America 3.0 is a new column that assesses fiscal issues across America as if this nation were a company and its citizens were stockholders. Each business plan offers a formal set of goals and aspirations, and realistic strategies for attaining those goals. The column will delve into subjects ranging from energy to health care, and defense to financial policy, always keeping an eye on the bottom line of what makes good fiscal sense now and in the future.
Let’s imagine that you and I are sitting in a shareholder’s meeting for America, Inc.
Topping our agenda is the oil still surging into the Hades once known as the northern Gulf of Mexico. We hear reports from President Obama and BP CEO Tony Hayward about their increasingly desperate efforts to stem the petrol tide. But that’s not why we’re here.
We’ve gathered to consider a likely price tag for this catastrophe, and to ponder in a calm, businesslike manner if the cost of depending on fossil fuels as America’s primary source of energy has become too great.
Our analysis starts with the juxtaposition of two numbers: $37 billion and $18.6 billion.
The first is a rough estimate of the BP calamity’s ultimate cost to the company, issued a few days ago by Credit Suisse as a warning to customers who either hold or were considering the purchase of BP’s rapidly declining stock. The bank’s analysts suggested that BP could pay up to $37 billion: $23 billion for cleanup costs and $14 billion in claims.
The other number, $18.6 billion, is the amount the U.S. invested in alternative energy in 2009, according to a recent report from the Pew Charitable Trusts. This was money spent by private investors and companies on renewable sources of energy: solar, wind, hydro and biofuels. (The federal government also spends less than $5 billion a year on research and development for all forms of energy — fossil fuels, nuclear, and renewable — not counting one-time stimulus projects.)
To the Gulf Sea Waters…
These figures suggest two truths. One is a need to acknowledge the real costs of spills caused by accidents, earthquakes, war, negligence and human error – and the poor record of the oil industry in preventing these spills. We all remember the 1989 Exxon Valdez disaster, which spewed 42,800 tons of oil into Prudhoe Bay and cost Exxon $8.5 billion in cleanup and claims — plus billions more spent by Alaska and the federal government. Promises were made then to make the production of oil safer. Yet since that accident over 2.8 million tons of oil — over 65 Exxon Valdezes — have been spilled globally as a result of only the top five accidents, adding tens of billions of dollars more in costs.
Which brings us to the second truth: that $18.6 billion is a pitifully small amount for America to be investing in alternative energy — solar, wind, hydro and biofuels. This is a drop of 42 percent from 2008, which can be blamed on the economy, although considering that Americans spend upwards of $1 trillion a year on fossil fuels, we are still talking about very small investments in alternative energy.
More important, as the Pew paper points out, for the first time the U.S. fell to second place last year among investors in alternative energy. China spent $34.6 billion – nearly double U.S expenditure. Germany, the UK and other major members of the European Union collectively outspent the United States, too. All of these countries have aggressive national policies and targets to replace fossil fuels over the next 15-20 years. Countries ranging from Germany and France to China have been rapidly boosting their percentage of energy supplied by renewables — with Germany providing 29 percent capacity compared to only 4 percent in the U.S.
Peak Oil — The Limits of Production
These countries are not investing in new energy sources just to protect the environment. They’re also not making this a priority merely to create jobs or foster new growth industries. They’re doing it in their own critical national interest, because energy demands are climbing and oil reserves are declining. Some experts claim that we reached “peak oil” production in 2008. Others say we have until 2030 before we peak.
Either way, preparing for the future might prevent the global chaos predicted by experts such as Joerg Friedrichs, an Oxford University political scientist, in his paper published by the Post Carbon Institute. As oil becomes scarcer, prices fluctuate wildly but go steadily up over the long term, and the politics of oil dominates foreign and military policy — and spending.
In the United States, we have not yet passed even the tepid bills now being considered in Congress to create a national energy policy. Nor have we eliminated about $3 billion a year in federal subsidies to the oil industry — something President Obama proposed in his 2011 federal budget, but which has not been enacted by Congress.
Charting an Alternative Course
The good news is that alternative energy is coming of age and is ready to move from the idea and prototype phase into mass production on a number of fronts. These include large-scale wind and solar farms and plantations that will harvest bioengineered algae-oil that is very similar to petroleum. (Bioengineered algae-oil can be used in existing refineries, factories and car engines but is cleaner and less prone to spills.) Cleaner fuel is not only the future of energy production; it also is on the brink of paying back healthy returns to investors.
As the crude rages in the Gulf, the time has come for a new strategic direction in our national business plan for energy. This means doing something that is difficult for businesses and governments – and for individuals – but is crucial for the health and survival of our country: a reboot.
So let’s create a balance sheet.
- Start with fixed expenses — a realistic assessment of what oil really costs, including everything from business losses due to accidents to military spending related to protecting the flow of petrol.
- Plug in a serious investment strategy for converting from oil to alternative energy.
- Increase federal R&D funding well beyond the current $5 billion a year – which is only one-sixth of what America spends on health care research.
- Add the savings from shareholders who need to get serious about conserving energy by building and using fuel-efficient cars and upgrading to energy efficient appliances and solar home heating.
- Do the five-, 10- and 20-year plans and see how the gap between alternative fuel and oil begins to close and the Age of Energy Independence begins.
None of this is enough to prevent another Deepwater Horizon accident, though one has to ask: If the spew of crude in the Gulf of Mexico doesn’t wake up America Inc. to act, what will?
David Ewing Duncan’s most recent book is Experimental Man: What One Man’s Body Reveals About His Future, Your Health, and Our Toxic World.
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