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May 21, 2012

Saudis Won’t Settle for Energy Status Quo; Why Should U.S.?

 

Suppose you lived in a town where much of the housing was owned by one company—sort of like the Henry F. Potter character in the 1947 classic movie “It’s a Wonderful Life.” You live in an ordinary housing development and rent regularly goes up, up, up. You’d like to move, but the big landlord sets the standard and the town simply has no housing that’s both better and affordable.

After some years of frustration, a neighbor who found Rocky Mountain Institute’s web site devises a plan to save money and dramatically improve the comfort of the existing houses with insulation, efficient windows, and a community solar installation. He goes to the landlord with the plan, arguing that the owner’s property value will increase and the persistent grumbling among residents will drop. But the landlord scoffs.

The tenants settle with the status quo, some of them hoping the housing company builds more of the same houses to ensure an adequate supply for the foreseeable future. Rent goes up, but everyone accepts it.

Then imagine how the residents feel when they learn that the executives of the housing company have installed solar panels and undertaken a major efficiency effort in their mansions on the edge of town.

Well, really, you don’t have to imagine how that feels, because Saudi Arabia has launched an effort to be a leader in renewable energy. The Saudis, who are both oil- and sunshine-rich, plan to develop 41,000 megawatts of solar projects to support a third of electricity production by 2032. The energy will directly replace oil used for desalination plants—freeing up more oil for export. “The plan is part of a larger strategy to scale up various sources of renewable energy, build a new domestic industry, and reduce oil consumption. Officials estimate that the solar plan will reduce domestic consumption of oil by 520,000 barrels per day,” Stephen Lacey wrote for Climate Progress.

That’s right. While the United States fights over energy subsidies in the absence of a coherent energy policy that encourages innovation, the Saudis are taking their oil billions, much of it from us, to reduce their dependence on fossil fuels and create jobs.

“We know that pumping oil out of the ground does not create many jobs,” Saudi Arabian Oil Minister Ali Al-Naimi said in a speech earlier this year. “It does not foster an entrepreneurial spirit, nor does it sharpen critical faculties. So our investment is focused on creating jobs and employment opportunities.”

He added, “The efficient use of energy is as much an issue for Saudi Arabia, with its huge natural resources, as it is for all countries. Increased efficiency makes sense environmentally, but also economically.”

But those of us stuck in the status quo needn’t worry: “Saudi Arabia will continue to be a stable supplier of crude oil to world markets for many decades,” Al-Naimi said.

In part, switching some of its domestic energy use to renewables stretches its oil supply to sell to other countries. “The Saudi Arabian government has a powerful incentive to diversify its energy mix to reduce dependence on oil,” Logan Goldie-Scot, an analyst at New Energy Finance in London, told Bloomberg. “The state could generate an internal rate of return of approximately 12 percent if it built a PV plant and sold the displaced oil on the international markets.”

The United States does not have to continue playing along. RMI’s Reinventing Fire maps a business-led transition to a U.S. economy free of oil, coal, and nuclear power by 2050, saving $5 trillion by converting to a system relying on efficiency and renewable, decentralized energy sources. No inventions are required, and RMI’s practitioners and partners are showing how to take concrete steps toward this future.

Opposite this vision is the idea we can drill here, there, and everywhere to achieve energy security. This view ignores U.S. oil dependency, the fact that even given the latest domestic oil boom, 40 percent of our oil will be imported, and that oil prices are set on a world market little influenced by U.S. production. It is much more greatly determined by Saudi decisions. “Drill here, drill now” also ignores the costs of oil dependency to health, the environment, and from price volatility. Now, the U.S. burns 13 million barrels of oil a day at a cost of $2 billion for transportation alone. Our oil dependence also incurs hidden costs totaling roughly $1.5 trillion a year, or 12 percent of GDP.

It is ironic, at many levels, that the Saudis would have a plan for their energy future and the United States, which provided the Saudis with protection and wealth in exchange for oil, doesn’t.

Would we rather encourage American business to innovate a solution within our borders or gamble with our national security by betting that Saudi Arabia will be a stable friend for as long as we need its oil and its ability to influence the world market? Iran and Iraq were once considered reliable allies and oil suppliers, as well.

In the movie, “It’s a Wonderful Life,” a guardian angel saves the day, protagonist George Bailey is showered with money, and everyone sings. In moving toward a clean energy future, angels and business as usual will not secure our energy future. As the Saudis are doing, we must leverage our own plentiful economic advantages.

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