How to Change the World

Fortune has a very interesting interview with Google co-founder Larry Page. He hits on a lot of topics that are frequently discussed here, and some that aren’t often discussed, but that I have spent a lot of time thinking about (e.g., geothermal). Here is a link to the interview:

Larry Page on how to change the world

And some energy-specific excerpts:

Do you have other examples where innovative leadership could move the needle?

I think there are a lot of areas. You can be a bit of a detective and ask, What are the industries where things haven’t changed much in 50 years? We’ve been looking a little at geothermal power. And you start thinking about it, and you say, Well, a couple of miles under this spot or almost any other place in the world, it’s pretty darn hot. How hard should it be to dig a really deep hole? We’ve been drilling for a long time, mostly for oil - and oil’s expensive. If you want to move heat around, you need bigger holes. The technology just hasn’t been developed for extracting heat. I imagine there’s pretty good odds that’s possible.

Solar thermal’s another area we’ve been working on; the numbers there are just astounding. In Southern California or Nevada, on a day with an average amount of sun, you can generate 800 megawatts on one square mile. And 800 megawatts is actually a lot. A nuclear plant is about 2,000 megawatts.

The amount of land that’s required to power the entire U.S. with electricity is something like 100 miles by 100 miles [RR comment: That's around what I have come up with whenever I tried to calculate it. Maybe that's where he got it, since I often get hits from Google in Mountain View. ] So you say, “What do I need to do to generate that power?” You could buy solar cells. The problem is, at today’s solar prices you’d need trillions of dollars to generate all the electricity in the U.S. Then you say, “Well, how much do mirrors cost?” And it turns out you can buy pieces of glass and a mirror and you can cover those areas for not that much money. Somehow the world is not doing a good job of making this stuff available. As a society, on the larger questions we have, we’re not making reasonable progress.

And it looks like we are on the same page - no pun intended - regarding the solution to our energy problems:

So you think that geothermal and solar thermal could solve our energy problems?

Yeah, probably either one could generate all the energy we need. There’s no discipline to actually do this stuff, and you can also see this vested interest, risk-averse behavior, plus a lack of creativity. It sort of conspires. It’s also a timeliness thing; everyone said Sam Walton was crazy to build big stores in small towns. Almost everyone who has had an idea that’s somewhat revolutionary or wildly successful was first told they’re insane.

He also comments on who needs to be working on these changes:

Whose obligation is it to make this kind of change happen? Is it Google’s? The government’s? Stanford’s? Kleiner Perkins’?

I think it’s everybody who cares about making progress in the world. Let’s say there are 10,000 people working on these things. If we make that 100,000, we’ll probably get 10 times the progress.

And then you compare it with the number of engineers at Exxon and Chevron and ConocoPhillips who are trying to squeeze the last drop of oil out of somewhere, and all the science brainpower that’s going to that. It’s totally disproportionate to the return that they could get elsewhere.

What kind of background do you think is required to push these kinds of changes?

I think you need an engineering education where you can evaluate the alternatives. For example, are fuel cells a reasonable way to go or not? For that, you need a pretty general engineering and scientific education, which is not traditionally what happens. That’s not how I was trained. I was trained as a computer engineer. So I understand how to build computers, how to make software. I’ve learned on my own a lot of other things. If you look at the people who have high impact, they have pretty general knowledge. They don’t have a really narrowly focused education.

A Bright Story from the Solar Sector

It’s no secret that I think the best hope we have for transitioning to a post-petroleum economy is through solar power. I am optimistic that the thin film solar crowd - led by companies like First Solar and Nanosolar - will be able to deliver cost-effective solar power to the masses. I have also lately been looking at the possibility of a solar hot water heater, as I think these will be very good investments if energy prices continue to rise - especially given that there is a tax credit on these systems through 2008.

USA Today just published a new story that suggests that one solar firm (not a thin-film producer) will be able to deliver solar power for 7 cents a kilowatt hour by mid-2009:

Start-up: Affordable solar power possible in a year

I always take these claims with a grain of salt. I am hopeful, but also recognize that the majority of these sorts of promises generally fail to materialize. Nevertheless, it sounds promising:

SUNRGI’s “concentrated photovoltaic” system relies on lenses to magnify sunlight 2,000 times, letting it produce as much electricity as standard panels with a far smaller system. Craig Goodman, head of the National Energy Marketers Association, is expected to announce the breakthrough Tuesday.

Under its plans, which experts call promising but highly ambitious, SUNRGI would initially target utilities and large industrial and commercial customers. The company — founded by veterans of computer, digital design, aerospace and solar industries — would market to homes within three years.

Executives of the year-old company say they’ll start producing solar panels by mid-2009 that will generate electricity for about 7 cents a kilowatt hour, including installation. That’s roughly the price of cheap coal-fired electricity. “We’re bringing the cost of solar electricity down to be competitive with” fossil fuels, says Bob Block, a co-founder of SUNRGI.

Of course there are still barriers to transitioning to a solar economy. We need energy storage solutions, better batteries, and the price needs to continue to come down. But as I argued before, the future still looks to me to be solar.

Hillary’s Stupid Energy Plan

I had intended for this, my 500th essay on this blog, to be about my recent trip to Choren’s new plant in Germany. But Hillary Clinton has just come out with a plan for high gasoline prices so asinine, it had to be addressed. Note that I have already picked on McCain’s plan, and Obama’s plan isn’t all that different from Hillary’s. In my opinion none of these candidates have demonstrated that they actually have a grasp of the reasons for high oil and gas prices.

So, in stark contrast to the proposals I laid out in my previous essay, here is Clinton’s plan, along with some comments from me:

Hillary Clinton’s Plan to Address Soaring Prices at the Pump

Hillary’s plan includes:

Imposing a windfall profits tax on oil companies and using the money to suspend the gas tax for the peak summer months;

Closing $7.5 billion in oil and gas loopholes and using the funds to provide assistance for lower-income families to pay their energy and grocery bills;

Cracking down on speculation by energy traders and market manipulation in oil and gas markets that are driving up the price of oil by at least $20 a barrel;

Pressuring OPEC to increase oil production, including by filing a WTO complaint against OPEC countries

Stopping new additions to the Strategic Petroleum Reserve and standing ready to release oil to counter market spikes and reduce volatility.

This plan builds on Hillary’s long-term plan to reduce our dependence on foreign oil and address global warming.

Notice the irony in that last phrase? Let’s lower gas prices and address global warming! Hey, I know what else we can do. Let’s eat more, and lose weight. It’s genius.

Let’s pick apart her proposals, and I will tell you why her positions are stupid.

Hillary will impose a windfall profits tax on oil companies and use the money to temporarily suspend the 18.4 cent per gallon federal gas tax and the 24.4 cent per gallon diesel tax during the upcoming peak summer driving months. Hillary will ensure that this relief is passed along to consumers by charging the Federal Trade Commission with conducting aggressive oversight. Unlike Senator McCain’s plan, Hillary’s plan will be fully paid for by taking away oil company profits through a windfall profits tax. This will ensure that the Highway Trust Fund is not affected at all by the gas tax suspension, and can continue to support critical repairs and maintenance for our infrastructure and highways.

Why This is Stupid

If Hillary had anyone on her staff who had a clue about energy issues, they would see that refineries are already cut back due to low margins. Historically, low margins are the very reason that underinvestment has taken place in the refining sector. I seem to recall many politicians screaming about this underinvestment last year (even as they argued to confiscate profits which happened to be good in the refining sector last year). Total oil company profits are currently a result of very high oil prices - and most of that is flowing right out of the U.S. So there are a couple of ways this could break, both contrary to Hillary’s expectations.

If the policy could actually be implemented as Hillary outlines it, it ensures that demand remains high through the summer months. It sends a message to consumers that high gas prices really aren’t a worry; the government is going to take care of you. Thinking about buying a Prius? No, don’t do that. Because you see, the government is going to do everything possible to ensure that gas prices stay low, so you can continue to contribute your carbon emissions and we can continue our dependence on oil.

But that’s not really how it is likely to pan out. What will happen is that oil companies will allocate those taxes to their already struggling refining sector (they don’t produce all that much oil in the U.S.) Then what happens? Percent refinery utilization, which is currently running in the low 80’s (normal for this time of year, when margins are usually better, is upper 80’s or lower 90’s) will fall into the 70’s. Why? Let’s say you run a business, and you are making thin profits on one of the products you sell. Now someone wants to tax it at a higher rate. What do you do? Personally, I would shift my investments into something that offered a higher return. That’s exactly what oil companies will do. There will be less incentive to focus on upgrading and maximizing refining capacity.

Next up:

Oil and gasoline markets contain loopholes for traders, and the markets are inadequately policed by regulators under current law. As a result, there is considerable concern that current market prices reflect the influence of speculators and other forces beyond supply and demand. In early April, an Exxon Mobil executive testified under oath before a House committee that the price of oil should be $50 to $55 per barrel based on supply and demand fundamentals.

Why This is Stupid

So now you trust ExxonMobil? Do you believe them all the time, or only when you are trying to make a specific point?

The reason this proposal is stupid is not because there isn’t speculation in the market: There is. The problem is trying to identify how much, how to police it, and most importantly - how to apply those policies world wide. Because haven’t you heard? The oil market isn’t specific to the U.S. We don’t pay higher prices than they pay in Asia because of speculation. If speculation was responsible for $50 of the price as Clinton implies above, shouldn’t we see gross disparities in crude pricing?

How about taking on OPEC? A stupid plan wouldn’t be complete without threatening to bring legal action against OPEC in order to force them to lower prices for us:

OPEC recently reiterated that it will not even consider increasing crude output until September 2008, even though limited supplies are contributing to record oil prices. Hillary believes we should be taking more aggressive action to address OPEC’s control over global production levels and hold OPEC accountable for its decisions. President Bush’s efforts to pressure OPEC over the past seven years have been inconsistent and unsuccessful. Hillary supports sending a strong signal to OPEC that the era of complacency has ended. Hillary will:

Use the WTO to Challenge OPEC’s Production Quotas - With nine of the thirteen OPEC member countries also being members of the WTO, Hillary believes we should use the tools available at the WTO to address OPEC’s refusal to increase production.

Allow OPEC Production Decisions to Be Challenged Under U.S. Anti-Trust Law - Currently, OPEC countries cannot be challenged under U.S. anti-trust laws, even when they are engaged in coordinated, commercial activity to control the global oil market.

Why This is Stupid

This is probably the stupidest of her proposals. Oh, the can of worms it would open up. Here’s the analogy I have used before. Let’s say Saudi Arabia loves American wood. They love it so much, that their purchases start to drive the price higher. It seems other countries love American wood as well, so supplies are tight. But Saudi feels like they have a God-given right to cheap wood. Therefore, they demand that we increase production of our wood to bring prices back down. They demand that we overproduce our resources in order to meet what they would prefer to pay, because they have grown dependent on our wood. So, they threaten to sue and take us before the world court.

Of course the big difference here is that wood is a renewable resource. When Saudi’s oil is gone, what else do they have? Yet we demand that they produce according to the price we prefer to pay - not necessarily what’s in their own best long-term interest. How self-centered is that? Can’t Hillary recall when the Mideast cut us off from their oil because they didn’t like our policies? Does she think they couldn’t do it again?

Hey, we haven’t pulled the Big Oil card since the first paragraph. You just can’t do that often enough when you are pandering for votes:

Hillary believes that in addition to imposing a windfall profits tax on large oil companies, Congress should move immediately to end the approximately $7.5 billion per in tax giveaways and subsidies that we continue to provide to oil and gas companies, despite their record profits. These subsidies are in part a result of the 2005 Energy Bill she voted against. She would use those resources this year to provide assistance to lower-income families who are not only being hit at the gas pump, but with skyrocketing energy and food bills as well.

Why This is Stupid

Similar to her first proposal, Hillary wants to send a message that it isn’t the consumer here that is the problem, it’s those big, bad oil companies and their gouging ways. That’s why you are paying higher prices: Greed. She will take that money and return it to the consumers, thus achieving her goal of lowering prices AND fighting global warming. Don’t start that car pool just yet - Hillary is going to refund the extra money you have been paying. No need to worry.

Any why not tap the SPR?

Hillary is calling on President Bush stop taking oil off the market and putting it into the Strategic Petroleum Reserve (SPR). The SPR is now 97 percent full, which analysts believe is more than adequate. Continuing to fill it at these high prices exacerbates high oil prices and costs taxpayers money. Hillary also believes that the SPR should be more actively managed to enable releases from the SPR to counter market spikes and reduce volatility.

Why This is Stupid

If the SPR is 97 percent full, why do you need a policy to stop filling it? Won’t that happen pretty quickly anyway? Also, it seems that Hillary (and many others) don’t understand the purpose of the SPR. It is for national emergencies. The fact that I am paying more for gasoline is not a national emergency. A war with Iran that could curtail our imports sharply is more along the lines of what the SPR is for. And if you drain it right now for political purposes, and then you need it for an actual emergency, it wasn’t very strategic, was it?

Using it to try to counter market spikes suggests that you can predict where the market will be in the future - when you need to buy the crude back. The fact is, politicians on both sides have been urging releases from the SPR ever since oil was at $20/bbl. Where would we be now if we had done so? With an empty SPR, and with oil prices still at very high levels.

In the long term, Clinton proposes the following:

Proposals to Reduce our Dependence on Foreign Oil Over the Long-Term

Key elements of that plan include:

Raising fuel efficiency standards (CAFE) to 55 miles per gallon by 2030;

A $150 billion investment in researching, developing, and deploying renewable and alternative energy;

Cutting our foreign oil imports by two-thirds by 2030;

Providing $1.5 billion per year for public transit, an additional $1 billion for intercity rail, and additional funds for congestion reduction, better traffic management and telecommuting;

Providing tax credits and research and development funding for plug-in-hybrid vehicles, which can get up to 100 mpg; and

Conserving fuel in the federal fleet. Hillary will call on all federal government agencies to suspend non-essential travel and other activities that use gasoline or diesel fuel, and encourage employees to carpool, telecommute, and use public transportation to reduce fuel use. And she will direct federal employees to reduce maximum speeds to conserve fuel, with exceptions for law enforcement and other emergency services. Under Hillary’s plan, the agencies will to report to the White House once a month on their energy use and the impact of conservation efforts.

That 3rd one is brilliant: Cut our oil imports by 2/3rds. Why didn’t someone already think of this?

I won’t call those proposals stupid, but they all have something in common: The painless fix. There isn’t a single proposal there that suggests consumers need to cut back (except for the last one, in which government employees are asked to do so). For the average consumer, this all sounds great. They get to continue the status quo, and Hillary is going to see to it that they are not inconvenienced.

This is the kind of shallow political rhetoric that put us where we are in the first place. Two thumbs down for Hillary’s energy plan. Now where’s that president with courage; the one I was looking for in my previous post?

Hillary’s Stupid Energy Plan

I had intended for this, my 500th essay on this blog, to be about my recent trip to Choren’s new plant in Germany. But Hillary Clinton has just come out with a plan for high gasoline prices so asinine, it had to be addressed. Note that I have already picked on McCain’s plan, and Obama’s plan isn’t all that different from Hillary’s. In my opinion none of these candidates have demonstrated that they actually have a grasp of the reasons for high oil and gas prices.

So, in stark contrast to the proposals I laid out in my previous essay, here is Clinton’s plan, along with some comments from me:

Hillary Clinton’s Plan to Address Soaring Prices at the Pump

Hillary’s plan includes:

Imposing a windfall profits tax on oil companies and using the money to suspend the gas tax for the peak summer months;

Closing $7.5 billion in oil and gas loopholes and using the funds to provide assistance for lower-income families to pay their energy and grocery bills;

Cracking down on speculation by energy traders and market manipulation in oil and gas markets that are driving up the price of oil by at least $20 a barrel;

Pressuring OPEC to increase oil production, including by filing a WTO complaint against OPEC countries

Stopping new additions to the Strategic Petroleum Reserve and standing ready to release oil to counter market spikes and reduce volatility.

This plan builds on Hillary’s long-term plan to reduce our dependence on foreign oil and address global warming.

Notice the irony in that last phrase? Let’s lower gas prices and address global warming! Hey, I know what else we can do. Let’s eat more, and lose weight. It’s genius.

Let’s pick apart her proposals, and I will tell you why her positions are stupid.

Hillary will impose a windfall profits tax on oil companies and use the money to temporarily suspend the 18.4 cent per gallon federal gas tax and the 24.4 cent per gallon diesel tax during the upcoming peak summer driving months. Hillary will ensure that this relief is passed along to consumers by charging the Federal Trade Commission with conducting aggressive oversight. Unlike Senator McCain’s plan, Hillary’s plan will be fully paid for by taking away oil company profits through a windfall profits tax. This will ensure that the Highway Trust Fund is not affected at all by the gas tax suspension, and can continue to support critical repairs and maintenance for our infrastructure and highways.

Why This is Stupid

If Hillary had anyone on her staff who had a clue about energy issues, they would see that refineries are already cut back due to low margins. Historically, low margins are the very reason that underinvestment has taken place in the refining sector. I seem to recall many politicians screaming about this underinvestment last year (even as they argued to confiscate profits which happened to be good in the refining sector last year). Total oil company profits are currently a result of very high oil prices - and most of that is flowing right out of the U.S. So there are a couple of ways this could break, both contrary to Hillary’s expectations.

If the policy could actually be implemented as Hillary outlines it, it ensures that demand remains high through the summer months. It sends a message to consumers that high gas prices really aren’t a worry; the government is going to take care of you. Thinking about buying a Prius? No, don’t do that. Because you see, the government is going to do everything possible to ensure that gas prices stay low, so you can continue to contribute your carbon emissions and we can continue our dependence on oil.

But that’s not really how it is likely to pan out. What will happen is that oil companies will allocate those taxes to their already struggling refining sector (they don’t produce all that much oil in the U.S.) Then what happens? Percent refinery utilization, which is currently running in the low 80’s (normal for this time of year, when margins are usually better, is upper 80’s or lower 90’s) will fall into the 70’s. Why? Let’s say you run a business, and you are making thin profits on one of the products you sell. Now someone wants to tax it at a higher rate. What do you do? Personally, I would shift my investments into something that offered a higher return. That’s exactly what oil companies will do. There will be less incentive to focus on upgrading and maximizing refining capacity.

Next up:

Oil and gasoline markets contain loopholes for traders, and the markets are inadequately policed by regulators under current law. As a result, there is considerable concern that current market prices reflect the influence of speculators and other forces beyond supply and demand. In early April, an Exxon Mobil executive testified under oath before a House committee that the price of oil should be $50 to $55 per barrel based on supply and demand fundamentals.

Why This is Stupid

So now you trust ExxonMobil? Do you believe them all the time, or only when you are trying to make a specific point?

The reason this proposal is stupid is not because there isn’t speculation in the market: There is. The problem is trying to identify how much, how to police it, and most importantly - how to apply those policies world wide. Because haven’t you heard? The oil market isn’t specific to the U.S. We don’t pay higher prices than they pay in Asia because of speculation. If speculation was responsible for $50 of the price as Clinton implies above, shouldn’t we see gross disparities in crude pricing?

How about taking on OPEC? A stupid plan wouldn’t be complete without threatening to bring legal action against OPEC in order to force them to lower prices for us:

OPEC recently reiterated that it will not even consider increasing crude output until September 2008, even though limited supplies are contributing to record oil prices. Hillary believes we should be taking more aggressive action to address OPEC’s control over global production levels and hold OPEC accountable for its decisions. President Bush’s efforts to pressure OPEC over the past seven years have been inconsistent and unsuccessful. Hillary supports sending a strong signal to OPEC that the era of complacency has ended. Hillary will:

Use the WTO to Challenge OPEC’s Production Quotas - With nine of the thirteen OPEC member countries also being members of the WTO, Hillary believes we should use the tools available at the WTO to address OPEC’s refusal to increase production.

Allow OPEC Production Decisions to Be Challenged Under U.S. Anti-Trust Law - Currently, OPEC countries cannot be challenged under U.S. anti-trust laws, even when they are engaged in coordinated, commercial activity to control the global oil market.

Why This is Stupid

This is probably the stupidest of her proposals. Oh, the can of worms it would open up. Here’s the analogy I have used before. Let’s say Saudi Arabia loves American wood. They love it so much, that their purchases start to drive the price higher. It seems other countries love American wood as well, so supplies are tight. But Saudi feels like they have a God-given right to cheap wood. Therefore, they demand that we increase production of our wood to bring prices back down. They demand that we overproduce our resources in order to meet what they would prefer to pay, because they have grown dependent on our wood. So, they threaten to sue and take us before the world court.

Of course the big difference here is that wood is a renewable resource. When Saudi’s oil is gone, what else do they have? Yet we demand that they produce according to the price we prefer to pay - not necessarily what’s in their own best long-term interest. How self-centered is that? Can’t Hillary recall when the Mideast cut us off from their oil because they didn’t like our policies? Does she think they couldn’t do it again?

Hey, we haven’t pulled the Big Oil card since the first paragraph. You just can’t do that often enough when you are pandering for votes:

Hillary believes that in addition to imposing a windfall profits tax on large oil companies, Congress should move immediately to end the approximately $7.5 billion per in tax giveaways and subsidies that we continue to provide to oil and gas companies, despite their record profits. These subsidies are in part a result of the 2005 Energy Bill she voted against. She would use those resources this year to provide assistance to lower-income families who are not only being hit at the gas pump, but with skyrocketing energy and food bills as well.

Why This is Stupid

Similar to her first proposal, Hillary wants to send a message that it isn’t the consumer here that is the problem, it’s those big, bad oil companies and their gouging ways. That’s why you are paying higher prices: Greed. She will take that money and return it to the consumers, thus achieving her goal of lowering prices AND fighting global warming. Don’t start that car pool just yet - Hillary is going to refund the extra money you have been paying. No need to worry.

Any why not tap the SPR?

Hillary is calling on President Bush stop taking oil off the market and putting it into the Strategic Petroleum Reserve (SPR). The SPR is now 97 percent full, which analysts believe is more than adequate. Continuing to fill it at these high prices exacerbates high oil prices and costs taxpayers money. Hillary also believes that the SPR should be more actively managed to enable releases from the SPR to counter market spikes and reduce volatility.

Why This is Stupid

If the SPR is 97 percent full, why do you need a policy to stop filling it? Won’t that happen pretty quickly anyway? Also, it seems that Hillary (and many others) don’t understand the purpose of the SPR. It is for national emergencies. The fact that I am paying more for gasoline is not a national emergency. A war with Iran that could curtail our imports sharply is more along the lines of what the SPR is for. And if you drain it right now for political purposes, and then you need it for an actual emergency, it wasn’t very strategic, was it?

Using it to try to counter market spikes suggests that you can predict where the market will be in the future - when you need to buy the crude back. The fact is, politicians on both sides have been urging releases from the SPR ever since oil was at $20/bbl. Where would we be now if we had done so? With an empty SPR, and with oil prices still at very high levels.

In the long term, Clinton proposes the following:

Proposals to Reduce our Dependence on Foreign Oil Over the Long-Term

Key elements of that plan include:

Raising fuel efficiency standards (CAFE) to 55 miles per gallon by 2030;

A $150 billion investment in researching, developing, and deploying renewable and alternative energy;

Cutting our foreign oil imports by two-thirds by 2030;

Providing $1.5 billion per year for public transit, an additional $1 billion for intercity rail, and additional funds for congestion reduction, better traffic management and telecommuting;

Providing tax credits and research and development funding for plug-in-hybrid vehicles, which can get up to 100 mpg; and

Conserving fuel in the federal fleet. Hillary will call on all federal government agencies to suspend non-essential travel and other activities that use gasoline or diesel fuel, and encourage employees to carpool, telecommute, and use public transportation to reduce fuel use. And she will direct federal employees to reduce maximum speeds to conserve fuel, with exceptions for law enforcement and other emergency services. Under Hillary’s plan, the agencies will to report to the White House once a month on their energy use and the impact of conservation efforts.

That 3rd one is brilliant: Cut our oil imports by 2/3rds. Why didn’t someone already think of this?

I won’t call those proposals stupid, but they all have something in common: The painless fix. There isn’t a single proposal there that suggests consumers need to cut back (except for the last one, in which government employees are asked to do so). For the average consumer, this all sounds great. They get to continue the status quo, and Hillary is going to see to it that they are not inconvenienced.

This is the kind of shallow political rhetoric that put us where we are in the first place. Two thumbs down for Hillary’s energy plan. Now where’s that president with courage; the one I was looking for in my previous post?

Hillary’s Stupid Energy Plan

I had intended for this, my 500th essay on this blog, to be about my recent trip to Choren’s new plant in Germany. But Hillary Clinton has just come out with a plan for high gasoline prices so asinine, it had to be addressed. Note that I have already picked on McCain’s plan, and Obama’s plan isn’t all that different from Hillary’s. In my opinion none of these candidates have demonstrated that they actually have a grasp of the reasons for high oil and gas prices.

So, in stark contrast to the proposals I laid out in my previous essay, here is Clinton’s plan, along with some comments from me:

Hillary Clinton’s Plan to Address Soaring Prices at the Pump

Hillary’s plan includes:

Imposing a windfall profits tax on oil companies and using the money to suspend the gas tax for the peak summer months;

Closing $7.5 billion in oil and gas loopholes and using the funds to provide assistance for lower-income families to pay their energy and grocery bills;

Cracking down on speculation by energy traders and market manipulation in oil and gas markets that are driving up the price of oil by at least $20 a barrel;

Pressuring OPEC to increase oil production, including by filing a WTO complaint against OPEC countries

Stopping new additions to the Strategic Petroleum Reserve and standing ready to release oil to counter market spikes and reduce volatility.

This plan builds on Hillary’s long-term plan to reduce our dependence on foreign oil and address global warming.

Notice the irony in that last phrase? Let’s lower gas prices and address global warming! Hey, I know what else we can do. Let’s eat more, and lose weight. It’s genius.

Let’s pick apart her proposals, and I will tell you why her positions are stupid.

Hillary will impose a windfall profits tax on oil companies and use the money to temporarily suspend the 18.4 cent per gallon federal gas tax and the 24.4 cent per gallon diesel tax during the upcoming peak summer driving months. Hillary will ensure that this relief is passed along to consumers by charging the Federal Trade Commission with conducting aggressive oversight. Unlike Senator McCain’s plan, Hillary’s plan will be fully paid for by taking away oil company profits through a windfall profits tax. This will ensure that the Highway Trust Fund is not affected at all by the gas tax suspension, and can continue to support critical repairs and maintenance for our infrastructure and highways.

Why This is Stupid

If Hillary had anyone on her staff who had a clue about energy issues, they would see that refineries are already cut back due to low margins. Historically, low margins are the very reason that underinvestment has taken place in the refining sector. I seem to recall many politicians screaming about this underinvestment last year (even as they argued to confiscate profits which happened to be good in the refining sector last year). Total oil company profits are currently a result of very high oil prices - and most of that is flowing right out of the U.S. So there are a couple of ways this could break, both contrary to Hillary’s expectations.

If the policy could actually be implemented as Hillary outlines it, it ensures that demand remains high through the summer months. It sends a message to consumers that high gas prices really aren’t a worry; the government is going to take care of you. Thinking about buying a Prius? No, don’t do that. Because you see, the government is going to do everything possible to ensure that gas prices stay low, so you can continue to contribute your carbon emissions and we can continue our dependence on oil.

But that’s not really how it is likely to pan out. What will happen is that oil companies will allocate those taxes to their already struggling refining sector (they don’t produce all that much oil in the U.S.) Then what happens? Percent refinery utilization, which is currently running in the low 80’s (normal for this time of year, when margins are usually better, is upper 80’s or lower 90’s) will fall into the 70’s. Why? Let’s say you run a business, and you are making thin profits on one of the products you sell. Now someone wants to tax it at a higher rate. What do you do? Personally, I would shift my investments into something that offered a higher return. That’s exactly what oil companies will do. There will be less incentive to focus on upgrading and maximizing refining capacity.

Next up:

Oil and gasoline markets contain loopholes for traders, and the markets are inadequately policed by regulators under current law. As a result, there is considerable concern that current market prices reflect the influence of speculators and other forces beyond supply and demand. In early April, an Exxon Mobil executive testified under oath before a House committee that the price of oil should be $50 to $55 per barrel based on supply and demand fundamentals.

Why This is Stupid

So now you trust ExxonMobil? Do you believe them all the time, or only when you are trying to make a specific point?

The reason this proposal is stupid is not because there isn’t speculation in the market: There is. The problem is trying to identify how much, how to police it, and most importantly - how to apply those policies world wide. Because haven’t you heard? The oil market isn’t specific to the U.S. We don’t pay higher prices than they pay in Asia because of speculation. If speculation was responsible for $50 of the price as Clinton implies above, shouldn’t we see gross disparities in crude pricing?

How about taking on OPEC? A stupid plan wouldn’t be complete without threatening to bring legal action against OPEC in order to force them to lower prices for us:

OPEC recently reiterated that it will not even consider increasing crude output until September 2008, even though limited supplies are contributing to record oil prices. Hillary believes we should be taking more aggressive action to address OPEC’s control over global production levels and hold OPEC accountable for its decisions. President Bush’s efforts to pressure OPEC over the past seven years have been inconsistent and unsuccessful. Hillary supports sending a strong signal to OPEC that the era of complacency has ended. Hillary will:

Use the WTO to Challenge OPEC’s Production Quotas - With nine of the thirteen OPEC member countries also being members of the WTO, Hillary believes we should use the tools available at the WTO to address OPEC’s refusal to increase production.

Allow OPEC Production Decisions to Be Challenged Under U.S. Anti-Trust Law - Currently, OPEC countries cannot be challenged under U.S. anti-trust laws, even when they are engaged in coordinated, commercial activity to control the global oil market.

Why This is Stupid

This is probably the stupidest of her proposals. Oh, the can of worms it would open up. Here’s the analogy I have used before. Let’s say Saudi Arabia loves American wood. They love it so much, that their purchases start to drive the price higher. It seems other countries love American wood as well, so supplies are tight. But Saudi feels like they have a God-given right to cheap wood. Therefore, they demand that we increase production of our wood to bring prices back down. They demand that we overproduce our resources in order to meet what they would prefer to pay, because they have grown dependent on our wood. So, they threaten to sue and take us before the world court.

Of course the big difference here is that wood is a renewable resource. When Saudi’s oil is gone, what else do they have? Yet we demand that they produce according to the price we prefer to pay - not necessarily what’s in their own best long-term interest. How self-centered is that? Can’t Hillary recall when the Mideast cut us off from their oil because they didn’t like our policies? Does she think they couldn’t do it again?

Hey, we haven’t pulled the Big Oil card since the first paragraph. You just can’t do that often enough when you are pandering for votes:

Hillary believes that in addition to imposing a windfall profits tax on large oil companies, Congress should move immediately to end the approximately $7.5 billion per in tax giveaways and subsidies that we continue to provide to oil and gas companies, despite their record profits. These subsidies are in part a result of the 2005 Energy Bill she voted against. She would use those resources this year to provide assistance to lower-income families who are not only being hit at the gas pump, but with skyrocketing energy and food bills as well.

Why This is Stupid

Similar to her first proposal, Hillary wants to send a message that it isn’t the consumer here that is the problem, it’s those big, bad oil companies and their gouging ways. That’s why you are paying higher prices: Greed. She will take that money and return it to the consumers, thus achieving her goal of lowering prices AND fighting global warming. Don’t start that car pool just yet - Hillary is going to refund the extra money you have been paying. No need to worry.

Any why not tap the SPR?

Hillary is calling on President Bush stop taking oil off the market and putting it into the Strategic Petroleum Reserve (SPR). The SPR is now 97 percent full, which analysts believe is more than adequate. Continuing to fill it at these high prices exacerbates high oil prices and costs taxpayers money. Hillary also believes that the SPR should be more actively managed to enable releases from the SPR to counter market spikes and reduce volatility.

Why This is Stupid

If the SPR is 97 percent full, why do you need a policy to stop filling it? Won’t that happen pretty quickly anyway? Also, it seems that Hillary (and many others) don’t understand the purpose of the SPR. It is for national emergencies. The fact that I am paying more for gasoline is not a national emergency. A war with Iran that could curtail our imports sharply is more along the lines of what the SPR is for. And if you drain it right now for political purposes, and then you need it for an actual emergency, it wasn’t very strategic, was it?

Using it to try to counter market spikes suggests that you can predict where the market will be in the future - when you need to buy the crude back. The fact is, politicians on both sides have been urging releases from the SPR ever since oil was at $20/bbl. Where would we be now if we had done so? With an empty SPR, and with oil prices still at very high levels.

In the long term, Clinton proposes the following:

Proposals to Reduce our Dependence on Foreign Oil Over the Long-Term

Key elements of that plan include:

Raising fuel efficiency standards (CAFE) to 55 miles per gallon by 2030;

A $150 billion investment in researching, developing, and deploying renewable and alternative energy;

Cutting our foreign oil imports by two-thirds by 2030;

Providing $1.5 billion per year for public transit, an additional $1 billion for intercity rail, and additional funds for congestion reduction, better traffic management and telecommuting;

Providing tax credits and research and development funding for plug-in-hybrid vehicles, which can get up to 100 mpg; and

Conserving fuel in the federal fleet. Hillary will call on all federal government agencies to suspend non-essential travel and other activities that use gasoline or diesel fuel, and encourage employees to carpool, telecommute, and use public transportation to reduce fuel use. And she will direct federal employees to reduce maximum speeds to conserve fuel, with exceptions for law enforcement and other emergency services. Under Hillary’s plan, the agencies will to report to the White House once a month on their energy use and the impact of conservation efforts.

That 3rd one is brilliant: Cut our oil imports by 2/3rds. Why didn’t someone already think of this?

I won’t call those proposals stupid, but they all have something in common: The painless fix. There isn’t a single proposal there that suggests consumers need to cut back (except for the last one, in which government employees are asked to do so). For the average consumer, this all sounds great. They get to continue the status quo, and Hillary is going to see to it that they are not inconvenienced.

This is the kind of shallow political rhetoric that put us where we are in the first place. Two thumbs down for Hillary’s energy plan. Now where’s that president with courage; the one I was looking for in my previous post?

Hillary’s Stupid Energy Plan

I had intended for this, my 500th essay on this blog, to be about my recent trip to Choren’s new plant in Germany. But Hillary Clinton has just come out with a plan for high gasoline prices so asinine, it had to be addressed. Note that I have already picked on McCain’s plan, and Obama’s plan isn’t all that different from Hillary’s. In my opinion none of these candidates have demonstrated that they actually have a grasp of the reasons for high oil and gas prices.

So, in stark contrast to the proposals I laid out in my previous essay, here is Clinton’s plan, along with some comments from me:

Hillary Clinton’s Plan to Address Soaring Prices at the Pump

Hillary’s plan includes:

Imposing a windfall profits tax on oil companies and using the money to suspend the gas tax for the peak summer months;

Closing $7.5 billion in oil and gas loopholes and using the funds to provide assistance for lower-income families to pay their energy and grocery bills;

Cracking down on speculation by energy traders and market manipulation in oil and gas markets that are driving up the price of oil by at least $20 a barrel;

Pressuring OPEC to increase oil production, including by filing a WTO complaint against OPEC countries

Stopping new additions to the Strategic Petroleum Reserve and standing ready to release oil to counter market spikes and reduce volatility.

This plan builds on Hillary’s long-term plan to reduce our dependence on foreign oil and address global warming.

Notice the irony in that last phrase? Let’s lower gas prices and address global warming! Hey, I know what else we can do. Let’s eat more, and lose weight. It’s genius.

Let’s pick apart her proposals, and I will tell you why her positions are stupid.

Hillary will impose a windfall profits tax on oil companies and use the money to temporarily suspend the 18.4 cent per gallon federal gas tax and the 24.4 cent per gallon diesel tax during the upcoming peak summer driving months. Hillary will ensure that this relief is passed along to consumers by charging the Federal Trade Commission with conducting aggressive oversight. Unlike Senator McCain’s plan, Hillary’s plan will be fully paid for by taking away oil company profits through a windfall profits tax. This will ensure that the Highway Trust Fund is not affected at all by the gas tax suspension, and can continue to support critical repairs and maintenance for our infrastructure and highways.

Why This is Stupid

If Hillary had anyone on her staff who had a clue about energy issues, they would see that refineries are already cut back due to low margins. Historically, low margins are the very reason that underinvestment has taken place in the refining sector. I seem to recall many politicians screaming about this underinvestment last year (even as they argued to confiscate profits which happened to be good in the refining sector last year). Total oil company profits are currently a result of very high oil prices - and most of that is flowing right out of the U.S. So there are a couple of ways this could break, both contrary to Hillary’s expectations.

If the policy could actually be implemented as Hillary outlines it, it ensures that demand remains high through the summer months. It sends a message to consumers that high gas prices really aren’t a worry; the government is going to take care of you. Thinking about buying a Prius? No, don’t do that. Because you see, the government is going to do everything possible to ensure that gas prices stay low, so you can continue to contribute your carbon emissions and we can continue our dependence on oil.

But that’s not really how it is likely to pan out. What will happen is that oil companies will allocate those taxes to their already struggling refining sector (they don’t produce all that much oil in the U.S.) Then what happens? Percent refinery utilization, which is currently running in the low 80’s (normal for this time of year, when margins are usually better, is upper 80’s or lower 90’s) will fall into the 70’s. Why? Let’s say you run a business, and you are making thin profits on one of the products you sell. Now someone wants to tax it at a higher rate. What do you do? Personally, I would shift my investments into something that offered a higher return. That’s exactly what oil companies will do. There will be less incentive to focus on upgrading and maximizing refining capacity.

Next up:

Oil and gasoline markets contain loopholes for traders, and the markets are inadequately policed by regulators under current law. As a result, there is considerable concern that current market prices reflect the influence of speculators and other forces beyond supply and demand. In early April, an Exxon Mobil executive testified under oath before a House committee that the price of oil should be $50 to $55 per barrel based on supply and demand fundamentals.

Why This is Stupid

So now you trust ExxonMobil? Do you believe them all the time, or only when you are trying to make a specific point?

The reason this proposal is stupid is not because there isn’t speculation in the market: There is. The problem is trying to identify how much, how to police it, and most importantly - how to apply those policies world wide. Because haven’t you heard? The oil market isn’t specific to the U.S. We don’t pay higher prices than they pay in Asia because of speculation. If speculation was responsible for $50 of the price as Clinton implies above, shouldn’t we see gross disparities in crude pricing?

How about taking on OPEC? A stupid plan wouldn’t be complete without threatening to bring legal action against OPEC in order to force them to lower prices for us:

OPEC recently reiterated that it will not even consider increasing crude output until September 2008, even though limited supplies are contributing to record oil prices. Hillary believes we should be taking more aggressive action to address OPEC’s control over global production levels and hold OPEC accountable for its decisions. President Bush’s efforts to pressure OPEC over the past seven years have been inconsistent and unsuccessful. Hillary supports sending a strong signal to OPEC that the era of complacency has ended. Hillary will:

Use the WTO to Challenge OPEC’s Production Quotas - With nine of the thirteen OPEC member countries also being members of the WTO, Hillary believes we should use the tools available at the WTO to address OPEC’s refusal to increase production.

Allow OPEC Production Decisions to Be Challenged Under U.S. Anti-Trust Law - Currently, OPEC countries cannot be challenged under U.S. anti-trust laws, even when they are engaged in coordinated, commercial activity to control the global oil market.

Why This is Stupid

This is probably the stupidest of her proposals. Oh, the can of worms it would open up. Here’s the analogy I have used before. Let’s say Saudi Arabia loves American wood. They love it so much, that their purchases start to drive the price higher. It seems other countries love American wood as well, so supplies are tight. But Saudi feels like they have a God-given right to cheap wood. Therefore, they demand that we increase production of our wood to bring prices back down. They demand that we overproduce our resources in order to meet what they would prefer to pay, because they have grown dependent on our wood. So, they threaten to sue and take us before the world court.

Of course the big difference here is that wood is a renewable resource. When Saudi’s oil is gone, what else do they have? Yet we demand that they produce according to the price we prefer to pay - not necessarily what’s in their own best long-term interest. How self-centered is that? Can’t Hillary recall when the Mideast cut us off from their oil because they didn’t like our policies? Does she think they couldn’t do it again?

Hey, we haven’t pulled the Big Oil card since the first paragraph. You just can’t do that often enough when you are pandering for votes:

Hillary believes that in addition to imposing a windfall profits tax on large oil companies, Congress should move immediately to end the approximately $7.5 billion per in tax giveaways and subsidies that we continue to provide to oil and gas companies, despite their record profits. These subsidies are in part a result of the 2005 Energy Bill she voted against. She would use those resources this year to provide assistance to lower-income families who are not only being hit at the gas pump, but with skyrocketing energy and food bills as well.

Why This is Stupid

Similar to her first proposal, Hillary wants to send a message that it isn’t the consumer here that is the problem, it’s those big, bad oil companies and their gouging ways. That’s why you are paying higher prices: Greed. She will take that money and return it to the consumers, thus achieving her goal of lowering prices AND fighting global warming. Don’t start that car pool just yet - Hillary is going to refund the extra money you have been paying. No need to worry.

Any why not tap the SPR?

Hillary is calling on President Bush stop taking oil off the market and putting it into the Strategic Petroleum Reserve (SPR). The SPR is now 97 percent full, which analysts believe is more than adequate. Continuing to fill it at these high prices exacerbates high oil prices and costs taxpayers money. Hillary also believes that the SPR should be more actively managed to enable releases from the SPR to counter market spikes and reduce volatility.

Why This is Stupid

If the SPR is 97 percent full, why do you need a policy to stop filling it? Won’t that happen pretty quickly anyway? Also, it seems that Hillary (and many others) don’t understand the purpose of the SPR. It is for national emergencies. The fact that I am paying more for gasoline is not a national emergency. A war with Iran that could curtail our imports sharply is more along the lines of what the SPR is for. And if you drain it right now for political purposes, and then you need it for an actual emergency, it wasn’t very strategic, was it?

Using it to try to counter market spikes suggests that you can predict where the market will be in the future - when you need to buy the crude back. The fact is, politicians on both sides have been urging releases from the SPR ever since oil was at $20/bbl. Where would we be now if we had done so? With an empty SPR, and with oil prices still at very high levels.

In the long term, Clinton proposes the following:

Proposals to Reduce our Dependence on Foreign Oil Over the Long-Term

Key elements of that plan include:

Raising fuel efficiency standards (CAFE) to 55 miles per gallon by 2030;

A $150 billion investment in researching, developing, and deploying renewable and alternative energy;

Cutting our foreign oil imports by two-thirds by 2030;

Providing $1.5 billion per year for public transit, an additional $1 billion for intercity rail, and additional funds for congestion reduction, better traffic management and telecommuting;

Providing tax credits and research and development funding for plug-in-hybrid vehicles, which can get up to 100 mpg; and

Conserving fuel in the federal fleet. Hillary will call on all federal government agencies to suspend non-essential travel and other activities that use gasoline or diesel fuel, and encourage employees to carpool, telecommute, and use public transportation to reduce fuel use. And she will direct federal employees to reduce maximum speeds to conserve fuel, with exceptions for law enforcement and other emergency services. Under Hillary’s plan, the agencies will to report to the White House once a month on their energy use and the impact of conservation efforts.

That 3rd one is brilliant: Cut our oil imports by 2/3rds. Why didn’t someone already think of this?

I won’t call those proposals stupid, but they all have something in common: The painless fix. There isn’t a single proposal there that suggests consumers need to cut back (except for the last one, in which government employees are asked to do so). For the average consumer, this all sounds great. They get to continue the status quo, and Hillary is going to see to it that they are not inconvenienced.

This is the kind of shallow political rhetoric that put us where we are in the first place. Two thumbs down for Hillary’s energy plan. Now where’s that president with courage; the one I was looking for in my previous post?

An Open Letter to Our Next President

Mr. or Madam President,

Vice President Dick Cheney once famously quipped “The American way of life is non-negotiable.” I submit that while our next president might not be so brash in stating this, the root of our energy problems can be traced to this attitude. But, nature doesn’t negotiate. It doesn’t appear that any of the remaining presidential candidates understand the basis of the problems we face: Oil is a depleting, finite resource - albeit one crucial for the “American way of life.”

Because this resource is so crucial - and obviously not just for Americans - depletion is going to drive prices up as consumers bid for dwindling supplies. Threatening to sue OPEC isn’t going to change that. Threatening to tax Big Oil into submission isn’t going to change that. Mandating that we will invent new technologies to meet a greatly increased Renewable Fuel Standard isn’t going to change that. These are the sorts of proposals that merely demonstrate that your grasp of the problem is superficial. And you have to understand the problem in order to begin addressing it.

Shouldn’t we also consider what happens when our “non-negotiable” way of life impacts the way of life for others worldwide? What if the Saudis also consider their way of life non-negotiable? Is suing them supposed to force them to negotiate? What about the person in Kenya whose way of life is eased by the very small amount of oil they consume? Shall we negotiate with that person, or just not invite them to the table while we price them out of the market?

Let’s first consider common ground that you and I may have. I presume we would agree that our dependence on oil is not healthy. It puts the economy in a very vulnerable position. It helps to enrich some countries that are hostile to us. It increases carbon dioxide emissions. I think this reflects the positions of all remaining candidates, and is consistent with my own position.

Now let’s consider a position on which apparently differ sharply: Gas prices must come down. While I understand the position of the average American that we are paying too much for gasoline - what impact do you think price has on demand? Higher prices will eventually spur conservation and encourage alternatives - which helps achieve the objectives of lowering our dependence by lowering our usage. Isn’t this what you want? Instead, all three candidates propose measures to bring down gasoline prices - thus encouraging consumption. Can’t you see the inconsistency in your position?

This is the time to show political leadership. The pandering sickens me. So what if the average person thinks we are paying too much for gas? The average person also voted for your predecessor - so let’s not presume that we must bow to the wishes of the average person. I offer the following unsolicited advice for dealing with this problem. This is how I would address Americans on this subject:

My Fellow Americans,

Spiraling gasoline prices are having a negative impact on the overall economy. Recent polls have shown that high energy prices are one of the biggest concerns of the American public. However, I have to be bluntly honest: There are no easy solutions. The situation we find ourselves in is a result of many years of policies that are short-sighted and have essentially ignored the long-term consequences of a dependence on fossil fuels - which in turn translates into a dependence on crude oil imports. One administration after another has paid lip service to energy independence, and yet our dependence has risen during each administration since Nixon. We are obviously doing something wrong. I believe I know what it is.

We have failed to truly understand why we have a problem. We have failed to understand why we are addicted to oil. We have failed to appreciate the nature of oil, and why it is so difficult to replace it with low energy density biomass. The truth of the matter is that we are addicted to oil because of the unparalleled conveniences it provides us. We sought painless solutions to our addiction. But if breaking an addiction was easy, we wouldn’t be addicted.

I don’t believe it serves a useful purpose to continue promising easy solutions. On the other hand, a big part of the reason that you find yourselves in this vulnerable position is because of the previous hollow promises that were made. So I propose the following measures to begin the process of breaking our oil addiction:

1. We must improve the fuel efficiency of our automotive fleet. It is an embarrassment. Here again, we have sought the easy solution: Just increase CAFE standards. Most people view this as a relatively painless solution. They think that instead of their Ford Expedition getting 14 mpg, the automotive industry has tricks up their sleeves that can push it to 24 mpg. All that is required is a bit of legislation, which doesn’t affect me, the consumer. But that’s not the way it works. To achieve 24 mpg, we are going to require a fundamental change in the SUV mindset.

We have fuel efficient vehicles available now, we just need to convince people to buy them. I propose to offer rebates ranging from $500 to $2000 for vehicles that achieve high fuel efficiency. I propose to penalize vehicles that achieve low fuel efficiency. I propose to phase these changes in over the next 3 years.

2. Continuing with theme of the first proposal, we need to find other ways to reduce our fuel consumption. Europe provides a useful guide here, as the average per capita energy consumption in Europe is half that of the U.S. How do they achieve this?

Primarily, they have achieved this by making fuel very expensive. Because I don’t think it would be fair to penalize you as a result of the decisions made by previous administrations, I propose to make this proposal revenue neutral. The goal here is not to collect more taxes; it is to encourage behaviors that reduce fuel consumption. So here is the specific proposal.

The average American consumes 1,000 gallons of gasoline a year. I propose to increase the federal gasoline tax by $0.20/gallon this year, $0.30/gallon next year, and then $0.50/gallon in each of the three following years. The total tax increase I am proposing is $2.00/gallon. This would still put gasoline prices at less than they are in Europe, but by having a clear understanding that gasoline prices won’t be going down, this will encourage conservation measures.

In order to offset the burden of these higher taxes, I propose a tax credit equivalent to the increased tax burden for the average American. This is equivalent to $200 in the first year of the tax. Those who use less gasoline than the average will actually see their overall tax burden go down. Those who consume more than 1,000 gallons per year will see an overall increase in their tax burden - and will therefore have a strong incentive to reduce their fuel consumption. For those whose fuel usage is for business use, the fuel taxes can be deducted against your business income.

3. Solutions will be required on the supply side as well. However, too many “solutions” to date rely heavily on fossil fuels, which is the very problem we are trying to mitigate. Therefore, I am appointing an independent panel of experts across multiple disciplines - environmental, energy, agriculture - to evaluate various sources for 1). Reliance on fossil fuels; and 2). Negative side effects. There will be specifically defined criteria that alternative sources must meet in order to qualify for tax breaks. For example, energy “producers” - fossil and alternative - will pay a surcharge on the fossil fuel inputs they use to run their operations. This will encourage a move away from the use of fossil fuels to produce “renewable” energy.

4. In order to lessen our dependence on fossil fuels for heating and electricity, I propose to extend tax credits for installation of solar systems, especially those for solar water heating. Tax credits for installation of wind power, geothermal power, tidal power, and various other qualifying energy sources will be extended for 10 years.

5. From my viewpoint, we need to move to a future in which electricity drives our transport systems. The electricity would be derived initially from existing sources like coal and nuclear power, but increasingly from solar, wind, and various other renewable sources. Improved battery technology and energy storage technologies are the key enabling technologies required. Therefore, I am proposing to significantly increase the funding and resources devoted to these technologies. Cash awards will also be available to inventors meeting certain key milestones - as inspired by the Automotive X PRIZE.

These five proposals are merely a start. I understand that for some of you, these changes will be painful. But the pain is coming regardless; I am just proposing to manage it in a more effective and predictable manner. For too long, we have been too passive in managing our oil addiction. The time has come for more aggressive measures.

Such proposals would not be without harsh critics, and would require strong leadership to push them through. Special interests will line up to protect their pocketbooks. Short-sighted politicians will try to protect a few at the expense of many. Will you be the president who takes a stand, tells the hard truth about our energy predicament, and pushes through measures that secure a brighter future for our children? Or will you be like the long succession of presidents who have made hollow promises and offered false solutions - only to see our dependence worsen?

Addiction can be a difficult thing to beat. But make no mistake: The path we have been traveling down is unsustainable, and the bills are starting to come due. If we don’t start paying them now, we will put an enormous burden on our children.

Please Make it Stop

The pandering, that is. First up, the presidential candidates take turns accusing each other of not having a plan for high gas prices, which the accuser of course has a neat solution for that will be painless for the public:

Obama presses on gas prices, Clinton highlights energy bill

INDIANAPOLIS - Democrat Barack Obama on Friday blamed high gasoline prices on Washington and a political establishment, including his rivals for the presidency, that he says hasn’t stood up to oil companies.

Barack, that’s incredibly naive. Why are gas prices high everywhere else? This problem isn’t limited to the U.S., you know. By implying that standing up to “Big Oil” would have made a difference, you show yourself as either incredibly naive, or you are pandering.

“So what have we got to show for all that experience?” Obama asked. “Gas that’s approaching $4 a gallon.”

You should get out more. By world standards, that’s still pretty cheap. I suppose all of those foreign governments are also incompetent for letting prices get out of hand?

Clinton, who is challenging him for the Democratic presidential nomination, derided his promise to take on special interests.

“When it came time to stand up against the oil companies, to stand against Dick Cheney’s energy bill, my opponent voted for it and I voted against it,” the New York senator said at a rally at Indiana University in Bloomington. “And that bill had billions of dollars in giveaways to the oil companies. It was the best bill that the energy companies could buy.”

Ugh!

The 2005 energy bill actually raised taxes on the oil and gas industry by about 300 million over 11 years, according to the Congressional Research Service.

Please don’t insert random facts into the story that would contradict the pandering.

“I’ve been a strong supporter of ethanol,” Obama said, noting that demand for the corn used to make ethanol is driving up food prices. “Corn-based ethanol is a transitional technology.”

At least we know where to point fingers, then.

Obama’s speech came after Sen. John McCain, the Republican Obama hopes to challenge in the fall, proposed suspending the federal gas tax for the summer driving season. Clinton supports the idea; Obama does not.

Score one for Obama.

Republican Party official and McCain adviser Carly Fiorina disputed Obama’s argument that the average motorist would benefit little from a suspension of the gas tax.

“I think it demonstrates that he doesn’t understand what hardworking Americans are going through,” she told reporters.

I have already addressed this very stupid idea: John McCain’s Bad Idea

In the speech, Obama called for a windfall profits tax on oil companies, with the money used to help consumers pay utility bills. He also said middle-class tax breaks he’s proposed would help families with energy costs.

Can he not see the problem here? How is this ultimately that much different from McCain’s proposal?

“But the truth is, there is no easy answer to our energy crisis — and we need a president who is going to be straight with us about that,” Obama said, a reference to his oft-stated contention that Clinton hasn’t been upfront with voters.

At least he is correct that there is no easy answer. He is correct that we need a president who is going to be straight with us. Sadly, it would appear that none of the candidates are going to do that.

But it doesn’t stop there. We have Nancy Pelosi using Earth Day to attack high gas prices:

Pelosi to Bush on Gas Prices: We Cannot Wait to Act

I respectfully ask you again to work with the Congress to allow the Justice Department to pursue oil cartel price-fixing, allow the Federal Trade Commission (FTC) the authority to investigate and punish price gougers, end taxpayer subsidies to Big Oil and invest those funds in renewable American energy. Lastly, your Administration must use the authority given to it by the Congress to end market manipulation. We cannot wait to act in the face of these prices increases.

Nancy, you may want to consult a history book to see how many times the FTC has done these investigations at taxpayer expense, and what they have found each time.

And the stupidity of this proposal from Pelosi’s letter is just stunning:

The No Oil Producing and Exporting Cartels (NOPEC) Act - H.R. 2264

This legislation enables the Department of Justice to take legal action against foreign nations for participating in oil cartels that drive up oil prices globally and in the United States. It does so by exempting OPEC and other nations from the provisions of the Foreign Sovereign Immunities Act when acting in a commercial capacity; by making clear that the so-called “Act of State” doctrine does not prevent courts from ruling on antitrust charges brought against foreign governments; and by authorizing the Department of Justice to bring lawsuits in U.S. courts against cartel members. This bill passed the House 345-72. You have threatened to veto this legislation.

Yes, let’s sue OPEC because they won’t sell us oil at the price we want to pay. Then maybe they will countersue because we are charging them too much for corn. Or perhaps they will just say “You know what? We just aren’t going to sell you oil any more.”

Our politicians are pathetic. They offer false solutions to problems they don’t understand. They could put us on the right path, but it would require courage. Yet the phrase “courageous politician” would appear to be an oxymoron.

Book Review: World Made by Hand

When I read James Howard Kunstler’s (JHK) book The Long Emergency, it had a profound impact on me. I had been aware for many years that “running out of oil” was a serious matter. After all, I mentioned the challenge of peak oil in my graduate thesis in 1995. But my focus was more on finding a source that could replace oil as it ran out. Reading The Long Emergency was the first time it really hit me that I was missing a lot of key pieces of the picture.

The book’s impact wasn’t because I thought his vision of the future was necessarily correct, but it made me think about possibilities. It caused me to look at the suburbs in a new light, and to really appreciate how vulnerable the U.S. is to oil shocks. It made me realize that problems will start to crop up – not when we run out of oil – but simply when supplies can’t meet demand. In the U.S., we built a society based on cheap oil, in which one can live 40 miles from work and drive a gas guzzler to and from work each day. As I read his book, it really sank in that this model was likely to come to an end sooner rather than later. And just as soon as I finished reading it, I got a copy of Matt Simmons’ Twilight in the Desert and read it. Those two books helped me decide that I needed to start trying to educate people about energy issues.

In JHK’s latest book – World Made by Hand – he shares his vision of life after oil. It’s a far cry from the future I imagined as a child; a future in which man was conquering the galaxy and we were all flying around like the Jetsons. The future JHK evokes resembles the Wild West of 150 years ago – except with a few modern touches surviving.

The book is set in upstate New York (JHK’s home state) in the fictional town of Union Grove. In this world, life is very hard. There are no cars, electricity is rarely on, wars have wiped out major U.S. cities (Washington D.C. was wiped out on my birthday, 12/21), religion has made a resurgence, warlords carve out territory, and lawlessness is rampant. But communities are much tighter, the food is healthier, neighbors lend a helping hand, and people have to be a lot more self sufficient. I believe these latter aspects of the future world represents the future that JHK would like to see.

As with his previous book, this one caused me to think about possibilities I had not previously considered. I spent a lot of my time pausing to evaluate whether I felt like a particular scenario was likely. I think if you accept the key premise – that no more oil is available – then the future he envisions is probably pretty close to the mark. Oil provides all kinds of conveniences that we take for granted, and I doubt the average person can appreciate how different their world would be if the taps dried up. Yet that is the world that JHK has produced in this novel.

But that’s not the way I think things will play out. If you read between the lines, the book is set no more than 15 years into the future. The date is never given, but there is a mention of a woman in her 90’s who was a nurse in WWII. Assuming 20 as a minimum age, then the setting of the book is some time between now and maybe 2025 at the latest. I simply don’t believe we will lose our mechanized transport options in that time frame.

On my recent trip to India, I saw a lot of people who were using very little fuel, but were still getting around by motorized transport. We have such a tremendous amount of fat that we can cut from our fuel consumption. It may be that by 2020 we do have a lot less oil available, but oil will still be available. And some countries – Brazil for instance – are not likely to run into supply issues for decades. It is hard to envision a world in which the U.S. has no more access to oil, but Brazil is motoring happily along. Even though there isn’t much mention about the rest of the world – mainly because there is little communication with the rest of the world – I couldn’t help but imagine that in JHK’s world there were a lot of countries that would have been able to maintain their fuel supplies.

The book touched upon a lot of themes that I have thought about over the years. Long before I was involved in writing about energy, I was a student of evolutionary biology. One of the things that my studies made me appreciate is that modern medicine has allowed many people to contribute genes to the gene pool that centuries ago would have been cruelly weeded out by evolution. What that means is that most of us are carrying around genes that are only mildly deleterious in the age of modern medicine, but could quickly shorten our life spans without modern medicine. And in this book, JHK pulled modern medicine out from under the population. The result is as I would expect – vast numbers of people died out. I have speculated before that without modern medicine, more than 90% of the population would likely be dead within 10 years from conditions that today don’t trouble us too much.

Consider your own health. Have you been hospitalized for appendicitis? How many times have you required antibiotics to treat something common like strep throat? Have you required surgery? These are all things that can kill without modern medicine. So I have a great appreciation for modern medicine. When I go to a developing country like India that’s one of the first things I think about: Do the people have access to modern medicine?

Another theme that I have thought a lot about – and that JHK tackled in the book – was mining of the municipal dumps. I have often thought about the amount of metals, useful plastics, and just various odds and ends that would be of enormous benefit in a resource-depleted world. I have no doubt that regardless of how the future plays out, there will come a time that we are mining the dumps regularly.

One thing that I haven’t discussed yet is the story itself. I really didn’t expect much from the story. The real story for me was what a world without oil might look like. But the underlying story was actually pretty good. The characters are really interesting, he makes the relationships interesting, and he throws a few surprises into the mix. I have to hand it to JHK – he tells a good tale. Some of the characters (and names) seemed a bit over the top, but otherwise I found myself wanting to know what was going to happen next. So I got a bonus in that aspect.

If you are like me, and you enjoy thinking about possibilities (good or bad), then this book is definitely food for thought. If you want to remain oblivious to the threat of peak oil, or are otherwise convinced that technology will enable the status quo to remain, then you probably won’t care for it (although again the book is worth a read for the story itself).

Note: If you are curious about JHK’s views, the current issue of Business Week has an extensive interview with him:

Good-Bye, Cheap Oil. So Long, Suburbia?

Why Oil Prices Aren’t Going Down

I kept expecting a pull-back in prices at $90/bbl, then $100, then just watched as prices kept climbing to today’s level of $118. While I won’t be surprised if we do see a short-term correction, in the longer-term I suspect we will be going much higher. Why? Here is part of the reason:

Emerging Market Oil Use Exceeds U.S. as Prices Rise

April 21 (Bloomberg) — Traffic jams in Beijing and humming air conditioners in Dubai are replacing U.S. highways and suburbs as the driver of global oil prices.

China, India, Russia and the Middle East for the first time will consume more crude oil than the U.S., burning 20.67 million barrels a day this year, an increase of 4.4 percent, according to the International Energy Agency in Paris. U.S. demand will contract 2 percent to 20.38 million barrels daily, the IEA says.

“The U.S. recession will be a footnote as far as the oil market is concerned,” says Jeffrey Rubin, chief economist at CIBC World Markets Inc. in Toronto, who has correctly forecast higher oil prices since 2000. “Supply isn’t growing and demand is growing robustly in the developing world.”

“The predominant market view is that the emerging economies will overcompensate for any possible demand slump in OECD countries,” said Eugen Weinberg, an analyst at Commerzbank AG in Frankfurt. “I couldn’t rule out that oil may go to $150.”

I see no relief in sight. Oil producing countries are growing their consumption at a very rapid clip. With oil prices where they are, money is flowing into the economies of oil exporters. As this happens, people are more prosperous. As people are more prosperous, they use more energy.

While I have sharply disagreed with oil geologist Jeffrey Brown (aka Westexas at The Oil Drum) over his analysis of Saudia Arabia, I think he had an important insight with his Export Land Model (ELM). This model essentially says that prosperous oil-producing countries will cannibalize their own production as the money flows in, leading to falling exports. Of course you can’t extrapolate this down to zero exports, or the money stops flowing in. But rising prices can compensate for falling exports to a large degree.