The Globe And Mail Quietly Tells The Truth About What's Driving Canadian Integr

News from globeandmail.com Saturday, April 02, 2005 Chronic oil addiction all but assures rising prices ERIC REGULY George W. Bush says he wants to reduce America's dependence on foreign energy, but don't believe it for a second. This week, Qatar said it would spend $15-billion (U.S.) to buy 70 new liquefied natural gas (LNG) tankers from South Korean shipyards. They will supply new LNG ports in the United States and elsewhere. If dependence on foreign oil were not enough, how about dependence on foreign gas too? The energy gurus at Goldman Sachs, meanwhile, predicted a "super spike" that could drive oil prices to $105 a barrel. That's almost double the current price, which in turn is four times the price in the late 1990s, when oil hit $11. You can't blame China's voracious commodities appetite for everything. Goldman said it's "surprised" by the relentless oil demand in the United States too. Conservation is an afterthought in the President's energy policy (Vice-President Dick Cheney called conservation a "personal virtue"). The Bush administration is happy to transfer wealth by the supertanker load to the OPEC countries, some of which it accuses of promoting terrorism. It is happy to invite drilling rigs into Alaska's Arctic National Wildlife Refuge, a protected wilderness whose protection is about to disappear. It was happy to dupe the Canadian and Mexican leaders into thinking last month's North American Security and Prosperity Partnership conference was all about security and prosperity when it was really about ensuring unfettered access to Canadian oil and gas and electricity (if not Mexico's -- yet). It will, absurdly, phase out the $2,000 tax credit for gas-electric cars, such as the Toyota Prius, but keep the $25,000 writeoff for supersized Hummers that would look at home in the battlefield but instead clutter Wal-Mart parking lots. The last thing OPEC wants to see is an American fleet of highly fuel-efficient vehicles -- those annoying four-cylinder cars took a lot of the blame for the sagging oil prices of the 1990s -- and SUV-mad United States is obliging. But conservation? Or finding alternatives to cars? Forget it. In London, Mayor Ken Livingstone's downfall was widely predicted when, two years ago, he hit drivers entering the city centre with a £5 ($9 U.S.) congestion charge. The plan instead has been a huge success and guaranteed his re-election. Traffic fell by 30 per cent and the profits are paying for upgraded public transportation systems. Yesterday, Mr. Livingstone announced the charge is to rise to £8 in July. Imagine instead if the United States chose not to play OPEC's game and chose to suppress oil demand. Prices would fall, or at least rise less sharply. Greenhouse gas emissions would be curtailed, which in spirit if not in name, would bring the country into the Kyoto accord on climate change. New technologies and industries devoted to non-carbon-based energy production would come to life. To get there, two options present themselves. The first, simply, would be a federal fuel tax that would raise the price of gasoline, now about $2.30 a gallon, by a buck or two. Even at $4 a gallon, the U.S. price would be about 50-per-cent cheaper than European prices. The tax proceeds could be devoted to public transportation, research into alternative energy sources, such as hydrogen fuel cells, home insulation or tax reductions elsewhere. Canada could do the same. Raising the Corporate Average Fuel Economy (CAFE) standards, and eliminating the loopholes, is another way to cut oil dependence. Congress enacted CAFE after the 1973-74 Arab oil embargo. The goal was to double new car fuel economy by imposing a 27.5-mile-per-gallon average on a manufacturer's line of passenger cars. It worked for a few years. By the 1990s, though, CAFE had became a joke. The reason: Light trucks were largely exempt from CAFE standards because they were technically farm implements. Since Detroit managed to classify SUVs as light trucks, and because light trucks make up more than half of U.S. auto sales, average fuel economy has been on the wane in recent years. Fuel economy would soar if light trucks were forced to comply with passenger car standards. Extremely high oil prices could devastate the U.S. economy. They could, as they did in the 1970s, lead to stagflation and economic recession. They would hurt the poor more than the wealthy. The shock of extremely high prices, of course, might reduce demand in a hurry. But the upheaval could be painful. Conservation could moderate price increases, help the environment, create new technologies and slow the transfer of wealth to the OPEC countries. But conservation is un-American and won't be promoted. That's why you shouldn't be selling your oil shares. ereguly@globeandmail.ca [Proofreader's note: this article was edited for spelling and typos on April 12, 2005]