The Carbon Kool-Aid and the Catch-22

AS YOU ALL KNOW BY NOW, ON THE FIRST BUSINESS DAY of what’s looking to be a shaky year economically for the U.S., oil futures hit the dreaded $100-per-barrel mark, like just about everyone had been predicting. I’m far from a genius for having seen that one coming…

I seem to be one for knowing why, however.

Now, perhaps it’s because I’m a simpleminded half-rube without intensive education in economics that I can see the reason so clearly — I’m simply not close enough to the trees for them to obscure my view of the forest, so to speak. The Associated Press and other sources claim that violence in major oil-producing Nigeria is what drove crude over the C-note mark. That’s not what did it, though…

While it may be true in the most literal sense that this recent upheaval in Africa resulted in the particular spike in oil prices that crested the legendary $100-per-barrel mark, the actual reason crude’s spiraling upward is because America is sucking down a big batch of killer green Kool-Aid — instead of the oil we should be guzzling for the betterment of planet Earth.

Yep, you read that right: For the betterment of the Earth.

Crude Economics 101

This essay was intended as a conclusion to my Carbo-geddon series, but the historic $100-a-barrel mark for crude has given me an opportunity to shoehorn another essay which underscores the main cause of not only skyrocketing oil and gas prices, but also levels of atmospheric greenhouse gas (GHG). Knowing this is important to understanding my rationale for what should be America’s energy policy (I’ll spell that out in my final installment — coming in just a few days).

Now again, and for the record, I’m not saying that I believe — or that the bulk of evidence supports — that man-caused CO2 and other gases are responsible for the modern trend of global warming (which does indeed exist). I’m merely using that supposition as a framework for my arguments, since it’s as obvious as a case of Tourette’s Syndrome that just about everyone else in the country is sold on the theory of man-caused global warming.

This has caused some confusion among readers — many of you have written in to chastise me for what you perceive as my buying into the mainstream’s stance on global warming. I hope, with this, I’ve cleared up any misconceptions. Trying to argue about the causes of global warming is like whizzing into the wind, so I’ve been making the case for consumption using the cleaner-Earth arguments everyone else is using to defend crude conservation.

Now, bear with me if I’m covering ground you already know (I’m sure I am) but one basic truth warrants repeating if you’re going to understand my “global” point with this essay: With a few caveats, the price of any commodity goes up when demand for it outpaces or approaches the limits of supply.

In the case of oil, there are some other factors. Firstly, and as we see right now with the Nigeria situation and a few years ago with Katrina, the price of petroleum products are to some degree at the mercy of certain external forces — things like third-world political strife, weather events, oil spills, pipeline sabotage, mad dictators setting whole oil fields on fire and price collusion or manipulation within oil cartels. However, these kinds of factors typically only cause temporary changes in the price of crude.

Secondly, oil’s price is itself a major driver of production. The profit a company can make on a barrel of oil must justify the time and expense of finding it and extracting it. In order for new petroleum reserves to be tapped — and their yields finally brought to market years down the road — oil’s price per barrel must be high enough to warrant it, and with no price decline in sight. Otherwise, the anticipated profits won’t justify the costs…

Thirdly, and perhaps the most significant to my argument, is that unlike supplies of a lot of other commodities (corn, wheat, etc.) — which can typically be increased to meet demand relatively swiftly — the world’s flow of oil can’t be ratcheted up very quickly. There are a bunch of reasons for this: Exploration costs, new site infrastructure expenses, R&D costs of new technologies for the extraction of oil from dwindling fields or alternative sources (like oil sands or shale), and about a million other things…

But enough Crude 101. Like I said before, underneath ALL these ancillary factors is the very simple economic truth that rising demand is what really drives sustained increases in oil prices over time. And for the foreseeable future, world demand for oil will increase at a pace that’s far greater than the rate at which new supplies could come on line (you’ll see why in a moment). Hence, the recent $100 price-tag for oil futures — which, I predict, won’t end up being the commodity’s high-water mark.

Yes, this skyrocketing demand for oil is America’s fault. But not because of our rampant consumption of it.

How Consumption = Conservation

As you learned in Part 1 of this series, America’s thirst for crude has actually declined in recent years, despite steady increases in both population and GDP. We’re now using less oil per capita and unit of wealth created than at any point in recent history. Continuing this trend is exactly what many in the environmental relig-, er, movement, would claim is the key to a cleaner Earth in the future, since we’re the world’s biggest consumer of fossil fuels…

Their smarmy, capitalist-guilt-driven belief is that if the largest petro-consumer (the big, bad U.S.A.) consumes less, that just HAS to result in less global pollution and GHG. Now, this would be true if every nation on Earth consumed its oil with similar outputs of GHG/pollution per unit consumed. But as I’ve spent 20,000 words or more showing you over the last three years, this simply isn’t the case.

To recap a bit: Measured in terms of GHG-per-unit-of-oil-consumed, America burns its crude with less than half the greenhouse gas output of Russia or India — and with around one-third the atmospheric GHG as pollution-belching China. In fact, according to a report released last June by the Netherlands Environmental Assessment Agency, China became the world’s largest gross emitter of CO2 in 2006 — by a decisive 8% margin over the next-closest nation, the U.S. This, despite consuming ONLY 37% AS MUCH OIL and around 72% as much total energy as the U.S. did…

But did you read about this on the front page of the big papers — or hear the talking heads trumpeting it on the evening news? Not likely.

A scarier question, one I’ve asked before, is: How do you think the global GHG/pollution picture is going to look once China consumes as much oil as we do — or more?

Bottom line: If the pervasive mainstream GHG theory is correct (whether it is or not isn’t today’s topic), the U.S. is directly responsible for accelerating the warming of the planet. In the name of cutting our own consumption — and in our quest for ever-cheaper shelving units, blenders, shavers, towels, clothes, sporting goods, rubber balls, Happy Meal prizes, lead-painted toys, killer pet-foods and shoddy tools — we’ve sold our manufacturing soul to a nation with no environmental conscience whatsoever.

And in so doing, we’ve outsourced nearly three times the pollution and GHG that we’d have produced had we made these things ourselves…

THIS is what’s really driving the price of oil upward: The fact that China is now factory-to-the-world (instead of the U.S.), and it takes that nation several times more fossil fuels to produce the same stuff that America could have — plus the fact that we’re lining up in droves to buy as much of their cheap, often-hazardous and always wastefully-produced junk as we can.

So you see, high oil (and gas) prices ARE America’s fault. Seduced by all manner of cheap stuff — and bamboozled by our own politicians and the media into believing we need a cleaner “Earth-print” — we’ve facilitated the rise of the Chinese manufacturing juggernaut. And now they’re putting pressure on world oil supplies, which can’t ramp up fast enough. Prices are soaring as a result.

Now, with all this in mind, I repeat the same question that I’ve been asking you in so many words for three years: If your primary concern is the environment — and you believe that man-caused global warming is ruining it — who would you rather have consuming fossil fuels to make the things you need and want: China or the U.S.?

Here’s another way of looking at this: If the world oil supply spigot is wide open and still not meeting demand (it must be, since oil prices have gone nowhere but up for more than a year), and if Chinese consumption of oil yields 2.8 times more GHG than American consumption, doesn’t it make for a cooler Earth if the U.S. consumes more of the oil coming out of that spigot — and China less?

Once again, folks, the blunt, inconvenient truth is that America’s increasing consumptive restraint and ongoing transition from a manufacturing-based economy to a services- and finance-driven one only serves to fuel an exponentially growing, hyper-industrial monster that cares nothing for the Planet — except as a market for its inexpensive products.

Think about that as you look at the “Made in China” labels on just about everything on the shelves in Target, Wal-mart, Toys-R-Us, PetSmart or even Home Depot.

The Carbon Catch-22

But hey, that Chinese-made stuff is really cheap. If the Reverend Owl Bore turns out to be right (again, I’m not saying he is — just that most people seem to believe he is), we’ll all be able to afford sunscreen, melanoma treatment and inland real estate with the money we’ve saved by paying China to cook the planet…

Indeed, the data show that what China does best from an industrial standpoint isn’t efficiency or quality or eco-consciousness. They’re the masters of doing things cheaply. But that’s only by virtue of their inexpensive labor and a lack of costly environmental regulation to comply with — not any true innovation in manufacturing or design. That kind of stuff is left to the Japanese, Americans and Germans (not coincidentally, Nos. 1, 2 and 3 in the low-GHG use of fossil fuels)…

Therein lies the quagmire, the Catch-22.

Imagine what a shock it would be to the U.S. economy if people all of sudden had to pay, say, three times as much for everything that’s currently made in China.

Let’s just say, for the sake of argument, that it somehow dawned on everyone in the U.S. at 8:00a.m. tomorrow morning that Chinese-made goods were contributing to global warming at a far greater rate than if those same products were made right here in America…

And lets also say that by 9:00a.m. tomorrow morning, everything on every store shelf in the country with a “Made in China” label was situated right next to a similar product made in the USA, with far less waste, pollution and GHG…

However, owing to our democracy — which regulates how polluting our manufacturers can be, forces them to pay their workers a decent wage and enacts standards for product safety and quality — all that Earth-friendly American-made stuff was three times the money. Do you think people would spend the extra cash to (maybe) help keep the Earth a degree or two cooler?

Would you?

Democracy’s Crude Awakening

All this should make you wonder: WHY does the U.S. consume its oil/coal/whatever so much cleanlier than China, Russia, Korea, et al? (Hint: It’s the same reason that products made in the U.S. are more expensive). It’s called democracy.

As a system, democracies are at a distinct manufacturing disadvantage in a global free-market economy. That’s because they’re beholden (theoretically, at least) to the interests of concerned citizens who won’t tolerate waste, pollution, near-slave-labor and low standards of living.

However, democracies (where costs of living and taxes tend to be higher) thrive on cheap stuff. In America, we depend on a tide of it from China, Taiwan, Sri-Lanka, Bangladesh, etc. Ergo, the real price of economic globalization is a dirtier global environment — since the countries that can produce things the cheapest are those with the least constraints on pollution, quality control and wages (usually non-democracies).

Now, don’t get me wrong. I’m not knocking democracy. It’s the least crappy system of government ever tried — and ours in America, as flawed as it may be, is still the least wretched among major world democracies. However, democracies, when not properly led, can be the victims of their own majorities. I’m seeing evidence of this right now with the global warming debate.

Instead of leading and educating the American people about the environmental pitfalls of outsourcing more and more manufacturing to the developing world, politicians from each side of the aisle are simply testing the winds of public opinion (which blow according to the biases of the media and the hot air of guru-celebrities), then kowtowing to it for votes.

It doesn’t matter that they’re crippling our economy in the name of fuzzy-math ecology.

So what’s the answer, you’re asking? Is it economic isolationism or protectionism? Is it hording up the world’s oil? Is it regulation of the media? Is it sanctions against China?

I’ll tell you what I think it should be in the conclusion to my Carbo-geddon series, next week. Stay tuned…

Doing my part to consume and conserve,

Jim Amrhein
Freedoms Editor
January 11, 2008

The Daily Reckoning