Alternative Energies Are Starting to Play a Larger Roll Because of Iraq

Jan 29th, 2008 | By Penny Sleuth Contributor | Category: Energy

Everyday, Americans focus on countless problems that have arisen due to the war in Iraq. One of the clear problems we’ve come across has been the supply and price of the world’s oil. No matter what side of the issue you’re on, it’s hard not to notice the effect this conflict has had on our number one source of fuel.

Iraq, under Saddam Hussein, was one of the world’s largest oil producers. Many experts predicted that with Hussein out of power, Iraqi oil production would only rise. This has not been the case. If anything, the war in Iraq has significantly harmed the production of oil and raised the price to record levels. Tensions in the area continue to grow.

So that’s the bad news. Despite what many people think, there actually is good news coming from Iraq. This is news that should delight the very people who have been opposed to the war from the beginning. According to Gallup, the majority of Americans who oppose the Iraq war are Democrats. The same can be said for the majority of Americans who believe global warming to be a major problem. Based on those facts, it may be fairly safe to assume that the same people who oppose the war are the ones asking for changes when it comes to global warming. Many of these people want the government to do something significant about this problem.

As more and more people talk about global warming, millions are looking for alternative forms of energy that are cleaner and more environmentally friendly than oil. The technology for alternative fuels is there. The solutions are just way too expensive.

Take hybrid cars, for example. Right now, the Honda Civic sedan starts at $15,010. The popular family vehicle gets 36 miles per gallon. The hybrid version of the Civic starts at $22,600. The hybrid operates at 45 miles per gallon. Clearly, owning a hybrid will have you fueling up fewer times a year and is better for the environment. But are the savings in gas consumption and environmental effects worth it for the average customer to pay over $7,000 more for the “green” vehicle? Based on an average of 12,000 miles driven per year and paying $3.09 for every gallon of gasoline, the savings you get by choosing the hybrid car are only $207 per year. It would take over 33 years to make up for that extra cost. That hardly sounds worth it to me.

One of the only ways these hybrid cars will become more affordable and then be used by more people will be if oil prices begin to rise. The higher oil gets, the more affordable by comparison environmentally friendly alternatives will become. Not only will rising prices balance the differences between oil and alternative energies, but the more expensive oil gets, and the greater a national emergency it becomes, the more incentives to improve energy technology rise.

The incentives will also rise when further political pressure is put on the government. When that happens, subsidies for alternative energy programs will increase. If political unrest continues in the Middle East and the countries that control OPEC refuse to step up production, Americans will have no choice but to curb their use of oil and will then be forced by the market to become part of the ecological solution.

You can already tell that the issue of government subsidies for alternative fuel is one that companies in the energy business are pushing for. According to the National Venture Capital Association, startup companies that focus on clean technologies attracted more than $800 million in venture capital last quarter alone. That shows that there are plenty of investors willing to put up their money hoping the winds are changing toward clean products.

It’s just something to keep an eye out for…

Until next time,

Jamie Ellis
January 29, 2008

Penny Sleuth Contributor

The Penny Sleuth also features commentary by other financial analysts, small-cap experts, investment gurus and an array of contributors from various fields and occupations. Their diverse insights and contrarian investing ideas are hand selected by the Penny Sleuth editors.

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