Friday, June 20, 2008

Why Take an One-Sided Approach to the Energy Crisis?

It's no surprise that Democrats and Republicans are divided on what to do about rising energy costs, but maybe they are making the situation more difficult than it needs to be. Democrats want to solve our energy woes through conservation and the development of alternative energy—excellent goals, most would agree. Republicans, although they also have alternative energy ambitions, believe that increasing the domestic oil supply is the answer. It’s very tempting to pick a side and dig in, but why not take a two-pronged approach? Why does it have to be one or the other?

There are two parts to the energy equation—supply and demand—and ignoring the supply side of problem may leave many Americans to struggle financially until adequate alternative sources can be developed. The goal here is not to punish those Americans who are currently struggling with the price of gas and the rising cost of goods. Even if offshore drilling takes 10 years to increase supply and cut prices, there is no guarantee that alternative energy will be any quicker — at least not on the scale that is truly needed. The two-part strategy is simply a way to hedge our bets if one of the two options does not pan out as quickly as hoped.

At least McCain has said that we should refrain from drilling in the Arctic National Wildlife Refuge and leave the decision to drill offshore up to the states, while simultaneously pushing nuclear power. That’s definitely a good start to a two-pronged approach. Obama, on the other hand, wants to implement a windfall profits tax for the big oil companies and then use the money to fund alternative energy. Very few people would disagree that it is absolutely necessary to fund alternative energy to a much greater extent than it is funded today, but the means that Obama is suggesting to raise the funds is inappropriate. And it is a one-sided approach that focuses on reducing demand for fossil fuels but does nothing to increase the supply of oil.

One problem we need to address is that if new drilling actually works to ease oil and gasoline prices (even if it takes many years to do so), we would no longer have such an intense incentive to conserve. Yes, that is a downside. But the question we need to answer is whether this drawback has a worse outcome than the economic hardship caused by sustained high energy costs.

Regardless, there’s a way to greatly increase alternative energy funding now, while still moving forward with a plan to increase the domestic supply of oil. Here it is:

  1. End the ban on offshore drilling.
  2. Divide the coastline into manageable segments and hold an auction to sell off the drilling rights.
  3. Use the proceeds of the auction to immediately fund alternative energy research and promote energy conservation programs.
  4. Set aside some of the proceeds to fund alternative energy prizes for key developments in alternative energy technologies and energy conservation.

The final step would foster a competitive spirit to speed up developments in alterative energy, similar to the strategy of the X-Prize Foundation, which also has prizes that focus on energy and the environment.

Of course, this is only one possible path forward, but it seems reasonable because it has both a supply component (increase the domestic oil supply) and a demand component (reduce the need for oil through alternative energy and conservation). The added benefit is that the funding for alternative energy development could be raised in the very near future. What do you think?

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