A mostly theoretical debate is raging in politics about the right approach to solving our environmental problems. The hot item these days is cap-and-trade; all three presidential candidates are for it. Under this system, arbitrary limits are set by the government on allowable carbon emissions, mostly for business (the “cap”) and then the businesses can work out the details of who goes over their limit by purchasing credits from another party that got under theirs (the “trade”). Another approach is government-sponsored research into technology solutions like carbon sequestration, low-carbon manufacturing and transportation, fuel cells, renewables like wind, tidal and solar, etc. The government is supposed to step up as a buyer of these risky technologies (a sort of “anchor tenant”) and funder of basic research (a green “Manhattan Project”). A third approach, little discussed, is aggressive conservation. This would involve social engineering (possibly through very high taxes on hydrocarbons) that would give the population very strong incentives to stop wasting energy. Consider the behavioral change that would immediately follow $10 per gallon gasoline, or a $5,000 annual vehicle registration fee, or a $1,000 monthly electric bill.

Two of these solutions involve market forces, moderated by politics. Cap-and-trade starts with government setting the caps and then the market takes care of the rest. The aggressive conservation approach starts with government setting very high taxes selectively, and the market takes care of the rest. The middle approach relies on the wisdom of government grant approvals, a process with a mixed history. True the government did build the atom bomb in four years, and later created the Internet. But a lot of waste happened in between, and still. Most people have more confidence in market forces, given a choice.

Of the two market approaches, why is cap-and-trade favored so heavily over conservation (in the media)? I suspect it is because conservation is essentially negative – doing without things we already have. Cap-and-trade is a newfangled thing; conservation is literally as old as the human race (dating back to the first famine or drought). Economists also argue that conservation will destroy the economy. They maintain that without growth in our traditional industries like auto manufacturing, we will face certain decline. I am not so sure.

Let’s suppose that gasoline prices went up to $10 per gallon (with or without government intervention) and stayed there, with the result that sales of new cars virtually stopped and miles-driven dropped by two-thirds. Used car values for gas guzzlers would fall to near-zero and something like $1trillion in economic value for American households (our cars) would be destroyed. Possibly 1 million people would lose their jobs as the auto industry clamped down. Shareholders could lose another $1 trillion. Economic Armageddon. Or is it? This is the easily measured impact of a negative change, which tends to be the focus of economists (they don’t call it the dismal science for nothing).

It takes more creativity to see the silver lining in this cloud. What good might come from such an upheaval? Who benefits? How about a fairly immediate improvement in public health? Elimination of millions of annual cases of asthma hospitalizations (nearly all attributable to air pollution) saves more than $40 billion dollars. Another $230 billion saved in car crash deaths and injuries. Another $100 billion in highway construction and maintenance. How about the money currently unproductively spent on parking? There is surely a social cost of obesity, of anti-social behavior, of stress caused by our frantic pace of life. How much is quietness worth to you? Being able to let your children play outdoors without worrying about being hit by cars?

Keep in mind that these benefits are perpetual, while the costs are one-time. Once we’ve gotten past the loss of our assets (the now-worthless car in the driveway, the Ford Motor Company stock), and once the unemployed have been re-employed — then we will be left with just benefits. Our taxes will be lower, our health will be better, our cities and towns will be more appropriate for human beings than machines.

So let’s do the math. I believe that this is a case where less truly is more.

I am so excited to save 18.4 cents on a gallon of gas this summer! As much as I drive, I stand to save about $2.75 through September. I could almost afford a Starbuck’s triple espresso with a soy shot for my wife on our anniversary in August. I’m sure she’ll be very happy with it – she always likes them when we go shopping.

But here is my real dilemma: who am I supposed to vote for in order to make this happen? John McCain had the idea first, but he’s already got his nomination sewed up. Hillary jumped on the Republican bandwagon (not for the first time), so it’s hard to get excited that she is showing initiative. And Obama already knows where his next Starbuck’s is coming from, so he laughed at them both. All three of them are senators, but none have introduced a bill. Maybe they don’t really mean what they say?

But truthfully, none of them can be president in time for me to save big in the summer of 2008. Maybe I should vote for George Bush if I want gas tax savings; but how? And besides, he hasn’t said he’s for the idea anyway. After all, he just gave me some of my money back from last year in the hopes that I will spend it this year. Preferably on something costing less than $600 that was not made in China. Is there such as thing?

Since no drivers are going to get rich with their 18.4 cents savings, who is? The oil companies will obviously prosper, since the government would effectively put gasoline on sales without cutting into the producer’s margins at all. There really is no more supply to be had, especially during the summer driving season. But an increase in demand spurred by the tax relief with no offsetting increase in supply means one thing – higher prices.

Maybe the right way to get lower gas prices is to raise the gas tax for the summer. This will discourage consumption during the time when it is traditionally highest. More people will stay closer to home. Demand will fall as a result. The oil producers have no place to store all that unbought gasoline, so they are forced to lower the price. Maybe after a summer of this, we could make the gas tax increase permanent, or even raise it some more.

Now 18.4 cents is not much to you or me. But there is one group to whom this is a LOT of money – the US government. Foregoing this tax will cost the treasury millions in revenues. Last time I looked, we had a gigantic deficit thanks to fighting two wars while handing out tax breaks. It really seems like we have to stop giving away tax revenues so casually, or the Chinese and Saudis will own us outright. But adding to the national debt in order to probably increase gas prices? To benefit candidates who aren’t even elected? Craziness.

A census in Florida from 1855 shows that the total wealth of the state’s population was $49,461,466.  More than 55% of this ($27,250,551) was slaves.  When Northerners made their case that the South should end the practice, the economic reality was largely ignored.  The primary asset for most slave-owning Southerners was slaves.  So ending slavery was asking white Southerners to walk away from their wealth.  And there was no specific trigger-event that could be pointed at – the decision could always be postponed to another day.  And so it was.

It took a bloody war to force the end of slavery, and in the end the South was probably poorer than if they had conceded the point in 1860.  But such is human nature.  Prior to the Civil War, a number of half-measures and compromises were attempted.  These generally had the effect of throwing gasoline on the fire.  Abolitionists also tried taking direct action to free the slaves – making them perhaps the first American terrorists.  In the end, none of this was enough and war followed.

In 1990, the Berlin Wall came down.  Within the period of just a few years, the entire social infrastructure built by the USSR was dismantled with almost no violence.  For the eastern bloc countries, this change was much more significant than the end of slavery in America was to white Americans.  Everything those countries stood for, everything they had tried to build, everything they had sacrificed generations for — all of it was lost overnight.  The people came to realize that a future under Communism was worse than the disruption caused by shifting to capitalism.

What was different between 1860 and 1990?  Human nature had not changed in 130 years.  But perhaps social values and communications had.

Now in America, we face another upheaval.  Once again we can see a future where the assets and lifestyle we have today will be forced to change.  Once again, there are enormous economic assets involved.  Once again, there may not be a clear triggering event – so that the forces of inertia can always say “let’s wait a little longer and see what happens”.

This upheaval is related to our national oil appetite.   We have trillions of dollars tied up in cars, roads, pipelines, oil fields, refineries, repair shops and gas stations.  We have spent more trillions building our cities and suburbs to meet the requirements of the automobile.  The gnashing of teeth will be loud as oil supplies dwindle as environmental and health concerns rise.  You can hear it now, if you listen carefully.

The abolitionists who agitated for change in the 1800’s were criticized for fanning the flames.  They were unwilling to simply “let things be” when human lives were at stake.  And so it is today.  Environmentalists and peak-oil pundits face the same criticism, but are driven by the same belief that human lives are at stake.  Communications and social consciousness are greater now than ever before.  Hopefully the conclusion this time will be more like Berlin and less like Gettysburg.

The March 27, 2008 Oregonian has a front-page article about the next phase of expansion for Portland’s streetcars.  It’s an exciting prospect both for the quality of life in Portland, and for the environment globally.  Imagine a U.S. city (besides New York) where it is easier to get around on transit than in a car – there’s a revolutionary idea!

 The article continues inside with another third of a page of information.  On the opposite page is a half-page ad run by the Oregonian itself, promoting their classified ads for cars.  The image shows a newlywed couple walking down the street trailing a dozen tin cans on strings from the bride’s gown.  Bride and groom wear looks of resignation tinged with disgust.  The headline reads NEED A CAR?

How does a wonk-ish article about public transit compete with that?  A single image with a three-word tagline communicates with sex and humor.  It also unintentionally mocks the very transit option discussed so seriously a few inches to the right.  If the battle is for the public’s attention, the transit side is losing badly.

Here’s an encouraging thing: the Western Climate Initiative. It’s a consortium of nine western governments (Arizona, California, Montana, New Mexico, Oregon, Utah, Washington, British Columbia and Manitoba) created for the purpose of regulating greenhouse gas emissions. The objective: by 2020, reduce emissions to 15% less than the 2005 level. The first actions are now being proposed, a cap-and-trade system for some industrial polluters.

Cap-and-trade is a popular approach to pollution control. It combines government regulation (the cap) with a free market mechanism (the trade). The government first measures carbon emissions for a targeted group of polluters. They then set an absolute limit for each. Hopefully this limit (the cap) is significantly less than today’s emissions. Anyone who pollutes under the cap may sell their unused emissions on a carbon market. The buyer would be another user who is unable to get under their cap.

There are other cap-and-trade markets in existence, but they are voluntary. It is up to each emitter to volunteer what they emit, and volunteer what they are willing to accept as a cap. Since money is involved, the temptation to cheat is very high. All I have to do is fudge a little on how much I think I might reduce. Some companies have been accused to selling carbon credits for projects that they were doing anyway (not for environmental reasons). The WCI system is not voluntary, so some of these problems may be avoided.

But the picture is not all rosy. To hold down complexity, the WCI proposal deals only with industrial emitters like power and cement plants. Major polluters like agriculture and transportation are not included. It’s hard to believe that transportation is not in the plan, since this is the #1 source for greenhouse gases by far. The reason given? “…the states are taking other steps to reduce emissions from cars and trucks, including mileage standards and a clean car initiative that the federal government has stymied so far.” In other words, nothing is being done at all, but since the states tried (and failed) that is good enough!

Cap-and-trade will not work for transportation — the complexities of dealing with millions of vehicles and owners is overwhelming. What might work are high gas taxes, or very high vehicle registration fees, or a moratorium on highway improvements, or all of these things. Raising the cost of driving, or lowering the convenience and comfort of driving, will lower the miles driven. This lowers greenhouse gas emissions directly. There are two reasons for the WCI fear of this approach: (1) poor people get disenfranchised; and (2) wealthier people get pissed off. They claim the concern is #1, but it would be easy to give poor people free transit passes, or even free gasoline, if we wanted to. But who could stand up to the 1,000-decibel whine from all those suburban drivers convinced that not only do they have a God-given right to drive a car, but that they have a right to drive a car cheaply? Not the WCI. At least not so far.

But let’s give the WCI credit. The issue is still being discussed, there are brave leaders, we may yet see real change.

If you follow energy-related news, you’ve probably seen discussions of “peak oil”, the moment when global production of oil hits its all-time maximum. Once peak oil has arrived, it’s all bad news with permanently declining production and increasing prices.

Our society has previously seen a peak oil event – in whale oil. Before the invention of the kerosene lamp in 1859, whale oil was used to light homes. The oil came from two species, the right whale and the sperm whale. Sperm whale oil was better, as it smoked less. As the whaling industry was winding down in 1878, Alexander Starbuck wrote a detailed history of the price and supply of whale oil.

Whaling for oil began in earnest around 1800, and mostly ended in about 1880 when the sperm and right whales were nearly extinct. By that time, kerosene refined from crude oil was taking over the market anyway (the first oil strikes in the U.S. were in the early 1860’s).

Whale oil production peaked in 1845 at more than 15,000,000 gallons. It then tapered off so that 20 years later production had fallen below 4,000,000 gallons. In the early years, the price of whale oil was stable at around $10 per gallon (in 2003 dollars). Before peak production was reached, the price began to increase. By 1845, the price was $14. As supplies began to get scarcer, the price continued rising to hit a peak of more than $20 per gallon. Then crude oil (and kerosene) was discovered and the whale oil market collapsed.

Will we see something similar with petroleum? There is one critical difference from today – demand for whale oil was not skyrocketing at the same time that supply was diminishing. If the whale-oil pattern holds but with today’s demand, the petroleum price increases will be larger and faster-paced. And the resulting shift to alternatives (conservation, renewables, nuclear) will also happen faster.

In April of 2000, a man advertised sperm whale oil for sale on e-Bay at $40 per ounce ($5,120 per gallon). All he got was a $2,000 fine for dealing in endangered species. In 1978 the last legal whale oil was sold in the U.S. – it was used for lubricating watches.

We’ve all heard that oil is at $100 per barrel. So how much gasoline is actually in a barrel of oil? How does the price of crude become the price at the pump?

I am no expert on this topic. but I did a little digging around. Here is what I found is made from a barrel of oil:

Product	Gallons	Recent Pre-tax Price	Value at Retail
Gasoline	19.5	$2.65	$51.68
Distillate fuel oil	9.2	$3.02	$27.78
Jet fuel	4.1	$2.84	$11.64
Residual fuel oil	2.3	$3.46	$7.96
Liquified gases	1.9	$1.48	$2.81
Kerosene	0.2	$3.78	$0.76
Still gas	1.9	$1.50	$10.05
Petroleum coke	1.8
Asphalt	1.3
Feedstocks	1.2
Lubricants	0.5
TOTAL	43.9		$112.68

Sources: product breakdown is from API, prices from EIA for Feb 25, 2008, except jet fuel which is from IATA. The miscellaneous products are not sold on a per-gallon basis, so I guessed at the $1.50 price.

What does this tell us? That $100 barrel of oil has $112 worth of “stuff” in it. These are retail prices, which already include the producer’s, refinery’s and retailer’s profits. So why doesn’t it add up?

Again, I am no expert, but here is my guess. (1) The products are not actually selling for the prices I found. For example, much jet fuel is sold on long-term contracts that surely cost less than $2.84 per gallon. (2) Crude oil that is used in refineries does not really cost $100 – again oil is being delivered on long-term contracts at prices struck some time ago.

If I am correct, the chickens will come to roost when these long-term contracts expire – over the next 6-18 months. Prices will jump up as various refiners and airlines, electric utilities and other big oil buyers renegotiate. Unless, of course, oil prices drop between now and then. How likely is that?

Every car that gets crushed is one less car spewing CO2 into our atmosphere. Some folks have a problem with this – it has been suggested to me that we should be donating the old cars to poor people.

I have a philosophical problem with this. If somebody is too poor to buy a car, they are likely too poor to maintain it properly also. This means it will only pollute even worse as it ages. Poor folks probably have trouble keeping a car safe also (tires, insurance). The fact is: cars are hugely expensive. Most Americans are wealthy enough that we don’t notice, but poor people sure do.

I believe that in the longer-term (3-7 years) we’re better off putting pressure on our local governments to supply better transit options. A good way to do this is create a shortage of cars. Combined with high gasoline prices, maybe we’ll finally see some action!

Check out the video link – this was FUN! Thank you to Jeff Martin and his team of super-friendly people at LKQ (formerly Pacific Car Crushing).

http://www.youtube.com/watch?v=H88VK0ed-WE

Do you have the guilts about your carbon footprint?  If you don’t, you should.

Here’s an NPR story about a writer’s opinion that making people feel guilty about their carbon footprint “can lead to paralysis”.  I have to say this is ca-ca.  Guilt leads to action, if the opportunity is available.  The green movement needs to make people feel guilty about hopping on a plane for meetings that could have been done via videoconferencing.  But we also need to provide an option when reducing carbon output is not realistic.

Fortunately, there’s an easy way to assuage that guilt.  It is called “carbon offsetting”.   Just go to a web site, calculate your unavoidable carbon emissions, and purchase an offset.  The provider  uses your money to reduce carbon emissions elsewhere, or capture carbon already in the air.  Much more on this in another post.

For now – please feel guilty.  Please make your friends and business associates feel guilty.   We need to feel guilty.  We’re trashing the world in the interest of another dollar, or a few minutes of comfort.  And we’re hurting ourselves at the same time.  Much more on this in another post also.

But doesn’t just feel guilty – do something about it.  Start here.  Do it now.  Make a difference today.