Auction 2012: The Hidden Costs of Energy

Auction 2012 is a week long series in partnership with The Huffington Post and United RepublicIn 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.

- by Dylan Ratigan

Let’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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