The Washington Post reports growing consumer interest in automobile fuel economy as gasoline prices increase. Not exactly an earth-shattering development, is it, when consumers respond to price changes?
Almost as reliable as consumer responses to price changes is the “I told you so” chorus from alternative-energy advocates.
[S]upporters of hybrids, electric vehicles, hydrogen fuel-cells, bio-diesel fuels and other alternatives that promise lower gas consumption say the hurricane could be a painful wake-up call.
“If there is a silver lining in this awful cloud, it’s that it’s reminded Americans how vulnerable we are and why we have to end our dangerous addiction to foreign oil,” said David Goldstein, who has been president of the Electric Vehicle Association of Greater Washington for 25 years.
How it that, again? If we were more reliant on domestic oil, then we would have been better off? How? Many of our domestic oil resources are in the Gulf region. Even the wells that remain in production may find their output constrained by the loss of refining capacity in the region. Meanwhile, foreign oil tankers steaming toward Gulf ports can be more readily diverted to locations with refineries undamaged by the storm.
The broad economic effects of Katrina do reveal the vulnerability that arises from the high concentration of energy production, processing and distribution assets in a relatively small area. That concentration of assets emerged from a combination of natural factors (distribution of natural oil resources) and network economies (access to transportation systems including ports, railroads, and pipelines).
Presumably refiners, distributors, and other resource owners not damaged by Katrina are temporarily capturing economic rents. Is the possibility of such rents sufficient to enable a desirable amount of diversity in energy assets? Could public policy induce a better result?