High Oil Prices Have Unexpected Benefits

PAUL SOLMAN:

In our last look at the effects of a high, long-term oil price, we braved the back roads of western Pennsylvania, birthplace of the world oil industry, and concentrated on those who lose when prices soar: Individuals like folks who have to drive a lot, industries like the airlines.

We ended with the surprise set of losers, oil and gas producers. In the short run, of course, those who own oil and gas deposits, those who invest in them, those in the business of drilling for them, they all benefit from a price rise.

But if prices remain high, as markets are suggesting they now will, producers could be in big trouble, because a high long- term price will assuredly lead to a switch away from fossil fuels, conceivably even to the decline and fall of the petroleum empire.

And that naturally leads into this story about the prime beneficiaries of high oil and gas prices long term, the sectors of the economy for which high prices could be the proverbial blessing in disguise – as they are for Carnegie Mellon's resident prince of darkness, economist and conservationist Lester Lave.

LESTER LAVE:

I usually don't turn the lights on in my office because there's quite adequate daylight outside to do everything. I have colleagues who come in and automatically turn on the light when they come in because they say that they can't see. But I don't feel I'm deprived in any way.

PAUL SOLMAN:

On the contrary, higher oil prices make Lave feel the very opposite of deprived: How about rewarded for his conservation behavior at a time when those around him are paying more and more for their fossil fuels. But Lave's Carnegie Mellon colleague, architect Volker Hartkopf represents the benefits of higher oil prices even more vividly.

VOLKER HARTKOPF:

They will make people reexamine what they do, and it will be recognized that we're living on a huge reservoir of energy that we currently waste, and if we activate that reservoir, we'll be very close to energy independence.

PAUL SOLMAN:

How big is what he calls the reservoir of energy we currently waste? Well, he says it dwarfs the 600 million barrels Strategic Petroleum Reserve.

VOLKER HARTKOPF:

In the United States we use 67 percent of all of our electricity to heat, light, ventilate and cool buildings and run the equipment.

PAUL SOLMAN:

But in the process, an enormous amount is wasted in converting any fossil fuel, oil, coal, natural gas, into electricity. Even more energy is lost in transmitting the electricity, says Hartkopf, meaning —

VOLKER HARTKOPF:

We're getting about 5 percent, 5 percent of the energy that we put into the power plant in terms of useful energy in forms of the building itself.

PAUL SOLMAN:

In other words, fully 95 percent of all the energy that starts out at the power plants is lost by the time we use it to light and heat our buildings.

So Hartkopf has gathered the world's best ways to conserve, using mostly off-the-shelf technology. The results are showcased in this intelligent workplace, a penthouse edition to an existing campus building. The glass shelves outside and w-shaped blinds inside conserve both light and heat.

VOLKER HARTKOPF:

This is a dynamic facade, which now allows me in the summertime to reduce my heat gain, and gives me good daylighting control during the swing periods as well as, of course, in the wintertime.

PAUL SOLMAN:

You press a button the inside, and angle the panels outside from vertical to horizontal, controlling the amount of heat and light let in.

PAUL SOLMAN:

But wait a second, you're using electricity aren't you?

VOLKER HARTKOPF:

Yes, very small amounts. Very small amounts. This is one of those individual motors might have 100 watts.

PAUL SOLMAN:

Like a bulb.

VOLKER HARTKOPF:

Yeah, a light bulb, but you do that for seconds, that's it.

PAUL SOLMAN:

Most of the year the building needs no artificial lighting. And for eight months of the year, no heating or cooling energy is required.

VOLKER HARTKOPF:

And when we need cooling or heating energy for the other four months out of the year, then we need very small fractions, because we have a very efficient building, you see.

PAUL SOLMAN:

Very efficient? Insanely efficient might be more like it. His Porsche patiently waiting, it was time for the homeward lap of German-born Volker Hartkopf's daily commute on his version of a sports utility vehicle, all of which suggests that the greatest beneficiary of long-term high fossil fuel prices may be the environment, as we're forced to become more focused on conserving energy, using less of it, and:

LESTER LAVE:

As our desire for energy falls, then certainly the amount of greenhouse gases, carbon dioxide that's emitted will go down. If we're using less fossil fuels then the amount of air pollution we generate should go down.

PAUL SOLMAN:

For a similar reason, engineer Deborah Lange, who runs Carnegie's Environmental Education and Research Center, welcomes high oil prices.

DEBORAH LANGE:

I mean, it's great news, because that's the catalyst that you need for us to put more investment into environmentally friendly solutions.

PAUL SOLMAN:

Like renewable energy. Carnegie Mellon has already begun investing in alternative fuel vehicles, these run on natural gas.

DEBORAH LANGE:

Also as part of our fleet here on campus, we have some electric utility vehicles. This is our GEM.

PAUL SOLMAN:

GEM stands for global electric motor car, an $8,000 golf cart-like staple of the campus automobile fleet that costs a penny a mile to operate, produces zero emissions, if sometimes a few too many thrills.

DEBORAH LANGE:

Oh!

PAUL SOLMAN:

Oh yeah! This guy is looking at us like we're completely nuts.

DEBORAH LANGE:

I told you these things weren't meant to be on the road.

PAUL SOLMAN:

Look how much pollution he's spewing.

DEBORAH LANGE:

That's right.

PAUL SOLMAN:

Higher oil prices are good for owners of fuel efficient vehicles of every kind.

LESTER LAVE:

If you owned, for example, a Prius, or one of the other hybrid cars, or even if a car that was very fuel efficient, you'd probably gain something from that. You probably found out that you could sell your car for more money than you paid for it.

PAUL SOLMAN:

In short, higher oil prices spur the use of alternative energy. From say windmills, which Carnegie Mellon turned to in 2001.

DEBORAH LANGE:

These plants are in Fayette County about an hour, the windmills are actually just about an hour from here. There are now more than 40 schools in Pennsylvania that purchase some percentage of their electricity from wind.

PAUL SOLMAN:

And once high fossil fuel prices prompt more energy users to switch to renewables, the economics begins to change.

DEBORAH LANGE:

The fact that there's more people purchasing wind power, for instance, the prices will come down. So we've created pretty much a win-win.

PAUL SOLMAN:

A win-win situation for Carnegie Mellon, for renewable energy, and maybe even win-win-win if you look at things from the broadest vantage point of all.

Because if high prices cause the world long-term to use less oil, there could be benefits to our national interest. Professor Lave thinks that oil has aggravated if not caused the current conflicts in the Middle East.

LESTER LAVE:

And the question is: do you want to start taking that into account? If we were to cut back on demand for petroleum by say 10 percent, then the world price of oil would fall. And there would probably be a lot less conflict in the world.

PAUL SOLMAN:

In the end then, if oil prices stay high, look on the bright side: Conservation could win, renewable energy could win, the environment could win, and world stability will come out ahead.

Now, we don't mean to understate the short-term benefits to the producers or belittle the often devastating short-term cost for the losers, but in the long run, the economy will probably squeeze through.

DEBORAH LANGE:

Oh, just missed.

PAUL SOLMAN:

And might even be the better for it.