Wednesday, August 06, 2008

Election 2008, #7: Energy Policy

I told you they'd be in no particular order. For the original post, go here.

Anyway, energy policy is in the news a lot, so I'll dispense with my thoughts on that forthwith. Let's look at each candidate's policy positions and see what they hold. We'll start with Sen. John McCain.

McCain's energy policy position stresses the importance of increasing oil and gas exploration, mostly by opening up the currently off-limits areas of the Outer Continental Shelf to drilling. From his tenor on the campaign trail, this appears to be the centerpiece of his policy. He does have some ideas on encouraging research to get cars made more efficient - including sort of a governmental version of the automotive X Prize. He wants to expand nuclear power and clean coal power, and does lip service to other alternative power sources like solar and wind. He'll propose getting rid of ethanol subsidies and tariffs, presumably opening our ethanol market up to Brazilian products.

Sen. Barack Obama's energy plan involves giving immediate relief from high gas prices by issuing an energy tax credit. It will presumably be paid for by an extra tax on oil companies (the "windfall profits" tax you've heard so much about). He talks about more effective regulation of the oil futures markets. Like McCain, he supports pouring money into alternative energies - unlike McCain, he wants 25% of our energy to come from renewables by 2020 (something of an arbitrary goal, but a goal nonetheless). He also supports research for making better biofuels. He proposes an overhaul of the national energy grid as well, and wants to give grants to people who make their buildings more efficient. Obama also stresses the need to coordinate conservation efforts with other energy-using countries.

Rep. Bob Barr's energy policy essentially boils down to "get the hell out of the way." Barr believes that more subsidies and government programs will distort the market, and wants to do away with all restrictions on exploration. So like McCain, he wants to open up the OCS and ANWR to drilling; like Obama, he wants to end subsidies to oil companies. He wants to do away with ethanol subsidies, and says nothing about renewables.

I'm having issues finding Rep. Cynthia McKinney's energy policy, so I don't know much about it. All I know is that McKinney opposes opening up the OCS (the only candidate to completely oppose doing so) and expansion of nuclear power.

Anyway, here's my take:

I've never seen so much demagoguery over one issue in my short political career. I don't even think terrorism got this treatment in the wake of 9/11. The national panic over $4/gallon gas got the candidates all worked up, and really got the B.S. flowing. There are several things we can do without in all these plans. Obama's "windfall profits" tax is an awful idea, as are continued subsidies for ethanol production. McCain's insistence that OCS drilling will help gas prices is ridiculous. It won't become profitable for oil companies to drill on the closed parts of the OCS unless oil prices continue to rise. Heck, it's not even profitable for oil companies to drill on all the areas that they have already leased. And even if drilling were to start today, it would increase our oil output by 1-2%... in ten years. President Bush and McCain seem to think that there will be some psychological effect on oil prices from a repeal of the OCS ban, but last time I checked, neither supply nor demand were affected by psychology. And biofuels? Right now, production of biofuels in America costs about as much energy as the fuels produce. Encouraging production before research has made them viable is ridiculous, and is part of what's driving the global food crisis to boot.

There are, however, some ideas I like. I can sympathize with Barr's desire to say "to hell with it, let the market decide," and I think the market ought to be the main driving force of an effective energy policy. The market, however, isn't particularly good at conducting research on technologies whose profitability is beyond the horizon, and so we need government money to help out with that. But Barr's suggestion that we do away with subsidies altogether is right on. Obama's talking about the grid, which is good because the grid is decaying rapidly and needs a little refurbishing. Also, he's the only one who seems to think that alternative energy research is important. McCain is talking about nuclear, which is a technology that is cleaner than what we have and ready to deploy now.

All of this, though, is long-term, and unfortunately, the campaigns are leading voters to believe that their policies will send gas back to $2/gallon tomorrow. Nothing will - I doubt gas will ever go below $3/gallon again. The most effective tool anyone can use to lower gas prices is... the calendar. Fall will be here soon, people will be using less energy to cool their houses or travel for summer vacations, and prices will decline. It happens every year, folks. We've driven less this year, and the midsummer recent gas price retreat is probably a result of that.

But the best idea that anyone has come up with for lowering gas prices in the short term? Barack Obama's suggestion that we make sure the tires on our car are inflated. As any bicyclist knows (and as Matt Novak recently discovered), it's easier to move if your tires are inflated. Estimates are that proper inflation saves you 8% at the pump. Assuming that half of us have underinflated tires, that's going to cut gas consumption by 4%, and since gas consumption is roughly half of our oil usage, we'd cut our oil use by around 2% if everyone inflated their tires. For reference, if we developed all the oil in the OCS tomorrow, we'd increase our oil output by about that much.

Naturally, people are making fun of Obama for coming up with a good idea. That is because people are stupid.

An effective energy policy, in my opinion, will involve both controlling demand and increasing supply. There's a lot not to like about Obama's energy policy (the "windfall profits" B.S. and the ethanol subsidies, for example), but at least he's thinking seriously about both sides of the equation. Barr and McCain are only thinking about supply. Credit Obama for bringing up the grid, too - recent regional power failures have pointed out the weaknesses in our grid, and we need to refurbish it yesterday. I like Barr and McCain's dedication to eliminating subsidies, but to me that plus Obama's bad idas aren't enough to overcome Obama's good ideas. McCain second because he's at least throwing out some token funds for alternative energy research. McKinney's in fourth by default - if I keep having trouble finding her policy positions I'll just drop her from consideration.

1. Barack Obama (D)
2. John McCain (R)
3. Bob Barr (L)
4. Cynthia McKinney (G)

So for those of you keeping track at home, we're at:

Obama - 16
McCain - 12
Barr - 8
McKinney - 4

11 comments:

Matthew B. Novak said...

Could you say a little more about why the windfall tax is such a bad idea? On at least a base level, I'm inclined to like it.

Jeff said...

Oil company profits are high, yes, but as Dave points out, they still pay a crapload of taxes. Their profits are higher because their expenses and revenues are both higher - they're just bigger companies. So the idea that Exxon et al are profiting unfairly is simply wrong.

And furthermore, the oil companies will increase production only when it becomes profitable to do so. When you take away some of their profits, you push the price at which exploration and development becomes profitable higher and higher. Some may not see this as bad, of course, but I do.

Then there's the idea that you're punishing Exxon et al for their success. This isn't like a progressive income tax that's instituted in the interest of fairness - it's directly a punishment to oil companies for - gasp - making too much money. That's bad.

Mike said...

"Naturally, people are making fun of Obama for coming up with a good idea. That is because people are stupid."

Banditos. Still, good though the advice may be, it is the sort of advice you expect from a mechanic, not a presidential candidate.

I'm not so sure I'm completely on board with "eliminating subsidies plus Obama's bad idas [sic :)] aren't enough to overcome Obama's good ideas." Because the energy rebate/windfall tax plan really is quite awful, IMO.

Matthew B. Novak said...

I read Dave's post. I get his numbers, but there's key points to be made. He says both that they were taxed 30-some billion, and that they have income taxes of roughly ten billion. It's the income tax that we're talking about with windfall here. To bring all of those other numbers into it is beside the point. Obama, the Democrats, and a good number of people in society want a windfall tax because we hold the opinion that for any corporation to be making $11.7 billion is unconscionable when they're only paying $10.5 billion in income taxes. I understand that they pay other taxes, and we'll go ahead and factor that into their other costs (as Dave did). They're still making 11.7 billion, and I don't think it's outright unreasonable to claim that that's too much.

Particularly in the current environment, when the price of their product has increased so dramatically in the past couple years. Let's face it, that's why they're making more money now.

Plus, if we throw in the fact that oil companies aren't operating on the up and up, we've got even more reason to go after their profits. They've effectively limited competition from alternative energy sources (and are themselves developing it only at a pace that befits their whims), developed reliance on their product, and now are universally jacking up prices.

Another point to be made with regard to the numbers is that big oil is almost certainly engaged in all sorts of shady book keeping, such that their total costs are actually nowhere near 116 billion, and they get tax subsidies that are designed to help them be more profitable in the future. Such that of that $116 billion in "costs" most of it is investment.

Frankly, I think big oil is engaged in all sorts of questionable practices, is probably defrauding the American public, has probably colluded to increase reliance on their product, squash competitors, and drive up costs, and has far too much political influence.

I'm all about Obama's windfall tax. Not because it makes the most fiscal sense (any tax will ultimately be pushed onto consumers anyway), but because I think it's another way of casting the spotlight on big oil, and is more likely to help limit their deleterious effects on society. And that sounds like good energy policy to me.

-Dave said...

"Frankly, I think big oil is engaged in all sorts of questionable practices, is probably defrauding the American public, has probably colluded to increase reliance on their product, squash competitors, and drive up costs, and has far too much political influence.

I'm all about Obama's windfall tax. Not because it makes the most fiscal sense (any tax will ultimately be pushed onto consumers anyway), but because I think it's another way of casting the spotlight on big oil, and is more likely to help limit their deleterious effects on society. And that sounds like good energy policy to me."

We'd, as you might guess, disagree pretty significantly on this. My starting point for any such argument is "if you can do it better, go ahead."

I'd say your first paragraph is 10 times more applicable to the Federal Government under any administration as it is to any private industry. Questionable practices? Find me someone that disagrees - please! Defrauding the American Public? Again, I think we'll find universal consent. Colluded to increase reliance on their product? I submit Welfare from 1960-1990(ish), Social Security, and Medicare as evidence. Squash competitors? Not really applicable, but that's what the army is for.

What's more, the Federal Government costs the public vastly more than Big Oil. Yet to curtail the later you'd empower the former.

Why?

Especially considering that you have far more say in how much you contribute to Big Oil through your private choices than you do in how much you will contribute to the Federal Government. You can choose to substitute other goods for gas. You can't decide to just not pay taxes.

Matthew B. Novak said...

Dave -

Setting aside my disagreement about any one point that you make, whether or not the government also suffers from these flaws is completely irrelevant when considering the culpability of big oil. "But someone else is bad too" is not a valid defense of one's bad behavior.

Second, and maybe more importantly, you offered the "if you can do it better" defense on behalf of big oil. This line of thinking infuriates me for several reasons. First, given the underhanded practices of big oil and their efforts to undermine and eliminate competition, especially from alternative energy, it's essentially impossible for anyone to "do it better". The fact that no one can do it better is evidence of big oil's evil, not their genius. Second, I don't want to do it better, am not interested in providing alternative energy, cannot afford to support the efforts of those who are so inclined, and wouldn't be such a benefactor if I did have th money because there are more important things for spending my money on. But my unwillingness to devote my life to alternatives does not mean I should be ok with the current system. And it especially does not mean that I've ceeded my right to demand minimum ethical standards from big oil. Corporations are a tool designed to serve people. Their pursuit of profit should be tempered by the other goods that people desire. I might not be able to make more money than big oil, but that doesn't mean I have to let them victimize me.

You've suggested that I provide energy better than big oil. I'm suggesting that instead we just make big oil better. And that's why I suggest we use the government. Because it's a tool of the public designed for exactly that purpose: to make things better. Does it have flaws? Absolutely. And we should work to eliminate those just as surely as anything else. Are those flaws reasons to avoid government all together? Not even close. It's still the best tool we've got to effectuate change in the world.

Ben said...

Okay, so not to cut off Dave and Matt's conversation (astounding how the friend-of-a-friend system of blogging works to bring a political-philosophical debate onto Jeff's blog involving two people he's never met...I think I'm partly responsible for both) but I want to ask a question. Maybe their conversation can continue in parallell to this.

What are the GOOD ideas that any of the candidates have put forth to deal with the energy crisis? Are there any good ideas out there?

I mean, clearly the Drilling on the Coast idea isn't among them. I'm still skeptical that the Windfall tax will do much. Maybe we need to define the problem.

A) What is the problem that needs solving in Energy?

B) What are the good ideas? Seems fixing the grid and massive investment in alternative energy are generally good ideas.

Okay, those are my questions. And that is my rambling.

This is Ben, signing off and returning to drafting a complaint for DOL.

Mike said...

"What is the problem that needs solving in Energy?"

In my opinion, there is none. I say again, keep oil prices high! This will only add fuel to the fire (bad choice of words, I know) of the search for alternative energy sources (or alternative modes of transport, or both).

"What are the good ideas?"

The two you mention, for starters, as well as the above, in my opinion. I'm also not opposed to creative government incentives to finding alternative solutions.

jacob said...

I mostly agree with Mike. I had the unpleasant experience of meeting a Congressional candidate in VA recently. In two minutes he told me that he had a plan to eliminate dependence on foreign oil, lower gas prices, and reduce carbon emissions, all within 10 years. These goals, of course, are completely contradictory on that short a time scale.

Right now we have two major candidates who have campaigned for reducing carbon emissions. The only way to do that is to make carbon cost more. Now they're claiming we need to reduce gas prices. In the short-term, you can't do both.

The best thing we can do is spur innovation. Whether high prices can do that on their own or we need research grants and/or a carbon tax to do that is open to debate, but that's really the only sound policy. All of the immediate fixes promoted by the candidates are pure nonsense.

Jeff said...

The best thing we can do is spur innovation. Whether high prices can do that on their own or we need research grants and/or a carbon tax to do that is open to debate, but that's really the only sound policy. All of the immediate fixes promoted by the candidates are pure nonsense.

Pretty much. My view right now is in favor of incentives and grants for alternative energy research because the alternative - getting rid of subsidies for oil exploration, thus raising the cost of oil more (and, bizarrely, making it more profitable to explore), is politically impossible. I like that Barr and McCain talk about scrapping the subsidies, but neither has a backup plan if that doesn't get through Congress. Which it won't.

Matt, I guess I don't buy that big oil is actively keeping alternatives down. Right now, what's keeping alternatives down is that alternatives are simply more expensive than fossils. Wind is really the only technology that's viable from a cost/benefit perspective. Solar's almost there, and will be there within the decade if research continues apace. Ethanol's nowhere close, and even at the current research pace won't be there for another 20 years or more unless we open ourselves up to Brazilian sugarcane ethanol. All are more expensive per kWh than oil/coal. We can't punish the oil and coal companies for choosing a method of power generation that's cheaper than the others.

So how do you make alternatives cost the same as oil? Money for research is the best way, IMHO. (Preferably including money for certain qualified PhD candidates currently in the Raleigh area.) Subsidies would work on a temporary basis, but heaven knows that if we start subsidizing on a grand scale we'll never stop.

I've probably contradicted myself six or seven times here. What I'm really trying to say is: I want a job once I get out of here. Thank you.

Matthew B. Novak said...

I absolutely agree that innovation is the best course of getting alternative. I think subsidies and grants are terrifically important for making sure we get there. I also think that we need to make sure that at least some of these alternatives are developed by non-big oil companies. Because they have a lot of incentive to develop these alternative sources but only implement them once they've expended oil as a resource, since that'll be the most profitable for them.

As for whether they've kept alternatives down... well, given that they've routinely purchased companies looking into alternative energy sources, limit their funding for development of alternatives, engaged in proprietary battles over relevant technologies, etc. The facts are there. They're trying to squash their competitors. There's probably a lot of other shady business too; there almost always is with big corporations.

Another idea... how about subsidies for products that reduce energy consumption? Right now there are some types of tax credits out there for people who purchase energy efficient appliances and such, but usually those tax credits are of a type that only benefits the wealthy, and aren't enough of a credit to encourage the poor to buy more costly energy-efficient machines. But what if we subsidized the production of these appliances (and windows/doors/insulation, etc.) instead of subsidizing the purchase of them? Then they'd ideally be more affordable up-front, and more people would buy them, thus reducing energy costs.