'Every gallon of gasoline contains a tremendous amount of risk we don't account for'

http://voices.washingtonpost.com/ezra-klein/2010/05/every_gallon_of_gasoline_conta.html

By Ezra Klein
Lisa Margonelli is the director of the New America Foundation's energy program and author of “Oil On the Brain: Petroleum's Long Strange Trip to Your Tank.” Her New York Times op-ed on the cost of an offshore drilling moratorium caught my eye, and so I asked her to expand on her arguments. What follows is a lightly edited transcript of our conversation.

You write in your op-ed that "we’ve been importing oil and exporting spills" to countries with worse records on environmental safety. Could you unpack that a bit?

There's a couple of things going on here. The U.S. has been increasing its oil use. But our output peaked in 1972 or 1973. So we use more but haven't increased our production by the same amount. So when your whole political response to spills is to punish the industry and make a statement with a moratorium on drilling, you have to understand that we're still using oil and its coming from other places. Some is coming from Canada and Norway and Mexico, and they have pretty good records. But on the whole, we're going towards dicier and dicier places. The big pockets of oil are in places that are politically or geologically difficult to get to. Deepwater off Angola, drilling in Nigeria, the Exxon project in Chad.

Let's say you just opened the American spigots. Would we still be pumping oil from Chad and now it would just be cheaper? And if we closed them, wouldn't people just pay higher prices for the same amount of oil? That is to say, is demand for oil very elastic?

Usage is not very elastic in response to price in the short-term. One of the things that happened when oil went up above $4 a gallon in 2008 was that people were putting it on their credit cards. In the U.S., people simply cannot cut back on their commutes and so they shift their costs elsewhere. People were changing their spending on medicine and food. The elasticity migrates to other products.

Also, the oil that's produced from federal leases in the gulf is sold at very little cost to the oil companies. They make enormous profits from it. If BP pays for oil from the government of Nigeria, they have to pay a lot more than they do for the oil in the gulf. And not only do we have a balmy climate and provide excellent security in our waters, but we also now clean up their messes and handle PR.

One oddity of this has been watching people freak out over the dangers of offshore drilling even as cap-and-trade seems pretty much dead. The possible damage from climate change is far greater than from this spill, but people can't seem to feel it. And so we might overreact to this spill, but underreact to the problem of oil dependency more generally.

Every gallon of gasoline contains a tremendous amount of risk we don't account for. The American Lung Association estimated that every gallon of gas costs us 50 cents in the asthma rate for children. You have the greenhouse gas question, leakage, spills, explosion, cancer risk from benzene, economic risk from the volatility of the prices, the military cost, and we do not account for all this. The attempt to put a price on carbon is really a symbolic monetization: It's just one of the risks, and though it's very important, at this point, we know oil is a problem in many, many different dimensions. This would be a really good chance to stop the drumbeat on moratoriums and reduce the amount of oil we use. Dramatically. We have the ability to do it and we need to focus all our policies on that.

How do we do it?

I think we need a comprehensive oil reduction dependency act that aligns highway policy with reducing subsidies with a loan program that allows middle-class people to get much more efficient cars to natural gas trucking to incentives for businesses to cut gas usage. And some of the things are easy. We could time traffic lights and that could reduce usage by 1 or 2 percent.

What's a reasonable target?


I think 15 percent over the next 10 years would be very doable. But in addition to the goals, we need programs in place to align the business community to move in that direction fast and exceed the goals we set ourselves.