The New York Times
May 9, 2001
The Unrefined Truth
By PAUL KRUGMAN
G asoline prices are rising again, and the administration is rushing
to turn this into another argument for its drill-and-burn energy
strategy. But a look at the causes of the current gasoline shortage
actually suggests a quite different moral: namely, that conservation
ought to be a major element in our energy strategy, and that lack of
conservation is a large part of what we've been doing wrong.
First things first: This year's gasoline price spike has nothing to do
with a shortage of crude oil. Even if we had already punched the
Alaskan tundra and the ocean floor off Florida full of holes, we'd
still be in the same fix. The binding constraint right now is the
nation's limited capacity to refine crude oil into gasoline.
Why is refining capacity inadequate? No new refineries have been built
in this country for 20 years, a point emphasized with obvious relish
by Dick Cheney. His implicit subtext, of course, is that it's the
fault of environmentalist types who stood in the oil industry's way.
That must be the story, right?
Wrong. It's true that environmental rules have somewhat crimped the
production of our existing refineries. The problem is not so much the
strictness of the regulations as their lack of consistency: each
region has its own rules like the insistence of Midwestern states that
gasoline include corn-derived ethanol fragmenting the nation's
production. But the reason the oil industry didn't build any new
refineries for two decades was that they weren't needed. In fact,
right up until last year oil refining was a persistently depressed
business, plagued by overcapacity.
Here's what happened: In the wake of the energy crisis in the 1970's,
ordinary people in the United States began conserving energy not as a
"sign of personal virtue," as Mr. Cheney sneeringly puts it, but
because they wanted to save money. Cars, in particular, became much
more fuel-efficient. Meanwhile the oil industry was subject to
"refinery creep," the tendency of refining capacity to grow through
incremental improvements even when no new refineries are built. The
result was excess capacity and squeezed margins, right up to the late
1990's.
What finally brought us up against capacity constraints was a surge in
demand that was partly due to the economic boom of the later Clinton
years, but mainly due to the renewed enthusiasm of Americans for huge,
gas-guzzling vehicles an enthusiasm, er, fueled by cheap gas. In 1998
gasoline was cheaper compared with overall consumer prices than ever
before in U.S. history 60 percent cheaper than it was in 1981. The
nation rushed out to buy ever-bigger S.U.V.'s and then suddenly
discovered that we had run out of refining capacity. Refiners weren't
frustrated by rules that prevented them from building new facilities;
they were simply caught by surprise.
You have to bear this history in mind when parsing Mr. Cheney's recent
speeches. To listen to him, you would imagine that we live in a
country in which powerful political forces oppose energy production
and preach a return to the dark ages. "To speak exclusively of
conservation," Mr. Cheney declared in one speech, "is to duck the
tough issues . . . it is not a sufficient basis all by itself for a
sound, comprehensive energy policy." In another speech he ridiculed
unspecified types for "saying to the American people that you have to
live in the dark, turn out all of the lights." The story according to
Mr. Cheney, in other words, is that we have an energy shortage because
extreme conservationists prevented us from developing the supply
capacity that serious people knew we needed.
Need I point out that this, like so much of what one hears from this
administration, is a cynical misrepresentation? I defy Mr. Cheney to
come up with examples of influential people who "speak exclusively of
conservation," let alone anyone who says to the American people that
they have to live in the dark. In fact, hardly any important
politicians have spoken about conservation at all never mind
exclusively this past decade.
We will need to build more refineries and more power plants, and
pipelines, and so on. But it is ludicrous to suggest that our current
energy woes are the result of too much emphasis on conservation. It
would be closer to the truth to say that we are in trouble now because
our politicians haven't dared even use the word.
Copyright 2001 The New York Times Company