Monday, April 16, 2007

Do We Want Low or High Prices?

Keywords: Thomas Friedman; Geo-Green strategy; petroauthoritarians; Al Qaeda; petroleum prices; dictatorship

has published a big piece in yesterday’s New York Times Magazine: “The Greening of .” His basic argument is summed up in the deck underneath the title: “What does America need to regain its global stature? Environmental leadership.”

Good idea. Yes, Friedman says, people will still hate the United States for Bush’s Iraq War, but this antipathy can be offset by initiatives that show the world how to solve the climate change crisis. There is even a demand on “Main Street, USA” for a political leader who will lead their “Geo-Green” strategy. But hardly anyone recognizes the scale of the changes that are going to be required – the costs, and the effort involved in shifting the world toward emissions-free energy.

Friedman’s argument is divided into two parts. The first half addresses America’s growing conflict with Islamic countries. He rightly notes that the nations that have nurtured and funded Al Qaeda — especially — are the ones the US is supporting financially by buying their oil. Addiction to foreign oil makes Americans vulnerable. Some Saudi mosques are even sending cash to the insurgents in Iraq. As James Woolsey said, “We are funding the rope for the hanging of ourselves.”

Moreover, the more money America pays them, the more audacious are their attacks. Indeed, the higher the price of oil, the more anti-democratic is the behavior of this whole dictatorial Islamic world.

This is not new to me; my friend John Bacher’s book pointed out the extreme correlation between countries’ degree of dictatorship and their oil revenues. But I had not seen before what Friedman points out here: that when oil prices go down, these “petroauthoritarian” countries begin to behave according to American values, whereas when oil prices go up, they become aggressive again. Middle Eastern political reform, then, involves this plan: We must find ways of lowering the price of oil. Friedman writes,

“People change when they have to — not when we tell them to — and falling oil prices make them have to. That is why if we are looking for a Plan B for Iraq there is no better tool than bringing down the price of oil.”

Next his argument turns to the domestic scene, where he shows that “Main Street” is becoming worried about global warming. The responses are going to be exceedingly difficult. New innovations are required, and American know-how is still the most promising source of these developments. We have to create low-cost clean power alternatives that selling at the “.”

To do so, the most effective mechanism is free-market capitalism. Unfortunately, the energy market does not work well enough now to enable the construction of new nuclear power plants or coal sequestration technologies. The government needs to get involved, stabilizing prices and environmental standards. As matters stand now, the market is too risky for multi-year investments involving billions of dollars. The government needs to set high standards for efficiency and sustainability, and keep raising them. Ironically, it was George W. who led this approach when he was governor of Texas. His renewable energy legislation required Texas power companies to produce a specific amount of electricity from wind power. Today, there’s a locomotive factory in Pennsylvania that is selling engines to China that emit less CO2 and offers fuel efficiency. That is the way to go. Friedman quote ’s insight that is posing “a series of great opportunities disguised as insoluble problems.”

I like Friedman’s analysis, though I am puzzled by what seems to be a contradiction. He emphasizes the importance of lowering the price of Middle Eastern oil — not only as a way to subdue the anti-democratic tendencies of that region, but also as a “Geo-Green” strategy. Yet he does not spell that out. Presumably he means that by developing alternative fuels, Americans will reduce their consumption of Middle Eastern oil and hence reduce its price.

Most environmentalists see the causal relationship in a different way — and indeed Friedman does too. That is, we’d like to increase the at US pumps so as to make the (necessarily more expensive) alternative fuels competitive and hence worth developing. High gas prices are required to create the incentives for the market to support new ways of reducing greenhouse gases.

Yet isn’t this contradictory? Low petroleum prices in the Middle East will make for low (not higher) gasoline prices in the United States.

Besides, I don’t know how Friedman expects us to force the price of oil downward. That will happen, he implies, if we develop wind, nuclear, solar, and other . But elsewhere he suggests that we won’t develop those alternatives unless gas gets expensive. Where is the magic lever that’s going to set off the salutary chain of events?

Or am I missing something in his argument?



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