Well, it seems as though our Dear Leaderstm are ready to put us on the hook for $700 billion to get us out of the mess they got us into. This was $700 billion we could ill afford, what with the budget already looking like a disaster with the entitlement programs, (SS, Medicare, Medicaid) and interest on the national debt preventing politicians from being able to make any significant cuts in spending. Whacking earmarks is fine, and a good start, but the reality of the situation is that if every single earmark disappeared today, we'd still be in a fiscal crisis.
We could whack items such as most foreign aid, (every single buck we send to Africa is a waste, to include the $ 65+ billion we've dumped on Egypt over the years), and agricultural subsidies to include ethanol, but still the only effective long term solution is to increase revenue.
That means taxes. I am no economist, but it seems to me that we should be able to locate the sweet spot on the Laffer Curve, and set the rates accordingly. There are a host of other tax issues to be addressed, but they are fodder for another day.
No, what we need are brand new sources of revenue. Allow me to propose one. There are others, but this would seem to be both the most lucrative, and simplest to implement.
Drill like hell, mine domestic oil shale, and tax it. I call it a tax, though it will most likely be referred to as a "royalty." I recommend that the royalty rate be a fixed amount per barrel, not a percentage, as it will remove uncertainty on the producers' part, and I do not want to see the government having an interest in raising the price of oil to increase revenues. The rate can be adjusted for inflation if needed.
Known oil shale deposits in the U.S. are thought to amount to over 1.5 trillion barrels of oil. That is as great as the known global reserves of crude oil, and about five times what the Saudis have.
Let's say the Feds tax it at only $20/bbl. That is $30 trillion dollars. Collect those revenues over 30 years, just to make the math easy, and we're looking at a cool trillion a year. Last year the Federal government spent roughly $2.7 trillion. More than a third of our current expenses could be brand new, previously uncollected, revenue.
The only problem with this dream scenario is that we don't use nearly that much oil annually. We currently use only about 8 billion bbls. annually, so at current rates of consumption, we wouldn't suck up all that oil shale (and gather that tax revenue) for 187 years! What oil crisis? Sell a bunch of it to China and India, and we've still got 50 years to transition to a nuclear power based economy.
This is why T. Boone Pickens is completely full of it when he starts touting wind with this "we've only got 3% of the global oil reserve" sleight-of-hand. Sure we may only have that much oil, but we've got all the fossil fuel we need for a good long time.
Oilmen believe that after getting up the learning curve a bit, oil shale could be produced profitably at $40/bbl. to include the expense of land reclamation. If the Powers That Be decide that the economy can live with $75 oil, we can tax it at $35/bbl., and the numbers start looking crazy good.
There are two further benefits to shale oil production. First, it is typically found alongside significant, marketable quantities of natural gas, the cleanest, most eco-friendly fossil fuel. Second, the oil derived from shale is best suited to the production of diesel and aviation fuel. This will have the benefit of encouraging passenger diesel in the US, an area in which we lag.
Fewer than 3 percent of passenger vehicles in the United States are diesel, one-tenth of the European ratio. Last year, that percentage increased to half. Performance conscious BMW sold 70% diesels in England last year.
Offshore oil reserves are conservatively estimated at about 85 billion, but this is almost certainly low, as the bans on drilling have prevented even exploration. Let's call it 90 (again, to make the math easy, assume a 30 year extraction) we're looking at $60 billion a year from offshore.
Toss in a few spare billions from natural gas, clean coal, and ANWR just for giggles, and we are talking an incredible amount of wealth.
There are so many beneficial synergistic effects, it's hard to imagine, much less list, them all. The Middle East can go hang, and Russia will find it's power severely curtailed. The Straits of Hormuz don't matter anymore. The trade deficit goes away, and King Dollar rules once again. The resurgent fossil fuel industry here will generate tens of thousands of quality jobs, jobs that cannot be outsourced.
If, humongous if here, we can keep the politicians from going absolutely insane with this new revenue stream, we can generate budget surpluses, pay down the almost ten trillion dollar national debt, and quit robbing Social Security. And guess where we'd get the capital to build all those nuke plants, and upgrade our electrical transmission infrastructure to support all those electric cars?
We could even do things like adequately fund X-Prizes for space exploration, nanotech, medical research, robotics, materials science, and other tech endeavors that will lead to future productivity increases.
There are issues to be addressed. Oil shale extraction requires some pretty heroic efforts to prevent environmental damage, but solutions exist. Furthermore, this policy would require a tariff on imported oil. The Saudis have some oil that can be pumped at about $5/bbl. The laws of supply and demand still stand, and you best believe they'll drop the price in an effort to keep market share, and thus prevent the investment required for oil shale extraction. So, we'd need to set the tariff on foreign oil at a level to keep the domestic supplies competitive. I am not normally a protectionist, but I could make an exception in this case.
I expect more challenging will be dealing with the politics of the effort, that I am now officially naming The Shale Wars. There will be battalions, regiments, divisions, of mercenaries in the fray. OPEC will be throwing supertankers of cash at every politician for sale in Washington, and forming and funding environmental groups opposed to domestic fossil fuels. Kids will be able to pay for college with part time jobs astroturfing blogs. One need only look at Bill Clinton's executive order to prevent the mining of the clean coal in the Kaiparowits Plateau to see how easy it is, with a well-placed donation, to place the needs of a special interest ahead of those of the people.
We, in what might be one of the most striking examples of American Exceptionalism, have the good fortune to be sitting on the largest concentration of an increasingly scarce global resource. If we are prudent, we will not simply squander this fortune. Chance, Providence, The Man Upstairs, whichever term you prefer, has gifted us with this easy to use energy source that will allow us to bootstrap to the next level of technological development. Vast as it is, though, it is still finite, and we must invest that finite wealth for our long term benefit, and not for short term political largesse.
"Oil From A Stone" - Money Magazine
Oil Shale: Toward a Strategic Unconventional Fuels Supply Policy
Oil Shale: History, Incentives, and Policy
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