California Has No Idea How Bad Soaring Oil Is Going To Hurt

surfing wave california

(This guest post originally appeared at the author’s blog)

The next BLS release of unemployment data for California comes this Friday, and its bracing to think what the numbers might be. Currently, the broad measure of unemployment for California–or U6- is running at 19.9% and the more conservative measure, which will be updated this this week, is at 12.2%. I’ve written quite alot on the subject of California this year. So, I watch the macroeconomic newsflow that emerges from the state each week, and most of it is pretty awful.

This Summer I spent a little time on television making the case to both MSNBC and BNN in Toronto that California was extremely overleveraged to the automobile, and should probably think seriously about building out it’s rail system. At that time the machinations over California’s budget were in full swing, and a number of observers thought the budget agreement would put the state on the right path for at least another year. I was doubtful, and said so at the time. Moreover, I tried to draw the two points together: California was now suffering diminishing returns from its vast automobile and highway system, and it was unlikely to crawl forward again as an economy unless petrol became very cheap again (unlikely), or got serious about transition.

This month’s Monthly, published 31 October, is titled Solve for California, and it attempts to lay out the backstory to the Golden State’s current predicament. Meanwhile, I see that Sacramento via the Strategic Growth Council has comissioned a new study, Vision California, and hired Calthorpe Associates of Berkeley to come up with reference scenarios to both spur and define future economic growth in California. Sounds good. But one question I have is as follows: of all the consultancies hired both in the past, and now, do any attempt to quantify for Sacramento the cost of maintaining the automobile system in an era of structurally higher oil prices?

The most recent news on California’s financial crisis emerged this week, when Sacramento reported that the state’s budget gap has already blown out again to 6 billion in the current year, with more shortfalls to come next year. Meanwhile, Washington has actually started to make smoke signals about fiscal discipline and the growth of federal debt, which raises the question again: how would California raise the capital for new energy power generation and new transport, when the Federal Government itself is in so much trouble and tax revenues continue to decline?

Herewith I will re-cap some of the points from my newsletter:

•    Build light rail, commuter rail, and high speed rail on an emergency basis, by-passing much of the public review process. recognise that community concerns about noise, construction, eminent domain, and changes to the status quo are all subordinate concerns to the problem of California’s dysfunctional over-leverage to the automobile.

•    Cease all new investment in roads and highways. This shouldn’t be much of a problem in the current situation because it’s unlikely anyone will be developing either commercial or residential real estate on any scale for many years to come. Existing roads, highways, and bridges will have to be repaired and maintained. However, a plan should be formed to remove some of these, especially getting them out of downtown areas. Alot of new studies show, globally, that removing highways from urban areas can be economically revitalizing.

•    Drill offshore, and onshore, for oil and devote every penny to the construction and maintenance of new Rail and new Solar and Wind power. There should be a public Energy for Rail agency (and website) that would be a kind of transparency project itself, that would educate Californians –showing them that this was essentially a conversion policy of domestic energy to public transport. Equally, it is no longer rational to avoid the extraction of State oil and gas in the name of the environment, when nothing could be more destructive to the California environment than its present vehicle fleet, which spews out 6000 tons per day of CO2. In fact, any policy which does not attempt to radically dislocate California’s automobile-based transport system now has to be regarded as the most environmentally destructive policy of all.

•    Adopt a policy similar to the new resource and economic policy coming out of Brazil. Thus, demand that drilling rigs be built in California ports. Demand that rail cars, electronics for the new rail, and other manufactured goods for the new rail system be built in California. favour oil companies that make their tax home either in California or at least the United States with drilling and production contracts. California needs to operate much more like a sovereign state, in this regard. The entire focus should be to extract energy, then recycle the wealth into the State in the form of productive capacity (new rail, new manufacturing, new power generation).

•    Build out massive new Wind and Solar, again, on an emergency basis and by-pass much of the public review process. The new extraction of California’s oil and gas would have as its single purpose the creation of capital, not energy, with which to fund the transition to a more sustainable energy system. California should also lobby to increase Natural Gas production from the new, NG shale plays.

In the same way that I disagree that the United States can solve either its energy dilemma or make progress on carbon-emissions reduction by focus on the power grid, while continuing to preserve and protect the automobile, I don’t see that California can accomplish much through this route either. Today’s ruling on energy fficiency standards for TVs, for example is part of the state’s laudible record of achievement in electricity demand reduction, but, that has neither solved the state’s over-reliance on power imports, nor is it comforting in the light of Jevon’s Paradox or the Khazzoom-Brookes Postulate–showing that efficiency gains are most often arbitraged away into greater energy demand.

My greatest concern, however, is that recent models which articulate the scale of transition to renewable power are a warning. A warning that the energy required to fund that transition is absolutely massive, in quantity. My call is that the construction fuel for a global buildout of Power Grid 2.0 will be oil. But, the longer we wait the more expensive that oil will become.

(Picture via Flickr user TravOC)


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