trend that has worsened over the past eight presidential administrations, but I am here to reverse the trend. Today, I am announcing a program that will move the U.S. on a path to energy independence by rationing petroleum beginning in 2011. Over the next five years we will reduce the amount of petroleum that Americans can use by 17% per year. This of course means that you need to start arranging your life in such a way that a 70% reduction in your petroleum usage over 5 years is manageable. Details of the execution of the program will soon be announced.

I recognize that this calls for sacrifice. If it were easy, energy independence would have already been achieved. But I sense that the public is ready to sacrifice some of their personal comforts for the benefit of an energy independent United States. It is possible that new domestic oil discoveries, renewable energy, nuclear power, and other alternatives are able to reduce the need for the full 70% cut in usage, but these sorts of promises have thus far not moved us very far along the path to energy independence. They have to date merely served as a nice delusion that energy independence can be achieved without sacrifice from most citizens by merely innovating our way out of this problem. Based on the trends for the past 40 years I think that is rooted more in hope than in reality, so we are going to try something a little different this time. This time, Plan A calls for sacrifice, and our former Plan A for the past 40 years – innovating our way out of this problem – will now become our hopeful Plan B.

Conclusion: Reality

So there is the path to energy independence for the U.S. in a nutshell. Based on today’s production/consumption figures, this would require a 70% across the board cut in our energy consumption down to per capita levels of countries like Russia, Jordan, Mexico, and Malaysia (potentially adjusted based on decline rates, new discoveries, and alternative energy). We would still use more oil per capita than Hungary, Chile, Thailand, Brazil, and South Africa, but we would need to come in at significantly less than the consumption of the E.U. (Per capita consumption levels for many different countries on a bbl/person/day level can be found at NationMaster.com).

That is realistically what I believe it would take to achieve energy independence. If you can’t imagine a U.S. president taking those steps, then you can well imagine why our foreign oil consumption has increased over those eight consecutive administrations. What we can expect to happen as we proceed down the path we are going is that eventually the market will force those reductions anyway by simply driving prices so high that we have to voluntarily slash consumption. Until then, if you enjoy the level of mobility you have today, you can thank the oil exporting countries for making that possible.

  1. By russ-finley on June 20, 2010 at 1:37 am

    I  watched that episode also. I think we can pull this off with more electrified transport fed with a nuclear enhanced renewable wind and solar energy grid. People will adjust to the lower range of electric vehicles as a trade off for no oil changes,  air filters, antifreeze,  air pollution tests, and on and on. Renting a car or truck for longer hauls may become more commonplace and less expensive. Electric motors dwarf an ICE when it comes to efficient use of available energy.

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  2. By russ-finley on June 20, 2010 at 1:57 am

    …and I’m not just whistling Dixie:

    Nissan Leaf

    Read the review over on Gas2.0.org

    Biodiversivist

     

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  3. By Rufus on June 19, 2010 at 11:50 pm

    Nah. Petroleum has always been Cheaper than the alterntives. The answer in a nutshell.

    Times is a’changin. Corn ethanol is, now, being produced, and sold profitably,( w/o subsidies to the farmer, or distiller,) for $1.60/gal.

    Various “Cellulosic” schemes seem likely to come in around $2.00/gal.

    Cars will soon be getting the same mileage on ethanol as on gasoline.

    This means gasoline is losing its status as the “best deal.” The Market will, albeit, with “fits, and starts,” take care of the rest.

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  4. By Rufus on June 19, 2010 at 11:51 pm

    Of course, the improvements in engine/hybrid technology will make a huge difference (maybe, the Biggest difference.) In my last comment on the last thread I noted that by allowing the automakers to meet the 35 mpg standard laid out by the gov. the new drivetrain technologies cut our need for gasoline almost in half – down to approx 75 B gpy for gasoline.

     

    It won’t be “smooth,” necessarily, nothing ever is in a “free” society; but, it’s eminently doable.

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  5. By rrapier on June 19, 2010 at 11:52 pm

    Times is a’changin. Corn ethanol is, now, being produced, and sold profitably,( w/o subsidies to the farmer, or distiller,) for $1.60/gal.

    Various “Cellulosic” schemes seem likely to come in around $2.00/gal.

    Of course that defines Plan A for the past 40 years in which we have seen our dependence grow sharply. So while I think you are wrong about those $2 projections (again, based on incorrect projections of cheap or free biomass) the good news is that if it can deliver then we have more energy than we thought. But given the 40 year history of failure to lessen our energy dependence, that plan should no longer be counted on as Plan A.

    RR

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  6. By Rufus on June 19, 2010 at 11:52 pm

    I think the new engine technologies, in the “short run” are, probably, “Plan A.” They are, pretty much, “here, now.” I think many of us overlook, sometimes, the statistic that something like 50% of our miles driven are in cars, 6 yrs old, and newer. So, a 40% decrease in gasoline consumed by 50% of our cars would yield a 20% decrease in gasoline demand within less than a decade.

    This, alone, would be a drop from approx 9 mbd of gasoline to 7.2 mbd. That’s pretty substantial.

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  7. By Rufus on June 19, 2010 at 11:52 pm

    And, of course, being able to eliminate the “mileage penalty” for ethanol will be huge. At that point, E85 doesn’t have to sell for 25% less than gasoline. 5% would be just fine.

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  8. By rrapier on June 19, 2010 at 11:53 pm

    I think the new engine technologies, in the “short run” are, probably, “Plan A.”

    No, the real Plan A will be what it has always been. Politicians will hold out hope for the things you have laid out – and that trend has been consistent for 40 years – while in the real world high prices crush demand. As long as we can get imports, price won’t crush demand down to production levels, but if our imports get squeezed that is what will happen.

    RR

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  9. By Rufus on June 19, 2010 at 11:53 pm

    Prices Will rise, of course, and that Will “crush” demand. That’s why I’ve said for several years that GDP over the next decade is going to expand, and contract like an accordion. I expect a heck of a “bumpy” decade.
     

    That being said: You Can’t ignore the present reality; and, the present reality is that the “new” engines are “Here,” and “Now,” and having an impact (smallish, now, but growing.)

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  10. By rrapier on June 19, 2010 at 11:54 pm

    That being said: You Can’t ignore the present reality; and, the present reality is that the “new” engines are “Here,” and “Now,” and having an impact (smallish, now, but growing.)

    Again, that is the story for the past 40 years. Engines have advanced, technologies have improved, and new technologies have come onto the scene. Politicians have had unrealistic expectations on what these things can deliver, which is why we are where we are.

    What you suggest above is no different than the status quo that has us where we are. The names of the players change, but the unrealistic expectations always lead to the same result. “It will be different this time.” Famous last words.

    RR

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  11. By Rufus on June 19, 2010 at 11:54 pm

    It occurs to me that our economy usually starts heading in a southerly direction when Joe Sixpack’s cost per mile starts getting up in the $0.15 to $0.20 range. At present, that’s around $3.00/gal for gasoline. If his car is getting 30 mpg he’s good up to $4.50/gal. (say, $150.00 bbl Oil.)
    As I said, it won’t be smooth; but it looks pretty inevitable to me.

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  12. By Rufus on June 19, 2010 at 11:54 pm

    Well, actually, “where we are” is a place with an unbelievably Good Standard of Living.
    I don’t have Any interest in a classic “doomer vs cornucopian” whinefest. What I am interested in (and, I believe this applies to most people (Oil Drum denizons, excepted,) is what I can see, and “reasonably” extrapolate. I see how advanced computer chip technology has led to some incredibly efficient engines starting to hit the market.

    I could give a whit what some politician may, or may not have said in the past, or what he/she will say in the future. I see an economy that hums along pretty good at $0.10/mile, and stalls at $0.20.

    I see 2.0L DI, Turbocharged engine getting ready to hit the showrooms that turns 220 hp, and gets approx. 28 mpg on E85 while pushing around a fairly comfortable sedan. I’m seeing Priuses, Fusion Hybrids, and the like getting even better mileage. I see a Chevy Cruze coming out at 40 mpg w/o batteries. And, yes, I know, I’m leaving out all kinds of really, really efficient little screamers from VW, Honda, et al.

    This is Reality. This ain’t “hype” from a politician. These are Affordable cars that many/most people will want to own. These cars WILL make a difference. A Sizeable Difference.

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  13. By rrapier on June 19, 2010 at 11:55 pm

    Well, actually, “where we are” is a place with an unbelievably Good Standard of Living.

    Made possible by our very heavy dependence on oil imports. That is ultimately the issue here. We do have a very nice standard of living. The question is whether we can maintain it if the Saudis decide not to supply us with oil, or whether we could sustain it if we tried to achieve energy independence.

    I’m seeing Priuses, Fusion Hybrids, and the like getting even better mileage.

    You must not have seen the Jon Stewart clip, because he has clips of those politicians talking about numerous things on the horizon. Some of them make a little difference; even with all of that we have moved away from energy independence.

    RR

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  14. By Rufus on June 19, 2010 at 11:56 pm

    I saw the Jon Stewart clip. I, Also, saw those politicians when they said those things. I go to Jon Stewart’s show to get a laugh, not to learn politics. I’ve been paying attention to sleazy politicians for most of my 60+ years.
    But, the “Real” world has changed a lot in those six decades, and the beauty of our system of government is “Politicians come, and go, but the Real world, mostly, rules.” This is the first time in the “Real’ world, not some politician’s fevered imagination, that we have real, honest to goodness, alternatives.

    Advances in Computer technology are not connected to babbling politicians. Nor is the advent of hybrid/electric technology. Nor are the huge advances in “enzyme/yeast”/gene splicing technology. 164 bu/acre corn was brought to us by Monsanto, not Clinton, or Bush. The “Real” world pushes on.

    At Today’s prices we could, easily, produce $2.10 E85 at the pump With No Subsidies. That’s just a fact. Regardless of how we got here, we are Here. Not, someplace else. As long as Gasoline is $2.55, or higher, the economics favor Ethanol over Gasoline for my Flexfuel Chevy, with, or without subsidies. That’s just a fact. This is a “first time in History” occurrence. That’s a “game-changer.”

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  15. By rrapier on June 19, 2010 at 11:57 pm

    Rufus: I saw the Jon Stewart clip. I, Also, saw those politicians when they said those things. I go to Jon Stewart’s show to get a laugh, not to learn politics.

    The Daily Show contains a lot more truth at times than you will find in the MSM. The fact is those politicians said those things then for the same reason you are saying them now: They were making projections of where technology is going. That’s all you are doing. When you say “here today” you don’t really mean that. What you mean is that you think soon there will be a transformation that will bite in that 13 million bpd deficit. That’s what the politicos always believed, though.

    Rufus: As long as Gasoline is $2.55, or higher, the economics favor Ethanol over Gasoline for my Flexfuel Chevy, with, or without subsidies. That’s just a fact.

    Every time you say this, someone goes to the trouble to dig up various corn subsidies to show that it isn’t a fact. Then a week or so goes by, and you just repeat this again.

    RR

    P.S. I had a malfunction this morning that caused a forum topic to not be created initially. I have since fixed it, but there are 11 posts following the article that aren’t in the forum.

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  16. By Gail Tverberg on June 19, 2010 at 11:57 pm

    The one place I might differ with you is on what cuts off the imports. If it is an oil price spike, I expect the price spike will be very brief. What will cut off imports more than the price spike is the layoffs and debt defaults resulting from the price spike, since if oil prices spike very high, consumers will cut back on discretionary goods, and some may miss debt payments. Or it may be that credit is what cuts off the oil in the first place–too many international debt problems. I agree that one way or another supply is likely to be cut off–it just is likely to be more complex than high prices alone.

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  17. By Benny BND Cole on June 20, 2010 at 2:04 am

    The price signal can accomplish a lot.

    Recently, a friend of mine decided not to buy a Nissan hybrid, as it cost $5,000 more, and she only commutes a short distance to work. She then added that she bought optional leather seats ($2,500). She considers herself an environmentalist (she also will not give up bottled water).
    If gasoline were taxed an additional $2.00-$3.00 a gallon, I have a feeling she would forego the leather seats. and get the higher mpg model.

    The second step would be to encourage a national buildout of CNG stations. Such stations are common in Thailand, and CNG cars and trucks work fine. You get less mileage per fill-up, but it is cheaper. Again, if gasoline costs $6.00 a gallon, and a CNG equivalent is $3.00, then we will see consumers migrate to CNG.

    The PHEV is yet another option, and again, at $6 a gallon, the GM Volt becomes a hit.

    My guess is with a policy of raising domestic gasoline at the pump to $6, we would see annual declines in oil consumption in the 5 percent range.

    BTW, Ford is doing great things with their cars. Imagine this–they are selling a luxury car that gets 41 mpg in the city.

    DETROIT (Dow Jones)–Ford Motor Co.’s (F) 2011 Lincoln MKZ hybrid will be among the most fuel efficient vehicles in the U.S., offering consumers 41 miles per gallon in the city and 36 miles per gallon on the highway.
    The figures–certified by the Environmental Protection Agency this week–tops the Lexus HS 250h, which leads the luxury sedan segment with 35 miles per gallon in the city and 34 on the highway.
    Auto makers are intensifying their push to land bigger mileage EPA certifications in a bid to distance themselves from their competitors and attract shoppers who are buying based on fuel efficiency.
    What is still unknown is how many luxury consumers are considering the miles per gallon when it comes down to making a purchase.
    Sales in the luxury hybrid market–where Lexus, Cadillac and Mercedes Benz compete–are still small. Hybrid sales overall made up less than 3% of the market last year.
    The numbers, however, will be a welcomed boost for Lincoln-Mercury dealers after Ford said it plans to kill the Mercury brand by the end of the year.
    The MKZ hybrid will be powered by a 2.5-liter, four-cylinder engine and electric motor. It can travel as fast as 47 miles per hour in just the electric mode.

    This is really amazing, a luxury car that gets 41 mpg. Makes you wonder about those really dinky cars (Smart Cars) that get only 30+ mpg. Ford has radically improved their lineup under their new CEO, who has an engineer background. I have no connection to Ford, but the reviews on their p-u trucks and Mustangs have been very favorable, and now they have a 41-mpg luxury car on the market.

    At $6 a gallon, I think we go to 10 mbd of consumption in 10 years, and steadily down from there. The boom to our economy would run in the hundred of billions annually from decreased imports, and we could cut middle-class taxes with the increased gas tax revenues.

    This is the speech Obama should give (apologies to RR).

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  18. By klr on June 20, 2010 at 3:38 am

    Efficiency in transportation will have to be sustained.  The 50% MPG gain from 1978-1985 which then flatlined only dropped US gasoline consumption to 88.22% of its peak 1978 value – in 1982, where it then commenced to climb once again due to low prices. 

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  19. By Frank Weigert on June 20, 2010 at 7:34 am

    It is immediately obvious that if we use 18.7 million bpd and produce only 5.3 million bpd, we have to find a way to either 1). Cut consumption by 13.4 million bpd (a drop of 72% from current rates); 2). Raise production by that amount; 3). Some combination of the two.

    Option 4: Replace crude with renewable and sustainable hydrocarbons produced by plants, most likely algae.

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  20. By Duracomm on June 20, 2010 at 11:01 am

    Rufus, showing he does not even understand the root issues said,

    Nah. Petroleum has always been Cheaper than the alterntives. The answer in a nutshell.

    Wrong. Petroleum was the only thing that could meet the demand for energy.

    No, other substance, at any price, could.

    Well, coal to liquids might be feasible from a supply standpoint but the economics fail completely.

    The same way ethanol’s economics fail completely without massive government subsidies and mandates.

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  21. By Wendell Mercantile on June 20, 2010 at 11:48 am

    Here’s the reason why we haven’t been able to achieve energy independence:

    We are addicted to the luxurious and comfortable lifestyle that comes with consuming large amounts of energy. We aren’t addicted to oil — we are addicted to burning vast quantities of energy to make our lives better.

    It’s just that so far — since about 1910 anyway — oil has been the most abundant and least costly source of that energy.

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  22. By rrapier on June 20, 2010 at 2:22 pm

    Option 4: Replace crude with renewable and sustainable hydrocarbons produced by plants, most likely algae.

    Frank, that would fall under the reduced consumption of oil option. We need to reduce oil consumption. If alternatives can fill some of that gap without needing additional petroleum to do so, then that would be a bonus.

    RR

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  23. By Rufus on June 20, 2010 at 3:30 pm

    Benny nailed it. A “luxury” car used to get 10 mpg of gasoline. Now, we’re driving Luxury Cars that get 40 mpg. Next year that will be 40 mpg on 85% ethanol. A lot of people will buy a car like that.

    A lot of people will be like me. I’m a retired, couch potato. I probably don’t drive over 4,000 miles/yr; but, when I do drive I don’t want to worry about range. I, also, probably wouldn’t want to shell out an extra Five Thousand for batteries. I’ll probably buy something the size of a Malibu, which by that time should be getting 35 mpg, or so, on E85.

    Some folks will opt for the pure “electric” like the leaf. Your pickups will be running mostly “displacement on demand.”

    This isn’t “pie in the sky.” As Benny pointed out, It’s happening, Now. It’s going to be “bumpy,” but, hard as it is to believe, we’re going to work through it.

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  24. By LittleWally on June 20, 2010 at 4:58 pm

    I get amused when the energy illiterati scream that we have to
    change our energy policy to get off of oil.  In addition to their
    complete denial or ignorance of the scale of the task (as this post
    tries to point out) I think few of them understand the major changes
    that have been made in the last several years that have already put us
    on the path to a reduced reliance on petroleum.  We just have to sustain the effort.
    1) Clearly the RFS2
    is hugely significant as national policy to identify alternative liquid
    fuels to petroleum.  It is hugely ambitious and its relatively slow
    progress is indicative of the difficulty of that task, but I am
    confident the next decade will identify at least two or three
    technologies that will become commercially viable.  Maybe even electric
    cars will make a meaningful dent in oil consumption. 
    2) the Bush
    EPA and now the Obama administration have promulgated rules that require
    increased CAFE for cars and light trucks.  35 mpg for cars and light
    trucks by 2020.  That is huge.  And Obama wants those gains by 2016! 
    Combined, those polices are already pushing the envelope and have our
    economy and society moving at dramatic speed relative to energy policies
    of the last 40 years.  It’s not clear to me how the government can make
    things happen all that much faster??  As noted before, those
    improvements will also have to be sustained far past 2016 or we’ll soon
    be right back where we started.

    Society and individuals can
    accelerate the current pace if they are willing to make the economic and
    lifestyle sacrifices that RR alludes to here, but that is the biggest
    variable, and one I’m nowhere near as optimistic about.  Maybe the
    Deepwater Horizon will finally sensitize the population to accept that
    personal responsibility, but if 9-11 couldn’t, I’m not so sure a few
    million barrels in the GoM will do it either.

    To me, we’ve
    already turned the corner away from petroleum, but it just is going to
    take a while to make any meaningful dent in the current situation.  It’s
    not easy to speed things up without major technological breakthroughs
    (e.g., batteries, algal biofuels), and there has to be 30 years of
    sustained focus on efficiency and alternatives.  If there are
    breakthroughs in alt fuels that actually make them cheaper than oil (as
    the biofuels industry has predicted for 30 years or more), then
    presumably oil consumption should drop as quickly as that new alt fuel
    production comes on line, so no need for mandates etc. since the private sector will be throwing up new plants like the corn ethanol boom in 2006-07.   But it’s a big mountain
    to climb – even the huge initiatives for ethanol of the last 5 years
    are only making a teeny 1% displacement of current US oil consumption.  Conservation / efficiency can get us a lot farther a lot faster.

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  25. By Wendell Mercantile on June 20, 2010 at 5:18 pm

    Next year that will be 40 mpg on 85% ethanol. A lot of people will buy a car like that.

    But not our Rufus. ;-)

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  26. By Rufus on June 20, 2010 at 5:49 pm

    Last week we consumed 840,000 Barrels of Ethanol/Day.

    That’s a heck of a lot more than 1%.

    There’s something else that’s not being taken into account. Even if “Cellulosic” Ethanol cost $3.00/gal at the pump, due to the fact that it would be produced, and consumed, locally, it would not be nearly as economically damaging as $3.00 gasoline made from “Imported” oil.

    If, however, Poet, Novozymes, Dupont-Danisco, Fiberight, et al are Not wrong, and cellulosic can be produced, and sold, locally, for between $2.50, and $2.75/gal, and will be burned in vehicles averaging 35 mpg you’re looking at fuel costing approx Seven to Eight Cents per Mile. This folks, takes all “Doomer” Scenarios Off the table.

    And, quite honestly, this looks like it just might be where we’re going.

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  27. By OD on June 20, 2010 at 5:53 pm

    The question is whether we can maintain it if the Saudis decide not to supply us with oil, or whether we could sustain it if we tried to achieve energy independence.

    Does Saudi really matter that much, to the US at  least, since they are suppying just over 1 mbd? It seems Iraq or even Canada(a few years out) could more than make up that difference. Of course if Saudi stops exporting, that puts a crunch on the world export market. I would think Mexico is a more important exporter to the US.  As long as the US remains the #1 cereal exporter, I think that gives some leverage on oil imports. I think we’ll see a time in the not so distant future where oil will be traded for valuables, not monopoly money. Food exports to Saudi(from the US) increased by over 30% just in 2009..

     

    Peak oil means we all get poorer and the third world.. well I don’t even know what happens to them. Frown

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  28. By Rufus on June 20, 2010 at 5:54 pm

    “Our Rufus” is a Simple man, Wendell. His moonshine-sippin, Flexfuel Impala suits him to a “T.” :)

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  29. By little wally on June 20, 2010 at 10:10 pm

    Rufus, the math is not that difficult. I was simply using the latest full year data, 2009, and average daily ethanol production was 700,000 bbls, which is the equivalent of 463,000 bbls of gasoline. We used about 18.7 mil bbls of petroleum per day last year, so that means 30% of our corn crop displaced 2.5% of our petroleum consumption. If you subtract out the petroleum inputs to ethanol production, and account for the processing gains of an extra gallor or two per barrel, then you are a lot closer to 1% than you would want to believe. The phrase “damning with faint praise” comes to mind.

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  30. By DM on June 21, 2010 at 11:24 am

    ‘It is immediately obvious that if we use 18.7 million bpd and produce only 5.3 million bpd, we have to find a way to either 1). Cut consumption by 13.4 million bpd (a drop of 72% from current rates); 2). Raise production by that amount; 3). Some combination of the two.”

    I’m not sure if it’s actually a 13.4mbpd cut that’s required, Robert. According to the latest Oil Watch Monthly the actual U.S import requirement is now more like 10.7mbpd, or 57.2% of current consumption:

    “Oil imports in the United States increased by 78,000 b/d from 2nd qrt. to 3rd qrt. 2009 to a level of 10.64 million b/d. Average oil import in the United States in 2009 up to 3rd qrt. was 10.68 million b/d, versus 11.43, 11.55 and 11.77 million b/d in respectively 2008, 2007, and 2006”

    The difference between the 13.4mbpd figure you cited and the 10.7mbpd in Oil Watch Monthly is probably due to domestically produced natural gas liquids and biofuels substituting for some imported oil. I noticed that the EIA link you cited referred to 5.3mbpd crude oil production. I believe U.S. all liquids production is closer to 8mbpd if you include natural gas liquids and biofuels.

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  31. By jcsr on June 21, 2010 at 12:09 pm

    OD, the new kid on the block seems to be a little more practical than most of the commenters. There are ten million unemployed in America and God knows how many there are uncounted and there for conveniently not counted by the administration in power at the present. These people are not or at least shouldn’t be buying new cars. The cars they are driving will soon become rattletraps and soon after they will hopefully consider mass transit. This seems to be the only way we will cut down on our gas consumption.

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  32. By Wendell Mercantile on June 21, 2010 at 1:17 pm

    This seems to be the only way we will cut down on our gas consumption.

    Or start riding bicycles. Almost everyone — except those crippled or seriously ill — could use a bike for trips of five miles or less. Look at what they do in the Netherlands, where it is common to see even 70 to 80 year old Dutch men and women riding their bikes to the next town, to go shopping, or to the train station for mass transport. At the large Dutch train stations it’s common to see thousands of bikes parked after their owners rode to the station to catch a train. Fietsen op de Nederlandse station

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  33. By rrapier on June 21, 2010 at 2:20 pm

    I’m not sure if it’s actually a 13.4mbpd cut that’s required, Robert. According to the latest Oil Watch Monthly the actual U.S import requirement is now more like 10.7mbpd, or 57.2% of current consumption:

    Hi DM, you are correct that the actual requirement would be lower. I did not include ngls or oxygenates in the mix, but should have. If I update this, I will put those in for completeness. However, it won’t change the overall thrust that the real problem is using far more than we produce.

    Thanks, RR

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  34. By jcsr on June 21, 2010 at 4:08 pm

    Whoa, that’s a lotta bikes, WM. Probably as much as is stored in every American’s basement, garage and shed from that one time idea they should be getting a little fresh air and exersize. I hear the Chinese are really digging electric bikes now.

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  35. By OD on June 21, 2010 at 4:16 pm

    DM, do you happen to have statistics like those for Europe? I’m very curious what their imports are doing.

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  36. By Benny BND Cole on June 21, 2010 at 5:57 pm

    I have another observation: The title of RR”s essay should not be “The Cost of Energy Independence,” but rather “The Cost of Energy Dependence,” or “The Huge Opportunity in Energy Independence.”

    I know about the benefits of free trade, and I wish everywhere there were democracies that engaged in free trade amd humanitarian missions to poor nations, and there were no wars.

    But reality is that the world’s crude is largely controlled by thug states, and we import hundreds of billions of dollars of oil, and sell nothing back but more and more IOU’s. We are vulnerable to cutoffs and whims of tinpot tyrants, and the trade imbalance shrinks the US economy. Even beyond that, we are vulnerable to sudden $100 swings in the price of oil and NYMEX manipulators and speculators.

    Therefore, should we move to energy independence, huge benefits would accrue to the US people and economy. More jobs here, a larger economy here, and less leverage by thug states.

    I wonder if RR’s understandably sober approach to energy issues sometimes results in a negative cast to what is actually a huge potential boon and boom for the USA.

    A huge multi-hundred-billion shot in the arm for Americans–that is what energy independence would be. Not a “cost.”

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  37. By DM on June 21, 2010 at 7:02 pm

    Hi OD. Rembrandt Koppelaar had this to say on page 19 of his June Oil Watch Monthly PDF:

    “OECD Europe oil imports
    Oil imports from OECD Europe decreased by 14,000 b/d from 2nd qrt. to 3rd qrt. 2009 to a level of 12.02 million b/d. Average oil import in OECD Europe in 2009 up to 3rd qrt. was 12.01 million b/d, versus 12.98, 13.05 and 13.18 million b/d in respectively 2008, 2007, and 2006.”

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  38. By jcsr on June 21, 2010 at 8:41 pm

    Little Wally says maybe even electric cars may help. Today, Eco-geek.com says MIT has developed carbon nanotubes to enable Li ion batteries much longer range and longer life. They have already sold the patent to an unnamed maker and are working on efficient production models. Who says new technologies will not get us out of our quandaries?

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  39. By OD on June 21, 2010 at 11:49 pm

    Thanks DM, I did not realize EU imports that much more than the US.

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  40. By od on June 22, 2010 at 12:02 am

    jcsr, I had read that today as well. Very good news. I hope it pans out.

     

    Now just wait for all the naysayers to say the grid can’t handle more than a few million electric cars Wink

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  41. By LittleWally on June 22, 2010 at 7:42 am

    Here’s an updated version of a familiar and important topic to this group – Net Energy Balance of Corn Ethanol

    USDA updates their 2004 analysis with 2008 survey data, stating that NEB of corn ethanol has increased from 1.76  to 2.3.  That should generate a little bit of discussion – 2008 Energy Balance for the Corn-Ethanol Industry   

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  42. By Wendell Mercantile on June 22, 2010 at 10:22 am

    USDA updates their 2004 analysis with 2008 survey data, stating that NEB of corn ethanol has increased from 1.76 to 2.3.

    Little Wally~

    That’s wonderful news. If true, that means the end of our energy problems. An EROEI of 2.3 means the ethanol industry never needs to use another fossil fuel input, and that they can just keep reinvesting some of the energy they make, year after year and watch it grow exponentially.

    Example:

    2011 ~ Invest 100 units of energy, get back 230 units of energy.
    2012 ~ Sell 100 units, reinvest the other 130, get back ~300 units.
    2013 ~ Sell 150 units, reinvest the other 150 units, get back 345 units.
    2014 ~ Sell 175 units, reinvest the other 170 units, get back 391 units.
    2015 ~ Sell 200 units, reinvest the other 191 units, get back 493 units, ad nauseum until we have energy flowing out our ears.

    With a return ratio of 2.3, they can increase the amount they sell each year; increase the amount they reinvest; plus continually increase the total amount of energy returned.

    That ratio of 2.3 means they can do all of the above without needing to use any fossil fuel energy inputs. I guess we can now thumb our noses at the Middle East, can’t we?

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  43. By Thomas on June 22, 2010 at 12:48 pm

    LittleWally said:

    Here’s an updated version of a familiar and important topic to this group – Net Energy Balance of Corn Ethanol

    USDA updates their 2004 analysis with 2008 survey data, stating that NEB of corn ethanol has increased from 1.76  to 2.3.  That should generate a little bit of discussion – 2008 Energy Balance for the Corn-Ethanol Industry   


     

    RR: Can you take a look at that report if you haven’t already?  The one thing that jumps out at me is that only 66% of the input energy is counted because that’s the starch fraction of the corn.  That appears to be a new (and arbitary) way to evalute the energy balance.

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  44. By rrapier on June 22, 2010 at 1:20 pm

    RR: Can you take a look at that report if you haven’t already? The one thing that jumps out at me is that only 66% of the input energy is counted because that’s the starch fraction of the corn. That appears to be a new (and arbitary) way to evalute the energy balance.

    I did look at it as soon as I saw it. They have always been able to shift the balance around by allocating energy inputs into byproducts. The bottom line here is 53,785 BTUs (estimated with a computer model) to produce 76,000 BTUs of ethanol. But then they say “Some of that energy went toward making the byproducts”, and they subtract out 20,409 BTUs from their inputs. Voila – only 33,375 BTUs used to make ethanol. I have said before that in this manner you could make the energy balance anything you wanted – just allocate more to the byproducts.

    I am not saying that you should allocate nothing to byproducts, but I don’t think subtracting from the inputs is the right way to do it. That is certainly not the way you would treat this if it were a financial calculation. (Well, a Bear Stearns might).

    The other thing I noticed is that the farming inputs in Nebraska are still about double those of Iowa. I need to break out Nebraska separately, because the energy balance there may not be positive even by their methods.

    The final thing I would point out is that they usually write the caveat that this is a narrow boundary analysis. In other words, they don’t consider secondary inputs like energy to produce farm equipment, the ethanol plant, etc. At one time they said “We know those need to be included, but we aren’t sure how to do it.” Now they seem to have just dropped it.

    But I will say that this is an improvement over the previous balance. I will need more time to dissect it.

    RR

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  45. By Wendell Mercantile on June 22, 2010 at 2:16 pm

    In other words, they don’t consider secondary inputs like energy to produce farm equipment, the ethanol plant, etc.

    They also don’t consider the energy used to produce the hybrid seed corn.

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  46. By Biocrude on June 22, 2010 at 3:18 pm

    From the Conclusion section at the end of the recent USDA Report Net Energy Balance of Corn Ethanol:

    “A dry grind ethanol plant that produces and sells dry distiller’s grains and uses conventional fossil fuel power for thermal energy and electricity produces nearly two times more energy in the form of ethanol delivered to customers than it uses for corn, processing, and transportation. The ratio is about 2.3 BTU of ethanol for 1 BTU of energy in inputs, when a more generous means of removing byproduct energy is employed.

    Some dry mills are already using up to 50 percent biomass power. The energy output for these plants is near 2.8 times energy inputs, even using the conservative byproduct allowance. As processors master the logistics of handling bulky biomass, the energy balance ratio could reach 26 BTUs of ethanol per BTU of inputs used.

    Overall then, ethanol has made the transition from an energy sink, to a moderate net energy gain in the 1990s, to a substantial net energy gain in the present. And there are still prospects for improvement.”

    Look at how far we’ve come from the old car phones to the iPhone in terms of improvements!  Petroleum is only going to continue to get harder and more difficult to extract, while renewables will continue to become more and more efficient; even corn ethanol!  This is not going to be easy, and it is going to be expensive.  The only thing more costly is continuing to do nothing…

    RR- Question for you.  How do you weigh/calculate the subsidies that the petroleum industry enjoys?  Has anyone ever included the cost of protecting oil shipping lanes around the world?

     

     

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  47. By rrapier on June 22, 2010 at 3:52 pm

    Some dry mills are already using up to 50 percent biomass power.

    I would like to see a list of those plants and a breakdown of their power. Bottom line as I said above is I am glad to see improvement, but this is still an accounting trick that would get a financial firm into trouble. I will go into in a later essay.

    RR- Question for you.  How do you weigh/calculate the subsidies that
    the petroleum industry enjoys?  Has anyone ever included the cost of
    protecting oil shipping lanes around the world?

    I don’t view those as so much subsidies for the petroleum industry as subsidies for the consumer. Various people have tried to include those sorts of things into the cost of fuel, and some come to absurd conclusions. But I am a firm believer that we don’t pay the full costs of our fuel, and if we did we would use less of it. So I am in favor of eliminating any and all subsidies and paying those directly with the cost of fuel.

    RR

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  48. By Electric Guy on June 23, 2010 at 12:35 am

    OD

    The US grid can handle all the BEV that US consumers might buy.  It will come from 100% domestic fossil fuels.

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  49. By russ on June 23, 2010 at 7:23 am

    @ OD & Electric Guy – That may be true only if the cars batteries were charged between midnight and 6 AM – when the grid is under utilized. When you are on the verge of a brownout, CA style, do think it can handle any battery charging or increased demand?

    The local distribution (close to home or the last mile) is far more difficult – there would be a high increase in demand that the system was not designed to cope with. İf a number of people start charging at the same time what happens?

    Making blanket statements is just a bit dangerous unless you are an expert on the topic. 

     

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  50. By Electric Guy on June 23, 2010 at 1:46 pm

    Russ adding BEV denabd to the grid will occur slowly and utilities will be able to adjust to demand.  There is a large reserve margin 99% of the time.  Also, it the grid can a steel mill firing up, it can handle radom 30 amp loads connecting.

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  51. By OD on June 23, 2010 at 3:50 pm

    Electric Guy, so the 20% we already get from nuclear is going away? I do get your point and I agree.

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  52. By OD on June 23, 2010 at 3:52 pm

    Russ, I think that is something that the market will work out. If someone wants to pay peak rates to charge their car right after work.. so be it. I believe most will opt for non-peak charging hours. I have also read about being able to program when your car will charge, that will make it a non-issue.

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  53. By Electric Guy on June 23, 2010 at 7:50 pm

    OD there is no excess nuke or renewable energy capacity in thr US looking for demand growth.  In France, most of the year the demand for electricity is less than the capacity of nuke plants.  Therefore, BEV demand woiuld increase energy indpendance and reduce ghg emissions in France.

     

    The ablity to make electrcity will not be a barrier to BEV.  I do not think BEV will ever be more than a novelty so we have a way before we have to worry.5

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  54. By Jim Cramer on June 28, 2010 at 2:06 am

    ENERGY INDEPENDENCE AND ENERGY FUNGIBILITY
    Your title “The Cost of Energy Independence” is misleading. Energy independence is extremely different from independence on foreign oil. Both depend on global trade and our belief in supporting free markets. Currently, oil is globally fungible. If we produce 100% of our oil domestically, we will still NOT BE INDEPENDENT unless you want to implement trade barriers and create government restrictions on private US corporations selling oil to other countries. If foreign oil prices are higher, US producers would sell oil to foreigners and therefore push up domestic US oil prices. It’s simple supply and demand. True free market advocates will not flip-flop on this.

    Currently, alternative forms of energy are not fungible with oil (as you said in your blog). However, international electricity trade has grown significantly. Electricity transmission and storage technologies should continue to advance. Once an infrastructure is in place for electricity trade between the US and the BRIC countries, all energy will be fungible. If we produce solar, wind, and nuclear energy in the US, we will still not be energy independent, if domestic producers are allowed to sell electricity to other countries. US energy prices would be highly dependent on global energy prices. I believe in free trade. I am NOT advocating for protectionism. I am simply pointing this out.

    CARBON TAX
    You have not specificed what mechanism you plan to implement to “reduce the amount of petroleum that Americans can use by 17% per year.” If you are only referring to imported petroleum, what trade barrier would you choose: import quotas and/or tariffs? If you are referring to all petroleum, then what laws you implement for domestic producers: restrict the amount they can sell in the US or use sales taxes? If this is only applied to foreign producers, significant cheating would occur unless the government significantly increased its audit and policing of the industry. Domestic production would increase, but how much would be real domestic production or smuggled foreign production.

    Your 17% reduction per year assumes an increase in production of about 40% over five years from 5.3 million bpd to 7.4 million bpd (i.e. 18.7*(1-0.17)^5). That’s more than half way back to our peak production.

    70% reduction over five years would require an extreme price increases at the pump. Whatever the mechanism you choose, it is equivalent to a carbon tax on petroleum.

    $30 PER GALLON AND ELECTRIC CARS
    Prices at the pump would have to be extreme. How extreme depends on estimates of price elasticity which vary considerably. If you take a demand elasticity of -0.25 and assume it is linear, that would mean you would have to increase gasoline prices by 68% to get your 17% reduction. You would have to continuously increase prices through additional taxes for your entire five year period. Obviously, elasticity is not linear. However, it is not unreasonable that gasoline prices would have to be over $30 per gallon in five years to get a 70% reduction in petroleum use in five years.

    To shoot for a 70% reduction over five years is no different than having goal for 99% reduction. These are extremes numbers that would, at the worse, create economic destruction of our country; or at the best, lead to a near complete transition to electric cars, ethanol cars, nat gas cars, hydrogen cars, etc.

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  55. By paul-n on June 28, 2010 at 2:00 am

    Russ said

    The local distribution (close to home or the last mile) is far more difficult – there would be a high increase in demand that the system was not designed to cope with. İf a number of people start charging at the same time what happens?

    This fact is often overlooked.  Many suburban lines, and transformers, are at or near capacity. The “same house” load has been increasing steadily for decades.  The first thing that usually happens in any home renovation is an increase in the capacity of the electrical service. 

     

    Here in Vancouver, there is a move to densify by building “laneway housing”, but a stumbling block is that many of the suburban lines and/or transformers are at capacity. Upgrading a transformer is relatively easy, but a line is more complicated.

    And, of course, the more affluent areas where the EV’s are likely to appear are the ones that have grown their load the most…

     

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  56. By Jim Cramer on June 28, 2010 at 2:03 am

    Very extreme!!! This makes Obama’s Cap and Trade a gnat on the rear end of your proposal of 70% reduction of petroleum consumption in five years. At times you even said 70% reduction in all ENERGY consumption–even more extreme–I guess you meant petroleum. You want to accomplish this regardless of any transition to alternatives or energy efficiency.

    Have you done any macroeconomic analysis on this. Your comparison to Russia, Jordan, Mexico, and Malaysia suggest that you did not. Let’s look at per Capita GDP in 2009:

    US $46,381
    Russia $14,920
    Jordan $ 5,620
    Mexico $13,628
    Malaysia $13,769

    Let’s make a better comparison. You want the US to reduce its petroleum consumption to at least 7.4 million bpd (i.e. 18.7*(1-0.17)^5) or possibly to 5.3mm bpd, depending on your calculations. Using the larger number, this takes us back to the 1952 consumption of 7.27 million bpd. In 1952 our GDP per capita was $2,277. However, to be fair, these numbers should be adjusted for both inflation and international constant prices. The Penn World Table is an excellent source for the data.

    Country Year GPD per capita (PWT, in 2005 $)
    Jordan 2007 5,165
    Malaysia2007 17,893
    Mexico 2007 11,203
    Russia 2007 13,401
    USA 2007 42,897
    USA 1952 13,660

    Very interesting. 1952 US GDP when adjusted for inflation and international prices is almost exact that of Russia in 2007. Do you think their could be a link between GPD and oil consumption? A good review of supply and demand of petroleum that covers some of these concepts is “Understanding Crude Oil Prices” by James D. Hamilton, UCSD, 2008.

    Without a quick transition to alternatives, your proposal would be disaster to our economy.

    By the way, I am also a chemical engineer (B.S., Illinois).

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  57. By rrapier on June 28, 2010 at 3:18 am

    Without a quick transition to alternatives, your proposal would be disaster to our economy.

    Jim, your posts sum up why the previous 8 presidential administrations could not get us off of foreign oil. It WOULD take some extreme proposals; the fact that it hasn’t been accomplished should signal that it isn’t easy.

    And while there is certainly a GDP component, there are also countries far more oil efficient at producing GDP than we are.

    RR

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  58. By Jim Cramer on June 28, 2010 at 4:28 am

    While reading your blog on ethanol, I came across that you said the following:

    Fossil fuels have been consumed at an unsustainable rate over the past century. We won’t get away with it for another century. Nature is going to inevitably force the world to a more sustainable way of life, which I think has the potential to hit the U.S. quite hard as supplies deplete and fossil fuel prices climb.

    The point of being proactive with an energy policy is to smooth this transition rather than create an oil shock. You were talking in time frames of 100 years. Now you are talking a 70% reduction in five years. This to me is a more extreme shock than the one that would eventually occur due to the natural depletion of global supply.

    For what purpose? Do you fear Saudi Arabia? We only get approximately 10% of our imports from Saudi Arabia (about the same amount we get from Venezuela). They can’t extremely cut-off supplies without extremely hurting themselves and the rest of the world. Oil is fungible. Chavez’s success is about the increase in oil prices since the late 1990s when oil went below $10 per bbl. Do you think he is not aware of that? Your 70% reduction will do way more damage than what OPEC COULD do to us.

    Let’s look a some numbers since the US hit peak oil supply.

    US GDP:
    1970 $1.038 trillion
    2010 $14.62 trillion (1400% increase over 1970)

    US Population:
    1970 179 million
    2010 310 million (73% increase from 1970)

    US Inflation:
    1970 $1
    2010 $5.50 (550% increase from 1970)

    US Oil Consumption (your numbers):
    1970 15.0 million bpd
    2010 18.7 million bpd (25% increase from 1970)

    Doesn’t look like we are doing too bad. I must also say that some of this has to do with the income elasticity of demand. That is, for countries with lower per capita GDP, each % change in per capita GDP leads to a greater increase in energy consumption than for countries with higher per capita GDP.

    Your 70% reduction would likely require $30 per gallon at the pump. And likely addition “taxes” on all the other products that use petroleum. Maybe you should adjust your goal down to a 20% reduction. Please don’t cite recent reductions in demand that resulted from the poor economy. I am talking about 20% reductions adjusted for economic cycles. Even for these reductions we would be talking about $8 to $10 at the pump.

    This is a NOT a matter of simple sacrifice. I do not own a car and I do not use AC (I live in NYC). I walk everyplace or use the subway (no taxis). My carbon footprint is as about as low as it can go. Some people will sacrifice a lot. Others will sacrifice little. THIS ABOUT A LOSS OF JOBS. UNEMPLOYMENT GOING FROM 10% TO OVER 20%.

    70% OVER FIVE YEARS!!!! I still can get over an intelligent chemical engineer coming up with this number and time frame. It shows no consideration of macroeconomic analysis, only pure emotion about being “dependent.” Or was this a scaremongering tactic?

    Let me see your supply and demand analysis showing the progression of petroleum prices and gasoline prices that would lead to a 70% reduction.

    Let me see your economic analysis on the impact of oil prices on our economy. What % decrease in GDP? How many jobs would it cost? One rule of thumb has been that each penny increase at the pump costs the economy $1 billion. I am not saying this is correct, but at least more economists have been thinking about it again after the oil prices hit about $147/bbl in 2008 (regardless if it was manipulation by Goldman Sachs or not).

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  59. By rrapier on June 28, 2010 at 4:51 am

    It shows no consideration of macroeconomic analysis, only pure emotion
    about being “dependent.”  Or was this a scaremongering tactic?

    Jim, I am showing what it would take to become energy indendent in a relatively short amount of time. I am showing why these presidents couldn’t get it done. You are showing why these presidents couldn’t get it done. The point is that these administrations have all talked about energy independence, yet we have become ever dependent. So if energy independence is actually important to us, I am just showing that achieving that would not be painless. I think you are missing that point. YOU are trying to tell me how bad it would hurt. Believe me, I know.

    RR

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  60. By Jim Cramer on June 28, 2010 at 4:59 am

    there are also countries far more oil efficient at producing GDP

    I forgot to address this in my last post. Please define what economic measures you are referring to and list the countries. Are you saying GDP per 1 million bpd consumed? Yes, they are all the countries that use nuclear, more heavily tax their gasoline at the pump, and have better rail/mass transit systems. All this takes decades to create, not five years. Here are the top oil users in the world rank by efficiency (gdp per 1 million bpd):

    France 1,347
    Germany 1,305
    Italy 1,292
    United Kingdom 1,277
    Japan 1,059
    United States 731
    Brazil 633
    China 627
    Canada 591
    Russia 422
    India 417
    Mexico 411
    South Korea 383
    Iran 190
    Saudi Arabia 156

    Why are you posting this work???

    I am for energy austerity. I believe we should start taxing gasoline. I believe this should take five years to get to the tax rates of Europe. I don’t think we should raise the price of gasoline to $30 per gallon as I believe your 70% reduction plan would.

    Like I said, your an engineer, show me some economic analysis that this would not lead to economy destruction (which isn’t that the whole purpose of your proposal–to attempt to avoid economic destruction in the next 100 years).

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  61. By Jim Cramer on June 28, 2010 at 5:09 am

    REGARDING MORE ENERGY EFFICIENT COUNTRIES from last post.

    Most importantly, they are all smaller area countries with population densities that are five or more times greater than the US. New York City also has good energy productivity/efficiency.

    Let’s not compare apples and oranges.

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  62. By rrapier on June 28, 2010 at 5:44 am

    I don’t think we should raise the price of gasoline to $30 per gallon as I believe your 70% reduction plan would.

    Jim, you have thoroughly missed the entire point of my post.

    RR

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  63. By paul-n on June 28, 2010 at 10:45 am

    Jim said;

    Most importantly, they are all smaller area countries with population densities that are five or more times greater than the US. New York City also has good energy productivity/efficiency.

    Let’s not compare apples and oranges.

    The only thing I agree with there is the apples and oranges.

    First of all, Russia is on that list and is definitely not smaller, and several of these countries, like Russia, Brazil and (especially) Canada, have lower population densities than the US, yet you said “they are ALL…”

    You also based this list on the greatest oil using countries, but that is not relevant to this discussion.  Saudi Arabia and Iran are  on that list because they waste a lot of oil, making them big users.

    The list we should be looking at is countries ranked by GDP per barrel/day, which I have sourced here from Wikipedia.  And to address your point about population density, I have added that figure to the list, and here are the top 20 countries in the world, for GDP per barrel;


    Country GDP/Barrel pop density
    Switzerland 3788 486
    Denmark 3516 331
    United Kingdom 3393 659
    Austria 2820 258
    Germany 2819 594
    Sweden 2746 53
    France 2721 294
    Norway 2671 33
    Italy 2456 517
    Finland 2321 41
    Japan 2294 873
    Australia 1933 7.5
    Spain 1847 235
    Netherlands 1809 1036
    United States 1605 83
    Belgium 1546 918
    Poland 1384 316
    Greece 1292 221
    Canada 1241 8.8

    So we have countries like Australia, with an order of magnitude lower population density being more oil efficient than the US, and countries like Belgium, and order of magnitude greater pop. density being less oil efficient.  Most of these countries (except Greece, Spain and Poland) have similar, or better, standards of living than the US.

    There is a variation of two orders of magnitude of pop density between countries with very similar gdp/barrel

    Clearly there is NO correlation between population density and gdp/barrel.

    You are correct in that countries nearer the top of this list do have better transit etc.   Their economies are structured to minimise oil usage, particularly for transport.  Some countries, like Sweden, have also been very aggressive on eliminating oil for heating purposes, something which the US northeast uses lots of.

    They also minimise the usage of oil for electricity generation, though the US still uses it in places like Florida, Hawaii and Alaska.

    They use electrified rail. 

    But then there are Canada and Australia, which have economies, and cities, and transport, structured fairly similarly to the US, with similar oil/GDP, and just 10% of the population density.

    I think it’s fair to say that how much oil is used is far more dependent on how much the country wants to use, rather than its population density.

    It is also true that all the countries on this list have higher fuel prices (i.e. taxes) than the US, with the Euro countires being about double.  

    So, given that Norway, Sweden and Finland all have a pop density about half of the US, and have fuel prices about double, but use 2/3 the oil that the US does, how do you expect fuel to go to $30/gal, instead of $6-9?

     

    The mantra of this blog is “lets start with the data” – you would have done well to do so before talking about oil usage and population density.  

    There are many reasons why, as RR pointed out, and you seem to agree, reducing oil usage is difficult, but population density is not one of them.

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  64. By rrapier on June 28, 2010 at 12:58 pm

    Good post, Paul. I have been thinking about a post along these lines. Excellent job of pulling the data together.

    RR

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  65. By paul-n on June 28, 2010 at 1:22 pm

    Thanks RR, this one was only a ten minute job over breakfast.  I have heard the “US is not as dense as Euro countries so it has to use more oil” line more times than I can remember.  One only needs to look north to Canada to disprove the theory..

     

    The largest benefit is had from re-organising cities to use less oil, and in this context it doesn’t matter how far apart they are.  It would be interesting to know how much fuel is used in the US for interstate travel as opposed to intra-state travel, with intra-state really meaning urban/suburban usage.  I am sure the majority would for intra state-travel, and this would be greater for car centric places like California, and less for urban places like NY.

    Fuel spent crawling along the LA freeways is not really contributing much to GDP, regardless of the population density – it’s that simple.

     

    On a slightly related note, did you see this article about ethanol in Hawaii?

     

    http://hawaii-agriculture.com/…..rts-stall/

    If Rufus’ plan for an ethanol refinery in each county can;t even work in sugar cane country, with expensive gasoline, then I’m not sure it can work anywhere else, either.

     

     

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  66. By Kit P on June 28, 2010 at 8:17 pm

    Let me propose an alternate theory that requires the precise use of language. 

     

    Americans drive SUVs because they are productive and energy efficient.

     

    The macro economic unit that must be considered is what is being produced and how much foreign energy is used.  For example let us say that 1 unit of home heating is the energy required to heat a family residence for a year. 

     

    If my product is fire wood I could produce 100 units of home heating of home heating and use 1000 gallons of imported gasoline to deliver the wood.  I suspect there is little difference in fire wood technology between countries.  

     

    If my product is coal I could produce 200 units of home heating of home heating and use 500 gallons of imported gasoline to deliver the coal.  US coal miners are very productive and get to keep more of what they make so they own SUVs.

     

    If my product is nuclear generated electricity I could produce 1000 units of home heating of home heating and use 0.1 gallons of imported gasoline to mine and transport uranium.  The US nuclear industry is very productive and workers get to keep more of what they make so they own SUVs too.

     With cheap electricity, other workers can also be more productive.  They can live in bigger houses and drive SUVs.

     

    This leads to consideration of the energy content of what we produce.  To compare the GDP/oil use of a Swiss clock maker to that of a farmer is not a fair comparison.  I would suggest that American farmers produce more wheat per farmer with less energy than just about anyplace.

     

    As a result food and energy are a smaller fraction of the family budget than it has ever been.  While that is a good thing, it may result in more energy being used for travel ands recreation.   

     

    This lead to consideration of the energy content of what we produce.  To compare the GDP/oil use of a Swiss clock maker to that of a farmer is not a fair comparison.  I would suggest that American farmers produce more wheat per farmer with less energy than just about anyplace.

     

    As a result food and energy are a smaller fraction of the family budget than it has ever been.  While that is a good thing, it may result in more energy being used for travel ands recreation.   

     The oil that Americans use is the sum of what we produce and how we live.  It is a result of high productivity and energy efficiency.

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  67. By moiety on June 29, 2010 at 3:15 am

    Paul N said:

    There are many reasons why, as RR pointed out, and you seem to agree, reducing oil usage is difficult, but population density is not one of them.


     

    I agree. When I look at the behomoths of oil refiners/person on mainland Europe (Netherlands, Germany, Italy) some patttern might be seen. The only thing I could see is that (I expect) Netherlands exports far more of its oil products whereas I expect Germany and Italy (also UK) do not. Belgium should be in the same category as Netherlands and this makes sense as they countries GDP’s are heavily reliant on these industries.

    Conversly the top countries seems to be dominated by those than can export excess electricity (Denmark, Switzerland, Austria and Sweden) as well as self generators like France. Again I expect that the lower French score relative to say Germany is due to exporting their processed oil.

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  68. By Jim Cramer on June 29, 2010 at 4:08 am

    Paul said,

    The list we should be looking at is countries ranked by GDP per barrel/day

    This is exactly what I did. I ranked the countries by GDP/million bpd. However, I calculated my own numbers and I did not want to take the time to calculate all countries. Instead of choose the top 15 oil users, maybe I should have chosen the top 15 largest economies (I guess I thought they would be approximately same and just used the first list (oil) I chose).

    But it doesn’t really matter because the same points can be made from both of our lists. They are mostly European countries above us on the list that have higher taxes on their gas and drive significantly less miles per capita than the US.

    Please pull out data on mile driven per capita. Robert Rapier doesn’t look at my data, so I don’t want to bother. It interesting how he said “excellent job” to you for the data, but not to me for my data. The man does not respond well to criticism. He should expect a lot more criticism if keep pushing his 70% reduction plan around.

    I believe your comparison of Australia and the US is in error. Most of the economic activity of Australia is concentrated on the southeast coast. Not much GDP or energy consumption comes from the interior (maybe oil production). Same is true for Canada and Russia. Canada is slightly smaller than California in population.

    $30 / gallon is a based on Robert Rapier desire to decrease oil consumption by 17% per year for five years. This reduction of 61% (although he said 70%) will take us to what we consumed in 1952. Using a price elasticity of demand of -0.25 gives approximately $30. Gasoline prices are relatively inelastic. For that extreme amount of reduction without any substitutes (which he said was not part of his requirements) plus the fact that elasticity is a convex curve that goes down as price goes up, $30 is actually conservative. Price elasticity has been estimated as low as -0.07 for gasoline.

    Your exactly correct. Let’s tax gasoline to bring it to parity with price in Europe, rather than price it for this extreme 70% reduction.

    Argument By Selective Reading Fallacy
    REGARDING DENSITY, THAT IS NOT THE ONLY ONE POINT THAT I MADE. It was one sentence out of the 100s I wrote, but you fixated on it. We drive more miles per capita than any European country. THAT IS A FACT. You look up the data. Electric trains, culture, density, etc are all reasons. And yes, density is a reason, examples of Australia and Canada are not completely valid, because most of the GPD is highly concentrated in both countries.

    That also doesn’t negate the other points I made about GDP that have nothing to do with miles per capita driven.

    You can get the data on interstate highway use. Look it up. I have a cousin that delivers meat from Illinois to NYC once a week (it’s at least a 3 day round way trip). I wish all commerce was as local as you think it is in the US–not to mention how much we buy from China.

    CALIFORNIA AND NEW YORK
    As you said (and as I did), get the data first. Alaska is rank as the #1 with the highest per capita oil consumption. California is ranked 41. New York is ranked 44. Get the list yourself.

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  69. By Jim Cramer on June 29, 2010 at 4:40 am

    RR said,

    Jim, you have thoroughly missed the entire point of my post.

    RR said,

    Conclusion: Reality
    So there is the path to energy independence for the U.S. in a nutshell. Based on today’s production/consumption figures, this would require a 70% across the board cut in our energy consumption down to per capita levels of countries like Russia, Jordan, Mexico, and Malaysia (potentially adjusted based on decline rates, new discoveries, and alternative energy).

    Please, tell me what point I missed. Did you read all four of my posts? I read your entire blog before committing. If you disagree with a specific point I made, tell me what point. Do not dismiss me with one vague and extreme (“thoroughly”) sentence; I would rather you not reply. THAT IS VERY ARROGANT. I am also a Chemical Engineer, plus a PhD in Mathematics, and an MBA in Finance. I have worked in the oil industry, in the nuclear industry, and on Wall Street in energy risk management.

    You flipped-flopped between saying 70% reduction of oil and 70% reduction in energy. Rather, that calling you on this error, I assumed you were talking about oil.

    You want to reduce oil production by 70% over five years; and you did not make this conditional on finding any alternatives.

    I addressed the fungibility of oil, the cost of your proposal on our economy, and asked what economic mechanism you recommend for achieve a 70% reduction. I also gave reasons why the US should not be compared to Russia, Mexico, and other 3rd world countries.

    And all you have to say is that I THOROUGHLY missed the ENTIRE point. Please, then, tell me what I missed. Tell me how I misinterpreted your post.

    Better yet, please be proactive with your proposal and distribute your ideas to macroeconmists and see if they miss your point. And see if they agree with your 70% reduction in oil consumption in five years.

    At least tell me something simple. How did you get 17% per year reduction from 70% over five years? Did you make assumptions on increases in domestic oil production? Because 1-(1-0.17)^5 equals a 60.6% reduction.

    I didn’t even bother to say your import numbers were wrong. The US imports 57% of its oil (this is a 2009 EIA number off the top of my head). I figured this was close to the 60.6%. So I could have Red Herringed you to death but chose to stick to important points.

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  70. By Jim Cramer on June 29, 2010 at 4:57 am

    RR,

    Maybe I should inform you that I started reading your blogs a few days ago because I like what you said in you blog, “The Climate Change Thought Police.” It was one of the best blogs/editorial/opinion I have recently read. Then your 70% idea…

    I am a progressive liberal who does believe in Cap and Trade. And I do believe in relatively quickly transitioning away from oil and then from all fossil fuels. I just don’t believe a 70% transition in five years is anywhere close to being realistic, especially considering the state of our economy and the world economy in general.

    I thought you might have attached a political label to me that was different from your own. It seems people are attacking others base on what camp there are in rather than the merits of their ideas.

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  71. By paul-n on June 29, 2010 at 10:46 am

    If you disagree with a specific point I made, tell me what point.

    I do believe that is exactly what I was doing in regards to population density.  You ranked the countries by GDP per barrel, and then remarked that”all smaller area countries with population densities that are five or more times greater than the US”, without even looking at any population density data.

    You then discard examples like Aust, Canada and Russia, because they have large sparsely populated areas.  The US has it’s version in Alaska, and the US population is also unevenly distributed, with more on the east coast, and SW corner, a bit like Australia, and even Canada.  

    So California is 41 on the list, at 18.18 bbl/ca/yr, with a pop density of 234, and NY is 44 with 16.03 bbl/ca/yr and 408 people/sq.mile, so I don’t think there is a strong correlation with density there either.

    There is no need to look up vehicle miles travelled in these countries, we know the US is higher – that is why it uses more oil.

    And that is the whole point, the population density is not the driver of oil usage, it is the way the country structures its economy.  The US economy is (largely) structured around road transport of both people and vehicles, it does not need to be, but it is, and so are Canada (where I now live) and Australia (where I am from), and all three have similar per capita oil usage, regardless of population density.

    So, since we all agree on energy austerity, we can focus on discussions on how to achieve it – low population density is no excuse.

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  72. By rrapier on June 29, 2010 at 11:46 am

    So I could have Red Herringed you to death but chose to stick to important points.

    You instead chose to straw man me to death. I have told you what the key point was now two or three times, but you have ignored that. So here it is once more. The key point is that the reason previous administrations have failed to achieve energy independence is that doing so would be very difficult and would require great sacrifice. In your responses, you have chosen to focus on just how troublesome it would be if we were to try to achieve energy independence over the course of what some of those administrations have suggested. That’s exactly my point, yet you lecture me with it. The first time was understandable, and then I explained my point. But then you continued to lecture me with it.

    You have asked the questions that are aimed at me – the person with a 70% plan – when the point is directed at the administrations who have pushed the false solution of quick energy independence. Even in your last reply here, you still don’t get it. You argue that it is unrealistic. One more time: THAT IS THE WHOLE POINT. THESE ADMINISTRATIONS TALKING ABOUT ENERGY INDEPENDENCE ARE BEING UNREALISTIC! – and this is why we have become more instead of less dependent. So when you say I don’t take criticism well, I guess that depends on the nature of the criticism. When the criticism is on a straw man – and I have explained this clearly – then yes, the criticism does start to annoy.

    You lecture me about gas taxes and say you have read all my blogs, despite the fact that I have promoted a gas tax for income tax proposal for years:

    http://www.consumerenergyrepor…..gas-taxes/

    Note that this wasn’t the first time I discussed it, but it is probably the most comprehensive essay on it.

    The bottom line is that you are lecturing me with many of my own core points that I talk about often here, and continuing to do so even after that has been pointed out. So if you feel I don’t take that sort of criticism well, then perhaps you can understand why. It’s like me criticizing you for being a far right conservative even though you tell me you are a progressive liberal. So I respond with “but these far right ideas of yours…”

    If you recognize that the purpose of the post is not to push an energy plan, but rather to understand why we failed to achieve energy independence, you will be headed down the right path.

    RR

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  73. By russ on June 29, 2010 at 12:05 pm

    @Jim Cramer – Love that label of progressive liberal. One name greens seem to have assigned to themselves to get a ‘good feelıng’ maybe?

    I have also seen it used to support an otherwise untenable proposition such as solar PV power with grid tie and batteries. In that case the poor fellow just knew his system was 12 foot by 28 foot and it made electricity and it is good and he was a progressive liberal meaning anyone that didn’t agree with him was somewhat backward.

    Kind of felt sorry for the poor fool – he probably paid three times the price for the extra equipment plus much less efficiency.

    I don’t really believe there is anything green about the steps that are being made – they are necessary steps and will be made when the technology is available to support them.

    The more government help in selecting winners with mandates and subsidies the longer it will take to reach an endpoint.

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  74. By Thomas on June 29, 2010 at 3:35 pm

    Here’s a more cowardly but politically palpable way of taxing oil. A hypothetical administration could get the Saudis to cut their oil production. The extent of their oil reserves is a closely guarded secret. The King could just shrug his shoulders.Oil prices would jump and the price signal would be in place.

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  75. By Jim Cramer on June 29, 2010 at 5:31 pm

    RR, you said in your original blog,

    That is realistically what I believe it would take to achieve energy independence.

    I do NOT believe that this is realistically what it would take to achieve energy independence. I believe it would fail; so this weakens your hypothetical 70% plan as a rhetorical device or as a real plan. I went over the reasons why. I said that it seems that you believe that sacrifices would be borne equally. Increasing unemployment rates and a sinking economy does not play fair. This would not be equivolent to WWII rationing in a time of increasing employment. One could make a case that higher oil prices and a smaller economy (especially in per capita terms) would actually increase our dependence.

    I also pointed out that we have been on a path of achieving oil/energy independence (you seem to interchange the terms). A 25% increase in oil consumption over 40 years “is not too bad” when compared with any other changes in our economy (inflation, GDP, etc). Oil consumption is a smaller part of our economy than it was then (this is a natural progression of a growing economy not unique to the US). This is contrary to your point:

    RR said,

    THAT IS THE WHOLE POINT. THESE ADMINISTRATIONS TALKING ABOUT ENERGY INDEPENDENCE ARE BEING UNREALISTIC! – and this is why we have become more instead of less dependent.

    In a nutshell, if President Obama was to make the speech that you recommended, I believe he would be doing the same thing the other presidents have done. Going down a path that would surely fail to accomplish its goals. Failure is failure. It doesn’t matter if the president sells his plan with claims of LITTLE SACRIFICE or GREAT SACRIFICE.

    You explicitly stated this idea as quote from a “wise old-timer” in Energy Fuels blog,

    “When you are planning and executing a project, it is important for you to do what you say you are going to do. People are going to make investment decisions on the basis of the numbers you project. So don’t over-promise and under-deliver.” …OTOH, excessive “sand-bagging” is also poor practice.

    RR, you said,

    “but these far right ideas of yours…”

    No, I believe my points have been consistent with “the left” and with the ideas of Paul Krugman. There is a big push around the globe for fiscal austerity. Paul Krugman believes in fiscal austerity in the long run, but he believes that fiscal austerity starting now would actually work against its very goal by hurting our economy and therefore increasing our debt.

    I think the same applies here. I believe in transition away from fossil fuels. But I believe your [rhetorical] plan is like the call for FISCAL AUSTERITY NOW. It may actually increase our energy dependence.

    I believe you have misunderstood my point. And if you are missing my point, I can understand why it would start to annoy you and why you would think that I am straw manning you to death.

    PS: I did not say I read all your blogs. I said “that I started reading your blogs.”
    PS: Lecturing? I simply disagreed with your point about the reality of various plans (your plan and the plans of the previous admins). Do you want all your readers to bow down and say “Yes, Master Rapier, you are correct.” (Master is a Jedi reference, not slavery)

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  76. By Jim Cramer on June 29, 2010 at 5:53 pm

    Paul,
    Yes, you have identified and address a specific point. I was referring to Robert Rapier.

    To you, I said that my point on population density was only one point in one sentence. Even though I do believe it is a factor in per capita miles driven and oil efficiency, I admit that I was WRONG when I said it was the “most important.” I have not done enough research to make that assertion. I did look at the population density on wiki; I just did not post it. I did say “all countries” and I was WRONG. But I believe smaller more dense countries are more receptive to rail service. NYC and LA are a lot further apart than Melbourne and Sydney. The real point is how much we drive and the cost of oil in each product we consume. If we buy a product from China, shipping costs is a larger portion of the cost. That is our cost, not China’s. We are the consumer; and this is about consumption.

    In my last post I tried to say that population density is not as important than I implied. You are the one who has been dwelling on it. I was simply trying to address all the points you made. This is what a discussion is all about; not picking points that are the weakest or simply saying “you missed the point.”

    THIS POPULATION DENSITY THING IS TANGENTIAL TO THE POINT ROBERT RAPIER WAS TRYING TO MAKE. Discussing it has fogged my point that I do not believe that his 70% plan is any more realistic than any other plan made by the former eight administrations.

    CALLING FOR SACRIFICE (similar to the fiscal austerity debate) is just rhetorical propaganda that is no different from the rhetoric that as been used for the past 40 years. It doesn’t mean it will work and I am glad that we never find out.

    But we do have a case study underway in the UK. Let’s see what their budget cuts do for their economy and debt. Maybe that will help give people an answer. We already might have the answer with Ireland and Spain. Ireland quickly implement fiscal austerity plans. Spain dragged its feet. Is this why Spain’s economy is currently doing better than Ireland’s? Who knows for certain.

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  77. By Jim Cramer on June 29, 2010 at 6:01 pm

    Russ,
    I called myself a progressive liberal. Please do not pigeon hole me into your own anecdotal definition of a progressive liberal and make assumptions on my behaviors and beliefs. Progressive just means you want change and reform. Liberal is a relative term that is used for a belief in freedom and equality (just like our Declaration of Indep).

    Your view about people who don’t agree with you think you are backward, applies universally, not just to progressive liberals.

    I do not believe government should be “selecting winners.” That reeks of corruption and waste. I am a pragmatist and a capitalist. I am an engineer, not an actor or a social worker. I believe the government should help lower the barriers to entry. Monopolies and oligopolies also can make it longer to reach an endpoint. Competition is not perfect, markets are not efficient, and people are not incorruptible as libertarianism assumes. Libertarianism and socialism are both ideologies that use idealist assumptions that don’t exist in practice. Both ideologies have consistently failed throughout history.

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  78. By rrapier on June 29, 2010 at 6:13 pm

    I do NOT believe that this is realistically what it would take to
    achieve energy independence. I believe it would fail; so this weakens
    your hypothetical 70% plan as a rhetorical device or as a real plan.

    You still aren’t getting it. Energy independence would require that we reduce our consumption to match what we produce – or raise production substantially. It is that reduction in consumption that administrations have failed to adequately address, which is why we have seen our oil imports go steadily up – not down – since the days of Nixon. The 70% reduction isn’t a plan. This post isn’t about a plan. Your obsession with that being the topic of the post indicates you haven’t grasped the point: Previous administrations failed because U.S. oil production was declining as demand was increasing. To achieve energy independence would require drastic cuts in our consumption. That is a one-sentence description of what the post is about. “How” we achieve those cuts is an entirely different topic. But at this point, I am merely repeating myself.

    RR

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  79. By Kit P on June 29, 2010 at 7:28 pm

    “Wall Street in energy risk management…”

     

    That explains why Jim C lives in NYC.  I am still wondering why he does not use AC.  

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  80. By Jim Cramer on June 30, 2010 at 12:24 am

    RR,

    I believe you are straw manning me. Also, begging the question and ambiguous assertion.

    you said,

    This post isn’t about a plan.

    I AGREE. I said in my last post that your FIVE YEAR/70% “plan,” “path,” or “program” may be a rhetorical device used as an example. I was and am willing to concede that you are NOT advocating for these exact numbers, but you refuse to back off the numbers. I believe that main point of your post is about SACRIFICE which you said was the only realistic path to ENERGY INDEPENDENCE. Why not back off the FIVE YEAR time frame. It was a major part of your post. You even wrote a hypothetical speech for Obama. If you can’t back off it, it must be a “plan,” “path,” or “program” that you believe is realistic. If so, then defend it, rather than skirt it.

    you said,

    Energy independence would require that we reduce our consumption to match what we produce – or raise production substantially [to match what we consume].

    I AGREE, this is simple mathematics (basic budgetary accounting), but there are fungibility issues with regards to “independence” that I addressed earlier. This is begging the question. Every president new this. The problem is how to accomplish it and over what time frame. You said SACRIFICE and FIVE YEARS.

    you said,

    To achieve energy independence would require drastic cuts in our consumption [not increases in production].

    I AGREE that increases in oil production are not feasible or will not help the long-term problem. However, production-consumption parity is just not possible in a 5 years. In 100 years we most likely will have reduced our oil consumption by 100%. If you would have said 20 YEARS for 70%, I would have agreed that is realistic. You refuse to back off your FIVE YEAR “plan.”

    you said,

    “How” we achieve those cuts is an entirely different topic.

    I AGREE. And I haven’t dwelled on “HOW.” I simply ask you a question in my first post? I never dwelled on the specifics of tax cuts, tariffs, or rationing. Your originally blog suggests innovation is “LIP SERVICE.” Your original blog stressed sacrifice. MY POINT HAS ONLY BEEN THAT FIVE YEARS IS UNREALISTIC. Five years is a time frame–it has nothing to do with “HOW.” It is “HOW FAST.”

    you said,

    It is that reduction in consumption that administrations have failed to adequately address.

    How adequate? To your standards? I must repeat that a 25% increase in consumption over 40 years while our economy has increase by 1400% (or whatever the actual number might be–real vs nominal, etc.). Not bad, considering yearly fluctuations have been as high as 8% due to fluctuations in the economy. Oil makes up less than our economy now than it did in 1970. You can look up the numbers. These are facts. Why do you discard them?

    We are a net exporter of food. Other countries import food. I think we should act before market forces act for us. I just think your numbers of FIVE YEARS and 70% REDUCTION are extreme. That is my only claim. And you refuse to defend those numbers. But you also refuse to say they might be wrong.

    Maybe your whole post was about being a politician. You criticize other politicians and wrote your own presidential speech.

    Yes, you would be a great politician. I just finished watching clips of Sharron Angle on Rachel Maddow trying to defend all her contradictions. Same tactics. A reporter asks you about something you earlier said about your “plan” to address unemployment in your home state and about your earlier criticisms of the incumbent about high unemployment. You don’t defend it, you don’t deny it, you don’t admit a mistake. You say that’s not why I running for congress; jobs are state’s responsibility.

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  81. By Jim Cramer on June 30, 2010 at 12:35 am

    Kit P,
    Have you lived in NYC? It’s not Chicago, St. Louis, or Phoenix wrt temperature. I live in a garden apartment in a brownstone in the West Village. The walls are two feet thick and we get no direct sunlight (but we have a private outside garden). AC requires window units which I procrastinate to install. We don’t like window ACs. They are loud and it feels like airliner AC. I am not home during the day or evening. My office has AC. We do not sweat and we are comfortable. If we had to sweat I would install. If we lived elsewhere, we would most likely have AC. So, I guess it really isn’t much of a sacrifice. It’s also not much of a sacrifice by not having a car. I used to have one until someone rear ended me on the Polaski Skyway.

    So I apologize for implying that not having a car and or AC was a sacrifice. It’s really not.

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  82. By Jim Cramer on June 30, 2010 at 12:41 am

    RR, sometimes we forget what we write. Maybe you should review what you wrote. I made a summary for you. I tried to list the main points and not the supporting details. Let me know if I missed anything.

    The Challenge
    * “explain why we couldn’t get it done and what it would take to get it done.”

    Production Peaks, Demands Increases
    * Cut petroleum consumption and/or raise production.

    Economic Difficulty and Standard of Living
    * Raising production is “out of the question.”
    * Reduce current consumption by 72%.
    * Why we couldn’t get it done: leaders sold a “SACRIFICE-free pipe dream.”

    The Game of Politics
    * politicians “pay lip service to the idea of energy independence” and do not take “tough measures” (i.e. unrealistic)
    * we can do it by “trimming fat.”
    * Proposed Obama Speech — ration oil by 17% per year over 5 years. This time, Plan A calls for SACRIFICE, and our former Plan A for the past 40 years – innovating our way out of this problem – will now become our hopeful Plan B.

    Conclusion: Reality
    * “So there is the path to energy independence for the U.S. in a nutshell.”
    * This “requires a 70% across the board cut.”
    * “That is realistically what I believe it would take to achieve energy independence.”
    * Market will eventually force us to make these reductions.

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  83. By Walt on June 30, 2010 at 7:51 am

    Jim Cramer said:

    Better yet, please be proactive with your proposal and distribute your ideas to macroeconmists and see if they miss your point. And see if they agree with your 70% reduction in oil consumption in five years.


     

    I don’t intend to jump into this discussion, but I admit the thread by Jim Cramer is excellent.  Like Robert Rapier does in challenging the numbers with those in the biofuels/ethanol community, I really like the way Cramer is challenging Rapier.  Especially on the two sentences above.

    Yesterday I saw an article that I am not able to find again, but its premise was that natural gas production is basically evil and destructive to the environment and should be replaced immediately with wind and solar farms/installations.  Here is the article which could piggy back on the idea that we should cut oil consumption in five years by 70% … and convert to wind and solar.

     

    http://e360.yale.edu/content/f…..sp?id=2290

    Natural Gas as Panacea:

    Dubious Path to a Green Future

    Many energy experts contend natural gas is the ideal fuel as the world
    makes the transition to renewable energy. But since much of that gas
    will come from underground shale, potentially at high environmental
    cost, it would be far better to skip the natural gas phase and move
    straight to massive deployment of solar and wind power.

    by daniel b. botkin

     

    On the other side of the fence to Mr. Botkin, this report was released by MIT on Natural Gas and emissions.

     

    http://web.mit.edu/mitei/resea…..al-gas.pdf

     

    There will be more concerns about natural gas as an energy source with the unfolding events in the Gulf of Mexico…this is for certain.

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  84. By rrapier on June 30, 2010 at 12:41 pm

    Why not back off the FIVE YEAR time frame.

    The specific reason for sticking with a shorter time frame
    is that it prevents the buck from being passed on to another administration.
    That’s part of why difficult decisions never get made; if you make a 10 or 20
    year plan you can defer making hard decisions and push that onto the next
    administration. Then when they come along they do the same, which is why we are
    more dependent on foreign countries for our oil then we were when Nixon
    starting talking about getting us off of foreign oil.

    Oil makes up less than our economy now than it did in 1970.
    You can look up the numbers. These are facts. Why do you discard them?

    And our oil imports are double what they were then. This
    post was about administrations talking about energy independence while our oil
    imports steadily grew. Why do you discard what the post is actually about and
    insist on making it about something it wasn’t about?

    RR, sometimes we forget what we write.

    I think that’s a pretty accurate assessment – except for
    this bit: we can do it by “trimming fat.” I am suggesting what it
    would take; we have to reduce consumption to meet our production if we are to
    be independent. Whether we can do it – politically, economically, etc. is a
    different topic, yet one which you have incorrectly concluded was the topic of the
    post.

    RR

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  85. By rrapier on June 30, 2010 at 12:46 pm

    I really like the way Cramer is challenging Rapier.  Especially on the
    two sentences above.

    But the points you flagged are straw men. This post isn’t about what the economic fallout would be from cutting our consumption to match our production. It is pointing out why previous administrations talked about lessening foreign oil dependence even as it went up one administration after another. My point was: It’s very hard. Most of what Jim has argued is “Robert, don’t you know that will be very hard?”

    I just picked up quite a few members of my family from the airport last night; here to visit me in Hawaii for the next 10 days. I am trying to finish up two posts, and frankly I think Jim’s point – most of which is exactly the same as my point – has been flogged to death. So please don’t expect me to continue to repeat myself.

    RR

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  86. By paul-n on June 30, 2010 at 1:15 pm

    Nothing like heated agreement!

    Now that we all agree achieving oil independence, in a short timeframe, is impossible without real pain and sacrifice (which is only acceptable in a wartime situation), we can move the discussion to whether it is really achievable at all, for the US.   The fact that eight presidents had the same goal and none have achieved it, suggest none really wanted to.  

    Kennedy said the moon in 10 years, and that was done, spanning three different administrations, so it can be done, though, admitteddly, that did not involve any real sacrifice on the part of the people.

    I think part of the problem is they have all stated the goal, but none have ever laid out a very clear plan on how to achieve it.  Seeing what happened with the health care process, its a fair bet that any plan, will be picked apart, changed to satisfy various lobby groups, stalled, and what’s left will not come close to achieving the original intent.  

    It would seem that unless government has a WW2 type situation, anything that involves real sacrifice will be politically unworkable.  Since the country won;t jump, eventually it will be pushed. 

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  87. By savro on June 30, 2010 at 1:49 pm

    Jim Cramer said:

    Kit P,

    Have you lived in NYC? It’s not Chicago, St. Louis, or Phoenix wrt temperature. I live in a garden apartment in a brownstone in the West Village. The walls are two feet thick and we get no direct sunlight (but we have a private outside garden). AC requires window units which I procrastinate to install. We don’t like window ACs. They are loud and it feels like airliner AC. I am not home during the day or evening. My office has AC. We do not sweat and we are comfortable. If we had to sweat I would install. If we lived elsewhere, we would most likely have AC. So, I guess it really isn’t much of a sacrifice. It’s also not much of a sacrifice by not having a car. I used to have one until someone rear ended me on the Polaski Skyway.

    So I apologize for implying that not having a car and or AC was a sacrifice. It’s really not.


     

    Honestly, you weren’t uncomfortable during the heat wave over the past week without any A/C in your apartment? Thick walls and all, the crazy humidity along with the high temps was pretty close to unbearable. Thank goodness the heat and humidity finally broken today; even with A/C I couldn’t stand the weather.

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  88. By Jim Cramer on June 30, 2010 at 2:32 pm

    Samuel, I did not sweat. It was a heat wave? Some people are bothered more by hot, cold, and humidity. As I said, part of it is procrastination of installing our window unit. If we had central air, we may have flipped the switch. Last night was very cool. Actually had to close the windows to stop the cross ventilation.

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  89. By savro on June 30, 2010 at 2:40 pm

    Yes, last night wasn’t bad; today is even better. But the entire week before that was like a sauna! Or are we talking about two different NYC’s?

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  90. By Jim Cramer on June 30, 2010 at 3:16 pm

    Robert, you are missing my point. And we are NOT saying the same thing.

    I am not saying the words you put into my mouth (oh, is that a straw man?):

    “Robert, don’t you know that will be very hard?”

    I am saying:
    “Robert, don’t you know that it will be so hard, which in itself will lead to the failure of the ‘program’ (even within one administration–I said <18mns)"

    My point is: You are saying your 70%/FIVE YEAR "program" is realistic. I am saying it is idealist.

    Let me now resort to an analogy (I know this will lead to red herrings, because no analogy is perfect):
    A patient has a chronic non-fatal illness (that may get worse and lead to a shorten life span, but is not known to be directly or immediately fatal). A doctor has a choice to prescribe the patient a variety of medications, including experimental (in clinicals). Most have side effects that are–in the words of your original post–painful. You believe your 5yr idea proposes the doctor prescribe a medication that only causes hair loss, muscle aches, and other problems that the patient can endure. I am saying your 5yr idea would cause life threatening side effects that the patient will not be able to endure (hypertensive crisis, severe immunodeficiency, etc). I am saying that it is likely that the patient will likely go into a comma, be hospitalized, and withdrawn from the medication, otherwise the medication will kill the patient. If the medication is withdrawn, it failed to work. Also, the side effects could be worse than the actual disease.

    Would you want to treat a patient with high cholesterol with a drug that causes significant hypertension (where the hypertension is causes more risk and immediate problems to the patient the having high cholesterol).

    Please, if you really believe what you are saying is a realistic solution, you are ethically obligated to get the word out (unless to don’t live your life by that ethical code).

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  91. By savro on June 30, 2010 at 3:52 pm

    Jim Cramer said:

    Let me now resort to an analogy (I know this will lead to red herrings, because no analogy is perfect):

    A patient has a chronic non-fatal illness (that may get worse and lead to a shorten life span, but is not known to be directly or immediately fatal). A doctor has a choice to prescribe the patient a variety of medications, including experimental (in clinicals). Most have side effects that are–in the words of your original post–painful. You believe your 5yr idea proposes the doctor prescribe a medication that only causes hair loss, muscle aches, and other problems that the patient can endure. I am saying your 5yr idea would cause life threatening side effects that the patient will not be able to endure (hypertensive crisis, severe immunodeficiency, etc). I am saying that it is likely that the patient will likely go into a comma, be hospitalized, and withdrawn from the medication, otherwise the medication will kill the patient. If the medication is withdrawn, it failed to work. Also, the side effects could be worse than the actual disease.

    Would you want to treat a patient with high cholesterol with a drug that causes significant hypertension (where the hypertension is causes more risk and immediate problems to the patient the having high cholesterol).

    Please, if you really believe what you are saying is a realistic solution, you are ethically obligated to get the word out (unless to don’t live your life by that ethical code).


     

    Pardon me for wading into this debate, but I really don’t see what’s so difficult to comprehend.

    To my understanding, what you keep refering to as “RR’s plan/solution” is nothing more than his definition for independence – reducing the rate of consumption until it meets the levels of production (because raising production is pretty much impossible according to RR).

    He then takes that definition and uses it to shed light on the difficulty of reaching that goal.

    If a president were to push it down the road by making it a 20 year goal (like the previous administrations have done) then it will never come to fruition. The only way is to have it done right here, right now (over 5 years). And because of the difficulty of achieving this (due to the interesting points you delved into in your previous comments) it’s not going to happen.

    You’re essentially agreeing with RR, but without realizing it because you’re missing the entire point of his post. It almost seems like you have a mental block about this post being “RR’s plan for realistically gaining energy independence” while in reality he’s busy pointing out why every president has failed to reach that goal – because the cost of the only method to get there is too high.

    I have not discussed this directly with RR, but from reading the post and the subsequent comments I think it’s plain to see that this is what his post is all about.

    One point I would like RR to clarify are the terms of “energy independence” vs. “oil dependence” which you raised earlier.

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  92. By Jim Cramer on June 30, 2010 at 4:09 pm

    Paul said,

    Nothing like heated agreement!

    Actually, I consider this “debate” resolved, but it is not in agreement. Most the going back and forth (at least for me) has simply been a result of Robert Rapier not wanting to defend or recant his proposed 70% / FIVE YEAR program. He kept saying that wasn’t his point and I did understand his point. Nonetheless, he said it, why wouldn’t he defend it or recant it as off-the-cuff example of a program of SACRIFICE? I have no problem with a program of sacrifice.

    He finally reaffirmed that he believes this 70% / FIVE YEAR program is realistic and gave a reason why. Enough said, I have no desire to change his mind. We have two different opinions–who cares. I don’t think there is anymore I can learn from him, because I doubt he will provide a more detail economic analysis of his “program.” But at least he defended his 70% / FIVE YEAR “program” and took ownership of it.

    But what is interesting is how people approach problems. Once I have an opinion on the best solution to a problem, I try to prove myself wrong. I go in search of holes in my idea or better alternative ideas. I was simply trying to understand why Robert Rapier thought this was a good idea, so I could change my mind. I could care less about changing his mind.

    Most people, it seems, approach problems by trying to prove themselves correct. It is like George Bush. In his head I believe he was convinced that Iraq had WMDs and WMD development programs. He then used CIA resources only to prove himself correct. He did not want to hear anything about being wrong. Look where that got him.

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  93. By Jim Cramer on June 30, 2010 at 4:26 pm

    Samuel,

    while in reality he’s busy pointing out why every president has failed to reach that goal – because the cost of the only method to get there is too high.

    I address this point and agreed with it. I simply express my opinion that his 70% FIVE YEAR “program” would also fail.

    Are you saying that the details of someone’s “MAIN POINT” never need to be defended? I understand RR’s “MAIN POINT” and agreed with it. Other presidents have failed because they “sold SACRIFICE-free pipe dreams.” SACRIFICE is what we need.

    Is it possible that RR and yourself might be having a “mental block” on what I am saying? I have recanted some of my points and agreed with most of RR points (including his main point). Has he agreed with me on anything or recanted any of his points?

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  94. By Jim Cramer on June 30, 2010 at 4:37 pm

    I am not anti-government, but could it be possible that government will never be able to implement a successful solution? It will just be resolved by market forces and we’ll have to endure whatever pain that brings. I have never claimed to have a better solution than RR. I have only simply questioned him on his solution (and because that wasn’t his main point, I guess it was out-of-bounds and I was attack for asking a question). He finally answer the question.

    The decline of fossil fuels will eventually resolve the dependence issue. The Roman Empire collapse, we had the Dark Ages, the Holy Roman Empire emerged. Who knows what hardships the decline of fossil fuels will bring us?

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  95. By savro on June 30, 2010 at 4:43 pm

    Jim Cramer said:

    I address this point and agreed with it. I simply express my opinion that his 70% FIVE YEAR “program” would also fail.


     

    Wow! What’s so difficult to understand? I have yet to see him state that the 70% “program” can succeed from an economic standpoint, nor has he said that the plan is a good route to take. What he does say is that this is the only “program” that would fit the definition of moving toward energy independence. He concluded that this “program” doesn’t stand a chance of being launched from a political standpoint (which was the point of the post – to address the John Stewart clip). You said that it doesn’t stand a chance from an economic standpoint. I think the “cost of energy independence,” which you went into deeply, is the root cause for it not standing a chance on the political level. Yet you think he disagrees with you.

     

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  96. By Jim Cramer on June 30, 2010 at 5:04 pm

    Wow! Seems very circular to me.

    He concluded that this “program” doesn’t stand a chance of being launched from a political standpoint.

    Could you please provide the quote. I definitely did not see this. Maybe if I would have seen this, our “discussion” would have been avoided.

    I AGREE WITH YOU. Economics and politics go hand in hand. Each can drive the other. My point is that once his “realistic” “program” creates a recession, political support for it will disappear and political support to reverse the “program” will appear. The “program” would be stopped, therefore failing to reach its goal.

    I think my problem is that I write too much. Myopia seems to be a problem. I said this. When I said the program with be stopped. It not economic forces that would stop it. It’s political forces.

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  97. By Jim Cramer on June 30, 2010 at 5:34 pm

    Yet you think he disagrees with you.

    Could you please read my posts. I said it could care less about changing his mind. In other words, I could care less about him disagreeing with me. I was simply trying to learn why he thought his 70% FIVE YEAR “program” was a realistic plan (politically and/or economically).

    Since he finally took ownership of what he said, I am satisfied. He still doesn’t agree with me; and I could care less. I am satisfied because I don’t think there is any additionally information he will provide in defense of his “program.”

    It like finally getting Sharron Angle to admit she wants to get rid of social security. She said it before, but when asked about it, she skirts the issue, neither denying or affirming (typical politician). I don’t care why she believes it is a good idea. I don’t care about changing her mind. All I care about is that she has the integrity to stand behind what she says. It does have to be the “MAIN POINT” of her campaign. And it doesn’t mean I would vote for her (even if I did live in NV).

    It’s all that simple. I asked a question. He skirted it. We agree on the “MAIN POINT.”

    But now your are saying he never said his plan would work. Same issue. Quote where he said that. Are you guys a tag team.

    Fallacy of diminished claim.

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  98. By Jim Cramer on June 30, 2010 at 5:58 pm

    I just watched Rick Barber (running for Congress representing AL) on Chris Matthews. He using similar circular, ambiguous type arguments to obscure and skirt the questions. I recommend seeing it. He tries to use the ambiguity in the conversion (not in concept) of embedded vs explicit sales taxes. Sounds like what being done here with political vs economical success/failure.

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  99. By rrapier on June 30, 2010 at 6:14 pm

    My point is: You are saying your 70%/FIVE YEAR “program” is realistic.

    Believe me, I know that’s your point. I have tried to tell you in a dozen different ways that your point is wrong.

    Actually, I consider this “debate” resolved, but it is not in agreement.

    A couple of days ago, someone e-mailed me and said “Your point is clear enough that a twelve-year old could understand it.” I think so, but then Jim Cramer can’t understand it. 

    Most the going back and forth (at least for me) has simply been a result of Robert Rapier not wanting to defend or recant his proposed 70% / FIVE YEAR program.

    And thus we return to your mental block that the average twelve-year-old should grasp. It was an example. There is nothing to defend or recant. Five years wasn’t a plan. It wasn’t a program. It was an arbitrary time frame, picked to be short because if a president really were serious about energy independence, that is the kind of gap he has to deal with. If he doesn’t deal with it, he passes it off to another administration who chooses another long-term program that passes off the tough choices to the next administration. Thus, our oil imports have increased even as they talked up energy independence.

    My major point – which after a dozen posts you still don’t get (even though you insist you do) – is that there is a good reason that we haven’t achieved energy independence. I am pointing out just how far away from that we actually are. Your point – which you have constantly patted yourself on the back for making – is that energy independence in that short time frame is unrealistic. This is of course the point I have been making (not particularly on time-frame; we could have a 20-year time frame but the approach is wrong which is why imports have increased for 40 years). This much is obvious to I think everyone but you (and people under the age of 12).

    He finally reaffirmed that he believes this 70% / FIVE YEAR program is realistic and gave a reason why.

    Your comprehension skills are seriously lacking. I told you why I picked five years for the example. I didn’t say that this was realistic. If I was coming up with an actual program – and I have laid out plenty of proposals in the past – it would be quite a different program than 70% in 5 years. But you are clearly too bull-headed and arrogant to grasp this.

    Once I have an opinion on the best solution to a problem, I try to prove myself wrong.

    Yes, we have all seen how awesome you are. What you did here was mistake an example for a program, and this far in – after being corrected numerous times – are still trying to prove yourself correct. You did the same over the oil usage/GDP/population density issue. You kept trying to justify parts of your argument, accusing Paul of selective reading. That isn’t someone trying to prove themself wrong.

    I don’t think there is anymore I can learn from him, because I doubt he will provide a more detail economic analysis of his “program.”

    No, you can’t learn anything from me, because you don’t actually listen.

    Is it possible that RR and yourself might be having a “mental block” on what I am saying?

    It isn’t Sam or me with the mental block here. It is you, and became a waste of time several posts ago. It would be one thing if you simply sought clarification, but instead you have insisted that your interpretation was correct and you acted like a jerk. Your whole “Sharron Angle skirting around issues” shtick is you not understanding something and then acting like a jerk based on your misunderstanding.

    RR

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  100. By rrapier on June 30, 2010 at 6:21 pm

    But now your are saying he never said his plan would work. Same issue.
    Quote where he said that.

    You want him to quote where I never said something? Priceless.

    I just watched Rick Barber (running for Congress representing AL) on
    Chris Matthews. He using similar circular, ambiguous type arguments to
    obscure and skirt the questions.

    More of you acting like a jerk based on your own comprehension shortcomings. You might want to see someone about that. If you can’t understand it from me – and you can’t understand it from Sam who is saying the same thing – then I don’t think at this point your pride will let you grasp the fact that you have spent the last dozen posts whacking away at a straw man. As I tell people sometimes, when everyone else is telling you that you are wrong, you might consider for a moment that the problem MIGHT NOT BE everyone else.

    RR

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  101. By rrapier on June 30, 2010 at 6:26 pm

    The fact that eight presidents had the same goal and none have achieved it, suggest none really wanted to.

    I don’t think “want” was the problem, Paul. I think they all wanted it. I think the political reality is that if they did the things that were really required, we would vote them out of office because we wouldn’t like what it takes to achieve independence from foreign oil. So increasing levels of imports is simply the trade-off for avoiding tough choices and getting to stay in office.

    RR

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  102. By savro on June 30, 2010 at 8:11 pm

    Jim Cramer said:

    Could you please provide the quote. I definitely did not see this. Maybe if I would have seen this, our “discussion” would have been avoided.


     

    He opened the post, by explaining what he was aiming to shed light on:

    While Jon does a good job of demonstrating that this idea of reducing our dependence on foreign oil has been unsuccessfully pursued by eight consecutive presidential administrations, the question he asked but did not answer was why this has been such a challenge. So I will pick up where Jon left off and explain why we couldn’t get it done and what it would take to get it done. The technical issue isn’t really all that difficult, but the political challenge is enormous.

    What you seem to be adding is the fact that this wouldn’t be feasible from an economic standpoint either – which is a valid point, and perhaps could serve as another blog post dissecting it from that angle. But you’re wrong in assuming that the two angles are mutually exclusive.

    In the final segment of the post, after the Obama “statement,” he concludes:

    So there is the path to energy independence for the U.S. in a nutshell….

    That is realistically what I believe it would take to achieve energy independence. If you can’t imagine a U.S. president taking those steps, then you can well imagine why our foreign oil consumption has increased over those eight consecutive administrations.

    It seems that the only word you’re taking out of that statement is “realistically,” when in reality, if you read the entire statement, he’s explaining why it isn’t realistic.

    So… since the point of his post is to explain why there’s such a difficulty in achieving energy independence – with what he deemed as the only definition (a.k.a. the faux plan that won’t work) of achieving it, I would say that he doesn’t think this plan is realistic. He definitely does not state that it is a realistic plan – as you continue to imply.

    I rarely elbow my way into debates invoilving Robert (especially when he’s under attack), for the very reason of not wanting to appear as a tag team. Robert doesn’t need my help, nor does he want it. But I just couldn’t help myself after watching your continuous misinterpretation from the sidelines for so long.

    I’m baffled by the fact that you fail to see the simplicity of what he’s saying, and hope that it’;; be clearer to you now, because I think you have a lot to add to these discussions coming from an economic standpoint.

     

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  103. By Kit P on June 30, 2010 at 9:40 pm

    “Who knows what hardships the decline of fossil fuels will bring us?”

     

    I know!  Nothing bad will happen. There are many other possible positions other than what RR and JimC have taken.  The reason the last 5 POTUS have not addressed energy independence is they know change will come but not until people are forced to change and when it does it will not be bad, just different.   

     

    First JimC thanks for clarifying your use of AC.  A small amount of energy results in large benefits of productivity, freedom, and comfort.  Our oldest lives in NYC. 

     

    The electricity sector is easy to achieve energy independence as demonstrated in the US.  France shows how to do it without coal.  I do not think WWII ration rationing would cause great sacrifice just minor change in prioritizing the freedom we enjoy.

     

    My father’s dishes were washed by my sister and I dried.  We did not have freedom to go play until the dishes were done.  My father’s lawn mower was propelled by his children.  It was not what I would call hardship.

     

    If you look at the sanitary benefits if electric dishwashers and disposable diapers, they are a great benefit over how we did things 50 years ago.

     

    When POTUS fails to develop a plan, KitP has one.  We can car pool.  We can make fewer trips.  We can drive smaller cars.  I am not sure of the motivation to sit in traffic in a big SUV alone.  I see no sacrifice avoiding that

      

    Just for the record the last POTUS did have an energy plan.  Several examples are E10, new nukes to offset imported LNG, and designing the next generation of nuke plant that will co produce hydrogen for transportation.   

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  104. By Jim Cramer on June 30, 2010 at 9:55 pm

    Robert,

    I thought this was over. You gave your reason for a short time frame and I accepted it. I don’t care if it’s 3, 4, 5, or 6 years. I don’t agree that it could be politically and/or economically accomplish in a short time frame (i.e. one presidential administration). It is fine that you don’t agree with me. Why can’t you accept that I don’t agree with you? Rather, you claim the reason for me not agreeing with one single point of yours is that I don’t understand or I’m missing the point. Not everyone is going to agree with you.

    I have AGREED with you a dozen times on your MAJOR POINT: “that there is a good reason that we haven’t achieved energy independence.”

    I have agreed with you on about all your points; and I have explicitly said so in previous posts. But since I can’t agree with you on one single point that you explicitly made, you have to say I don’t get something that a 12 year old could understand. The Sharron Angle comment that I made was meant to compare argumentative tactics of avoiding to admit that you said something. If you took it that I was comparing your intelligence to hers, I was not and I APOLOGIZE.

    When I said that I don’t think there is anymore I can learn from you. I meant learning other reasons why you think a short-term (4, 5, 6 yrs) program is realistic. I did not mean learning other things. If I did not make this clear, I APOLOGIZE. Although, I am older than you and do have more education, I am still open to learning from you. I am open to learning from anyone, even a 12 year child. We all have different life experiences. It is ashame. I really liked all the other posts that you I read of yours. Because of this simple hang-up over a 70% / FIVE YEAR program that you explicitly stated in your post, I don’t know if I can stomach coming back. I would be afraid to disagree with you. I am sorry that I did not post accolades on the other blog post that I read of yours. I tend to only post when I don’t understand someone’s position (i.e. when it doesn’t make sense to me or I disagree).

    I am sorry that my posts have been so long. This was not effective in communicating my thoughts in the forum format. I do believe that if you read my posts more thoroughly you might be able to understand my point. Or maybe I just wrote poorly and nobody could understand my point. I also understand why you wouldn’t want to read such long posts. So, I accept full responsibility for not making my point clear. I am sorry for the miscommunication.

    Good luck to you.

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  105. By Jim Cramer on June 30, 2010 at 10:12 pm

    Michael,

    I already wrote about the political vs economical challenges above. They go hand in hand. I did not assume they are “mutually exclusive.” I believe the “plan” would fail political, because of economics. And this would happen either before or after the passing of any bills. It’s like the entire freshwater vs saltwater debate. This is somewhat the same issue as Keynesians calling for more stimulus spending in Europe and the US (or at least not cutting back) and the freshwater economists calling for fiscal austerity through budget cuts. The political pressure has lead to more fiscal austerity in Europe–freshwater politically wins the policy debate (but economic success is not know yet). If Europe returns to a recession, this might someday reverse (probably in the next 2-3 yrs).

    I also wrote in one of my posts a summary of RR’s original post.

    I understand how you could read that RR has concluded that his “program” for “sacrifice” is NOT “realistic.” But I think that is digging. If he really meant that, I wish he would have stated it more explicitly. If he did mean that, then I miss it; and I wish we could have gotten this cleared up earlier.

    Here’s the way I read it:

    “That [meaning what RR wrote in the proposed Obama speech or more simply a plan based on sacrifice] is realistically what I believe it would take to achieve energy independence.”

    This is a proposal or recommendation (meaning in the future) regarding a policy would be implemented in the future (explicitly stated as 2011 –I hope Obama doesn’t lose to a Republican in 2012 or it would overlap administrations). Now pause. Next sentence:

    “If you can’t imagine a U.S. president taking those steps, then you can well imagine why our foreign oil consumption has increased over those eight consecutive administrations.”

    Now we have switch to past tense: “why our foreign oil consumption has increased.” It is because our presidents have not taken those steps. I take this to mean all previous policies that were “selling a sacrifice-free pipe dream.” He said eight administrations which would include Obama. RR believes Obama is NOT creating a policy that is based on “sacrifice,” but the same old “sacrifice-free pipe dream.” I believe Jon Stewart’s video clarifies this. It shows Obama saying “now is the moment for this generation to embark on national mission to unleash America’s innovation and cease control of our own destiny.” This is the same problem. It is base only on “painless” innovation and not sacrifice. Jon Stewart makes fun of Obama and gives examples of the previous seven presidents. RR agrees. RR then proposes that Obama should implement a plan of sarcrifice that would be realistic.

    In summary:
    This means that the “sacrifice-free pipe dreams” of the past were NOT realistic (including Obama statement shown on JS video). And a SACRIFICE-BASED plan is realistic. So let’s convince Obama to do it. Let recommend a speech for him.

    Thank you for saying I have a lot to offer from an economic point of view. However, I am not an economist. I was only using the basics from only three graduate economic courses I took (micro, marco, intl macro). I was educated in chemical engineering and worked as a chemical engineer for a decade. I was also educated in statistics (MS joint degree), mathematics, and finance; and spent over a decade on wall street.

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  106. By paul-n on July 1, 2010 at 2:01 am

    RR, when I said the didn’t really want it, maybe I should have said they didn;t want it enough – i.e. they weren’t prepared to stake their presidency on it.  Perhaps Carter came closest, with his “no more imported oil than today”, and then he did lose his presidency, though I’m not sure if it was for that reason.

    Clearly though, the political pain of doing it has meant it has not been done.  Would be interesting to see what would happen if China were to decide on a five year plan for oil independence – political pain is not an issue there.

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  107. By rrapier on July 1, 2010 at 3:13 am

    This means that the “sacrifice-free pipe dreams” of the past were NOT
    realistic (including Obama statement shown on JS video). And a
    SACRIFICE-BASED plan is realistic. So let’s convince Obama to do it.
    Let recommend a speech for him.

    I can’t remember the last time I had this much trouble getting through to someone. I am not recommending that Obama make this speech. I am using that as an example of conveying to the American people the need to cut consumption. If Obama made that speech – or if any president made that speech – he wouldn’t get reelected. This is the nature of the problem and the reason presidents haven’t managed to get it done. The reason they sell sacrifice free pipe dreams is that is what keeps them in office. But with domestic production falling and demand rising, cuts in consumption are what is necessary. I have Obama hypothetically telling that to the American people. I then say “Imagine the reaction.” So it should be crystal clear that this isn’t a recommendation to Obama.

    At this late stage, though, you are still carrying on about not agreeing with my plan. All I keep trying to tell you is that you are disagreeing with a strawman, because the position you are disagreeing with isn’t my position.

    RR

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  108. By Jim Cramer on July 1, 2010 at 5:12 am

    RR,

    Yes, I am finally getting what you are saying. It is finally sinking in for me. I am completely sorry for misunderstanding what you wrote. It was completely my mistake.

    I thought you were advocating that sacrifice and pain was the only realistic solution for obtaining energy independence. I thought this was your solution because former administrations did the exact opposite. The former administrations were only selling a sacrifice-free pipe dreams and that’s why why our foreign oil consumption has increased over those eight consecutive administrations.

    But what you were really saying is that America will never buy a sacrifice-based solution. And if Obama tried to push it down their throats they would fire him. And this was just a literary technique for you to communicate to the American people that they need to cut consumption.

    Okay, so you were calling for voluntary conservation? I guess you would call it voluntary sacrifice? Oh no, but I did see the words voluntary or conservation in you post. I’m confused again. Okay, I see, that was just another literary technique–kind of a subliminal thing for the American people. Oh yeah, you did mention that the markets would force those reductions. Oh, but that was just a scare tactic for the American people if they didn’t do something, I think. Or maybe you were simply saying there is no solution to reducing our dependence on foreign oil?

    Oh no, I just keep getting so confused. I don’t know what your solution is now. I thought that was the purpose of your article. You were going to explain (1) why we couldn’t get it done and (2) what it would take to get it done. Okay, so I got the first point, I think. It was that we couldn’t get it done because former administrations were only selling a sacrifice-free pipe dreams. But I’m still confused on the second point. I’m sorry. I will try to read it again.

    I am so sorry that I had to go through this so many times. I know this has consumed a lot of time. Please accept my apologies, but this has just been really hard for me. I have been having a hard time lately. Things have been stressful for me and I am now scared that this might be causing some cognitive issues.

    I think I have been focusing too much on the economic and fiscal problems around the globe. I think I already mentioned Paul Krugman. I am an avid reader of his. I think he has warped my mind. All he has been talking about for the last few months has been fiscal austerity. He keeps saying how freshwater economists and conservative politicians are calling for sacrifice and pain as a solution for our economic and fiscal problems.

    I guess since I been reading about all these people calling sacrifice and pain, I misunderstood the main point of your post and thought you were calling for sacrifice and pain. I’m sorry. My bad.

    Maybe if you see what I have been reading, you will understand; and
    you forgive me for being such nuisance. Here are some links:

    The Pain Caucus

    May 30, 2010

    http://www.nytimes.com/2010/05…..ugman.html

    Madmen in Authority: Pain for its own sake.

    June 7, 2010

    http://krugman.blogs.nytimes.c…..authority/

    The Seductiveness Of Demands For Pain

    June 9, 2010

    http://krugman.blogs.nytimes.c…..-for-pain/

    The Bad Logic Of Fiscal Austerity

    June 14, 2010

    http://krugman.blogs.nytimes.c…..austerity/

    That ’30s Feeling:

    Suddenly, creating jobs is out, inflicting pain is in.

    June 18, 2010

    http://www.nytimes.com/2010/06…..ugman.html

    Against The Super-Asinine, The Gods Themselves Contend in Vain

    June 23, 2010

    http://krugman.blogs.nytimes.c…..d-in-vain/

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  109. By Jim Cramer on July 1, 2010 at 5:41 am

    Hi Paul N, you said,

    Would be interesting to see what would happen if China were to decide on a five year plan for oil independence – political pain is not an issue there.

    Yes, that would be interesting. It would also help the US even better than we could help ourselves (it they stopped importing oil). It is also interesting how peak energy is very similar to budget problems in western countries (obviously not for China).

    Political pain is not an issue in China because of their neo-totalitarian system (just stating the obvious). But it looks also to be true that the political barriers to pain have eroded in the democracies of Europe and will possibly erode in the US after the elections this year and in 2012 (not that I am advocating for this).

    I am sure you are well aware of the fiscal austerity fever that is circling the globe or at least Europe and the tea party/conservatives in the US. UK’s Osborne Tax-and-Axe plan has the biggest budgets cuts since WWII. I believe the US is the lone ranger against fiscal tightening. Obama gave the perfectly worded warning at the G20: “We must recognise that our fiscal health tomorrow will rest in no small measure on our ability to create jobs and growth today.” Let the UK test the waters. If it works, great, but it doesn’t look good to me.

    Seems like the call for sacrifice is all I have been reading about this year. I like Paul Krugman’s take on the situation. If you don’t mind reading some ideas of a neo-Keynesian, here are some of his blog/editorial posts (I guess forum doesn’t allow links). You can find them on the NY Times website. This is just him ranting, nothing technical, but it does show how worried he is. He is predicting a 3rd Depression (1870s, 1930s, and 2010s).

    The Pain Caucus
    May 30, 2010

    Madmen in Authority: Pain for its own sake.
    June 7, 2010

    The Seductiveness Of Demands For Pain
    June 9, 2010

    The Bad Logic Of Fiscal Austerity
    June 14, 2010

    That ’30s Feeling:
    Suddenly, creating jobs is out, inflicting pain is in.
    June 18, 2010

    Against The Super-Asinine, The Gods Themselves Contend in Vain
    June 23, 2010

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  110. By rrapier on July 1, 2010 at 1:19 pm

    Okay, so you were calling for voluntary conservation? I guess you would
    call it voluntary sacrifice?

    I believe it will call for sacrifice, in that people are going to have to consume less. I don’t think they will voluntarily do it unless either rationing or prices force them to. What I have always advocated is ramping up gas taxes while rebating income taxes. That shouldn’t be a sacrifice for most people, except in that it would have them consuming less. So I use the word “sacrifice” liberally to mean reduce consumption.

    People do respond to price signals. We have seen that over and over. If we traded income taxes for fossil fuel taxes we would provide incentives for people to start using less while trying to keep their overall tax burder relatively constant. Politically, that is going to be difficult as well, but less politically difficult than simply raising gas taxes (which tends to get people voted out of office).

    My fear is that if we don’t try to manage this process at all, the market will manage it and a lot of people and businesses are going to be hurt when we see prices spiking up again.

    RR

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  111. By Jim Cramer on July 1, 2010 at 6:11 pm

    RR, please bear with me. I am just trying to get things clear in my head so we do not have miscommunications. I want to eliminate all assumptions. It is the assumptions that can lead to “straw men”. Straw men are not always deliberately created. If you believe I have been staw manning you, it was not my intent; and I am sorry for making assumptions from you statements that I thought were clear. We seem to have different interpretations on what is being said.

    Sorry this is so long, but it seems that is what is need to get past miscommunications. I don’t know how to use less words in what feels like an adversarial environment to me (maybe was it was very friendly and cooperative until I came along–I am not blaming you).

    My fear is that if we don’t try to manage this process at all, the market will manage it and a lot of people and businesses are going to be hurt when we see prices spiking up again.

    Question 1:
    Could you give me some clarification on the “we” who should “manage this process?” Is it the government who should manage this process or should each one of us take individual responsibility to conserve without the interference of government (i.e. we the American people). [I am not certain of your political leanings: liberal, conservative, tea party, libertarian--and I don't want to know, but it can influence the interpretation of "we" from the side of the reader or writer. It's amazing how easy miscommunications can happen. The most important part is to remain civil and constructive.]

    Since you said you believe in gasoline consumption taxes, I could assume that “we” is the government. However, I think (I could be wrong–maybe I misinterpreted what you have said) that you believe that the government will never be able raise taxes long enough to have an impact because either politicians don’t have the political will or if politicians do have the political will and taxes are passed, then they will just be voted out of office and the taxes will be removed before they can have much of an effect on decreasing our dependence on foreign oil. [wow, sorry for the run-on sentence. If this is difficult to understand, I will try to rewrite it.]

    Question 2:
    So do you believe it is reasonably politically feasible for the government to raise consumption taxes on gasoline, if they lower income taxes to keep their overall tax burden constant? And that the American people would NOT reject this and vote them out of office?

    Question 3:
    I don’t want to make assumptions on what you mean by “difficult.” Is it so difficult, that you not advocate for it?

    I think this is possible. The politics are just very interesting. Libertarians and the tea party favor consumption taxes over income taxes. One could say this is true for a majority of conservatives. The liberals want Cap and Trade. This is a consumption tax on all fossil fuels (only on the end of the producer whose costs are passed on to the consumer). Most of the revenue would be given back to the tax payer rather than spent. This is the Obama plan. Cap and Trade was originally a Republican idea. Maybe a compromise could be made to shift cap and trade more to a carbon tax only gasoline. It would help both the energy independence and the environment (depending on potential substitutes).

    Comment on Miscommunication
    I have just been very concern about communication. Something broke down in this dialogue. Even though I have read your original blog post many times, I have not went back and reread my own comments (time constraints). Writing very quickly off the top of my head and not adequately proof reading has probably lead to much miscommunication. And I am alright with bearing a bulk of the responsibility for our miscommunications. But you have also miscommunicated or not correctly read what I explicitly stated. There has also been miscommunication based on logic. I don’t know if these are innocent errors or are meant to be a catch-22 trap. I don’t claim to know your motives or integrity. Here’s an example:

    I don’t think they will voluntarily do it unless either rationing or prices force them to.

    Maybe you unintentionally did this in error from quickly writing it or you believe this makes sense. Here is my take: If they are forced to consume less due to rationing or [higher] prices, then they are NOT voluntarily consuming less (i.e. they are being forced to consume less by either the market or government–either case, they did not volunteer.) So my conclusion is that you think they will NOT voluntarily consume less; they must be forced. Here’s why I bring this up: I don’t want to make this assumption, because in some future comment there is a chance that you could say how this would all be voluntary; and that you DID believe they would volunteer. Then you would direct me to this quote and say that you can not believe why I don’t understand this simple straightforward statement.

    Question 4:
    Do you believe that the American people would volunteer to consume less or must they be forced by either rationing or higher prices? Sorry, I would just appreciate a more explicit statement.

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  112. By rrapier on July 1, 2010 at 8:02 pm

    Could you give me some clarification on the “we” who should “manage this
    process?”

    Political leaders. As individuals, we won’t collectively manage to reduce our consumption by any meaningful amount unless there are very compelling and obvious reasons to do so. The price signal is a compelling reason, but if we wait for the market to do it I believe it will be much more damaging to the economy. Historically, if we wait for those sorts of price signals that result from tightness in oil supplies we risk recessions.

    So do you believe it is reasonably politically feasible for the
    government to raise consumption taxes on gasoline, if they lower income
    taxes to keep their overall tax burden constant? And that the American
    people would NOT reject this and vote them out of office?

    Yes, I believe it would be politically feasible. Still not a cake walk, because political opponents will focus on the issue of higher taxes, while ignoring the lower income tax proponents. Those kinds of political games are a big reason we haven’t made more progress.

    I don’t want to make assumptions on what you mean by “difficult.” Is it
    so difficult, that you not advocate for it?

    Difficult from a political point of view means risky. It will require political courage. That’s what I mean when I say it will be difficult to get things like higher gas taxes in place.

    If they are forced to consume less due to rationing or [higher] prices,
    then they are NOT voluntarily consuming less (i.e. they are being forced
    to consume less by either the market or government–either case, they
    did not volunteer.)

    Even as prices go up, people will make various choices about what they spend money on. So when I talk about higher prices “forcing them to”, what I really mean is that they will voluntarily start making choices that will result in lower energy consumption. This is one reason we have seen consumption drop sharply over the past two years. Prices have been much higher, and people decided not to spend so much money on certain things. In other cases, they simply couldn’t afford it.

    Do you believe that the American people would volunteer to consume less
    or must they be forced by either rationing or higher prices?

    No, I don’t believe the American people (or most people for that matter) will volunteer to consume less. A lot of individuals will, but this country was built on cheap oil and many people (and politicians) still act as if that is a birthright.

    RR

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  113. By Kit P on July 1, 2010 at 8:51 pm

    What do you learn reading the NYT?  Answer, the agenda of journalists at the NYT.  If someone thinks they can provide a link to an informative and accurate NYT story about energy or the environment, I would like to see it.

     

    When you close factories, they do not use much energy.  When people loose their jobs, the do not us fuel to drive to work.  It is that simple.

     

    The benefit/cost ratio of energy is very high.  If the cost of energy goes up maybe the demand for fast food will go down.  

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  114. By Jim Cramer on July 2, 2010 at 4:00 am

    RR, Thank you for taking the time to answer my questions. I mostly agree with everything you said. And might even 100% agree if some ambiguities are cleared up.

    Government vs Individuals to “manage this process”
    I don’t know if political leaders can manage the process. Political leaders can either (1) pass laws (or use existing laws) that will allow the government to manage the process through taxes, rations, tariffs, quotas, conservation advertising campaigns, etc. or (2) provide leadership through speeches, town hall meetings, etc to influence people to voluntarily do something themselves.

    Market Forces and Voluntary Action
    This might just be a semantics issue that we will probably not resolve. So I would rather not debate it. I will just give my view. Voluntary is having the power of unforced choice. If a high price (market force) constrains someone from acquiring an asset or consuming goods or services; they did not voluntarily make that choice. The choice was made for them, if they would have preferred to make that choice in absence of the constraint. I believe you are thinking of consumer preference or priority. These are choice. To be voluntary the choice must be unconstrained.

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  115. By Jim Cramer on July 2, 2010 at 4:52 am

    Kit P,
    I don’t want to make this a political debate, but I would like to clear up a few points.

    What do you learn reading the NYT? Answer, the agenda of journalists at the NYT.

    That is true whenever you get information from any third party or even from one’s self. You are at the risk of getting the agenda of the person giving you the information, whether they are Fox News, MSNBC, your family doctor, priest, etc. Even if there is no 3rd party involved, people are still subjected to the bias of their own agenda. It is possible that Isaac Newton, as a recluse, could have made errors based on his own bias when making astronomical observation (getting information).

    The issue is how easy you can recognize an agenda or bias. If one only seeks information from only a few sources, all your info and knowledge might not be balanced. You are only getting one side of the story. Glenn Beck tonight had an hour show on religion. I listen to most of it–I did not agree with very much of it. But now I now what close-minded people in our society are listening to.

    journalists at the NYT

    Paul Krugman is not a journalist. He is a editorialist, a blogger, and a economist at Princeton University. He is suppose to have an opinion or an agenda. I never mention anyone else at NYT.

    If someone thinks they can provide a link to an informative and accurate NYT story about energy or the environment, I would like to see it.

    I never mentioned getting any information on energy or the environment at NYT.

    I don’t know enough about you, so I will not use this small amount of information in what you wrote to form an opinion of what your agenda and biases might be.

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  116. By rrapier on July 2, 2010 at 1:18 pm

    If a high price (market force) constrains someone from acquiring an

    asset or consuming goods or services; they did not voluntarily make that

    choice.

    Likewise, I won’t debate this, but rather give my view. Market prices can constrain at many different levels. Today one could argue that we are voluntarily consuming a lot less gasoline than we would if gasoline was 10 cents a gallon. Because we could decided to forego other spending in order to consume more gasoline, I view that as voluntary, but of course it is neither 100% voluntary nor 100% constrained, and so you will hear me use those terms somewhat interchangeably.

    RR

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  117. By paul-n on July 2, 2010 at 4:46 pm

    I don;t agree with the high price = involuntary choice either.  Every day, I decide not to consume French champagne, or to buy a Starbucks moccachino, or eat caviar, because of their high prices.  I find cheaper substitutes, or for some thigns, go without, but it’s always voluntary.

    If i come into more money, I might change my decisions, and that is my choice, not someone else’s

    The high price of drilling offshore wells made the oil comapnies think carefully about which ones they do or don;t drill, a voluntary decision, but right now, there is a moratorium on drilling (regardless of price) – definitely involuntary.

    Any price/purchasing decision will have a price where you will decide not to buy, so that is definitely voluntary.  Involuntary is where you have no ability to change the decision, effectively meaning the good or service is completely unavailable, for whatever reason, but not of your choosing, and not price.   If there is a price, it is available, and someone can always buy it, if they have enough money, they may have to sell their first born to pay for it, but that is also a voluntary (if illegal, in most countries) decision.

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  118. By Jim Cramer on July 2, 2010 at 5:40 pm

    I said I would rather not debate the meaning of word voluntary, but I realized this might be a good example of what is actually the center of our problem: semantics, agenda, and use of the ambiguities of the meanings of words we use to meet our agendas. We can use these ambiguities in ex-ante or ex-post. The use of ambiguities can be intentional or unintentional, but usually based on biases and agendas (e.g. the desire to never be wrong). I am sure that my own personal biases have influenced my interpretations of what you wrote in your original post.

    You said,

    Today one could argue that we are voluntarily consuming a lot less gasoline than we would if gasoline was 10 cents a gallon. Because we could decided to forego other spending in order to consume more gasoline, I view that as voluntary.

    I know you must be good at calculus because you are a chemical engineer. The price elasticity of demand for gasoline is not linear. It obviously depends on prices levels, but also on price expectations, price volatility, long-term vs short term price levels, and other factors. That’s why it is difficult to estimate. Market conditions are always changing. The change in quantity consumed depends on the magnitude and duration of the change in price. It also depends on the constraints of limited supply.

    YOU ARE CORRECT about a 10 cent change in price. Consumption will not significantly decrease in the short-run (changes will probably be less than measurement errors and will not be able to be delineated from changes in the economy and other factor other than price). Gasoline prices are inelastic relative to an afternoon of playing golf. However, you framed your example to make yourself correct, but your example is not relevant to the problem we are discussing. In your example, CONSUMPTION of oil DOES NOT CHANGE because people forewent other spending and continued to consume oil. However, this isn’t about today, it is about tomorrow. This is about consumption that must be reduced because of peak oil and the impossibility of supply being able to meet demand? Regarding our problem, you have to start with supply, and determine where the market will drive the price to make demand equal supply.

    VOLUNTARY ACTIONS AND MARKETS FORCES:
    This is a matter of supply and demand and the price elasticity of demand. It requires links between micro- and macro- economics. If we rely on markets to push down consumption, this will only happen when supply is less than demand. Currently, the equilibrium of supply and demand is significantly dependent on our import of foreign oil. This equilibrium will most likely change from a combination of increases in demand and reductions in supplies (not vice versa).

    Prices will continue to increase until demand equals supply (i.e. demand must decrease). If the price is INELASTIC, and as you said, people will continue “to forego other spending in order to consume more gasoline.” However, demand will still remain high because people are still buying gasoline at the higher prices. But demand must equal supply, so gasoline prices will continue to increase until people will be eventually be FORCED to reduce their consumption. In the macro, the nation can not consume what is not there. As prices continue to increase most people will eventually have to involuntarily reduce gasoline consumption, because most people do not have unlimited wealth.

    The ability for people “to forego other spending in order to consume more gasoline” greatly depends on ones wealth and income. I don’t think Bill Gates or Warren Buffet will have to worry about their personal gasoline consumption w.r.t. to costs until gasoline prices get to be over $1 million per gallon. Markets are about the aggregate, not about one individual.

    you said,

    “it is neither 100% voluntary nor 100% constrained, and so you will hear me use those terms somewhat interchangeably.”

    What terms do you plan on interchanging: voluntary and constrained?

    It’s all semantics. Instead of interchanging the terms, could we agree not to use the word voluntary and just use the word constrained. I believe we will all agree what constrained means. We just don’t agree to what voluntary means. Although Webster does define it as “unconstrained by interference.” But there are many definitions in Websters. Another webster definition says, “exercise of one’s own free choice or will in action whether or not external influences are at work.

    I regard price as an external influence that limits my choices. You do not. One might want a $20 million mansion, but the price prohibits that mansion from being one of the alternatives that can be chosen. They might only be able to choose between a rundown apartment, trailer, or cardboard box.

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  119. By Jim Cramer on July 2, 2010 at 6:03 pm

    Paul, you said,

    If i come into more money, I might change my decisions, and that is my choice, not someone else’s.

    But you do not view your wealth as a constraint on your choices? Or are you choosing not to come into more money.

    I decide not to consume French champagne, or to buy a Starbucks moccachino, or eat caviar, because of their high prices.

    So you are saying that high prices are a constraint on you choice? Would you consume a Starbucks moccachino if the price was lower?

    I like my coffee black w/o sugar, so price is not a constraint for me on consuming a Starbucks moccachino. I still would not buy it if the price was as low as what I usually buy when I go to Starbucks.

    We just have different definitions of voluntary. I gave Webster’s definition earlier. Webster also gives a list of synonyms:

    * Voluntary implies freedom and spontaneity of choice or action without external compulsion .
    * Intentional stresses an awareness of an end to be achieved .
    * Deliberate implies full consciousness of the nature of one’s act and its consequences .
    * Willing implies a readiness and eagerness to accede to or anticipate the wishes of another .

    I guess I just consider price an external compulsion or constraint. A relatively low price w.r.t. alternative choices is a compulsion. A relatively high price w.r.t. alternative choices is a constraint.

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  120. By Jim Cramer on July 2, 2010 at 6:19 pm

    Paul, I forgot to say in my last comment to you.
    you said,

    If i come into more money, I might change my decisions, and that is my choice, not someone else’s.

    You seem to be defining a constraint as only being “someone else” (like an actual person). As if it was a bouncer constraining you from entering a Starbucks to buy a moccachino. As if it could only be the bouncer that would make it involuntary, not the price. As if your personal wealth and Starbuck prices are not constraints to your choice. What if “someone else” is setting the price? Market forces determining how much quantity that “someone else” might sell, but you can still choose to buy at that price. Would it be the price or the person that constrained you?

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  121. By savro on July 2, 2010 at 7:40 pm

    Jim,

    My personal opinion on the definition is that the term “voluntary” in this case depends on the level of the high prices. If gas were to cost $1 million per gallon, then I don’t think it should be called a voluntary decision on my part if I stopped buying gas. If it went up to $7 per gallon, and I therefore cut back on my gasoline consumption, then, yes, that would be a voluntary decision on my part – albeit, very much affected by outside influences.

    However, I don’t think that outside influences impacting a decision voids the fact that it can still be voluntary.

    It’s pretty tough, though, to pinpoint where the cutoff point between voluntary and forced is.

    But I think, like you said, it’s simply semantics on what the literal definition of “voluntary” is at this point. It doesn’t seem like there’s any real disagreement on the issues here.

     

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  122. By paul-n on July 2, 2010 at 8:59 pm

    Well, I think Sam nailed it here, were are getting into hair splitting about when voluntary becomes forced, though I think perhaps it is when voluntary becomes “involuntary”.

     

    When it is a price thing, I can make other decisions to afford the price.  I could decide to go without food, phone etc so I can still buy fuel, even at 5x the price. 

    Now, at the the point the prices get high enough, a better decision than to starve, is of course, to use less fuel in some way.  while I still retain the abaility to make the best decision (or any decision) i define that as voluntary.

    When I have no ability to make said decision, e.g. wartime rationing, I think we all agree that is involuntary.

    We can all agree that a 2-3-4x increase in fuel prices will certainly decrease demand, because alternatives (biofuels, take transit, have the vacation at home etc) become cheaper.  Is that forcing us to do these things?  Well, forcing would imply no alternative, it’s probably more accurate to say we are influenced or incentivised to do these things, but we can still choose to go against the flow and use more fuel at 4x the price, it’s just that very few would. 

    The key thing is, of course, what happens when the prices are that high (2x) and for the answer, we need only to look at Europe.  Higher retail fuel prices leads to significantly decreased fuel usage – it’s as simple as that.

    But is that the ONLY way to reduce oil usage?  The 8 successive administrations have all sought to decrease oil usage (imports) without imposing higher prices.  And the only time imports have decreased is when prices (crude prices) have been high, or supply constrained, (e.g. immediate post-Katrina), which the consumer experiences as higher prices.

    In theory, higher prices should not be the only way to reduce consumption and imports, but thet fact that 40 years of trying everything else has failed suggests that higher pricing IS the only way to really reduce them.  It’s then a question of whether we are pro active and have the higher prices on our terms and timeframe, (the Euro approach) , or be reactive and leave that to the world markets to dictate (the US approach).

    I prefer the pro-active approach myself. 

     

     

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  123. By Kit P on July 2, 2010 at 9:15 pm

    JimC my agenda is very simple.  We need to ensure an adequate supply of energy at a reasonable price.

     

    I think that we should solve the problem with selective rationing energy use by all of those progressive elitists who propose regressive taxes on the low income people.  

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