Presently, renewable energy sources such as wind and solar energy, supply only about 6% of America's energy needs, according to the federal government's Energy Information Administration.This figure is expected to grow to about only 7% in the next 20 years.
Focus on alternative energy sources has increased with the current runaway boom in world oil prices. This increase is different from earlier oil shocks, as this time nobody expects oil prices to decline substantially from present levels. Experts feel that a combination of the Iraq war, and increasing demand from China and other booming Asian economies, make a return to the pre-Iraq war levels highly unlikely. With known oil reserves depleting and new reserves becoming increasingly difficult to find and expensive to exploit, oil companies are facing a serious problem. Facing mounting public demand for a kind of 'windfall tax' on the huge profits they are making, Big Oil now seems to feel that the best way to both plan for the future, as well as to deflect public criticism, is to develop alternative energy sources.
But although Big Oil has been making a lot of noise about investing in alternative energy, their investment in this area so far has not been substantial.In fact they have been investing more heavily in the areas of their core business, that is oil discovery and extraction. It appears unlikely that they will invest in alternative energy in a big way as long as oil remains as profitable as it is. In a way it makes sound business sense as well, because why should they invest in fuel from hydrogen, wind power, solar power and other sources which they cannot control. If they cannot control the source these huge profits will disappear.
Some oil companies like Shell and Chevron have invested a few hundred million dollars in developing wind and solar energy sources over the last few years, and they have plans to spend similar sums in future also. But looking to the overall energy demand, their targeted production and investments are very small.
The Democrats accuse the Republicans of being too friendly with Big Oil. They are critical because they say that Big Oil is making record profits, while the average American is getting squeezed. In addition to ending tax breaks for oil companies, they also want them to invest a part of their profits in clean and affordable alternative energy.
The Democrats moved their bill, the Consumer First Energy Act of 2008 on May 7th. The proposals include shifting financial incentives of $17 billion from major oil companies to alternative and renewable programs, and also authorizing federal investigation into price gouging and price fixing. It would impose a 25% 'windfall profits' tax on oil companies that do not invest in increased capacity or renewable energy sources It would also attempt to limit oil futures market speculators by preventing traders from routing transactions through offshore exchanges to avoid disclosure, and by increasing margin requirements on oil futures purchases.
These proposals have come in for strong criticism from the opposite camp. The American Petroleum Institute said in a statement,'New taxes targeting the US oil and natural gas industry would discourage investment in domestic fuel production, threaten US jobs, and penalize the millions of retirees and workers whose pension funds, individual retirement accounts, and 401K investments are invested in oil and natural gas stock.'
Another criticism is that the Democrat plan does nothing to lower prices by promoting oil production. The Republicans are particularly critical of the Democrats' refusal to permit drilling in American coastal waters due to environmental concerns. They feel that technology is now sufficiently advanced to prevent oil spills even during natural disasters. They point to the destruction caused by hurricane Katrina in the Gulf of Mexico and say that in spite of all odds not a single oil spill took place.
The debate continues, and presently the future role of Big Oil in the development of alternative energy sources is far from clear. It appears that they will step in only once it is really profitable to do so.