|With gasoline prices rising above $3 a gallon and ethanol plants popping up like spring flowers across the land, a headlong rush toward renewable fuels is on. Legislation introduced last week by Senators Lugar of Indiana and Harkin of Iowa mandates that automakers make only flex fuel vehicles and big oil companies sell E85 at half of their retail stations by 2016. Yet, in our haste to cure our oil addiction, are we in danger of repeating the same mistakes that got us into this predicament in the first place?
The history of the oil industry has been one of vast swings in price and production. In fact it was the high price of our previous energy source that led to the development of the oil industry. At the beginning of the 19th century, most Americans lighted their homes with lamps that burned oil made from animal fat. Because it burned with less odor and smoke, whale oil was preferred. As demand grew, the price soared and the whaling industry exploded. By 1836, the U.S. had over 700 ships in its whaling fleet. As whale populations neared extinction, whale oil prices skyrocketed.
This prompted a search for another energy source, and in 1857 Michael Dietz invented the kerosene lamp. Almost overnight the demand for whale oil disappeared. The demand for kerosene prompted Edwin Drake to drill the first oil well in the U.S. in 1859.
In 1882, John D. Rockefeller brought together 40 independent oil producers into the Standard Oil Company; this introduced price control and market manipulation to the industry. During the 20th century, various nations took turns controlling and manipulating the price and supply of oil.
Until World War I it was the U.S. that controlled the world oil supply. Then, after the war, the British and the Dutch controlled the Middle East and East Asia and regulated the flow of oil. After World War II, Arab nations formed OPEC and began to regulate the flow of oil.
Had the free market been allowed to operate, we would have more oil in the world today and have lower oil prices. This, however, has not been the case. Production and price controls have been used to drive production down and prices up, which has resulted in periods of high production and rock bottom prices. In fact, it was low oil prices that prompted the formation of OPEC in the 1950s and was one of the factors that caused Iraq to invade Kuwait in 1990. U.S. government price controls kept U.S. oil prices artificially low during the 1980s, which diminished drilling for new domestic supplies.
This is why we have so few new oil fields in the U.S. The latest restriction to enter the oil market is the environmental factor. Green political forces have taken vast stretches of oil producing land in the U.S. and put them off limits to drilling. This has further artificially reduced domestic oil production.
So, here we are at the dawn of the ethanol and biodiesel era, ready to commit millions of acres of corn and soybeans and billions of taxpayer dollars to the renewable fuels industry.
In our shortsighted rush for a quick fix on gasoline prices, will we wreck the U.S. agriculture industry? What are the ramifications of state and federal renewable fuel standard mandates?
Renewable fuels will play an important and vital role in our energy future. Just as oil replaced the whale, renewable homegrown products will help replace nonrenewable resources.
But let us learn from the failed policies of the past and not trade sound long-term development for short-term expediency.
This farm news was published in the May 24, 2006 issue of Farm World.