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What $80 Per Barrel Really Costs

September 12, 2007

The day after the sixth anniversary of the 9/11 attacks, the price of crude oil touched $80 per barrel for the first time. The significance? Six years after an attack that violently demonstrated one of the consequences of America's overdependence on oil, we're writing bigger checks to oil exporting countries. Some of that money finds its way into the cash registers of maniacs who wish our country ill. Or, as the problem is commonly framed, we are financing both sides of the war on terror.

America imports nearly 13 million barrels of petroleum products per day, of which nearly 75 percent is crude oil. At $80 per barrel, the cost of the crude oil imports is three-quarters of a billion dollars per day. In addition, heavy U.S. demand helps keep the price of oil high. That's a subsidy for dodgy regimes like Iran's, even though the U.S. doesn't import any Iranian oil.

In essence, every time we fill up, we're writing checks, payable in U.S. dollars, to the likes of Hugo Chavez and Mahmoud Ahmadinejad.

That's the bad news. The good news is that more politicians acknowledge that the old ways of doing energy aren't working anymore. At least lip service is being paid to energy efficiency and diversifying the U.S. energy portfolio, although a number of powerful recalcitrants still think that a country with 2 percent of the world's conventional oil reserves can achieve "energy independence" through increased domestic oil drilling.

Today, there is a much greater chance of Congress passing a long overdue increase in motor vehicle fuel economy standards than there was two years ago, the last time Congress passed energy legislation.

Biofuels are all the rage and there is genuine excitement about the prospect of plug-in hybrid vehicles, which if used in tandem, could deliver dramatic reductions in gasoline consumption. Used to their most efficient advantage, plug-in vehicles filled with E85, a mixture of 85 percent ethanol and 15 percent gasoline, could achieve 500 miles per gallon of gasoline.

Farther down the road, maybe, are fuel cell vehicles. Mercedes-Benz has announced that it will begin limited marketing of a small fuel cell car in 2010, the same year that GM plans to begin selling the Chevrolet Volt, a plug-in hybrid. There is more talk of producing liquid fuels from coal.

Of course, extracting ourselves from the oil market's cartel bosses and crazies won't be a walk in the park. Even if fuel economy standards are toughened, motor vehicle fleet turnover will take time. Ethanol won't do much to lower gasoline consumption unless feedstock alternatives to corn can be developed. The fuel cell Benz and Chevy Volt are only promises that, even if they make it to showrooms on time, may not take hold with drivers. Producing coal-based fuel would be disastrous for the global climate, unless cost-effective carbon sequestration technologies can be deployed.

But $80-per-barrel oil has a way of getting attention and concentrating minds. Which is good, because the longer we wait to get off the oil dependence treadmill, the harder and costlier it will be.