Monday, June 23, 2008

Rhetoric or Energy Policy - Can't Have Both

I really like the article below from the Financial Times. What we really do need is leadership on the energy question -- and that means admitting some hard truths on both sides. Developing a massive alternative energy infrastructure is NOT going to be cheap or easy. Enviros should quit acting as if its "no big deal" to get rid of fossil fuels. And on the other side, we can NOT drill our way out of this problem. We MUST start planning now for the steady and stable transition away from fossil fuels for BOTH our own security as a nation and to protect the one planet we all live on.

Its not that complicated to understand -- unless you start pandering to all the various egos involved and regional/political prejudices.

America - we have to ask ourselves -- do we want to solve this energy problem more than we want to blame the "other" side?

I surely hope the answer is yes! For our strength comes when we set our mind and wealth to a goal.


Hot air clouds the energy debate

By Clive Crook Financial Times

Published: June 22 2008 18:58 | Last updated: June 22 2008 18:58

Ferguson illustration

Week in and week out, Washington gives master classes in making simple questions complicated. It is a bipartisan effort of mutually assured irrelevance. Perfected over years, a combination of tribal ideology, empty posturing and feverish displacement activity generally does the trick. You see it everywhere, but nowhere more than in energy policy.

The US constitution makes it difficult for politicians to do much (except fight wars) and this avoids a lot of damage that would otherwise result. But now and then some intelligent policymaking is needed, and energy is again a case in point.

Nowadays most Americans want to see action on global warming. Sensing the mood, both presidential candidates advocate a cap-and-trade approach to reducing carbon emissions. However, even more than they want to see global warming addressed, Americans demand cheap fuel for their urban assault vehicles. So the candidates must cater to that appetite as well – with petrol tax holidays and new plans for offshore drilling (John McCain) or windfall taxes to punish oil company gouging and “help families to pay for their skyrocketing energy costs” (Barack Obama).

The US does not know whether to tax energy or subsidise it, promote domestic oil production or forbid it, treat ExxonMobil and Chevron as champions or pariahs. So it does all of the above. What it knows for sure is that it wants energy security, energy independence and clean air – plus the inalienable right to recreational trucks (not to mention freezing its citizens in summer and broiling them in winter) as though energy were a free good.

What would political leadership on this issue look like? It would dispel confusion, insist that expensive energy was necessary and confront voters with choices – as if they were intelligent adults. Somebody should try it.

Mr Obama has lately been pandering to the anti-business sentiment that blames $4-a-gallon petrol on Big Oil and oil-market speculators. It is true, of course, that oil companies are enjoying a profit windfall from the oil price spike. It is also true, or plausible, that futures trading has driven spot prices above their market equilibrium. But these are not the main drivers of the oil price – nor for that matter is the high price of oil a bad thing, if you care about climate change. Done right, a surtax on oil company windfall profits is defensible – as long as one admits it would deter future investment and that working out what “reasonable profit” means would open a can of worms better left closed. The main thing, though, is that it would do less than nothing to cut the price of petrol. It is a sideshow.

Mr McCain is pandering as well – to the view that $4-a-gallon petrol is caused by bunny-hugging curbs on domestic supply. He is busy chasing votes with his own sideshow: new offshore drilling.

Like Mr Obama, Mr McCain has a point. The present ban on offshore drilling is a mistake – just as it would have been a mistake for Britain to ban production in the North Sea. If oil can be extracted profitably and with appropriately strict environmental safeguards from offshore wells (or, for that matter, from the Arctic National Wildlife Refuge, which Mr McCain still wants to protect), well and good. But the reasons to extract it are that it is a valuable resource that would otherwise be wasted and that diversifying US oil supplies has some benefit, not that it would lower the price of petrol. New oil would take years or even decades to come on stream; when the new supplies arrived, they would most likely have no more than a marginal effect on the world market price.

The US has a compelling economic and geopolitical interest in curbing both its use of oil, especially oil imported from unstable suppliers, and its emissions of greenhouse gases. The right thing is to pursue that goal in many different ways: diversified sources of supply, energy conservation, alternative fuels (including nuclear), carbon capture and sequestration, and so on. But whether you strive to achieve this balance through top-down control and a labyrinthine system of quotas, taxes, subsidies and regulations, or else through a simple and explicit carbon tax, energy will have to get a lot more expensive. How refreshing it would be to hear a politician say so.

If the Democratic party were correct about speculation and gouging, it should be demanding a Nobel Prize for futures traders and oil titans. They have done more for the planet than Al Gore, making the pump price of petrol so unthinkably expensive (almost half as dear as in Europe!) that the country has started to economise. Americans are driving less and buying smaller cars.

If ever there were a case for the maxim, get prices right, this is it. The way to curb carbon emissions is to add the environmental cost of carbon to the price of energy. The current oil price offers a good opportunity: when it falls (as it probably will) a carbon tax could be used to set a floor, making the transition to correctly priced energy much easier.

Once the price of energy is right, other decisions become simpler, or can be left mainly to the market. There is no need to legislate fuel economy standards or subsidise conservation and low-carbon forms of energy; no need for an emissions trading regime, with all the waste and complexity and gaming that that entails (witness Europe’s experience); no need to scapegoat oil companies or environmentalists; no need to mislead or pander. For sure, the politics is a challenge – but not, I am willing to bet, as hard as conventional wisdom insists. Carbon is bad: tax it and use the money to cut other taxes. A new kind of politician could do something with that.

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