“For some parts of the energy equation, what is left of the so-called ‘free market’ can carry the load. Energy companies take a lot of bad-mouthing. But really, we’ve taxed and regulated the energy industry so much that it’s almost silly to talk about free markets anymore. Still, people and companies respond to incentives, despite the taxes and regulations. So let that work. Let it happen.

“And for other aspects of the energy equation, we have to move with the concept of ‘command technology.’ This is the combination of serious government policy and government users setting out the requirements. It’s like NASA saying that it wants a system to launch this or that into space and letting industry build it to that spec. It’s how the Navy developed its nuclear submarines over many decades. We know that command technology can work, because it has worked, and worked well, in the past.

“But the idea of ‘command technology’ requires the government to work with industry, as well. And both government and industry have to pick from the possibilities offered by basic science. You cannot do what you cannot do. But you can waste a lot of money trying.

“Will it take 20 or 30 years to develop the U.S. Outer Continental Shelf? Yes, 30 years and more. And we’ll be damn glad to have that oil when it shows up ashore. And will it take 20 or 30 years to develop better solar and wind systems? Or better biofuels? Of course it will. Really, if you want to change out the basic U.S. energy system from carbon to something else, 20 or 30 years is a ‘crash’ program. And we’ll be having this discussion well into the 2030s and beyond, if we’re still around.”

Rising Oil Prices and Trends

And here’s Jim discussing the rising impact of liquid fuel prices on consumption trends:

“Our studies over the years came to some conclusions about fuel prices and fuel demand. A sudden shock, like a 20% price rise, tends to lead to an immediate 4% decline in driving and gasoline use. That’s about what we are seeing today.

“But it’s not like some cosmic trend. Let’s say that gasoline prices stay at the same real level. Right now, most motorists think the price of gas and diesel is ‘high,’ but that’s all relative. Have you driven in Europe or Japan?

“And let’s say that the car fleet changes slowly. That’s because it takes many years to turn over the stock that’s already out on the road. Well then, you can expect gasoline use to trend back up, in line with general economic growth. So high prices don’t necessarily destroy long-term demand.

“And the short-term reaction to a 20% price spike should not be confused with a long-term demand trend. This is the case, even if the price rise is like a growth spurt that will recur again someday.

“Now consider something even worse. Are we only halfway through a growth spurt? Maybe.

“Let’s get really pessimistic. Let’s say that world oil supplies are constrained. It’s the Peak Oil thesis, which is pretty well proving itself out. But nothing is just plain simple. Some areas of the world have oil, or the means to get oil through imports. For those areas, Peak Oil doesn’t really matter. They have oil.

“But some areas of the world don’t have oil, or not nearly enough oil. And they can’t get access when and how they want it. That might include the U.S. in a few years.

“So in the ‘have’ parts of the world, you will see those economies returning to a growth path based on their own energy resources. And it may be that despite an economic decline in some major economies, overall world demand is still rising. This will pull prices upward, even for the ‘have-not’ buyers. And it will take a lot more than what we’ve seen so far in terms of price increases to clear the markets, and to keep demand within the limits of physical supply.

“We cannot afford to lose any more time.”