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Born at the Crest of the Empire

Sunday, September 25, 2005

The true costs of big oil


WaPo has a piece on the huge profits oil extractors and refiners are making. Their premise is that the trading floor sets the prices, and the fact that Exxon is paying $20 to get the oil out of the ground (plus a smaller amount to transport), yet is selling to traders for $60whatever is simply an aberration of the market(which will rectify) and the blame shouldn't really be thrown at the producers.

(Also, there is an implied similarity with refiners, although this isn't fleshed out and the elements of the argument don't seem as strong to me.)

Pretty good argument, and I would expect to see it repeated by defenders of the industry.

But there's a problem with this "the market made me do it" argument. Oil is not just a regular commodity, like apples, not just in it's extreme role in the lives and economy of the US, after all, we all could give up apples if they were $20 a pound, but in it's intertwined nature with our government and foreign policy.

Beyond the giveaways, 1 billion fo exploration in the Bush energy bill which supporters admit will have no role in reducing consumption, and the huge tax breaks negotiated originally administrations ago, there are other non-market add ons the oil industry receives.

How much of the cost of our national military and foreign policy are indirect subsidies for the oil companies? Iraq, Saudi, Venezuela, Nigeria. All of these countries have been an expense to the American taxpayer, pretty much to the bottom line benefit of the oil companies. Do they bear the costs of maintaining a "presence" in the middle east, or the tremendous outlays for "maritime security" through indonesian waters or throughout the mideast. And also include the overthrow and support of governments.

The oil companies get all the security they want for free. Not to mention a blind eye on innumerable human rights abuses from Nigeria, to Myanmar, to the Caspian region, to South America.

Lastly, there are the shared costs of pollution and global warming. The products produced by the petrochem industry have tremendous shared global costs, increased pollution causes increased mortality, and the costs of glabal warming are yet somewhat distant, and although currently inestimable, could easily dwarf the the total historical profit of the oil industry. How much would a 20' sea rise cost the world's cities?

But they don't have to pay for any of that. The oil companies have managed to limit their costs solely to the cost of extracting, transporting, and refining. So they receive 100% of the profit of the extraction, processing, and sale of oil-related products, while only recording a small fraction of the total costs of their industry on their books, the rest being born by the US government and populations around the globe in governmental real dollar costs and less definable health, welfare and human rights costs.

Now, I accept that the oil industry is a necessary evil in the way our economy has become structured over the last hundred years, and that it would be civilization destroying if the true costs of oil were suddenly imposed on the market. But at the same time efforts at conservation and alternative energy are being stifled by the artificially low oil prices. For example, I would guess that wind energy would be much more prevalent if oil costs were truly reflected.

This will not be a quick corner to unpaint ourselves out of.

But, my hope would be that all of these shared costs will be remembered when the "the market made me do it" defenses are thrown out to defend the ridiculous profits the oil companies are currently posting. Their "profits" are being born by the rest of us in shorter lives, an aggressive foreign policy, and the potential submersion of coastal communities around the world..

(I guess it only took a day for me to get mad enough to blog. Ah, well.......)

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