Today, as the price of a barrel of oil nears $68 and gasoline prices often top $3 per gallon, let's survey the current oil situation. The Economist has a couple of interesting articles on the rising oil consumption around the world in this week's issue, including "Counting the Cost."

According to the IMF's model, an increase of $10 a barrel in oil prices should knock three-fifths of a percentage point off the world's output in the following year. Thus the increase of $30 over the past year or so should have reduced global growth by almost two percentage points. However, all such ready-reckoners are based on previous oil shocks, when the main cause of higher prices was a disruption to oil supplies: the OPEC oil embargo in 1973-74; the Iranian revolution in 1979; and Iraq's invasion of Kuwait in 1990.

The current episode, however, has its origin in increasing demand, notably in China, the rest of Asia and the United States. Last year's increase in global oil consumption was the biggest for almost 30 years. The old rules of thumb based on supply shocks do not work for price increases driven by rising demand. If oil prices rise because of a shortfall in supply, they will unambiguously cause GDP growth to fall. However, if higher oil prices instead reflect strong demand, then they are the product of healthy global growth. They will therefore be less damaging.

The downside is that, if prices are high because of strong demand rather than a supply shock, they are likely to stay high for longer. In past oil shocks, a rise in price as a result of a temporary supply disruption caused oil consumption to decline, so that when supply returned to normal prices promptly fell. But if oil prices are being pushed higher largely by rising demand in China and other emerging economies, a sudden collapse is less likely.

In "The Oiloholics," The Economist explains that there are real consequences to the excessive consumption of oil, particularly on America's part.

... America remains the biggest consumer, using one-quarter of the world's output of the black stuff. America uses 50% more oil per dollar of GDP than the European Union, largely because consumers pay less. As petrol prices have hit $3 a gallon in some cities, there has been an outcry from motorists. Even so, petrol remains dirt cheap in America, compared with Britain or Germany where prices are above $6 a gallon. America's heavy dependence on oil not only leaves the economy more vulnerable to a supply shock, it also pushes prices higher for the rest of the world.

So what possible solutions do the folks at The Economist posit?

The best long-term solution—for America as well as the world economy—would be higher petrol taxes in the United States. Alas, there is little prospect of that happening. America, unlike Europe, has preferred fuel-economy regulations to petrol taxes. But even with those it has failed abysmally. These regulations have been so abused that the oil efficiency of its vehicles has fallen to a 20-year low. This week, the Bush administration announced proposals for changing the fuel-economy rules governing trucks and sport-utility vehicles, but failed to close loopholes that allow these gas guzzlers to use more petrol than normal cars, a shameful concession to carmakers.

The Oregonian's Jonathan Brinckman discusses another alternative in this morning's issue of the paper.

Biodiesel, a domestic, renewable fuel for diesel engines derived from vegetable or animal oils, is growing in popularity. The Department of Energy said more than 25 million gallons of biodiesel were sold in the United States last year, up 25 percent from 2003. That's a fraction of the more than 39 billion gallons of diesel and more than 134 billion gallons of gasoline consumed in 2003. What is biodiesel? Vegetable oil or animal fat with glycerin removed and replaced by alcohol.

What can use it? Any engine, including in cars and trucks, or furnace that normally burns diesel.

What's the benefit: Proponents say it releases fewer pollutants than regular diesel, including unburned hydrocarbons, carbon monoxide and particulates. It can be made from used cooking oil.

Where to get it: There are stations in 12 cities in Oregon that sell biodiesel either for cash or for cardholders. For addresses of locations or deliveries near you, visit www.sqbiofuels.com/locations_pricing.htm.

It might not be much, but it's imperative to start implementing alternatives today with the hope that they will help alleviate tomorrow's problems. At least one Democrat, Montana Governor Brian Schweitzer, is coming forward with a plan. Let's see what some other brilliant minds in both parties can come up with.