Take action in energy

investmenttool.com Opinion

If there is a convergence of forces that might actually push this economy to recession it is the sad state of the U.S. energy situation. Strong leadership is needed in Washington D.C. now to avoid a possibly painful recession. I am not saying this because the price of my gasoline is approaching $2 a gallon. I only drive 70 miles a month. I am saying this because our prosperity is at risk.

The price of electricity in this country is going to go through the roof this summer. This is primarily due to a lack of generating capacity built in New York and California during the past decade. Though New York is further along at getting something built, they suffered a 40% rate increase last year and might spike even higher this year. Fortunately for them, they let the prices spike so there was an incentive to ship energy to their market.

Now that the consumers of New York and California are willing to pay what it takes to get electricity, they are competing for energy with producers all over the country. The entire Western half of the United States saw huge price increases, primarily due to California's failed policies.

The cleanest way to produce new electricity is from natural gas. This does create greenhouse gases but introduces less pollution than other energy sources. The problem there is the price of natural gas spiked last winter and is showing no signs of moderating. So any new electricity generated in the U.S. is going to cost a lot.

The gasoline situation is very similar. The Federal government, led by President Clinton imposed a series of every more difficult regulations on the type of gasoline that can be produced from April through October. This year, the regulation forbid the mixing of winter gasoline with summer gasoline. This forced producers to draw tanks empty before they started filling them with the summer formulation.

Further, no new refineries have been built in the U.S. over the past decade, and older ones have been forced to clean up their act environmentally or close. It should be no surprise that this combination of regulation and stupidity has produced the most serious gasoline shortage in decades.

The only helpful factor is that the government is not trying to stop the price increase. This means gasoline could hit $3 a gallon this summer. Welcome to Israel Americans!! Those that can afford it will get the gasoline they need to go to work and run their businesses. There will be a major impact on the economy. Increased energy costs have impacted the bottom line of airlines such as United Airlines and American. Thousands of other firms have been hit by high heating bills in the winter, and high gasoline bills in the summer.

I do not like to write this column without offering a solution. First, let me say that merely exploring federal lands for new oil resources is not the answer. As a matter of fact, it wont help at all. We lack the refining capacity to turn the oil into useful fuel. We lack the pipeline capacity to move much more oil from Alaska's north to its shipping terminal.

What is needed is a series of actions, both long and short term to stabilize the energy supply. First, exploration efforts must be allowed under massive environmental scrutiny. Alaska and Northern Canada have the capacity to serve the worlds oil needs for decades. These resources need to be exploited.

The United States needs to pursue political stability along Russia's southern rim. It must makes sure the vast oil resources of the Caspian sea reach the market in an atmosphere of political stability.

But these are long term steps. On the short term, the government needs to pass a tax bill that provides tax incentives for the production of cleaner, more fuel efficient vehicles. The Toyota Prius uses half the fuel, pollutes less than a similar sized car from the same manufacturer.

Because of low volume, the car currently costs $5,000 more to produce than a comparably equipped Toyota Echo. A series of tax incentives of limited duration to help create market demand and therefore volume production of these cars would be of great value to this nation.

A gas guzzling Ford Expedition that gets 11 miles to a gallon can use this same technology. A little push from the government can have massive long term benefits.

Further, the government needs to temporarily relax the environmental rules that have caused the short term gasoline crunch. The cost of gasoline may become a serious drag on the economy. It may be the reason that Alan Greenspan dropped raters suddenly in April.

The government of the United States needs an energy policy after 8-12 years without one. It needs to take short term steps, and long term ones. If it does not act quickly the economy could get squeezed at a time where there is not much room to work with on the interest rate front.

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Shmuel Protter
investmenttool.com

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