Delivering Energy Security
January 16 2008 by Robert Lawrence Kuhn
I feel stupid, and I am angry. The stupidity is collective; the anger is personal. I am angry because I feel stupid and the reason is oil. Energy, actually, and that’s the point. There is no rational reason why
But we have chosen to cede to others control of our energy, and along with our energy our future, and along with our future, perhaps even our sovereignty. That we’ve chosen by default, not by design, makes the choice no less ours. We are becoming progressively more vulnerable, and we do not seem to mind. Maybe we’re lulled by the slow rate of the erosion of our power. It is as if, to use a World War II analogy, the German Army were advancing slowly across
I have some suggestions, but first here’s some background. If you’ve heard it before, hear it again.
Energy Trends and Risks
It is the odd consequence of capricious geological history and arbitrary national boundaries that the major industrial regions of the world- the United States,
So with energy demand ever increasing and supply ever decreasing, and becoming more concentrated, both prices and vulnerabilities are ever rising. As such, for
Energy risks are at least threefold: risk of sourcing (confidence in the reliability and continuity of foreign sources), risk of transport (dangers lurking in the movement of energy over thousands of miles), and risk of pricing (uncertainty in costs of energy and factors that affect costs). In today’s world, energy and oil are as much national security issues as are sovereignty and borders.
America’s reliance on imported oil is now an issue of national security, especially with much of the oil coming from the Middle East and with most sources of oil in countries considered unstable or unfriendly or both.
First, we must set energy efficiency as a prime national directive. Not a suggestion. A directive. Saving energy and instituting sustainable development must be implemented in every use of energy in industrial and consumer consumption.
Second, we must accelerate development of alternative energy, with concentrated efforts-no, with monomaniacal intensity! Wind, solar, nuclear, hydro and biofuels must all be pursued vigorously.
Third, we must make the development of clean coal technologies a national priority. Coal accounts for about 25 percent of our energy; we have ample domestic coal reserves; and if coal could be made clean, it could have a major impact.
How do we implement these strategies?
The public sector has a role to play; I think a significant one. Create a Manhattan-like project, which our wartime government instituted when our national survival depended on making an atomic bomb before our enemies did. If the analogy between current conditions and World War II seems weak, if energy dependence on other countries does not seem as menacing as a mushroom cloud, that is the reason why we are now in decline. The difference between military occupation and energy dependence is one of only method and time. The result is the same: payment of tribute and subservience to others.
To create a Manhattan-like project,
Advanced technology combined with decreasing demand for high energy-consuming products-both enhanced by meaningful tax benefits and penalties-can achieve sustainable development and thus energy independence. Such self-sufficiency cannot be achieved rapidly, but the lack of noticeable progress, say within election cycles, must not undermine our unrelenting national resolve. The choice is stark: gradual independence or certain dependence.
The top of my to-do list is to increase taxes on gasoline-and to do so substantially. Politicians may see this as political suicide, but for our country, it would accomplish three things:
_ Reduce demand (even though demand will not decrease with simple economic elasticity, raise the price high enough and demand will go down).
_ Encourage the development of alternate energy (which would become more economically viable if the price of gasoline stays sufficiently high).
_ Raise public revenues (which could be spent on developing new technologies).
In addition, less money would be going out of the
I still feel stupid, and I am still angry, and to ameliorate both I must be prepared to sacrifice. Here’s a start.
Raising taxes on gasoline is essential, but raising taxes on gasoline is regressive in that the burden falls disproportionally on lower-income citizens. This is unfair and the solution is subsidies, say in the form of tax credits, to lower-income citizens. How do we pay for these subsidies? Raise my taxes. Raise taxes of all higher income citizens. If my taxes are raised to provide subsidies in order to set a higher tax on gasoline, thus reducing demand and funding new technologies, I am less happy with less money, sure, but I am much happier with a stronger country. By the way, make that tax a surcharge for simplicity and put my name at the top of the list.
Robert Lawrence Kuhn, an international investment banker and corporate strategist, is senior adviser to Citi group. He is co-editor-in-chief of China’s Banking and Financial Markets: The Internal Report of the Chinese Government and author of the No. 1 best-selling book in China in 2005, The Man Who Changed China: The Life and Legacy of Jiang Zemin. Dr. Kuhn’s articles describing and explaining in – vestment banking are posted at www. chiefexecutive.net/investment.