How Big Oil could grease invisible hand

September 22, 2014

By Stephanie Rogan

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

The U.S. energy problem is very much due to a breakdown of the free market, contends the new documentary, “Pump.” Married co-directors Josh Tickell and Rebecca Harrell Tickell show how Big Oil’s monopoly on transportation fuels hurts Americans more than they realize. If drivers had options when filling up their tanks, both country and consumers would benefit.

A narrow focus helps “Pump” make its point clearly. The filmmakers don’t take on global warming or automobiles. Their solution is simple and straightforward: introduce competition at the gas station and let the invisible hand do the rest. What that competition might be doesn’t turn up till much later in the story, when it is explained that an inexpensive modification on most cars would enable them to run on alcohol-based alternatives.

Talking heads, including former Shell Oil boss John Hofmeister, trace the origins of the powerful industry. Sobering data links just about every aspect of Americans’ lives back to crude oil and outlines the ways U.S. democracy is fettered by dependence on it. For starters, the United States spends nearly $1 billion overseas everyday to pay for oil, leaving its economy vulnerable to the whims of foreign nations. The Tickells also point to its outsize role in U.S. foreign policy decisions.

Often, the film’s rhetoric stretches to make connections that are tenuous at best. Detroit’s downward spiral is tied to the price of oil, a point underscored by visuals of derelict neighborhoods and abandoned buildings. The causal mechanism is never made clear, however. “Pump” also dubiously claims that the stock market crash of September 2008 was the result of that summer’s record-high oil prices. Mortgage-backed securities and the collapse of Lehman Brothers don’t even get a mention.

At long last, though, the film gets to the point. Unbeknownst to most Americans, the vast majority of cars are capable of running just as efficiently on ethanol and methanol, two alcohol-based fuels, as they can on gasoline.

With a do-it-yourself kit that costs about $300, “Pump” shows how drivers can make their vehicles run on these alternative sources. What’s more, automakers already manufacture a global model of flex-fuel cars, but purposely program the software in the engines to tolerate only gasoline. A single software hack would allow these cars to accept alcohol-based fuels.

The Tickells present Brazil, the first country in the world to adopt ethanol as a major fuel, as a case study. In response to the 1973 oil shocks, Brasilia launched an alternative energy program with the slogan: “Let’s unite, make alcohol.” Today, almost every car sold in the world’s seventh-largest economy is flex-fuel capable. Domestic ethanol is made from home-grown sugarcane and offered at every pump.

“Brazil is booming,” narrator Jason Bateman, of “Arrested Development” fame, explains. That’s not entirely true. The country slipped into a recession last month. An analysis by the National Bureau of Economic Research indeed suggests, however, that from 1980 to 2008, Brazil’s GDP increased by 35 percent more than it would have without the energy policies it enacted.

In 2011, President Dilma Rousseff forced state-controlled oil producer Petrobras to subsidize the price of fuel as part of an effort to contain inflation. The policy gutted the ethanol industry and forced Petrobras to keep petrol prices at artificially low levels, costing the company an estimated $40 billion. Last year, only a quarter of Brazil’s flex-fuel cars were filled with ethanol, down from 82 percent in 2009.

Brazil’s energy policies have taken center stage again in the runup to next month’s election. Environmentalist candidate Marina Silva has vowed to end gasoline subsidies and resurrect ethanol, and the Brazilian government recently announced it will expand tax credits for ethanol exporters.

The United States has a much steeper mountain to climb. Sugarcane ethanol has a net energy balance that is seven times greater than that of its corn counterpart, meaning corn ethanol can barely offset the fossil fuels needed to produce it.

Demand for alternatives, including electric vehicles from Elon Musk’s Tesla, is nevertheless growing alongside a crude backlash. On Monday, for example, the Rockefeller Brothers Fund, an $860 million philanthropic organization that owes its existence to the Standard Oil fortune, said it would divest from fossil fuels. The collective effect of all these efforts, including the message from “Pump,” may just help fuel a trend.

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