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Ratigan writes: "We all understand that Wall Street bankers, when they offer an unbeatable deal, are often hiding the terms of the loan. That's why so many people bought houses they couldn't afford. The oil industry works the same way."

The full costs of the oil industry's business model, like the Horizon Deepwater disaster, are not calculated into the 'per gallon' price charged at the pump. (photo: REX)
The full costs of the oil industry's business model, like the Horizon Deepwater disaster, are not calculated into the 'per gallon' price charged at the pump. (photo: REX)



The Hidden Costs of Energy

By Dylan Ratigan, Dylan Ratigan's Blog

31 January 12

 

et's do a quick thought experiment. Don't use Google, or ask a friend, just answer the question at your desk right now. How much does a gallon of gas really cost? $3 a gallon? $3.50? $4? You might say it depends on the state - in Texas it's cheaper, in California it's more expensive.

But I bet you didn't answer that the cost of a tank of gas is a giant oil gushing hole in the floor of the Gulf of Mexico. Or the funding of terrorist networks all over the world. Or half of America's enormous trade deficit. Or the lives of thousands of American soldiers. These too are costs, unaccounted for at the gas pump. If you were to account for just some of these costs, you'd find, as the Milken Institute did, that the cost jumps to about $14 for a gallon of gas.

If you want to know why America isn't working, you have to understand who runs the place and how they do it. We all understand that Wall Street bankers, when they offer an unbeatable deal, are often hiding the terms of the loan. That's why so many people bought houses they couldn't afford. The oil industry works the same way. America gets a great deal on a cheap source of energy, but we don't see the costs upfront. That's by design. Specifically, what is hidden is what is known as "tail risk", or the chance that something extreme but unlikely happens.

The most obvious example of "tail risk" is the BP oil spill in the Gulf of Mexico. When BP was drilling in the Gulf of Mexico, the company knew there were enormous risks associated with deep-water drilling. Yet, BP executives realized that those risks did not belong to BP; they assumed that if there was a major environmental disaster, taxpayers or other parties would bear the costs. And this was correct - the tourist and fishing industries, as well as taxpayers, paid for the risks that BP took. Meanwhile, BP made money selling the oil it procured, reaping the upside. Socializing the losses, privatizing the gains - sound familiar?

This idea of tail risk is a major theme of my book, Greedy Bastards. It's a major tool used by the people in charge of our country to hide from us the real costs of our society. Yet, as odd as it sounds, the executives at BP weren't bad people, they acted as rational profit-maximizing businesspeople. I mean, if someone offered to cover your enormous losses at a casino, wouldn't you bet big? I know I would.

Hiding these risks is a major part of the lobbying that goes on in DC. Bob Deans of the National Resources Defense Council told me that oil is "the wealthiest, most profitable industry in the history of the world. it has made one trillion dollars in profits over just the last decade, and it has an army in Washing- ton of nearly eight hundred lobbyists who wake up every morning and say, ‘Whose palm can i grease?'"

As unseemly as this sounds, this is not inevitable. Another theme of Greedy Bastards is solutions on the horizon to solve our problems. We have the technology to end our use of oil. We've had it for a long time, and I'm not just talking about hybrids, or the electric car killed by GM and the oil industry in the 1990s. In 1946, we had the Buick Roadmaster, which got 100 miles to a gallon. We waste all but 34% of the energy we use through heat dissipation in our electric grid - Germany and Japan use up to 80% of the electricity they produce. We've solved big problems before, we can and will do it again. Efficiency is the fuel of the future. The only barrier to seizing this fuel is the government's willingness to hide the real cost of energy.

Many would like to demonize the oil executives for the pollution they cause. But I think we need to recognize that the same drive, the same Greedy Bastardism that leads them to pollute can lead to a solution to our energy problems. After all, BP executives are just businesspeople - if we can structure a society in which they make money by cutting our dependence on oil, they will compete to do that. Greedy Bastards have their tactics of hiding costs so we don't see them until it's too late. There are a host of policy changes we can put in place to make the costs explicit, and then we as a society can move to a more sustainable wealthier world. We can change the behavior of the oil barons, just by opening our eyes.

MORE: In today's episode of Greedy Bastards Antidote, Dylan talks to Dan Froomkin, senior Washington correspondent for the Huffington Post, about the hidden costs of energy in America. Dan describes the latest big lobbying victories for the industry, and how lobbyists focus most on making enormous tax breaks and subsidies politically untouchable. In addition, he describes what may be their greatest success — stifling any attempts to assess the industry for its carbon externalities.


 

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+20 # CandH 2012-01-31 19:39
"After all, BP executives are just businesspeople - if we can structure a society in which they make money by cutting our dependence on oil, they will compete to do that. "

Dylan, you have a degree in Political Science. Use it here, and finish the inevitable argument that uses that PolSci degree you've got.

It's more than about business. It's about power and the control of the world's resources and labor. It's about empire and the 1% who own it all. If it were just solely about the money, we would have changed our energy sources/innovat ions/systems a LOOOOOOONNNGG time ago. The US (and its allies) want power, over everything and everybody. Oil has been their Trump Card in doing that.

Worst yet, IT STILL IS. Enter Iran...
 
 
+3 # portiz 2012-02-01 10:45
If Americans were serious about ending corporate welfare, socialization of energy, and other such ways the gov't subsidizes our habits and addictions, there would be a tax levied on gasoline that entirely funds the wars necessary to get it.

Interestingly, a $2/gallon tax on gasoline would cover the fiscal* costs of Iraq/Afghanista n/etc., and there would be such a popular uprising that American would drive small cars and never again agree to a 'war for oil'.

*That is not to say that a price can ever be placed on the life on anyone (soldier or civilian)! I drive an efficient car, keep my thermostat set very low and wear a sweater, and minimize my usage of electricity, and rally for peace at every opportunity!!!!

There will be no justice in this world unless we all work for it.
 
 
+6 # MidwestTom 2012-02-01 05:16
This same argument can be made on many topics. Look at fuels made from biomass. The are fermented products of corn stubble normally left to rot in the field. These rotting stalks and leaves normally add about 1/64th of an inch to the dirt in the field as they rot. This is how the topsoil renews itself. However, when greedy companies come along and remove this 'waste' from the field they slowly destroy it's long term productivity.
 
 
+2 # cdcl44@yahoo.com 2012-02-01 05:47
"Good Business" is the excuse they give for being morally corrupt and robber barons?People and corporations will rationalize anything to justify their desire.
 
 
+1 # Midwestgeezer 2012-02-01 06:26
Not to defend the "awl bidness" (Dubya's term)but: I was 10 years old in 1946 and don't recall hearing about the new Buick Roadmaster getting 100 miles to a gallon. It was a the biggest Buick and came with a straight-eight engine. Tell me more... but I don't think so.
 
 
+1 # RJB 2012-02-01 07:00
We've been seduced by the abusive devil petroleum and like most abusive relationships, we can't seem to break away because we've allowed ourselves to become completely dependent. Sure, we've suffered the black eyes and bruised ribs of a sugar daddy whose self indulgence allows only narcissistic indulgence, but what are the alternatives? Remember who this self-indulgent master is. The military/indust rial/congressio nal complex has had 50 years of refinement since Eisenhower's warning. We think we're smarter than the frog in the warming pot of water, but the behavioral studies of B.F. Skinner tell a different story.

Four billion of us are on this planet today because of oil and fossil fuels, and there's no plan what to do when they run out
or choke the air we breath. Ribbit!

P.S.

Where can I get a 1946 Buick Roadmaster?
 
 
0 # portiz 2012-02-01 11:54
"Where can I get a 1946 Buick Roadmaster?"

I have no idea where the author got the idea that this car got 100 MPG. It had a big V8 engine (read: "NOT a fuel miser"!). On the other hand, it did have the first commercial automatic transmission... although that likely hurt fuel economy, rather than helped it.

BTW, electric cars have been around for at least 100 years. In fact, Jay Leno owns (and drives) one from 1909!
 

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