Pick Any Two

It’s a well-worn story about the hard reality of commerce.

There’s a sign in the window of an old main-street appliance repair shop.

Fast. Cheap. Guaranteed.

Pick any two.

This story captures our society’s energy problem in a nutshell. Our problem is we have come to expect our energy to be all three at once; fast, cheap and guaranteed.

How fast do we demand our energy?

Flip a switch. Lights on. Plug in our computing and telecommunications devices. Charged. Drive into a gas station. Swipe the credit card. Pump.

That fast.

Are we conscious of where the electricity comes from, how it was produced, what fuel source was used to generate it? Do we care how difficult it was to extract the crude oil that was refined into auto fuel?

Not likely.

How cheap do we want it?

Real cheap. American energy prices are low, relative to world prices, yet many political careers are still made (and lost) tilting at the windmills of rising gasoline prices. Our national expectation continues to be plentiful, accessible and cheap energy.

Guaranteed?

Absolutely. We never want to be turned away at the pump, never want to deal with daily blackouts or other service interruptions.

I once worked at a technology company that was completely shut down during the rolling blackouts of 2000. Americans won’t tolerate that again. And when push comes to shove, the guarantee of access trumps other concerns, such as source, environmental implications, difficulty for providers.

There’s a hard truth to energy we do our best to keep in the deep recesses of our collective unconscious. It is a difficult and dirty business. Drilling for and extracting oil and natural gas is rough and dirty business. It requires tradeoffs with environmental concerns. Disasters sometimes happen. People get hurt and sometimes die getting our energy to us. The people who work in the energy business know this but we do our best to think about it as infrequently as we are able.

We’re reminded when there are large events, like spills, fires or natural disasters. When these events pass so, unfortunately, does our attention. Because we don’t consciously wrestle with the inherent and necessary tradeoffs of energy, others do it for us. We cannot and, in fact, do not escape the ‘pick any two’ reality just because we wish it.

We must be conscious. We must engage. We must choose or we will have the choice made for us.

Gas Prices – The Big Secret

In California, pump prices of gasoline have gone up over 20 cents per gallon in just the past week. Analysts say a price of $5 per gallon, once unimaginable, is in clear sight by Memorial Day, the start of the traditional summer vacation driving season.

There’s a lot of useless and baseless presidential campaign rhetoric about the link between the administration’s energy policies and gas prices. Many people also hold very naive assumptions about the key determinants of gas prices: distance between the pump and the refinery, accidents and natural disasters, global terrorism, military conflicts, environmental regulations.

Of course, all of those factors do matter in determining gas prices, because they affect the cost of production. But even in sum, they’re almost marginal when compared with the most significant determinant of price.

Here’s the “secret” about the prices energy companies charge: there’s a demand curve for gasoline and it is very inelastic. No matter the price, within certain boundaries, Americans will consume a lot of gas. Profit-maximizing enterprises, like energy companies, will price at a level determined by consumer demand and willingness to pay. Rising gas prices indicate that enough consumers will buy enough gasoline at higher prices to ensure historic company profits.

And if that bothers you, don’t waste time complaining or, worse, pretending the answer lies in drilling more or easing environmental regulation.

The answer – the only answer – is to just stop buying.