A while ago, when oil was at $140 per barrel, I suggested that we set a floor price of $100 / barrel so that if there was ever a shock spike lower, we could achieve two things.  First, we could raise a lot of money to offset taxes, and now, with the economy in such trouble, to help out.  Second, we would make sure that there was never a short-term blip to discourage long-term investment in alternatives.  I’m afraid that might be going on right now.  I never anticipated such a dramatic economic decline like the one we are in right now.  I think people are therefore finding relief at the pump a welcome thing right now.  However, I think this could be deceptive as we bask in this short-term effect.

Had we instituted a $100 floor price of oil, just since the middle of September, when oil went below $100, we would have raised nearly half a billion dollars a day, or more than $33 billion so far.  That’s nothing to sneeze at, even in this new era of huge numbers we hear about.  Plus it would be continuing to pile up at more than $1B per day right now.  In addition, we would have no fear that investments in the future would not pay back at a particular rate, because of the certainly of minimum $100 / barrel oil.

On the one hand, I find it hard to bring myself to suggest people should be paying this extra price right now, but actually, I feel it’s the right thing.  Why?  Because with any good strategy, there is by definition a trade of a short-term loss in return for a long-term gain.  In this case, I feel setting a floor price of $100 (or any reasonably high number) is medicine that will definitely make the patient healthier in the long term.

I suspect there are people who would disagree.  I would love to hear what you think.

Thanks,

Bill

Global Norming

 I’m very worried that with the current economic crisis we as a civilization are going to put global warming on the back burner.  It’s hard for even me, a big fan of renewable energy, to justify the expense.  However, if instead of Global Warming, we focus on Global Norming – which I’ll explain in a moment — we can still make the positive impact that the world needs in immediate terms.

 Global Norming, in my terms, is the normalization of the immediate costs of pollution, and factoring those into our current energy production.  For example, coal plants in the United States cause about 24,000 cancer deaths per year.  Outside of the priceless value of each life to those families affected, economists have done various studies determining the value of each life between about $1m and $6.5m.  Even if you take the low end of that range, that’s $24B per year.  Coal plants account for about 49% of the electricity in the United States, or about 1,995 billion kilowatt hours.  JUST the life lost from those coal plants, NOT including ANY impact on global warming, is about 1.2 cents per kwhr, on the low end, and 7.8 cents per kwhr on the high end.  If we immediately taxed coal plants for the true negative economic impact they make on society, we would instantly have several things:

 1.      Huge revenues

2.    Huge incentive for innovation to make electricity without that tax

3.    Solar (and other alternative) energy that’s cost effective with NO government subsidies

4.    Job creation to continue to innovate to make electricity that doesn’t pollute because it would be economical, at last, to fund that innovation.

 This normalization of pollution impact would have the side benefit of positively impacting global warming, but even if you don’t believe that global warming exists, or is man-made, it doesn’t matter, because making this effort would have IMMEDIATE (i.e. same-year) payback, as opposed to next-generation payback. 

 We must do this not only for electricity, but across the board, for all pollution, and I believe that this will not only solve the economic crisis (by directing infrastructure innovation to the most efficient job creation) but also be the most cost effective way to achieve sustainability.  I feel it is also more politically possible to tax something that has an immediate – this year – health and life payback than a suspect 50-year payback period.  People are short-term thinkers.  Governments are supposed to be long-term thinkers, but tough economic times make it harder for them to act that way.  Global normaliziation of pollution costs into the energy expenditure and production side of our power plants and our cars would be the boldest, but easiest step to efficient job creation and innovation in renewable energy.