Beware of Lower Gas Prices
That's right, you read correctly. I contend that lower gas prices could mean bad news for the US in the long run. Don't worry, don't think I've become some environmental crazy who wants to force people to drive smaller cars. Rather, I want to drive this economy quicker towards a new era of ethanol as our primary fuel. How does gas prices affect that transformation? Plenty.
According to most energy economists, the reason we haven't had a major shift towards ethanol is because the economics of such hasn't made sense yet. We have had the ability to go towards ethanol for decades, but have never chosen to go there on a large scale. It wasn't because we didn't want to reduce our dependence on nations that are either our enemy or underwrites our enemies, it wasn't because we liked the pollution that gas consuming cars foster, it isn't because we like to see American farms struggle and corn silos remain unnecessarily full, it is because of plain old economics.
According to many experts, $2.50 a gallon is the magic number necessary to lead to make ethanol competitive. If gas prices go below that amount, ethanol can not yet compete. Critics will say that price isn't much to look forward to, but economists will tell you that this still high price is temporary. As an economy of scale is created, the cost of ethanol will drive down and in no time we will see fuel prices like we haven't seen in years and a new level of energy independence.
It is similar to when DVD players first came out costing hundreds of dollars and now you can get them for $30. When the ethanol pumps exist on a large scale (like DVD players now enjoy), so will our economy change. It sounds almost unpatriotic, but I'm in no hurry to see gas prices drop, but that is only because I'm eager to see real energy independence. The short term pain will lead to long term gain.
According to most energy economists, the reason we haven't had a major shift towards ethanol is because the economics of such hasn't made sense yet. We have had the ability to go towards ethanol for decades, but have never chosen to go there on a large scale. It wasn't because we didn't want to reduce our dependence on nations that are either our enemy or underwrites our enemies, it wasn't because we liked the pollution that gas consuming cars foster, it isn't because we like to see American farms struggle and corn silos remain unnecessarily full, it is because of plain old economics.
According to many experts, $2.50 a gallon is the magic number necessary to lead to make ethanol competitive. If gas prices go below that amount, ethanol can not yet compete. Critics will say that price isn't much to look forward to, but economists will tell you that this still high price is temporary. As an economy of scale is created, the cost of ethanol will drive down and in no time we will see fuel prices like we haven't seen in years and a new level of energy independence.
It is similar to when DVD players first came out costing hundreds of dollars and now you can get them for $30. When the ethanol pumps exist on a large scale (like DVD players now enjoy), so will our economy change. It sounds almost unpatriotic, but I'm in no hurry to see gas prices drop, but that is only because I'm eager to see real energy independence. The short term pain will lead to long term gain.
posted by Kevin Price at 1:24 AM
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