R-Squared Energy Blog

Pure Energy

Tariffs in the Climate Bill

A number of people have written to ask why I haven’t commented on the climate bill. There are two reasons. First, the House and Senate versions are very different, so the final form may not resemble the version the House just passed. Second, I haven’t had the time to read through much of it.

There was one issue that I considered quite important, but I didn’t know whether it was in the bill. Jim Mulva was recently quoted as saying that the climate bill would impose higher taxes on domestic fuel versus imports. While we can agree that Mulva’s comments are self-serving, I also believe that most people would oppose a bill that shifts more of our fuel supply to imports.

While I know the goal here is to favor renewable energy, what happens if it can’t fill a void left if the new bill discourages domestic production? The void will be filled by imports. Prices will also rise, so some of the void will be filled by conservation. But in order to keep the playing field level, I really liked the idea proposed by Jeff Rubin: If you place a carbon tax on domestic production, you can place a carbon tariff on imports. This idea was discussed in my review of his book Why Your World Is About to Get a Whole Lot Smaller: Oil and the End of Globalization.

I hadn’t heard any discussion of this until today. From Steven Mufson of the Washington Post:

Obama Praises Climate Bill’s Progress but Opposes Its Tariffs

President Obama yesterday said that the House took an “extraordinary first step” by passing a climate bill on Friday, adding that he hoped it will “prod” action by the Senate and predicting that the legislation could make renewable energy “a driver of economic growth.”

But he said he hopes that Congress will strip out a clause that would impose a tariff in 2020 on imports from countries without systems for pricing or limiting carbon dioxide emissions.

Obama went on to suggest that there were other protections built in that will keep the playing field level. I would like to know what those are. I can understand how tariffs would do it (although enforcement raises some sticky questions). But I have heard enough double-speak on energy policy that I want to see the fine details of how the playing field will be kept level.

Make no mistake: This bill is a tax increase. That’s the basis for the political opposition. But I have long advocated a tax increase on fossil fuels to slow the rate at which we are using them up (and to make renewables more competitive). So I don’t oppose the bill on the basis that it is a tax increase. On the other hand I can’t say that I endorse it, because I haven’t read it. I certainly believe there are more efficient ways of raising carbon taxes than this. I still think – perhaps naively – that my proposal to tilt the tax code toward higher fossil fuel taxes and lower income taxes would be more attractive than this.

June 29, 2009 Posted by | Barack Obama, carbon tax, climate change, energy policy, gas tax, global warming, Jim Mulva, politics | 30 Comments

Obama’s Secret Meeting With the Oil Industry

Sometimes I come across information that isn’t publicly known. That occasionally happens because I am digging, and I uncover something newsworthy. I can generally report on those kinds of things. But sometimes it is because someone sends me information that is confidential – or they tell me something they learned in confidence. That has happened a couple of times with some of the biofuel companies I have written about. In those cases, I would never use such inside information. While I appreciate the knowledge that my intuitions were correct, it also hampers me from being able to objectively write about those companies in the future.

A particular example I will name (but not the only one) is that of Range Fuels. I have written about them in the past, and while I am a fan of gasification, I don’t think gasification to produce ethanol is the right path. But if you search through my blog, you will find that I have not written much about Range Fuels. Why? Because two different people have passed on sensitive information to me that compromises my ability to criticize the company. Now if I write that I expect Range Fuels to be wildly successful – or not – my writing could be influenced because I know some things that aren’t public. So, I play it safe and generally don’t say much about Range Fuels – even though they would appear to fit the criteria of a company that I would normally focus on.

Such was the case with some juicy information I received last year. In July of last year I received the following tip: Presidential candidate Barack Obama had summoned some of the CEOs of the top oil companies to a secret meeting to talk about energy policy. I knew who was at the meeting, and I knew what the meeting was about.

Some may know that Vice President Dick Cheney also summoned a number of energy executives to private meetings at the White House in 2001, and he had been criticized heavily over the secret meetings:

Document Says Oil Chiefs Met With Cheney Task Force

The task force’s activities attracted complaints from environmentalists, who said they were shut out of the task force discussions while corporate interests were present. The meetings were held in secret and the White House refused to release a list of participants. The task force was made up primarily of Cabinet-level officials. Judicial Watch and the Sierra Club unsuccessfully sued to obtain the records.

Sen. Frank Lautenberg (D-N.J.), who posed the question about the task force, said he will ask the Justice Department today to investigate. “The White House went to great lengths to keep these meetings secret, and now oil executives may be lying to Congress about their role in the Cheney task force,” Lautenberg said.

So now we had Obama conducting secret meetings with Big Oil, but the press didn’t seem to have wind of it. I had a possible scoop on the story. The only problem was that I was asked not to divulge the information. So, I waited until it hit the press. And I waited. And I waited until now, almost a year later. I have finally seen the story in the press for the first time. Not surprising to me that Washington Post reporter Steven Mufson would have the story:

How Obama Made Energy Platform ‘Pop’

After a long day of campaigning on July 8, candidate Barack Obama arrived at his Chicago headquarters for a three-hour brainstorming session about a suddenly hot issue: energy and climate change.

He had summoned a cross section of experts, including top executives from three utilities and two oil companies, the chief energy economist of an investment bank, a climate scientist, a California energy and environment expert, an oil consultant-historian, and several campaign staffers. Despite the late hour, one participant recalled, “He walked in as if he had just gotten up after a refreshing night’s sleep to lead a class. He was clearly there to harvest information and then do something with it.”

My version is slightly different from this. I was told that the meeting happened in D.C. – not Chicago – and it happened on July 10th – not July 8th. Not sure which of those versions is correct [RR: My source has sent me a note correcting previous statements; the meeting was in Chicago on the 8th, although there was a similar meeting on the 10th in D.C.], although I got the information very close to the source. Otherwise, the description of the meeting is consistent with the information I had been given.

To be clear, the Washington Post story isn’t about uncovering a secret meeting with energy industry executives. That bit is just the preamble to the story of how Obama’s energy policy crystallized into a high-profile part of his campaign. Oil and gas prices were headed to record highs, and Obama wanted input from energy insiders on how to tackle energy problems (although I was told that he did most of the talking).

So how will partisans react to this news? Will those who denounced Cheney for his secret meetings now do the same for Obama? I had seen endless speculation that the Cheney meetings were all about carving up Iraq for the oil companies to loot. This, despite there being no public details about the meeting available. Once again, the Washington Post finally broke the news of who some of the attendees were to Cheney’s meetings:

Papers Detail Industry’s Role in Cheney’s Energy Report

Provided a copy of the list, Cheney’s office said he would not comment on it. “The vice president has respectfully but resolutely maintained the importance of protecting the ability of the president and vice president to receive candid advice on important national policy matters in confidence, a principle affirmed by the Supreme Court,” spokeswoman Lea Anne McBride said by e-mail.

Rep. Henry A. Waxman (D-Calif.), chairman of the House Oversight and Government Reform Committee, who unsuccessfully pushed for details of the meetings, said it is “ridiculous” that it has taken six years to see who attended the meetings. He described the energy task force as an early indicator of “how secretively Vice President Cheney wanted to act.”

Waxman said he was not surprised to see the prevalence of energy industry groups on the list of meetings. “Six years later, we see we lost an opportunity to become less dependent on importing oil, on using fossil fuels, which have been a threat to our national security and the well-being of the planet,” he said.

One thing that fueled the speculation was that Cheney fought to keep the names of the participants and the discussions that took place a secret. But that certainly didn’t stop the speculation that the meetings were for planning the U.S. invasion of Iraq and the subsequent division of the spoils among the oil companies.

Don’t get me wrong. I am glad Obama summoned energy executives to these talks. To formulate a good energy policy you had better be engaging those who provide the energy. I am also sensitive to the fact that this could have been unpopular with his supporters. But I suspect that those who suggested sinister motives behind Cheney’s meetings won’t do the same over Obama’s meetings.

June 1, 2009 Posted by | Barack Obama, Dick Cheney, energy policy, politics, range fuels | 45 Comments

Yes He Could

Feasible? Yes. Realistic? No.

Do I believe the U.S. can be energy independent? Yes, I believe that with certain draconian measures, the U.S. could achieve energy independence within 10 years. But emphasis must be placed on ‘draconian.’ So yes, I think Barack Obama could make good on his campaign promises and make the United States energy independent. However, it would almost certainly make him a one-term president because the population would rebel at the cost of energy independence.

I covered the expected contribution of renewables to the U.S. electricity picture in The Nuclear Comeback. Conclusion? They better start building more nuclear plants if the administration wants to move away from coal. So let’s have a look at the oil picture and get our heads around just what energy independence might look like.

We Use a Lot of Oil

Here are some numbers, courtesy of the Energy Information Administration’s database. In 2008, the United States consumed 19.4 million barrels of oil per day (bpd) and produced 6.7 million bpd (including LNG). We imported 12.9 million bpd. (You may notice that there is a 0.2 million bpd discrepancy, which is partially caused by changes in inventory levels). So, in order to bring the United States to a state of energy independence, we have to somehow eliminate those imports through some combination of decreased demand and/or increased supply.

One way the U.S. could be energy independent is if we reduced our consumption by 65% to 6.7 million bpd. This would take the 23.6 barrels consumed in 2008 by the average person in the U.S. down to 8.3 barrels. That would put U.S. per capita consumption of oil between that of Croatia and Mexico. For reference, here is a sampling of per capita consumption of oil from various countries around the world (extracted from Energy Statistics – Oil – Consumption (per capita) (most recent) by country).

Country Per Capita Oil Usage (bbl/yr)
Saudi Arabia 30.6
Canada 25.9
USA* 23.6
Australia 17.3
Japan 14.3
Germany 10.9
UK 10.6
Croatia 8.4
Mexico 7.1
Brazil 4.6
Egypt 3.2
Afghanistan 0.06
Chad 0.05

Table 1. Oil Per Capita Energy Usage for Selected Countries

* Oil usage for the US is from 2008; usage for all other countries is from 2007.

So the US could still use almost twice the per capita consumption of Brazil and achieve energy independence (because we produce a lot more oil per capita than Brazil). But how likely are we going to be to reduce our consumption levels down to less than that of Germany or the UK? It’s hard to imagine unless oil becomes very, very expensive. But that’s an option. President Obama could make oil very expensive and potentially pull usage down toward U.S. production levels. Of course in the process, the recession would probably deepen and Obama would lose the election in 2012. More on that later.

Can Renewables Fill the Gap?

But that’s not the plan. The plan primarily involves filling the supply gap, with renewables as the most important part (see quotes below) of that plan. So what might renewables contribute? There are lots of small contributions from areas like corn ethanol and soy-based biodiesel. But let’s put those in perspective. In 2008, the US produced a record amount of ethanol: 9 billion gallons. How much does that amount to, given our need to close a gap of 12.9 million bpd of imported oil in 2008? Converted into barrels per day, 9 billion gallons per year amounts to 0.59 million barrels per day on a gross basis, but because of the lower BTUs it would only displace 0.32 million bpd. (The BTUs per gallon for a barrel of oil are higher than for gasoline; relative to oil, ethanol has 54% of the BTUs per gallon). For the purposes of this exercise, we will pretend for a moment that there aren’t big quantities of fossil fuels that enabled that 9 billion gallons.

Thus, last year’s record ethanol production is a drop in the bucket relative to the oil we use. How much ethanol – as a reference point – would we need to close that gap? Given that last year’s ethanol production in theory already should have displaced some level of oil, there is a gap of 12.9 million bpd to close with incremental ethanol. How about an additional 364 billion gallons, or more than 40 times last year’s record number? For reference, global ethanol production in 2008 is estimated to be 17.3 billion gallons.

Campaign Promises Revisited

I don’t know about you, but I don’t see any combination of renewables being able to close a gap like that. Remember what Obama said during the campaign?

We have to have energy independence, so I’ve put forward a plan to make sure that, in 10 years’ time, we have freed ourselves from dependence on Middle Eastern oil by increasing production at home, but most importantly by starting to invest in alternative energy, solar, wind, biodiesel, making sure that we’re developing the fuel-efficient cars of the future right here in the United States, in Ohio and Michigan, instead of Japan and South Korea.

Note what is “most important” in the drive for energy independence. To me, this is an example of someone who either doesn’t understand the scale of the issue, or someone who is just trying to score debate points.

Later on he elaborated:

The second point I want to make is — is the issue of energy. Russia is in part resurgent and Putin is feeling powerful because of petro-dollars, as Senator McCain mentioned. That means that we, as one of the biggest consumers of oil — 25 percent of the world’s oil — have to have an energy strategy not just to deal with Russia, but to deal with many of the rogue states we’ve talked about, Iran, Venezuela.

And that means, yes, increasing domestic production and off-shore drilling, but we only have 3 percent of the world’s oil supplies and we use 25 percent of the world’s oil. So we can’t simply drill our way out of the problem.

What we’re going to have to do is to approach it through alternative energy, like solar, and wind, and biodiesel, and, yes, nuclear energy, clean-coal technology. And, you know, I’ve got a plan for us to make a significant investment over the next 10 years to do that.

And I have to say, Senator McCain and I, I think agree on the importance of energy, but Senator McCain mentioned earlier the importance of looking at a record. Over 26 years, Senator McCain voted 23 times against alternative energy, like solar, and wind, and biodiesel.

And so we — we — we’ve got to walk the walk and not just talk the talk when it comes to energy independence, because this is probably going to be just as vital for our economy and the pain that people are feeling at the pump — and, you know, winter’s coming and home heating oil — as it is our national security and the issue of climate change that’s so important.

How About Drilling?

Those are certainly reasonable comments, but they won’t make us energy independent. Also, because the talk of drilling from Obama started just as McCain was gaining some traction with the ‘drill here, drill now’ campaign, many people felt like it was a campaign promise that wasn’t destined to be carried out in an Obama administration. However, it looks like Obama has looked at the issue closely enough to recognize that new production is going to have to be part of any energy independence plan that has any chance of success any time soon:

Obama to Remake Drilling Policies

Wesley Warren, director of programs at the Natural Resources Defense Council, said, “They have made a commitment to really be science-based, to look at all the facts before they make a decision. It is a new way of doing business.” The early signals from Obama and his cabinet agencies speak to that new way. Shortly after taking office, the president reversed orders issued in the closing days of the Bush administration that would have dramatically expanded offshore drilling.

Still, the Interior Department went ahead this week with a long-planned auction of drilling tracts in the Gulf of Mexico.

And Interior Secretary Ken Salazar has indicated in recent days that he’s looking for ways to expand offshore drilling in an environmentally conscious way. He has even said he’s open to allowing limited drilling at Alaska’s Arctic National Wildlife Refuge if it can be done from outside the refuge. “Oil and natural gas are, and will remain for many years to come, a cornerstone of our nation’s energy base,” Salazar told the American Petroleum Institute Thursday. “This is not, as some have suggested, a war on the oil and gas industry.”

There are still plenty of skeptics:

[Charles] Drevna of the National Petrochemical and Refiners Association said he’s concerned about Obama’s “anti-oil-refining-industry rhetoric,” the suggestion that big energy companies should face higher taxes as the nation shifts toward renewable sources.

“It is this talk about energy independence; it’s not achievable, and it probably is not desirable,” Drevna said. “Energy independence means energy isolation, and we simply cannot afford it if we expect the economy to grow.”

One could expect that we could open up offshore areas of the U.S. and potentially get some incremental production, but the administration certainly doesn’t plan to make it easy. They have more or less declared open season on the oil industry, and are pursuing policies that are certain to discourage U.S. oil production. Geoff Styles recently discussed the folly of punishing our own oil industry in The Wrong Enemy. Excerpts from his article:

I would paraphrase the Obama energy strategy as seeking to reduce US oil imports and greenhouse gas emissions by strongly promoting renewable energy and energy efficiency. Unfortunately, the administration’s actions risk putting the domestic oil and gas industry on the wrong side of the divide that creates.

Rather, we need to look to our self-interest, here. When an oil company drills in the US, its production backs out imports directly, barrel for barrel. It pays US salaries–attractive ones–and it pays hefty taxes: income taxes at a 40% effective rate, along with billions of dollars in royalties, rents and bonus bids collected by the government. When a US oil company drills elsewhere, much of the benefit is captured by foreign governments, and when the oil we import comes from a non-US supplier, our trade deficit swells and the federal government only gets to tax the profits on refining & marketing, which are often pretty thin.

Styles argues that the policies that are being pursued will almost certainly result in an increase in U.S. oil imports. If U.S. production is discouraged – and renewables aren’t up to the task of filling the gap – then guess what? Our imports will increase, and we will increase our energy dependence.

A How To Guide to Energy Independence

So how would I go about making the U.S. energy independent? As I said, it would require draconian measures. First, I would try to increase supply by incentivizing all forms of energy production. As I argued in an essay last year, I would use the proceeds of expanded offshore drilling to fund higher efficiency vehicles, electric transport, mass transit, and biofuels that aren’t highly dependent upon fossil fuels for their production. This should start to pull supply and demand closer together. But even my most optimistic scenario would still require substantial oil imports.

To close the rest of that gap requires the draconian piece. There are two choices. One is to ration fuel. Imagine that you had to get by on half the fossil fuel you normally use. Could you? I think most people – if they really dug down – could do it. It wouldn’t be easy, and we would certainly lose a lot of convenience. Someone complained to me last year that when gasoline got up to $4 a gallon, it was a real inconvenience for the family because they had to start consolidating trips. Boo-hoo. Nobody said it was a piece of cake; if it was we would already be energy independent.

The other option is to ration by price. The problem with this one is that there really isn’t a good feel for what kind of prices it might take to bring consumption in line with production. It could take $20/gal gasoline. Could we afford that? I would argue that we could, if the incremental gasoline tax was offset by income tax cuts. I have covered what I think would be a politically viable scheme for increasing carbon taxes in The Case for Higher Gas Taxes. But again, the problem with this option is that we don’t have a good model for how high the price would need to go before destroying enough demand.

But in my opinion, this is what it would take to become energy independent within the next decade. There is a reason that countries in Europe – with their mass transit and fuel efficient vehicles – still can’t achieve energy independence. It’s hard. It will always be difficult to achieve in a Democracy, where you have to make the voters happy lest you be voted out of office. Voters who have to make big sacrifices don’t look favorably on political leaders who ask for it.

Therein lies the problem for Obama. Yes, he could. But not with the policies he is pursuing. So, at the end of the day, “No, He Won’t.”

March 30, 2009 Posted by | Barack Obama, EIA, energy independence, energy policy, politics | 111 Comments

Top 10 Energy Stories of 2008

Tis the season for Top 10 stories, and here are what I think were the Top 10 energy stories of the year.

1. Unprecedented volatility in the energy markets

Oil prices raced to nearly $150 a barrel, and then fell to the $30’s by year end. This marks the highest ever prices for oil, followed by the lowest prices in four years. Gasoline, diesel, and natural gas prices demonstrated the same kind of volatility. There are multiple factors behind the volatility. The role of speculation was hotly debated, and the economic collapse – fueled by cash-strapped consumers who had overextended themselves – resulted in a sharp drop in demand. Some even argued that the real reason behind the plunge in prices was closure of the so-called “Enron loophole.”

2. Oil price volatility fallout

A consequence of the incredibly volatility was the economic damage done at both ends of the price spectrum. At the upper end, airlines were going bankrupt and car companies were in deep financial trouble as consumers stopped buying the higher profit margin SUVs. After oil prices plunged, some non-integrated oil companies found themselves in financial trouble, including Flying J who declared bankruptcy.

3. Barack Obama elected

In a normal year, this would have been my #1 story, especially considering that the new administration is likely to attempt a major shift away from fossil fuels. My prediction is that reality is going to collide with enthusiasm, and while gains are likely to be made along several fronts, aggressive renewable energy targets will not be met.

4. Ethanol producers struggle

Despite production mandates and generous federal subsidies, ethanol producers struggled to make a profit. A combination of high corn prices followed by falling fuel prices pushed even some of the largest ethanol producers to bankruptcy. Corn growers fared much better, as higher prices and mandated demand from the ethanol industry provided them with the same sort of windfall seen recently by the oil industry (prompting some to ask whether a windfall profits tax on corn would be good for consumers). Xethanol finally ceased operations, as I had predicted in early 2007.

5. Somali pirates hijack supertanker

Somali pirates, emboldened by recent multi-million dollar ransom payments, hijacked a Saudi supertanker carrying $100 million worth of oil. At the time of this writing, the situation remains unresolved, although the value of the oil at current market prices is now considerably less than $100 million.

6. 2nd generation ethanol is delayed

The story this year was supposed to be “2nd generation ethanol production begins“, but alas the over-promise, under-deliver meme that I have been critical of continues. Range Fuels had initially intended to start producing in 2008, but that was delayed to 2009 and now production isn’t forecast to begin until 2010. Meanwhile, other 2nd generation ethanol companies continue to promise the world, including Coskata who claims they can make ethanol for “under US $1.00 a gallon anywhere in the world.” (I took a good look at those claims here.) Finally, according to this source (another here), of the six cellulosic ethanol projects selected to receive $385 million in federal funding in February 2007, almost two years later only one plant is actually under construction (Range Fuels).

7. Peak oil becomes fashionable, then unfashionable again

High oil prices demanded an explanation, and peak oil was ready to provide that explanation. 2008 was probably the year that the mainstream began to seriously discuss and debate peak oil. However, when prices began to plunge, the peak oil skeptics began to say “I told you so.” Others suggested that this was just a continuation of the normal cycles.

8. Gas stations in the southeast run out of gasoline in the wake of Hurricanes Gustav and Ike

Some major oil refineries that shut down in the face of Hurricane Gustav had to remain shut down with Hurricane Ike following closely behind. Gasoline inventories heading into the hurricanes were low, so it wasn’t long before spot outages began to show up across the southeast. As I predicted during a panel session at this year’s ASPO conference, the outages were likely to be short-lived, and inventories would recover as refineries came back online. This was in response to wide-spread concern, partially fueled by Matt Simmons’ presentation, that the outages were the beginning of something much more widespread. (I think my answer was literally “This situation is temporary. I expect inventories a month from now to be substantially higher.”)

9. “Drill here, drill now”

Momentum for more exploration and production in U.S. waters increased along with oil prices. This became a campaign theme for Republicans, who adopted the slogan “Drill here, drill now.” President Bush lifted a moratorium on offshore drilling. Democrats initially responded with calls for oil companies to be forced to drill on current leases before opening up new ones. However, Congress – facing constituents unhappy with high gas prices – ultimately followed suit and allowed the 25-year moratorium to expire. The response from then candidate Obama was that he wasn’t happy to see the moratorium expire, and that he favored “responsible” drilling as part of a broader energy package. My own proposal was to allow drilling and funnel the lease proceeds to alternative energy, mass transit, and other initiatives designed to reduce oil consumption. This proposal later received quite a lot of attention when Paris Hilton proposed the same thing.

10. Record profits by US energy companies

On the back of high oil prices, the integrated oil companies (those who produce both oil and refined products like gasoline and diesel) once again saw record profits. There was an interesting dichotomy, however, as downstream profits in the refining sector vanished as gasoline consumption fell. Pure refiners like Valero saw their profits crash.

That’s more or less what I think were the Top 10 stories of 2008. There were quite a few in the honorable mention category, such as T. Boone Pickens energy plan, the decision by OPEC to reverse direction and propose big production cuts, falling oil production in Russia and Mexico, and postponed investments in the wake of lower prices.

So, what did I miss? Which stories do you think should be ranked in a significantly different order?

In closing, Happy Holidays to all readers. I am now going offline to spend some good family time. Here’s hoping that you all have the same opportunity.

December 24, 2008 Posted by | Barack Obama, cellulosic ethanol, ethanol production, oil prices, Peak Oil, windfall profits, Xethanol | 42 Comments

A Critique of Obama’s Energy Policy

Listening When We Disagree

Barack Obama has said that energy is going to be one of his top priorities. I believe he is completely sincere about this and that energy will get a lot of attention early on in his administration. I believe he is committed to moving the U.S. toward energy independence and a greener energy future. However, one can recognize energy as an important priority, yet sharply differ on the policy direction that is needed. For instance, some may have energy as a high priority because they feel that gasoline is too expensive. Their priority may be to keep gasoline prices low so people’s budgets aren’t adversely impacted by their fuel bills. Some can see energy as a top priority, and yet see a solution as suing OPEC to provide more oil.

On the other hand, someone else may have energy as a top priority, but think gasoline prices need to be much higher in order to shift our demand away from fossil fuels. This is the nature of my disagreement with some aspects of Obama’s energy plans: We broadly agree on the big picture, but differ on how to get there. And since I recently heard him say “I may not agree, but I will listen”, here is my attempt to highlight what I feel are the flaws in his energy proposals.

Up front, let me state my assumptions. These will of course influence my opinion on his proposals. I believe that the present rate of fossil fuel usage in the U.S. is unsustainable. I believe that world oil production is very near a production peak, and an energy policy that is keenly aware of the potential for energy shortfalls – which will lead to severe oil price volatility – is paramount. I believe that even if oil production does not peak in the next five years, oil production will not be able to be expanded quickly enough to stay ahead of demand. Finally, I believe our current breed of liquid biofuels is too fossil-fuel dependent to enable them to make up for significant energy shortages, and that there are no obvious silver bullet technological fixes around the corner.

These key assumptions impact the direction that I believe energy policy should take. While I believe the evidence supports human-caused global warming, I don’t think the world has the collective will to voluntarily reign in greenhouse gas emissions. I think this will ultimately only be accomplished by a combination of high prices and lack of availability. So the energy policy that I would propose would not focus on protocols and agreements for reducing greenhouse gases. Even though many countries signed on to the Kyoto Protocol, carbon dioxide continued to accumulate in our atmosphere – even from the signatories of the agreement. There will always be countries that will choose not to be a party to such protocols, thus I believe a greenhouse gas reduction will only come about as a consequence of a reduction in fossil fuel usage.

Thus I believe a sound energy policy should focus on 1). Minimizing per capita energy usage; 2). Finding sustainable, affordable alternatives; 3). Managing the down side of the production peak such that severe shortages are avoided. 4). Communicating to the public the nature of the problem, and explaining why sacrifice is needed.

The Fossil Fuel Blind Spot

While I think many of Obama’s proposals are spot on, and with a little tweaking he could have a great energy plan, I think he overestimates how easily alternatives can displace fossil fuels. Thus, he largely ignores the need to slow the decline of U.S. oil production. Late in the campaign, he started to pay some lip service to the need to (responsibly) drill, but not too many people are expecting him to put much emphasis on that aspect. That “responsibly” qualifier is usually a sign that 1). Someone thinks drilling is not presently responsible; 2). They are going to put hurdles in place that discourage drilling. In fact, one of the Obama proposals is

• A “Use it or Lose It” Approach to Existing Oil and Gas Leases.

Oil companies have access to 68 million acres of land, over 40 million offshore, which they are not drilling on. Drilling in open areas could significantly increase domestic oil and gas production. Barack Obama and Joe Biden will require oil companies to diligently develop these leases or turn them over so that another company can develop them.

That sounds great. Just one problem, though. There already is such a provision. To continue to beat this drum is either pandering, or demonstrates a fundamental misunderstanding of the oil and gas regulations in the U.S. The way these leases work is that companies bid on them competitively. They bid because they think there might be oil there. They then pay annual fees to the government over the course of the lease as they explore, and then if they find economically recoverable oil they begin to develop the lease. But the time between acquiring the lease and the beginning of production (should oil be found there) is several years. You don’t acquire a lease and immediately start producing oil. Further, if an oil company did acquire a lease and didn’t develop it (which would happen if they don’t find any oil there) then it goes back to the government anyway. Oil companies can’t keep leases tied up indefinitely without developing them.

The fact that these are the sorts of policies that are highlights of Obama’s domestic exploration plan indicate to me that he doesn’t look at domestic oil production as a big part of his overall energy plan. In fact, Geoffrey Styles recently noted the same in an essay that examined Obama’s plans in detail:

Senator Obama appears to consider the US tapped out for oil, and apparently expects his energy independence goals to be met without more help from that quarter. That assessment pervades his approach to the oil & gas industry, though recently he has described natural gas in more favorable terms. It is also consistent with his periodic citations of the “3% of reserves vs. 25% of consumption” soundbite, which drastically understates the remaining resource potential of the US. This may explain his 2006 vote against a modest expansion of the allowed drilling area in the Gulf of Mexico, and his restrained support for expanded access to oil & gas during this summer’s Congressional debate on various drilling proposals.

I think the vast majority would agree for the need to move away from oil as our principal source of energy. But fossil fuels and nuclear power presently combine to provide more than 90% of America’s energy needs (Source: EIA). And I think there are too many people who fail to understand exactly why that is the case. As Geoffrey Styles put it so well in the afore-mentioned link “it is counter-productive to pit solar, wind and biofuels against domestic oil & gas, which today contribute roughly 30 times as much net energy to the US economy, and could do more.”

Not understanding the problem can lead to unrealistic choices. A key question for me is whether Obama will sit down with the oil companies, explain his vision, but then also listen to these companies explain the view from their vantage point. After all, these are the companies that provide the vast majority of our energy today. They might know a thing or two about energy.

I believe that 10 years from now (the time frame we could reasonably expect today’s exploration projects to start putting supply on the market) we are going to find ourselves falling in a deep supply hole, and while biofuels can help, they aren’t going to fill the void. By adopting policies now that will encourage U.S. oil production, the supply void will shrink, and prices should be more stable. And as I have argued before, we can earmark the tax revenue from new production to fund alternative energy. The point here is not to keep us dependent on fossil fuels; it is to address what I see as a pending supply shortage in 10 years. Adopting policies that discourage U.S. production will exacerbate that supply shortage. If we are near an oil production peak – as I think we are – then those policies that discourage domestic production will put the country at great risk.

Yet there is a second proposal in Obama’s plan that will discourage domestic production:

• Enact a Windfall Profits Tax to Provide a $1,000 Emergency Energy Rebate to American Families.

Obama and Biden will enact a windfall profits tax on excessive oil company profits to give American families an immediate $1,000 emergency energy rebate to help families pay rising bills. This relief would be a down payment on the Obama-Biden long-term plan to provide middle-class families with at least $1,000 per year in permanent tax relief.

I have had an internal debate on this one for quite a while. I favor higher gas taxes to reduce consumption. (And I give Obama high marks for resisting the calls by McCain and Clinton for a gas tax holiday over the summer). If a windfall profits tax is in place, I believe that this will discourage investment, and ultimately lead to higher prices as supply is constrained. Hence, the same objective is ultimately achieved – except the oil companies get blamed instead of the politicians. But the biggest difference is that gas taxes can be implemented or removed in short order. Taxes that discourage investment will have unpredictable results.

Let’s also be clear here. The oil industry does make big profits, but they are also already one of the most heavily taxed industries. And their tax payments to governments increase along with their profits. There has been a lot of coverage given to the record profits being made by the oil companies, but much less to the record windfalls in the form of taxes that governments have received over the past few years as a result.

And don’t forget that we have experimented with a windfall profits tax before. It raised far less revenue than anticipated, and caused investment to fall. An article from the Cato Institute notes:

We’ve actually been down this road before in the form of the Crude Oil Windfall Profit Tax of 1980. According to a study published by the Congressional Research Service, the tax discouraged investment in the domestic oil industry to such a degree that domestic oil production was 3 percent to 6 percent less as a result of that tax, and foreign oil imports grew accordingly by 8 percent to 16 percent. There isn’t a single credentialed oil economist in the country who would argue that windfall profit taxes are good for consumers.

Geoffrey Styles also weighed in on this provision:

If anything, [Obama] seems to regard the domestic oil industry not as a potential source of new supply, but as a source of new tax revenue. His short-term energy program leads off with one-time energy rebates–$1,000 per family or $500 per individual taxpayer–funded by a windfall profits tax on oil companies. He hasn’t put a price tag on this, but assuming all taxpayers would be eligible, it would require on the order of $20 billion dollars per year in new taxes over the next five years. Although there are legitimate differences of opinion on the justification for such a tax, its consequences for future US oil output are unambiguous: what you tax more, you get less of.

I don’t think there is any doubt that a windfall profits tax won’t help add to supplies. And refunding it back to consumers sends the wrong message: If gas prices go up, the government will protect you by taking the money from the oil companies and giving it back to you. Where is the incentive for the consumer to conserve? For the oil companies themselves, the likely impact would be that foreign earnings wouldn’t be repatriated back to the U.S., and would just be reinvested overseas. For that matter, a steep windfall profits tax would provide incentive for U.S. oil companies to simply relocate overseas.

The Ethanol Blind Spot

One reason Obama feels like he can shun the oil industry is that he comes from a ‘corn state’ and has ties to the ethanol industry. A recent Bloomberg story reported that he wants to bail out the financially strapped ethanol industry, keep the protective tariffs on Brazilian ethanol in place, and is “fully committed to it and sees tremendous value in the renewable fuels standard and continuing down this path.”

Here we have a fundamental disagreement. I have written tens of thousands of words on my opposition to corn ethanol (a random sample here). I won’t repeat all of my reasons here, but will highlight the key sticking point from my perspective. Sustainability and net energy are important. I think we should make every effort to make agriculture sustainable so we leave the soil in good condition for future generations. But the way we make corn ethanol encourages highly unsustainable agricultural practices.

Where do we pay the price for strip-mining the soil? Who is going to get the bill for degraded soils and depleted aquifers? Our children will. If we are consuming natural resources and making them unavailable for future generations, there needs to be a really extraordinary reason, like a crisis that threatens our existence. Yet we are depleting our soil to keep our cars running on a fuel that delivers a very small energy return. Most of the energy in ethanol is derived from the fossil fuels used to produce it. If we put higher carbon taxes in place, not only would it encourage conservation, but it would directly discourage ‘alternative’ energy that relies heavily on fossil fuels. A cap and trade system, or a system in which the EPA has to quantify greenhouse gas savings – will quickly degrade to a lobbying effort if the ethanol industry finds itself at a disadvantage as a result of the rules (see this example).

The “benefit” of corn ethanol – unless you happen to be a corn farmer or ethanol lobbyist – is questionable. The negative consequences need to be a part of the analysis when determining whether to continue pursuing ethanol policies. At present the environment would be better off if – instead of using natural gas to produce fertilizer and steam for the ethanol plant – the natural gas was just burned directly in CNG vehicles. (To his credit, Obama does favor increased use of CNG).

However, I think we have put an ethanol infrastructure in place that can’t be easily dismantled without severe consequences on Midwestern communities. I would not advocate pulling the support out from under the corn ethanol industry, but I would be looking for an exit strategy. Instead, Obama wants to expand the program. What I wish he would do – instead of making a priori assumptions about the value of ethanol for our energy policy – is put a task force together consisting of opponents and proponents – and let them document the pros and cons around all of the sticking points. Some, like the long-term consequences of aquifer depletion – don’t even seem to be on Obama’s radar. Present policy calls for sending that bill to our children.

The Nuclear Blind Spot

Nuclear power gets a bad rap. While it is true that there have been some very serious incidents involving the nuclear industry, the truth is that all of our energy options involve difficult tradeoffs. It is also true that countries like France derive almost 90% of their electricity from nuclear power. While the majority in France supports nuclear power, in the U.S. we have attached a particularly strong stigma toward the topic. Personally, I would rather see the U.S. use more nuclear power and less coal (particulate pollution kills thousands every year).

As is the case with fossil fuels, nuclear gets only a passing mention in Obama’s energy plan. The reasoning is clear: He thinks we are better off with ‘clean coal’ technology and a mix of renewables. In my opinion, if we discourage nuclear we will ultimately ensure that coal continues to play a dominant role in producing our electricity. While I would be the first in line for 100% solar, wind, and geothermal electricity, the EIA projects that by 2030 renewable energy will only provide 12.5% of our electricity. The EIA has a spotty prediction record, but they do a good job laying out the obstacles that renewable energy has traditionally faced:

Renewable Energy is Expensive and Capital-Intensive: Renewable energy plants are generally more expensive to build and to operate than coal and natural gas plants. Recently, however, some wind-generating plants have proven to be economically feasible in areas with good wind resources, compared with other conventional technologies, when coupled with the Renewable Electricity Production Tax Credit (described below).

Renewable Resources Are Often Geographically Remote: The best renewable resources are often available only in remote areas, so building transmission lines to deliver power to large metropolitan areas is expensive.

I personally believe we are going to exceed the EIA’s projections, but I also believe that fossil fuel depletion is going to put pressure on all sources of energy. Thus, I don’t believe we can afford not to encourage further development of the nuclear industry.

What I Like in Obama’s Plan

As I stated, there is much that I like about Obama’s plan. I have suggested my own plan in the past, and there are several areas of overlap. We agree on the need to push plug-in hybrid cars and to incentivize the purchase of these vehicles. We agree on the need to invest in a green energy future, but we differ on the details. I like his proposal to weatherize a million new homes a year, and I think incentivizing the solar, wind, and geothermal industries will pay big dividends. (I just don’t know how some of this stuff is going to be paid for). I certainly agree with the need to take our energy security out of the hands of foreign powers, but we have some fundamental disagreements on how to get there.

Also, I like the aggressive targets, but I think the most realistic way of achieving them is via a pricing lever. This is one reason I haven’t been overly enthusiastic about the efficacy of raising CAFE standards: We already make fuel efficient vehicles. What we need is the incentive to purchase them, which will be incentive to the auto industry to continue making and improving them.

Conclusions

While I think Senator Obama has great potential in front of him, and like a lot of his ideas, I can’t fully embrace his energy policy proposals. I think there are many positive elements, but in my opinion there are glaring blind spots that could lead to energy shortages. I recognize that he is going to have people trying to pull him in many directions, and this often leads to compromise in favor of the politically expedient over the technically best solutions. As he prepares to govern, he has to be very careful that some of the politically expedient solutions don’t carve out a huge energy shortfall.

Additional Reading

Obama’s Plan: New Energy for America
Geoffrey Styles on the Obama Plan
The Outline of My Energy Plan
CNN: Putting Obama’s energy plan to the test
Energize America

November 9, 2008 Posted by | Barack Obama, energy policy, nuclear energy, politics | 297 Comments

Highlights of Obama’s Energy Proposals

I am working on a critique of President-elect Obama’s energy proposals. I am working to complete this before Monday, as I fly back to Europe then and will be quite busy for a few days. While I work on this, I thought I would provide the highlights of his proposals without commenting yet.

I think Obama’s choice of Secretary of Energy is going to be a strong indicator of whether he is going to declare open warfare on the oil companies, or whether he is going to try to work with them. I have seen Pennsylvania Governor Ed Rendell floated as a possible candidate. I think that signals that open warfare is the direction, as Rendell has been quite a demagogue over the oil companies.

As I documented before, Rendell is someone who doesn’t seem to see the connection between the ‘drive anywhere, anytime’ mentality and high gas prices. He wants to have the convenience of hopping in his suburban to drive two blocks, and then he wants to punish the oil companies because prices are too high. By suggesting a rebate (paid by the oil companies) based on how many miles you drove, he actually wants to reward the people who drive the most. This is genius: Reduce supply with a windfall profits tax, while at the same time increasing demand with a reward to those who drive the most. Fundamentally, I don’t think Rendell has an understanding of the nature of the problems we face.

I have also seen Arnold Schwarzenegger floated as a possible candidate. I think he would be a good choice, as would former Energy Secretary Bill Richardson (although my guess is that he may end up Secretary of State). Both are pretty knowledgeable about energy issues.

You can read through all of Obama’s proposals on his website at New Energy for America. Here is a summary, from Obama’s site, of the highlights. One thing that didn’t make the highlights is that Obama reportedly intends to continue to pursue our current ethanol policies.

Provide Short-term Relief to American Families

• Enact a Windfall Profits Tax to Provide a $1,000 Emergency Energy Rebate to American Families.
• Crack Down on Excessive Energy Speculation.
• Swap Oil from the Strategic Petroleum Reserve to Cut Prices.

Eliminate Our Current Imports from the Middle East and Venezuela within 10 Years

• Increase Fuel Economy Standards.
• Get 1 Million Plug-In Hybrid Cars on the Road by 2015.
• Create a New $7,000 Tax Credit for Purchasing Advanced Vehicles.
• Establish a National Low Carbon Fuel Standard.
• A “Use it or Lose It” Approach to Existing Oil and Gas Leases.
• Promote the Responsible Domestic Production of Oil and Natural Gas.

Create Millions of New Green Jobs

• Ensure 10 percent of Our Electricity Comes from Renewable Sources by 2012, and 25 percent by 2025.
• Deploy the Cheapest, Cleanest, Fastest Energy Source – Energy Efficiency.
• Weatherize One Million Homes Annually.
• Develop and Deploy Clean Coal Technology.
• Prioritize the Construction of the Alaska Natural Gas Pipeline.

Reduce our Greenhouse Gas Emissions 80 Percent by 2050

• Implement an economy-wide cap-and-trade program to reduce greenhouse gas emissions 80 percent by 2050.
• Make the U.S. a Leader on Climate Change.

I will have details and comments as soon as possible.

November 6, 2008 Posted by | Barack Obama, energy policy, politics | 385 Comments

Congratulations President-Elect Barack Obama

The networks haven’t called it yet, but this deal is done. It’s too early to tell if it’s going to be the 100 electoral vote margin that I predicted, but it is looking like a landslide in the electoral college.

I hope that Obama runs the country the way he ran his campaign. His organization was superb, and he never seemed to get rattled. His decisions were well-thought out. As I heard a (conservative) commentator say earlier tonight, when it comes to politics he is a natural.

I do think a lot of his opponents have it exactly backwards regarding an Obama win. I know many people who fear that an Obama win will make the U.S. more susceptible to a terrorist attack, because other countries won’t fear the repercussions. To the contrary, in my travels I have spoken to people of many nationalities, including long conversations with an Iranian and a Saudi (and I told both that I thought Obama would win – as far back as May). People around the world are hopeful of an Obama win, because they feel that Obama will be more willing to sit down and listen to their concerns. I think an Obama win will buy so much goodwill in the world that it will make a terrorist attack much less likely, as the world will afford Obama a honeymoon period while they judge whether their impressions of him were correct.

I also think he will be an inspiration to minorities everywhere. Minorities will be able to see that even the highest office in the land is something they can aspire to. It is also hard to argue that the U.S. as a whole is a racist nation if we have just elected a man of Kenyan descent with a middle name of Hussein as president.

In summary, I think an Obama victory will do wonders for the image of the U.S. in the world, will go a long way toward improving race relations, and will inspire many minorities. On the other hand, I think the expectations for Obama will be impossibly high, and he is sure to disappoint many as he begins to make necessary compromises. I have also voiced my concerns about his energy policy proposals. I hope he picks someone like Bill Richardson as his energy secretary, as I believe he is one of the more knowledgeable Democrats on energy issues.

Coming soon I will start to dissect Obama’s energy proposals, and talk about the good and why I think some of his proposals are potentially problematic.

November 5, 2008 Posted by | Barack Obama, energy policy, politics | 354 Comments

Final Presidential Election Prediction

I knew nothing about Barack Obama until my wife brought him up following his keynote address at the 2004 Democratic National Convention. She told me “I just saw a speech from a man that I think will be president some day.” After watching a few speeches by Obama, I concluded that she was on to something. He was a dynamic speaker, and inspired people in a way that few politicans do. So I am sticking with the prediction I made when Hillary Clinton was still the favorite to win the Democratic nomination: Tomorrow Senator Obama will win the presidency. Further, I predict that it won’t be close; that Obama will have well over 300 electoral votes and will probably beat Senator McCain by more than 100 electoral votes.

Obama ran a brilliant campaign, but he also received an assist because McCain ran a disastrous campaign. He vacillated on issues (I documented his ethanol flip-flopping here) and as I predicted the Palin choice turned out to be a big mistake (a new CNN poll confirms that). While the pick may have solidified the base (the people who were going to vote McCain anyway), it drove away lots of undecideds and Independents who felt like the choice was purely political, and not in the best interests of the country. And finally, McCain is of course campaigning to succeed a deeply unpopular incumbent from his own party.

My hope is that Obama will surround himself with people who are knowledgeable about energy policy. He has been reaching out behind the scenes to energy companies (and I am amazed that this hasn’t gotten press coverage), so I am hopeful that he will be pragmatic, and not let the more extreme elements of the party drive his energy policy. His campaign decisions appear to me to be well thought out, so I hope some of his campaign rhetoric doesn’t translate into actual policy.

I have a number of ideas/stories in the pipeline, but (presuming Obama wins) I will probably spend some time discussing the implications of his energy policies. Feel free to use the comments following this post to discuss them as well. What is good about his energy policy? Where is he wrong? Where are the big holes in the policy? (More on Obama’s energy policy ideas here).

Finally, how about my vote? I might have voted for McCain in 2000, when I felt he ran an honorable campaign. I was far too disgusted by his 2008 campaign to vote for him this year. I didn’t feel like he showed good leadership, but then his Palin pick was the final nail in the coffin for me.

I think Obama is a very likable person, and an inspirational speaker. Every time I tried to talk myself into voting for him, I kept coming back to his energy policy. I can’t embrace his energy policy, and that is one of the most important issues for me. But it ultimately didn’t matter. Because of the changes in my residency (in the past year I have lived in Montana, Scotland, the Netherlands, and Texas), my voting status was in flux. I also didn’t have a whole lot of time to resolve the issue. When I finally got serious about it, the deadline for registration in Texas had passed. So, I will end up voting for neither candidate, which is probably just as well since I couldn’t really get fully on board for either candidate.

Best of luck to (presumably) President-elect Obama. He is going to preside over a difficult four years. (And if I am wrong, this post will document the biggest prediction miss I have ever made).

November 3, 2008 Posted by | Barack Obama, energy policy, predictions | 488 Comments

The Debate Over Energy Policy

From last night’s presidential debate transcript, both of the candidates sound off on energy policy. Comments from me are inserted into the text as [RR: comment].

Schieffer: Let’s go to — let’s go to a new topic. We’re running a little behind.

Let’s talk about energy and climate control. Every president since Nixon has said what both of you…

McCain: Climate change.

Schieffer: Climate change, yes — has said what both of you have said, and, that is, we must reduce our dependence on foreign oil.

When Nixon said it, we imported from 17 to 34 percent of our foreign oil. Now, we’re importing more than 60 percent. [RR: I predict over the next 4 years that this dependence will increase, unless we are in an extended recession/depression.]

Would each of you give us a number, a specific number of how much you believe we can reduce our foreign oil imports during your first term?

And I believe the first question goes to you, Sen. McCain.

McCain: I think we can, for all intents and purposes, eliminate our dependence on Middle Eastern oil and Venezuelan oil. Canadian oil is fine. [RR: In 2007, the U.S. imported 2.2 million barrels per day from the Middle East and 1.4 million barrels per day from Venezuela. That is greater than Canada’s total oil production, and Canada uses 2/3rds of the oil they produce internally. Sources: U.S. Imports by Country of Origin and Canadian Oil Production]

By the way, when Sen. Obama said he would unilaterally renegotiate the North American Free Trade Agreement, the Canadians said, “Yes, and we’ll sell our oil to China.”

You don’t tell countries you’re going to unilaterally renegotiate agreements with them.

We can eliminate our dependence on foreign oil by building 45 new nuclear plants, power plants, right away. We can store and we can reprocess. [RR: While I agree with the need to build more nuclear plants, this will do little to reduce dependence on foreign oil. The vast majority of electricity in the U.S. is produced from coal, and only about 1% is generated from petroleum. New nuclear plants will probably end up satisfying new demand, and displacing old coal-fired plants. Source: Electric Power Monthly]

Sen. Obama will tell you, in the — as the extreme environmentalists do, it has to be safe.

Look, we’ve sailed Navy ships around the world for 60 years with nuclear power plants on them. We can store and reprocess spent nuclear fuel, Sen. Obama, no problem.

So the point is with nuclear power, with wind, tide, solar, natural gas, with development of flex fuel, hybrid, clean coal technology, clean coal technology is key in the heartland of America that’s hurting rather badly.

So I think we can easily, within seven, eight, ten years, if we put our minds to it, we can eliminate our dependence on the places in the world that harm our national security if we don’t achieve our independence. [RR: It could be done, but only by taking a big bite out of demand. If we reduced our per capita energy usage to European levels, we could cut our oil imports by about 70%. To become completely independent (assuming current supplies) would require a cut in our consumption of 75%.]

Schieffer: All right. Can we reduce our dependence on foreign oil and by how much in the first term, in four years?

Obama: I think that in ten years, we can reduce our dependence so that we no longer have to import oil from the Middle East or Venezuela. I think that’s about a realistic timeframe.

And this is the most important issue that our future economy is going to face. Obviously, we’ve got an immediate crisis right now. But nothing is more important than us no longer borrowing $700 billion or more from China and sending it to Saudi Arabia. It’s mortgaging our children’s future. [RR: Agree with that. We are enriching other countries and weakening the U.S. with our high level of dependence on foreign oil.]

Now, from the start of this campaign, I’ve identified this as one of my top priorities and here is what I think we have to do.

Number one, we do need to expand domestic production and that means, for example, telling the oil companies the 68 million acres that they currently have leased that they’re not drilling, use them or lose them. [RR: Pandering. There is already such a provision. Oil companies aren’t out leasing land just to sit on it.]

And I think that we should look at offshore drilling and implement it in a way that allows us to get some additional oil. But understand, we only have three to four percent of the world’s oil reserves and we use 25 percent of the world’s oil, which means that we can’t drill our way out of the problem. [RR: True, we can’t drill our way out. But it is extremely naive to think we can ramp up enough biofuel production in the next 10 years to displace very much petroleum – and we certainly couldn’t do that without the risk of unintended consequences.]

That’s why I’ve focused on putting resources into solar, wind, biodiesel, geothermal. These have been priorities of mine since I got to the Senate, and it is absolutely critical that we develop a high fuel efficient car that’s built not in Japan and not in South Korea, but built here in the United States of America. [RR: As I have said before, the problem is not one of supply. There are plenty of fuel efficient cars to choose from now. The problem is getting people to demand them. We saw demand pick up sharply when gas prices rose set new records earlier this year, which is why I think a gas tax would go a long way toward addressing the issue of the fuel efficient car. If the demand is there, the cars will be built. If gas is expensive, demand will be there.]

We invented the auto industry and the fact that we have fallen so far behind is something that we have to work on.

Now I just want to make one last point because Sen. McCain mentioned NAFTA and the issue of trade and that actually bears on this issue. I believe in free trade. But I also believe that for far too long, certainly during the course of the Bush administration with the support of Sen. McCain, the attitude has been that any trade agreement is a good trade agreement. And NAFTA doesn’t have — did not have enforceable labor agreements and environmental agreements.

And what I said was we should include those and make them enforceable. In the same way that we should enforce rules against China manipulating its currency to make our exports more expensive and their exports to us cheaper.

And when it comes to South Korea, we’ve got a trade agreement up right now, they are sending hundreds of thousands of South Korean cars into the United States. That’s all good. We can only get 4,000 to 5,000 into South Korea. That is not free trade. We’ve got to have a president who is going to be advocating on behalf of American businesses and American workers and I make no apology for that.

Schieffer: Senator?

McCain: Well, you know, I admire so much Sen. Obama’s eloquence. And you really have to pay attention to words. He said, we will look at offshore drilling. Did you get that? Look at. We can offshore drill now. We’ve got to do it now. We will reduce the cost of a barrel of oil because we show the world that we have a supply of our own. It’s doable. The technology is there and we have to drill now.

Senator Obama didn’t reiterate his call for a windfall profits tax as part of his energy policy plan. But you can see that provision on the web page describing his energy plan: Barack Obama’s New Energy Plan. You know, I think I could support that if he has a provision to cut tax rates if oil prices fall. But I don’t see that happening.

For balance, here is Senator McCain’s energy plan: John McCain’s Lexington Project. And while McCain doesn’t support a windfall profits tax, the irony is that as Alaska’s governor his running mate pushed one through. (You can read a pretty balanced account of that story here).

October 16, 2008 Posted by | Barack Obama, energy policy, John McCain, politics | 757 Comments

McCain Losing It

I have held my tongue this week, but the McCain/Palin tactics are starting to really disgust me. I have been scratching my head and asking myself what has happened to this man. I once admired him. I wanted to see him beat Bush in 2000. Now I wonder if it’s just that my views have changed so much, or whether he was ever the person I thought he was. (For a real hatchet-job that says he was never the man I thought he was, see the new Rolling Stone article: John McCain, Make-Believe Maverick ).

Christopher Buckley, the son of the late William F. Buckley, says McCain has changed:

A Buckley endorses Obama

Buckley, who praised McCain in a New York Times Op-Ed earlier this year and defended the Arizona senator’s conservative credentials against wary talk-radio hosts, said McCain is no longer the “real” and “unconventional” man he once admired.

“This campaign has changed John McCain,” Buckley wrote. “It has made him inauthentic. A once-first class temperament has become irascible and snarly; his positions change, and lack coherence; he makes unrealistic promises, such as balancing the federal budget ‘by the end of my first term.’ Who, really, believes that?

“Then there was the self-dramatizing and feckless suspension of his campaign over the financial crisis,” Buckley added. “His ninth-inning attack ads are mean-spirited and pointless. And finally, not to belabor it, there was the Palin nomination. What on earth can he have been thinking?”

I would add to that the crazy mortgage scheme he proposed at the most recent debate, which has some conservatives up in arms:

McCain faces conservative backlash over mortgage plan

(CNN) – John McCain is facing a fresh round of anger from members of his own party deeply opposed to the Arizona senator’s proposal for the federal government to purchase troubled mortgage loans.

In a sharply worded editorial on its Web site Thursday, the editors of The National Review — an influential bastion of conservative thought — derided the plan as “creating a level of moral hazard that is unacceptable” and called it a “gift to lenders who abandoned any sense of prudence during the boom years.”

But he lost my vote the day he put Palin on the ticket. Any thought I had of voting for the man went out the window as soon as I heard that. As I said at the time, I don’t think she is qualified (and subsequent events have only reiterated my original opinion). I think his choice of her put politics ahead of country.

On the other hand, I don’t think Obama has a solid energy plan. Someone told me recently that his energy advisors are primarily environmentalists, but not energy experts. If true, that means his energy policy will contain a lot of unrealistic ‘solutions.’ I have a hard time embracing an energy policy that consists of “Fund X, mandate Y, and tax the devil out of the oil companies.” I just haven’t figured out how that last bit is going to help secure additional energy supplies.

I have held steady in my prediction that Obama will win the presidency (although that doesn’t mean I am voting for him). I predicted it to my father-in-law following the Iowa caucus, and have repeated that prediction several times here. But I have to give credit to my wife on this one, who predicted it following his speech at the Democratic National Convention four years ago.

However, I think there is a good chance that the winner of the election will only serve one term. They are going to govern through a very difficult four years, and two years in they will be catching a lot of the blame for not fixing a set of very vexing problems. I think they will preside over escalating energy prices, which will cause the economy to continue to struggle. And if Obama is elected as I expect, I think he is likely to make some serious missteps when oil prices spiral higher, exacerbating the problem.

October 12, 2008 Posted by | Barack Obama, John McCain, politics, Sarah Palin | 328 Comments