Saturday, November 22, 2008

Obama Energy Policy Fraught With Contradictions

The new administration's energy policy was released a couple of months before the election, and received very little attention, due to the nation's preoccupation with the financial collapse and economic morass, and the focus on the show-stealing Republican running mate.

The best that can be said for Obama's energy policy, is that his heart is in the right place, and that the new team's policies constitute a significant and positive departure from Republican policies that encouraged waste and promoted the disastrous transportation and land use policies of the past 60 years as "patriotic". At least Obama recognizes that we are on the eve of a massive shift in the conditions on which they're predicated, and that the energy regime that made them feasible is over.

However, many of the the new liberal policies will not only not mitigate the hardships of the new energy regime of scarcity and upward spiraling prices, but might well aggravate the waste and misallocation of finite resources. In short, the new administration's Energy Policy is a well-meaning disaster, and the policy statement is an essay in the power of denial and wishful thinking, in that its principal feature is the emphasis on symptomatic treatments and short-term "feel goods", at the expense of the complete overhaul of transportation, agricultural, and land use policies, which is what we really need in order to cope with shrinking fossil fuel supplies.

Mainly, the program is another attempt to repeal the law of supply and demand, and maintain fuel at artificially low prices while doing nothing to steer the country's population away from wasteful lifestyles Among the short-term measures outlined by the report are: 1) an Emergency Rebate of $500-$1000 for every American family, to mitigate the escalating costs of energy; 2) Crack down on energy speculation; and 3) Swap light and heavy crude, Release oil from the Strategic Petroleum Reserve in order to cut prices.

The futility and potential averse effects of the foregoing ought to be obvious. The "energy rebate" is merely another costly "stimulus package" and short-term salve that will add to the towering public debt load and further endanger savings and jobs, in addition to necessitating a tax increase, which is supposed to be paid for by a tax on the windfall profits enjoyed by oil companies.

Measures to "crack down on energy speculation" are worse. These are blatant scapegoating, and worse than useless. The only reason "speculators" buy any commodity or security in order to scalp profits from a move in prices is because they perceive a move in prices in the direction of their bet- if traders perceive a drop in demand, they can just as easily "short" the market. It's interesting that, just as our authorities made no attempt to cap the rampant inflation in house prices or run-up in stock prices unrelated to underlying fundamentals, or prevent "speculators" from profiting from it by "flipping" houses; it is also making no attempt to prevent "speculators" from profiting from fluctuations in oil prices by shorting oil as prices of crude dropped rapidly from last year's high of $149 a barrel.Speculators are no more responsible for the increase in global demand for petroleum and global depletion of supplies, than they are for the Fed's disastrous monetary policies and explicit support of the loose lending that created the financial debacle, and we aren't going to mitigate either condition by "cracking down" on attempts by market players to respond to whatever situation presents itself.

The third short-term palliative is to swap light for heavy crude and release oil from the Strategic Petroleum Reserve. May I ask: Are we insane? The policy paper explicitly states that "swapping light for crude" means that we will release the light, sweet crude from the Strategic Petroleum Reserve in an attempt to lower oil prices, to replace it later with sour, heavy crude, which is much more difficult and expensive to refine. The obvious implication is that we will be forced to replenish the Reserve with inferior oil at a time when doing so will be much more expensive, in attempt to maintain artificially cheap prices for petroleum products to placate American consumers and enable them in unsustainable lifestyles. This is sheer insanity, and it will only cause more pain and disruption down the road as it will only encourage more consumption of the very resources we need badly to conserve. Worse, we need badly to protect the Strategic Petroleum Reserve against a real emergency, such as critical spot shortages of fuel that could threaten our lifeline civil services such as police and fire protection, never mind the copious supplies needed by the military to ensure essential defense. Sorry, but $4 a gallon gasoline is not an emergency, and encouraging wasteful civilian consumption by maintaining artificially low prices will only increase the pain and disruption down the road, when the global drawdown in petroleum production becomes critical, and irreversible.

The policy's longer term solutions address Climate Change and the urgent need to develop sustainable alternative energy. Most of these measure are appropriate, as they go. Prominent among them are measures to increase fuel efficiency requirements, begin transitioning to a new digital electric grid, promote development of commercial scale renewable energy, invest $150 Million over the next 10 years to develop plug-in hybrid vehicles, invest in low emissions coal plants, and advance the next generation of biofuels and biofuel infrastructure.

I seriously have to question the emphasis on the development of hybrid vehicles, and even more, the promotion of biofuels, at the expense of the rebuilding of our rail system and intercity public transit. Our "green" liberals are almost as invested in the fantasy that we can continue to run 200 million cars and trucks and continue converting irreplaceable farmland into auto suburbs as any right-wing rube in his 3000 sq ft house on 2 acres in the far hinterlands. There is no recognition that even if we diverted every arable acre of land in this country, including that now used for food production, to production of biofuel feedstock, we could not even replace a fraction of the massive quantities of oil necessary to run our systems as they are currently structured. Increased production of biofuels will inevitably come at the expense of food production, and at a time when we will have less petroleum and natural gas, which is necessary to produce the cheap food that we now enjoy. Yet nowhere in the policy statement is it acknowledged that the mass diversion of land currently in food production, to fuel production, could trigger catastrophic food shortages, or famines.

Nowhere in this policy statement is the critical need for a complete rebuild of our decrepit rail and public transit even mentioned, and there is no mention of the need to curtail our massive over-investment in highway and airport infrastructure, if only to offset the massive amounts of public money that that are to be spent on the development and promotion of "green" jobs and industries. There is no discussion of reversing the disastrous transportation and development policies of the past 60 years that have created a geography of roads and housing development that render 90% of our population totally dependent upon autos for transportation, and that are still promoting urban sprawl and the destruction of some of the best farmland in the world in order to build auto suburbs.

Let's hope that Team Obama's misconceived Energy Policy is only a "feel good" aimed at the more "progressive" elements of the population in order to win the election, in recognition that the truth is too unpalatable to be presented to an already skittish and traumatized population at election time. Let's hope that after the new team is installed, they will Get Real and replace this stew of pandering "feel-goods", and costly diversions that will only set us up for more disaster and disruptions, with reality-based policies that will promote the complete restructuring of our systems to enable steeply reduced energy consumption in a very short time frame.


Moonglum said...

Interesting... when the change.gov site first went up it had a lot more about electrified rail. Then it went down. Now it is back up and more in line with the speech that you reference. I hope that isn't a sign of the auto industry having words with the new administration.

Oh man, taking oil out from the SPR to reduce the price. How idiotic is that? We need that oil for things we can't run on electricity, should we ever actually need to defend our country.

I don't agree that plug-in hybrids are as bad as you claim though. They don't encourage a switch to mass transit for long distance trips, but the improvements in electric energy storage that they will bring in the medium term are great. Not to mention, being something that people will be willing to buy now to stopgap during the transition to lower energy environment.

The North Coast said...

I agree with you on hybrid plug-ins. What distresses me is that they seem to be presented as a solution in and of themselves, and an end goal, and at the expense of rail. They are a step in the right direction, but it will take a lot more than replacing our fleet with them to make the difference we need, and it seems to me that Obama's policy statement skirts that.

Mary said...


Excellent - wish you would post on CFN