| Independently Powered Energy News

Consumers are upset about the high prices they're paying for natural gas these days. Last year the average price jumped to $7.33/MMBtu, an increase of 340 percent since 1999. At that time, the average price paid to U.S. gas producers was $2.14/MMBtu. Retail prices were even higher. Since the price of gas is reflected in the price of electricity, these prices hit everyone. But perhaps this cloud has a silver lining. In response to higher prices, consumption of natural gas in the United States has fallen. From its high of 23.3 trillion cubic feet in the year 2000, consumption dropped to 21.9 tcf last year. Even accounting for hurricane damage in 2005, that's a drop of more than a trillion cubic feet of gas in five years - about 4.3 percent. The good news is that this is exactly what must happen to fossil-fuel consumption if we're going to limit global warming. I've never been much of a fan of arbitrary greenhouse gas reduction goals without consideration of what it means for energy supplies. Kyoto and Governor Schwarzenegger's goals imply that consumption of fossil fuels must decrease. Lo and behold, it's already happening with U.S. natural gas. Admittedly, it's not happening as fast as the governor and Kyoto would like. U.S. gas consumption in 1990 was just over 19.1 tcf. Thus, we have to lower consumption another 3 tcf to get back to 1990 levels. At the rate we're going, that will take another 15 years. Nevertheless, U.S. gas consumption is at least headed in the right direction. The picture for other fuels, however, is not so rosy. Since 2000, U.S. consumption of crude oil has increased 6.6 percent. To return to 1990 levels, the U.S. would have to lower oil consumption by 19 percent from today's levels. I'm not holding my breath. Coal consumption has remained more or less flat in this century, but to return to 1990 levels, consumption would have to fall 15 percent. The longer I monitor energy markets, the more convinced I become that raising prices is the only way to lower consumption. We're all shoppers at heart. Even with the best of intentions, when prices are low, we buy more. When they are high, we buy less. The Bush administration's laissez faire approach to global warming appears to be based on the assumption that someday energy alternatives will be so cheap that consumers will cut back on fossil fuels. Alternatives are getting cheaper and fuels are getting more expensive, but I doubt that the do-nothing approach is ever going to work. My bet is that gasoline is going to remain cheaper than ethanol for a very long time, even if the gasoline has to be refined from synthetic crude made from the tar sands in Alberta. It's difficult for me to imagine politicians telling their constituents that gasoline is too cheap and that taxes will be imposed to raise the price in order to reduce consumption. Until they do, it's also hard for me to imagine the world getting serious about global warming. If taxes are going to be imposed on fossil fuels to raise prices and lower consumption, other taxes must be cut to make the deal politically feasible. Unfortunately, the U.S. has blown this opportunity by cutting income, capital gains, and estate taxes with nothing more to show for it than larger federal deficits and a falling dollar. When we finally get around to addressing the budget deficit, perhaps we should impose taxes on fossil fuels rather than reinstating the ones that were cut. If we're going to get serious about global warming, that is. As far as I can see, that's the only way to lower consumption.

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