Washington Week: Student Voices (O)

COLUMN: The oil addiction
By Mark Simons
The Daily Iowan (U. Iowa)
02/06/2006

(U-WIRE) IOWA CITY, Iowa — During his State of the Union address, President Bush warned that "America is addicted to oil" and set out the broad goal to "replace more than 75 percent of our oil imports from the Middle East by 2025." Sounds good, doesn't it? After all, who wouldn't want to move toward cleaner, more environmentally friendly energy technology?

Everyone would, of course, but that's not the point. Goals and rhetoric from politicians are never the problem. Rather, it's the results. Over the past 35 years, every president has done what Bush did - vowed to achieve our energy independence with far-reaching government initiatives and billions of taxpayer dollars.

During the 1973 OPEC embargo, which more than tripled the price of oil, President Nixon launched Project Independence and vowed that "in the year 1980, the U.S. will not be dependent on any other country for the energy we need to provide our jobs, to heat our homes, and to keep our transportation moving."

Similarly, in 1977, Jimmy Carter created the Department of Energy, which was intended to manage the ongoing energy crisis, and proposed an ambitious $142 billion energy plan. Later, Carter declared in a nationally televised speech that "beginning this moment, this nation will never use more foreign oil than we did in 1977 - never." Reagan, Bush, and Clinton all made similar pronouncements and threw billions of dollars at the problem.

And what's been the result of this rhetoric? Not much, according to the Energy Information Administration. U.S. oil imports have steadily increased from 8.8 million barrels per day in 1977 to 13.1 million in 2004. Moreover, renewable energy sources currently supply just 3.3 percent of the total U.S. energy consumption, according to the Wall Street Journal.

Much of the public research from these initiatives has been the source of discovery for alternative-energy opportunities, so it wouldn't be correct to label them complete failures. However, they have been unable to spur development of these technologies into usable products at competitive prices. But today, this challenge is increasingly being overcome through greater private sector investment, as a result of various economic pressures.

The steady increase in worldwide demand for oil, particularly from China and India, has contributed to high energy prices and, as a result, has made prospects for alternative energy much more economically viable. Companies realize that to grow and compete long term, they need to change and adapt to meet their energy needs. Alternative energy sources, which used to be viewed as too expensive, are now getting new attention as the price of oil has increased. Businesses and entrepreneurs have also recognized that consumer preferences have changed and that the world wants to buy socially-responsible products that are both fuel-efficient and economically viable.

No business wants to go the route of a General Motors, for example, which staked its future on gas-guzzling SUVs, while car companies such as Toyota and Honda rightly predicted that consumers would demand cars with lower fuel consumption and reduced emissions. As oil prices have increased, sales of fuel-efficient cars, such as the Toyota Prius, have increased dramatically, while SUV sales have stagnated or declined. Being unprepared for this trend has not only caused GM to lose millions of dollars but also something far more valuable: its reputation as a leading automaker.

Additionally, energy start-up companies are attracting significant amounts of venture capital. From 1999 through 2004, venture capitalists invested an estimated $4.4 billion in the energy-technology sector, compared with just $380 million from 1993 through 1998. "If you look out five years," says Stephan Dolezalek, a managing director at VantagePoint Venture Partners, which has invested roughly $50 million in energy-infrastructure projects, "this is a sector that can be every bit as big as the Internet."

In the future, businesses, both large and small, will be the fundamental agents of alternative energy progress, not the government. This green revolution may or may not be as big as the Internet. But, either way, investors and business seem to be waking up to the economic opportunity that alternative energy provides. As one executive recently put it, green means green.

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