WASHINGTON, May 10 (UPI) -- U.S. analysts say higher energy prices fueled by rising oil costs could be good for business and might even encourage stronger ties between the world's two biggest energy consumers -- a view their Chinese counterparts do not readily accept.
Former Federal Reserve Board economist Kevin Hassett told a briefing on energy issues and U.S.-China relations this week that while an oil price spike may hurt economic growth in the near-term, businesses will be more willing and able to deal with higher energy costs once increases are seen as permanent.
"It is uncertainty (about whether the oil price spike is permanent) that holds off future investments," said Hassett, director of economic policy studies at the American Enterprise Institute, a conservative think tank, which hosted the event.
He said while corporate executives hesitate to increase capital expenditures when energy costs suddenly go up, they often are eager to invest more when they expect prices to remain high, and they therefore have an incentive to make "big investments in more (energy) efficient equipment."
Hassett said corporate executives already have reached the conclusion that higher energy costs are here to stay, so they are willing to pump more money to meet the new realities of doing business. That is reflected in the fact the U.S. economy has continued to expand steadily despite the increases in oil prices over the past year.
Hassett's optimism about the U.S. economy's ability to withstand higher energy costs was echoed by Spencer Abraham, former secretary of energy in President George W. Bush's first administration, who is a distinguished visiting fellow at the AEI. Abraham said tighter oil supplies in global markets would encourage governments, as well as private industry, to be more innovative to ensure continued growth.
In particular, he said, the United States should cooperate more closely with China to address a common objective of securing energy supplies for continued growth, be it through developing alternative energy sources -- including nuclear, wind, solar and hydrogen power -- or boosting energy efficiency with fossil fuels. Abraham eagerly pointed out the need for both countries to increase their reliance on nuclear energy, and said it would be "inconceivable" to be environmentally friendly while ensuring economic growth without looking to nuclear power as a source of affordable and clean energy.
James Glassman, a resident fellow at AEI, stressed the need for energy analysts to look to new opportunities and the chance to spur technological advancements, rather than to focus solely on the downside risks of higher oil costs.
Some fossil fuels alternatives are controversial among environmentalists and other critics.
The environmental sustainability of nuclear energy can be debated but there is no doubt the United States and China are the first- and second-biggest energy users, respectively, in the world. The London-based International Energy Agency's global energy report released in March said world oil consumption is expected to reach 84.3 million barrels a day this year, up 330,000 barrels from its earlier forecast, largely due to the surge in China's oil needs. China's economic growth has accounted for nearly 40 percent of the increase in new global oil demand over the past four years, according to the IEA.
China's continued economic growth depends heavily on securing a steady source of energy, yet one Chinese analyst pointed out the country could boost its energy security simply by improving efficiency, rather than looking to alternative fuel sources or exploring sources outside its borders.
China's energy supply "is neither sophisticated nor cost-effective," argued Zehnhua Zhao, a professor of economics at the Central Party School of China's Communist Party, a research institute of the country's ruling party.
Zhao told the AEI forum that "compared with the world's advanced economies, the energy consumption for one unit of product in China is apparently too high," adding Chinese cars use 25 percent more energy per 100 kilometers than cars in Europe and 20 percent more than vehicles in Japan.
The Chinese government, therefore, is stepping up efforts to boost energy efficiency to make do with less, Zhao said.
Xingshan Li, the school's provost, repeatedly pointed out that unlike the United States, China was a "developing country ... that needed to focus on domestic issues" and was at a disadvantage in international energy markets when competing with wealthier industrialized nations for oil supply.
Li argued that as a result, China should concentrate first and foremost on improving energy efficiency at home.
