Energy Issues in Today's Global Economy
One of the biggest issues in the last presidential election was energy—particularly the high and unpredictable cost of gasoline. In these tough economic times, energy continues to be an issue causing anxiety in households across the country. Scott Cain, an energy expert and economist, gives insight into your future.
In 2008 as gasoline prices hit all-time highs, many feared this would become a permanent fact of life. Thus, Americans were relieved, but puzzled when the price of gas dropped so suddenly. However, this was no surprise to Scott Cain. "The price of gas is very closely tied to the price of crude oil. Crude oil accounts for approximately 70% of the price of gasoline. The price of crude oil has dropped from over $140 per barrel to now under $50 per barrel. This is the direct cause of low gas prices at the moment." Cain adds, "By the way, if the 'evil' oil companies were indeed in charge of the oil market, why would they allow this to happen? It certainly is not in their best interest. The bottom line is that even the major oil companies are not immune from the principles of economics."
The Future of Gas Prices
As to what the future holds for gas prices, Cain asserts, "As long as crude oil remains cheap, gasoline will follow. The primary reason for cheap crude is the worldwide economic slump. As the worldwide economy improves, crude oil prices will rise along with gasoline prices. Many economists see the recession lasting through 2009. Surprisingly, fuel prices are the only bright spot in the midst of this recession." Nonetheless, Cain recommends a few simple things to always keep your fuel expenses down: "Keep your car more efficient: get a tune-up and properly inflate your tires!"
The Future of Alternative Fuels
Asked about what part will alternative fuels play in the future, Cain speaks cautiously, "Alternative fuels, at this point, owe their existence to government subsidies. Most alternative fuels cannot compete with petroleum products, especially at current prices. In fact, it was the dramatically high gas prices that lead the way for research into alternative fuels! In the long run, as crude oil prices rise, alternative fuels will become more economically viable without government subsidies. In the short run, government regulations and subsidies will continue to require ethanol blended gasoline (ethanol is made from corn). Gasoline in California is currently blended with 5.7% ethanol."
On Going Green
Cain grows especially thoughtful when asked about the future of "going green." He says, "Certain issues make more sense to me on a 'stewardship' level vs. an economic level. I think we are all called to be good 'stewards' of the resources we've been entrusted with. Therefore, 'going green,' hybrid cars, etc. make sense to me on that level. I personally think that the jury is still out on the long run viability of hybrids. One of the central questions is what to do with the spent batteries. My understanding is that the disposal fees are exceedingly high and some auto shops have decided not to attempt to replace the batteries as a result."
"In addition," Scott Cain warns, "we need to understand the overall implications of any 'green' energy proposals. For instance, the addition of ethanol to our gasoline is having unintended consequences. As farmers switched from producing corn for feed to producing corn for ethanol, the resulting switch put upward pressure on feed costs. This was one of the factors leading up to a worldwide increase in food prices! Our energy policy certainly has far-reaching effects." These are good things to know in our ever-globalizing world.
