Approximately 50 miles off the coast of Louisiana lies the epicenter of one of the worst American environmental disasters in history.  Even now, over a month after an explosion rocked the offshore drilling rig, Deepwater Horizon, and sent it to the ocean floor, oil continues to gush out of the rupture in the well that BP had contracted Transocean to drill.  Initial government estimates placed the amount of oil that was leaking at 5,000 barrels per day, though this was recently revised upwards to 20,000 to 40,000 barrels per day.  Worst case scenario estimates from BP put this figure at 162,000 barrels per day, though this was later tempered down to 60,000 barrels per day.  Despite these dangers, why are we so reliant on oil?  According to the EIA, approximately 37% of America’s primary energy consumption comes from oil, partly because the resource is readily abundant, it is relatively cheap, and it works well with our current infrastructure.  This blog seeks to address these three points:

  1. Oil may be readily available now, but it is increasingly located in hard to access and costly places.  Reserves are either held by OPEC-member countries, or are waiting to be found in environmentally challenging areas such as the deepwater Gulf of Mexico.  The Deepwater Horizon was capable of drilling in water depths in excess of 10,000 feet, however, exploring for, and developing reserves from these frontier areas are expensive endeavors.  Some of the latest offshore drilling rigs cost operators over $500,000 per day to lease.  Compare that to the estimated $27 million per day that BP is spending to clean up the Oil Spill.
  2. One of the reasons why oil is relatively cheap is because the negative externalities aren’t fully factored into the price.  BP has already spent over $1 billion trying to contain and stop the spread of oil, but the true cost of the Oil Spill, including all of the untold liabilities, is anyone’s guess.  Oil has already made landfall on parts of the U.S. coastline, adversely affecting marine life and various ecosystems.  The radius of the contamination grows with each passing day, as the leak has been met with limited success in stemming the flow.
  3. Our current infrastructure handles the transportation of the resource relatively well (barring any accidents such as the 1989 Exxon Valdez oil spill off the coast of Alaska).  Oil can be transported from the wellhead to a refinery through complex pipeline and delivery systems, and ultimately converted into useable gasoline for automobiles.  However, like all industries, this infrastructure was not always there, and was subsidized in order to get it into place, much like what is happening to the solar industry now.

So why not turn to an alternative energy source?  When the true costs are factored into the price of oil, solar is a cost-competitive energy source that is readily abundant.  Empirical evidence[1] supports this claim, as the market for solar panels continues to ramp up.  It is important to note that much of this growth is driven by residential homeowners putting photovoltaic panels up on their rooftops, and not just large corporations installing 1 megawatt solar farms.  However, proper incentive structures such as a national renewable portfolio standard (RPS) program with a residential carve out, is vital to develop the proper infrastructure to address our energy needs.

The time to act is now.


[1] http://www.renewableenergyworld.com/rea/news/article/2010/04/us-solar-sees-38-growth-in-pv-capacity-in-2009

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