oil — VOICES for REASON

Anytime you see an electric car you are likely to see a “zero emissions” sticker on it, implying that the driver of the car is driving without emitting CO2. Electric car companies are using this idea to market their cars, and to imply that those of us who drive gasoline-powered cars should feel guilty. For example, Coda Automotive, an electric car company, brags that its not-yet-existent sedan, once it exists, will be “An all-electric car to let you drive your way out from under the thumb of big oil. To help steer us away from climate change, polluted skies…”

It is true that electric motors do not emit CO2, and electric cars don’t have tailpipes that emit CO2 or anything else. But ask yourself (or Coda): Where does the electricity that charges the “zero emissions” car come from? Answer: It almost certainly comes from burning coal or natural gas, by far the leading sources of electricity production in America, because they produce the cheapest, most abundant power. Another question: What happens when you burn coal or natural gas to produce electricity? CO2 is emitted.

To call a car “zero emissions” because it generates CO2 at the power plant instead of the engine is intellectually indefensible–and dishonest. And it is a particularly dangerous form of dishonesty, because it promotes the idea that oil and other fossil fuels are dispensable to our standard of living. They are not.

Image: Wikimedia Commons

Every day, Americans use about 3 gallons of oil a day. That’s almost one billion gallons total.

It’s hard to find anyone who thinks this is a good thing. Indeed, the overwhelming view heard in our culture is that our use of oil is an “addiction”. This term was popularized by former President–and oilman–George W. Bush in his 2006 speech.

Barack Obama is even more opposed to oil: “the age of oil must end in our time,” he has declared unequivocally. And: “the country that faced down the tyranny of fascism and communism is now called to challenge the tyranny of oil.” (Note: our President is comparing our use of oil to movements that killed a combined 100 million people.)

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I have found learning the history of oil to be invaluable when looking at today’s controversies. For example, when watching Congress haul oil executives to Washington over gasoline prices that are “too high,” and calling for “investigations”—it is instructive to know that this practice has been going on since the 1920s. Or, when reading references to the oil embargo of the 1970s, along with the idea that it proves the necessity of “energy independence,” it is crucial to know what really happened and what America’s real mistake was.

As long as any of us have been alive, oil issues have dominated both domestic policy and foreign policy. Yet Americans have surprisingly little background knowledge about this coveted commodity. In an effort to educate people more about the oil industry and oil policy, ARC has just released my 3-lecture course, “The Triumph and Tragedy of the Oil Industry,” available online for free in MP3 format. The purpose of the course is to explain how today’s state of affairs in oil came to be—both the benefits and the problems associated with oil.

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As I blogged recently, August 27 was the 150th anniversary of the oil industry.

Given that oil lit up the world in the 19th century and mobilized it in the 20th, and given that to this day oil generates 40% of energy worldwide, August 27, 2009 should have been a day of celebration. Above all, it should have been a day of celebration by the intellectuals who analyze the culture and by the oil industry itself. Instead, it was a day of silence.

Where were the tributes—or even critical retrospectives—in the leading newspaper op-ed pages last week? There were none in the Wall Street Journal, none in the New York Times, none in the Washington Post, none in the Los Angeles Times. I am grateful to Investor’s Business Daily for being the most prominent exception to this trend, and for choosing an op-ed I wrote to commemorate the occasion. The Wall Street Journal finally got around to publishing an oil piece on the following week (though hardly a celebratory one) by historian Daniel Yergin, but the lateness is almost more insulting to the anniversary of oil than not publishing anything.

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Today, August 27, 2009, is the 150th anniversary of the birth of the oil industry. Exactly 150 years ago, “Colonel” Edwin Drake struck black gold with the first commercial oil well — giving birth to an industry that would provide the lifeblood for modern civilization.

Unfortunately, the anniversary of oil has received little attention. At ARC, we aim to change this with a new webpage dedicated to celebrating oil’s 150th birthday — and to shaping public debate about oil going forward. In our view, the widespread demonization of oil as an “addiction” or “pollutant” is a dangerous smear. Oil has sustained and enhanced billions of lives for more than 150 years by providing superior, affordable, ultra-convenient energy — and is as vital today as ever. It fuels our ultra-mobile, globalized world, and provides the building-blocks for millions of life-enhancing petroleum products.

In the coming days and weeks, ARC, on both our blog and our oil webpage, will highlight the incredible, neglected value of oil and explore oil’s role in foreign policy and environmental issues.

flickr/Fábio Pinheiro

For years, every time Exxon Mobil and other successful oil companies made a large profit, they were blasted for making “too much” money, hauled in front of Congress to explain themselves, and threatened with a “windfall profits” tax.

Well, now that Exxon and Shell have just revealed that their profits fell 2/3 from last year, is Congress going to offer them a sympathy card, an apology, and a “windfall losses” tax credit? After all, if the oil industry deserves extra taxation just for making unusually high profits, shouldn’t it receive compensatory tax credits when its profits crash? Why the double standard?

Of course, Congress has no interest in fairness or consistency with regard to oil companies. If it did, it would be grateful to them for providing a product vital to our lives, admire their efficiency and profitability, and recognize that what they really deserve — and have an inalienable right to — is to be free of government interference, with complete responsibility for their losses and an absolute right to their profits.

Most people have become acclimated to an extremely slow rate of energy progress. While, say, our computers and electronics will rapidly decrease in price while increasing in quality, our energy bills look to be going nowhere but up. This despite the fact that today, as in the past several decades, government “energy planners” promise us an energy paradise of solar, wind, or whatever other technology they happen to favor.

My new essay, “Energy at the Speed of Thought,” tells the story of an entirely different sort of energy market.

[H]istory provides us ample grounds for optimism about the potential for a dynamic energy market with life-changing breakthroughs — because America once had exactly such a market. For most of the 1800s, an energy market existed unlike any we have seen in our lifetimes, a market devoid of government meddling. With every passing decade, consumers could buy cheaper, safer, and more convenient energy, thanks to continual breakthroughs in technology and efficiency — topped off by the discovery and mass availability of an alternative source of energy that, through its incredible cheapness and abundance, literally lengthened and improved the lives of nearly everyone in America and millions more around the world. That alternative energy was called petroleum. By studying the rise of oil, and the market in which it rose, we will see what a dynamic energy market looks like and what makes it possible. Many claim to want the “next oil”; to that end, what could be more important than understanding the conditions that gave rise to the first oil? 

In the essay, I argue that the amazing speed and impact of “the original alternative energy industry” is achievable today. What will it take? Go read “Energy at the Speed of Thought” to find out.

Ordinarily, when a company has a long record of profits and a continually increasing stock price, it is recognized for its vision. But look at ExxonMobil. It just capped off the most profitable year in American business history, a year in which it hit its all-time-high stock price. And yet the company continues to be lambasted by critics as a “dinosaur.” Its product, oil, critics say, is on its way to obsolescence. These critics claim that oil is a fast-depleting, CO2-emitting, soon-to-be relic of the past. They say that Exxon and other oil companies should be investing in “alternative fuels,” the wave of the future, just like all those “visionaries” we hear about in Al Gore speeches or read about in Thomas L. Friedman columns. One particularly biting criticism of Big Oil has been waged by the Rockefeller family, which has banded together to claim that John D. Rockefeller, founder of the modern industry, would enjoin today’s oil companies to phase out this antiquated product. “ExxonMobil needs to reconnect with the forward-looking and entrepreneurial vision of my great-grandfather,” says family activist Neva Rockefeller Goodwin.

I’ve studied Rockefeller intensely over the last two years, and I can say for sure his descendants are right about one thing: he definitely was a visionary. When others in the oil industry were making kerosene using shanty refineries, Rockefeller envisioned and made real a large-scale, research-and-development, modern corporation that made kerosene more cheaply than anyone thought possible. So we should definitely look to Rockefeller to understand what real vision is. But are alternative fuels companies the visionaries we hear they are? Or is it possible that the oil companies are the real visionaries? Stay tuned.

Last Thursday night, I delivered my talk “The Monopoly Myth: The Case of Standard Oil,” at USC. The theme of the talk was that John D. Rockefeller, the textbook example of the destructiveness of Big Business and market dominance, was in fact an incredible wealth creator who dominated simply because his company created better, cheaper, oil products than anyone else. I argued that Rockefeller’s 90% market share was just as earned as Michael Phelps’s eight gold medals.

The audience asked a lot of good questions after the talk, from whether “predatory pricing” is a problem, to how to properly define “monopoly,” to what a truly free market in health care would look like.

For anyone who’s in Southern California and interested, I’ll be delivering the same talk at the Hilton in Costa Mesa, CA on February 19, followed by a Q&A where I’ll be joined by Yaron Brook. For those of you outside Southern California, the talk should be available online at www.aynrandcenter.org soon after.

And for those of you who are particularly interested in economic and antitrust issues, you can find a detailed historical and economic analysis of the Standard Oil case in my essay “Vindicating Capitalism: The Real History of the Standard Oil Company” in the Summer 2008 issue of The Objective Standard.