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Home > By DEPARTMENTS > Management > Green Economy

ECO hits the Pages of the LA Times

Southern California's economic strategies for $200 a barrel oil in 2008

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The Los Angeles Times has been doing a good job of reporting on science stories about the environment. The ocean. The air. Tranportation. And now, it's all about the economic impact of oil. The business of green, conservation, and alternative strategies that make common sense. Today it's all about the rapidly rising price of oil..."$200-a-barrel oil" to be specific.

Southern California Commuting Costs

The pain would probably be particularly intense in Southern California, which is known for its long commutes and high cost of living. Commuting across LA can cost close to $1,000 a month -- and that can lead even a 55-year-old to thinking about retirement.

More than half of Californians in a recent survey said they were driving less because of high gas prices. Almost 42% said they had reduced vacation travel and 40% said they were dining out less.

Business Interruption Due to High Costs

Sharply higher pump prices would lead to "significant bankruptcies and store closings"

Downturn Predictions

Vehicle sales, would probably continue to tank. Sales of new cars, sport utility vehicles and light trucks fell more than 18% in California in the first quarter compared with a year earlier.

Housing market prices are falling faster in areas requiring long commutes -- such as Lancaster and Palmdale -- than in neighborhoods closer to job centers.

Besides the obvious effect $7-a-gallon gasoline would have on commuters, automakers, airlines, truckers and shipping firms, $200 oil would drive up the price of a broad spectrum of products: Insecticides and hand lotions, cosmetics and food preservatives, shaving cream and rubber cement, plastic bottles and crayons -- all have ingredients derived from oil.

"The purchasing power of the American people would be kicked in the teeth so darned hard by $200-a-barrel oil that they won't have the ability to buy much of anything," said S. David Freeman, president of the L.A. Board of Harbor Commissioners and author of the 2007 book "Winning Our Energy Independence."

Americans may also feel the effects of a rise in energy-related crime. Ads for locking gas caps are becoming more prevalent. Restaurant owners are complaining that thieves are helping themselves to used barrels of cooking oil, which can be home-brewed into biodiesel fuel.

Sectors that Benefit From Conservation, Savings and Efficiency

If any retailers would benefit, it would be those on the Internet. In a recent survey by Harris Interactive, one-third of adults said high gas prices had made them more likely to shop online to avoid driving.

Workers stuck with long commutes and gas-guzzling cars would look increasingly to public transit, experts say. Traffic on the state's freeways fell almost 4% in April compared with a year earlier, and ridership on many subway and bus lines operated by the L.A. County Metropolitan Transportation Authority has risen in recent months.

Travelers can also expect much fuller airplanes and much more expensive flights -- when they're available at all. Delta Air Lines Inc., for example, recently said it was cutting about 13% of its flights from Los Angeles International Airport to save fuel.

Local and Regional B to B Sourcing

High fuel prices could also push restaurants, retailers and food manufacturers to look for suppliers closer to their operations because truckers pass a fuel surcharge on to clients. "Local sourcing is ideal. You won't pay as much for freight, and when you use less fuel it's better for the environment," Gaddis said.

Soaring diesel prices will make companies rethink whether they should have large, centralized plants or build smaller ones around the country.

In the near future, consumers can expect to pay for the higher cost of producing food and moving it around the country, say food executives, farmers and economists.

The Local or Zero Mobility Workplace

Dramatically higher transportation costs would usher in an era of virtual mobility, or zero mobility, for many workers.

Four-day workweeks, place increased emphasis on working at home, show bigger interest in setting up satellite offices -- anything that gets commute times down and gets people off the road, reported analyst Rob Enderle of Enderle Group in San Jose.

Videoconferencing, could finally have its day, thanks to improved technology and a desperation to cut corporate travel budgets.

Telecommuting, or working from home, is easier than ever because of the spread of high-speed Internet access

But Gilligan of USC noted that lower-income workers tend to be in jobs that don't favor telecommuting, such as retail and food service.

Retirement Funding

Although white-collar workers may be able to telecommute, they could also take a serious financial hit because soaring energy prices tend to wreak havoc on the stock market. The explosion of 401(k) plans and similar retirement accounts in the last few decades -- and the decline of traditional pensions with guaranteed payouts -- have tied workers' financial futures more closely to stocks than they were during the 1970s oil shocks. A prolonged Wall Street downturn could mean a no-frills retirement, or none at all.

The Price of Global Imports

It takes about 7,000 tons of bunker-fuel to fill the tanks of a 5,000-container cargo ship for a trip from Shanghai to Los Angeles. Over the last year and half, the cost of that fuel has jumped 87% to $552 a ton, according to the World Shipping Council, boosting the cost of a fill-up to more than $3.8 million.

"To put things in perspective, today's extra shipping cost from East Asia is the equivalent of imposing a 9% tariff on East Asian goods entering North America," said Rubin of CIBC World Markets. "At $200 per barrel, the tariff equivalent rate will rise to 15%."

However, if oil continues to rise from current levels, officials at the Port of Los Angeles believe West Coast ports would gain business because they are 10 to 12 days' sailing time from Asia, versus the 18-to-20-day route from Asia to the East Coast through the Panama Canal.

American Manufacturing vs. Outsourcing Globally

But local ports could lose business if shipping costs get so out of hand that companies begin shifting production back to North America from Asia -- something that's happening in the steel industry, Rubin said.

Upside Sectors of the Economic Shift

California has seen a jump in drilling activity as oil companies try to extract more crude from the state's fields. Regulators expect a record 4,000 wells to be drilled in the state this year. "Every rig and every crew that's available is working right now," said Hal Bopp, the state's oil and gas supervisor.

California companies such as Tesla Motors Inc., which recently began production of a $100,000 all-electric sports car, could become important leaders in an emerging industry.

Tourist attractions may also see an upswing in local business as families look for less-expensive vacation alternatives close to home. Theme parks and movies, a staple of the local economy, may prosper as Americans seek escapism and a (relatively) cheap night out.

More carpooling, fewer people on the freeways, more telecommuting...

SOURCE: Times staff writers Marti Zimemrman, Ken Bensinger, Leslie Earnest, Jerry Hirsch, Peter Pae and Ronald D. White contributed to this excellent LA Times overview.



Edited by Carolyn Allen, owner/editor of California Green Solutions
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