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Fossil Fuel Leverage

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"Fossil Fuel Leverage"

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There were interesting posts last week from Ryan Avent and Kevin Drum about the role rising oil prices played in sparking the recession and the possible comeback of rapid price escalation.

Ben Furnas released a paper for CAP earlier this week that looks at some related issues and includes this graph that I’ve poached. More recently, energy prices have stopped that kind of rapid ascent, but they’ve done so because global growth is moving backwards. If the economy moves toward recovery, we have every reason to believe that it will continue to escalate.

And this is part of what makes the failure over the past ten years to invest in a new clean energy economy so unfortunate. Instead, we wound up very much doing the reverse. At a moment in time when a lot of foreigners wanted to lend money to finance investments in America, we could have been investing in clean ways of producing electricity, in new mass transit lines, in walkable communities, etc. But instead we invested in new housing developments that for the most part are even more sprawling and car dependent than the developments we were building in the 1980s.

Basically, the country has made an enormous investment in fixed infrastructure that only makes economic sense if gasoline is very cheap. But the evidence suggests that we’ve reached a point where very cheap gasoline is inconsistent with global economic growth. At the same time, we have an electricity system that’s not doing a great job from a cost point of view, and that largely depends on a fossil fuel, coal, that while not at all scarce is ecologically disastrous. The combination is potentially ruinous, and every bit as unsustainable as a financial system that depended on the idea of ever-increasing home prices to keep running. Today’s economy is built on the idea that the atmosphere can safely absorb ever-increasing levels of carbon dioxide, and that ever-increasing quantities of cheap oil can be extracted from underground. Neither, however, is true.

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