The other day I was thinking about high fuel prices – imagine that! Anyway, I got to wondering where this unprecedented run-up of prices was eventually all going and what the end result might be. Will it spell the end of America’s longstanding position as a world economic power? Will we all have to just stay home and only drive for absolute necessities, meaning that most vehicles on the highway of the future will be police cars, fire trucks and ambulances? Is there a huge comeback of bicycles on the horizon?

Then, somewhat predictably I suppose, my train of thought shifted to the power industry. Will nuclear power continue its increasingly apparent resurgence, or will the naysayers eventually force us back to a coal-fired future, since that is our most abundant and readily accessible energy resource? And what about all the people up North where they depend on heating oil to keep from freezing in the wintertime? Are they destined to freeze? Or, will all of my friends and relatives eventually decide to come live with me in New Orleans – hurricanes, heat and humidity notwithstanding? (Originally being from Upstate New York, I have a special empathy for their plight, but there are limits!)

After briefly considering the horrifying eventuality of my extended family and friends in sleeping bags in my kitchen, living room, garage and on the lawn, I quickly came back around to reality. That reality is: We are in one hell of a mess from an energy standpoint!

Indeed, with most of our oil coming from countries populated in part by various factions of dislike, distrust or downright hatred of us and/or our way of life, we have a problem that is not being diminished (and which many would argue is only being exacerbated) by our recent political and economic posture. Moreover, very little is being done – at least on the surface – to mitigate the situation anytime soon. It remains to be seen whether or not the incoming president and the accompanying administration will (can?) alter the status quo on those fronts within any reasonable time frame.

With all of these distressing and disconcerting thoughts filling my brain, it occurred to me that somebody, somewhere was probably trying to figure out what we should do. (Or at least, so one would hope!) Then I thought to myself…. Gee, what if I were that person? What if one day someone just walked up to me and said, “Okay, Mike; you need to come up with a plan for getting us out of this mess we’re in! And, by the way, you have to do it without destroying the country or the economy or systematically killing off a bunch of people as part of the solution.” Well, now that certainly makes things as lot more challenging, doesn’t it?

Okay, so one choice might be to tax oil imports at a level that would make domestic sources and alternative energy sources look like a bargain by comparison. However, since we probably don’t have the domestic capacity to bring those alternatives up to speed in the kind of expedited time frame that would be necessary to avert a catastrophe, one immediate result would be a huge revenue windfall for the government, at least in the near term. I don’t know about you, but my present level of faith that any bureaucracy like ours would invest that kind of unexpected treasure-trove in our future energy independence – assuming they even know how to do that – is currently at an all time low.

Or, perhaps we could just outlaw imported oil and see what happens. We could simply go cold turkey on OPEC crude, and let the market find whatever alternatives are available, whether that be wind, solar, oil sands, natural gas, ethanol, nuclear or perhaps something we haven’t necessarily even seen yet. More likely, however, would be some combination of these coupled with some pretty radical conservation and renewable measures. But alas, there’s a glitch: We said that destroying the economy wasn’t on the list of remedial options. It simply isn’t reasonable to think that any industry the size of the vast energy complex could react fast enough to avert almost certain destruction.

Indeed, what would happen to oil companies if they suddenly couldn’t get enough oil to maintain their operations and alternative energy displaced them – the oil companies, that is – before they could either switch to other sources or heavily diversify into alternative energy or some other kind of profitable business? What would happen is that we’d have an economic meltdown on our hands in short order, which is, of course, not an acceptable outcome.

So, here we are faced with this huge dilemma with no obviously good options. But, consider this scenario…

First, we allow the futures traders to run up the cost of a barrel of oil based on a bunch of thinly plausible “What if” scenarios over a relatively short period and simultaneously get people used to paying the kind of money for energy that people in most other countries have been paying for a long time already. Then, we let the oil companies keep their obscene profits from the artificially high prices so that they have the cushion they’ll need to make what still adds up to a very painful transition, but one that will inevitably happen anyway when oil eventually runs out. (And it’s not like it would be the first time that taxpayers financed a bailout for an industry whose survival was deemed vital to our economic stability, right?)

Then, there’s also the automotive industry and its entire appurtenant support infrastructure – another important pillar of our economy. Why would Detroit ever voluntarily start making vehicles that are smaller, sell for less money and get dramatically better fuel economy? History has shown us that there is ONE – and only one – reason, and that is when fuel prices reach a level that most consumers consider too much to pay; the pain point where we become willing to trade off luxury, utility and perhaps even a little comfort, for economy. This isn’t just my opinion; it’s a fact: “Money talks, and…” well, you know the rest of the cliché.

Fast forward to now. Never before has energy cost so much and affected virtually every aspect of our lives in such pervasive – and increasingly problematic – ways. And although the government is fond of defining so called “core inflation” as being exclusive of food and energy, what rocket scientist decided that what’s left is indicative of actual living costs? Been to the grocery store lately? Filled up your gas tank lately? Oh, wait, I forgot; inflation is under control if you don’t count food and energy. Gosh, I feel so much better now!

The essence of what I’m trying to say here is this: If you had to find a way to get past our seemingly insatiable oil habit with the aforementioned restrictions in place, would YOU do?

A. Pass a tax to give the government a giant new pot full of your hard-earned money?

B. Swear off foreign oil entirely, and risk destroying our energy/industrial complex and the economy in one fell swoop?

C. Let the price of oil run up to the point of pain where people are willing – albeit screaming and kicking – to change their energy usage habits and behavior while giving the soon-to-be-reinvented oil and automotive industries a temporary cash cushion that will help them to weather the transition without collapsing and breaking the economy beyond repair?

When you think about it that way, choices A and B have some pretty obvious fatal flaws. But then there’s option C… Hmm, sounds like a plan.

Behind the Byline
Mike Marullo has been actively involved in the automation, controls and instrumentation field for more than 35 years and is a widely published author of numerous technical articles, industry directories and market research reports. An independent consultant since 1984, he is President and Director of Research & Consulting for InfoNetrix LLC, a New Orleans-based market intelligence firm focused on Utility Automation and IT markets. Inquiries or comments about this column may be directed to Mike at
MAM@InfoNetrix.com.
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