Matthew Simmons joins the crowd of oil doomsayers in his article “Shock to the System: The Impending Global Energy Supply Crisis (Fall 2006).” For these doomsayers to be right, we would have to run out of oil relatively soon, without anyone realizing it in time. Not likely.

There’s no doubt that we have serious energy and energy-associated environmental problems that require immediate attention. But let’s not allow the severity of these problems to cloud our analysis. Folks have been predicting the end of oil for decades, and they’ve been no more correct than all those who’ve been predicting the end of the earth for centuries. But in fairness, logic dictates that the doomsayers are correct to note that the amount of oil on the earth is fi nite. That alone, however, is not enough to argue that we will reach oil’s limit imminently. Doomsayers’ analysis fails to account for the fact that as oil becomes scarce, its price rises. This elevation spurs technological improvements on the supply side and conservation and energy effi ciency on the demand side.

There are plenty of oil reserves, as the recent discovery in the Gulf Coast illustrates, as well as extensive reserves of less-conventional supplies such as tar sands and oil shale. If push comes to shove, we can expand the use of hybrid vehicles and even switch to electric or hydrogen-powered vehicles. Civilizations have successfully made the transition from one fuel source to another, and we can make the next one as well.

That being said, there are still two big problems with oil. The immediate one is that so much of it is controlled by an unstable cartel, which results in wildly fluctuating prices, major political instability, and military conflict. From political, economic, and moral points of view, it makes no sense to be so dependent on unstable oil supplies, especially given the consequences in lives and treasure. As Simmons points out, there are several key choke points in the oil supply chain that make it vulnerable to disruptions. These only exacerbate price volatility and problems. Volatile oil prices make it tough to distinguish between short-term price spikes and long-term trends; in turn, this makes even more diffi cult the decision companies face about whether to sink billions of dollars in capital investments that could be wiped out with a price drop. It also compounds the difficulty of sustaining the political

support policymakers need for long-term solutions.

Global warming is the other big problem. There is certainly enough evidence to suggest we need to take immediate, substantive measures to address this issue. Reducing oil consumption must be part of any comprehensive set of policies, but we don’t need to eliminate its use altogether. We do need to reduce it enough to break the political stranglehold that oil has and address global warming.

How do we get there? First, oil prices must reflect the true cost of extracting, refining, and using it. That means an unavoidable increase in taxes on oil and its products. Then we can use the additional revenues to offset other taxes to mitigate both the political and economic consequences and fund basic research in supply- and demand-side technologies. Oil reduction policies should be part of a larger package that includes carbon dioxide cap-and-trade programs for power plants, nuclear power, development of renewable technologies and alternative fuels, electricity and natural gas energy effi ciency and conservation programs, and a cultural shift away from wasteful energy consumption.

Our oil dependence is a serious problem. Exaggerating it does nothing to get us politically viable solutions. So long as we move forward knowing that there are outcomes better than the complete calamity that the doomsayers preach, we can craft palatable solutions that address the many problems that our oil and fossil fuel dependence creates.