Endorsement Day

October 16, 2008 at 7:00 am | Posted in Economy, Energy, Politics | Leave a comment

In North Carolina the voting has already started. It has probably started in other states too (check your Board of Elections) and we’ve found early voting a very convenient way to vote. But before you go to the polls, educate yourself on the philosophies and positions of the candidates, and on their style as well. Try to ignore the truth-twisting attacks launched on their opponents by both campaigns. Make up your mind, and vote for the candidate you believe will be best for you.

The Curmudgeon has done that, and we are endorsing Senator Barack Obama for President of the United States. There are many reasons.

Leadership and Executive Ability

Although Senator Obama has little executive experience, his campaign is well organized; a smooth running machine that has suffered few of the mistakes, missteps, and personnel problems we have seen in Senator McCain’s campaign. From the start Obama has been in command of his campaign, and he has attracted strong and skilled people to his flag. When he went overseas he was statesmanlike, thoughtful, and charismatic. During the current economic crisis he was quietly effective in getting a plan adopted, without the phony campaign suspension and flailing of the McCain campaign. That tells us Senator Obama has leadership ability and executive skills. Senator McCain does not.

The Ticket

Senator Obama carefully selected a running mate who has years of experience in the Senate, specifically in foreign affairs. Senator Biden’s skills will complement Senator Obama’s skills, and Biden’s knowledge of the Congress will help Obama to make the changes he wants to make. Senator McCain picked a running mate who brings nothing to the ticket except extreme conservatism. Clearly lacking in the knowledge of foreign and domestic affairs it takes to advise the President—let alone assume the office—she is a drag on the ticket. Worse, her selection shows Senator McCain’s tendency to shoot from the hip: his campaign did not vet her, and we suspect he regrets having chosen her because of the scandals that have erupted. The Curmudgeon believes we need a President with a steady hand, backed by somebody who can, if necessary, step in and take command.

The Philosophy

Senator Obama is a Liberal—possibly too liberal. But his philosophy supports and defends the people. He recognizes that it takes money—sometimes government money—to get businesses to invest in the long term good of the country. He realizes that the government must supply a safety net for those who cannot feed, clothe, or house themselves, and must also get them trained and into good jobs so they can become contributors to the society. He understands that it is beneficial in the long term to invest in good education and in universal health care, because a healthy, well educated population is vital to the country’s success. On the other end of the scale he understands that the United States must work with other countries—our friends and our enemies—to provide a secure and prosperous environment for all of us. He knows that we cannot work effectively, internationally or on domestic problems, unless we take the moral high ground and work within our Constitution instead of pushing it past its limits.

The Issues

We agree with Senator Obama’s positions on the issues. His energy plan will result in independence from foreign oil through the development of alternative, clean, energy sources. It will help reduce global warming And developing and producing the energy will provide thousands of jobs.

Senator Obama’s economic strategy will provide thousands more jobs repairing and renewing the nation’s infrastructure, and provide incentives for corporations to keep jobs here in the U.S. His additions to the bailout plan will protect the taxpayers by ensuring that the tottering financial sector pays back what it borrows from us, and will help mortgage-holders to keep their houses. And he will rebuild the structure, dismantled over the last decades, that restrains the financial community from getting too greedy and from predatory practices.

The Obama healthcare plan will provide coverage for virtually every American. In addition to the health insurance plans offered by employers, Obama’s plan would provide a single-payer system similar to Medicare that, for an affordable premium, would protect those who do not have other coverage—or who prefer his plan to the other coverage they have. And his plan would prevent people from being turned down for pre-existing conditions by any plan.

Senator Obama’s foreign policy will substitute diplomacy for sword-rattling rhetoric. He believes, as do we, that engagement and coordinated action among allies can accomplish more, at less cost, than military action. Military action is on the table, and is sometimes necessary (as in Afghanistan) but it is a last resort. Obama plans to extract us from Iraq as quickly as possible—maybe within 18 months. The Bush administration, growling and euphemizing with frustration, has recently adopted a similar plan. Obama would attack terrorism by going after Bin Laden where he is, on the Afghanistan border, by ensuring the security of our ports and borders, and by doing everything he can to improve the image of the United States in the minds of the world’s people.

The Conclusion

The election we’re holding in November may be the most important of our lives. Depending on the outcome, the United States will continue on the path it’s on now, or will change to a path that will return to the middle class the prosperity it has lost, return to the United States the moral leadership and stature it has lost, and provide us all with the security we have lost. We urge you to vote for Senator Barack Obama for President of the United States.

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2 Candidates, 3 Energy Plans

August 14, 2008 at 4:14 pm | Posted in Energy, Politics, The Environment | 6 Comments

Energy and the environment are two of the most important issues facing the U.S.—and the world—today. They are also very closely intertwined, a fact that both presidential candidates (we refuse to use the word “putative”)  have alluded to by combining them in their plans. In this article on energy and the environment, the Curmudgeon analyzes the energy plans advanced by the candidates and by oil magnate T. Boone Pickens. All three plans have positive aspects, and all have negatives.

This being a journal of opinion, the Curmudgeon won’t insult your intelligence by pretending to be, ahem, “fair and balanced.” Nevertheless, we have tried not to be unfair. It should be pretty easy to tell where the facts end and the opinion starts.

The Obama Plan

Senator Obama clearly believes that government can and should help by getting involved in solving the energy and environmental problems we face. Senator Obama’s plan is full of partnerships between the government and private enterprise, he proposes incentives (like subsidies and matching grants), and he intends to work with other governments and the United Nations. At the same time, the senator intends to put money in people’s pockets to help them through the transition to a green economy, as well as to provide them relief from high fuel prices.

In the short term, Senator Obama would use a windfall profits tax on the oil companies to pay for a $1,000 emergency energy rebate for families ($500 for individuals). The Curmudgeon questions whether a windfall profits tax would work, but the Robin Hood quality of the idea is tempting: take from the obscenely rich oil companies and give to the (relatively) poor. We note that the recent Economic Incentive
Plan did work. An energy rebate should have a similar effect.

Another short-term solution proposed by Senator Obama is to swap light oil from the Strategic Petroleum Reserve for heavy oil. Such a move would lower gas prices. Debate on the issue centers on whether we’re in an emergency, which is what the reserves were designed for. Senator Obama thinks so, and the Curmudgeon thinks a lot of people who can’t afford to put gas in their cars to get to work would agree. The problem is that it’s a temporary solution: gas prices will soon go back up, and we’d better have a long term approach working soon.

Senator Obama would also crack down on excessive energy speculation, specifically by closing the “Enron loophole.” (The 2008 Farm Bill, passed over President Bush’s veto, closed the Enron loophole. Senator McCain opposed the bill, Senator Obama favored it, and there’s more on the Enron loophole under our discussion of the McCain plan.)

In the longer term, Senator Obama proposes to reduce greenhouse gas emissions with a cap-and-trade program, as does Senator McCain. However, Obama’s emissions standards are tougher: he would reduce emissions to 80% below 1990 levels by 2050 (McCain would reduce to only 60% below 1990 levels.) Also, McCain does not specify how prices for permits would be set, but he would distribute them based on a company’s past emissions record. Obama’s plan would auction permits (which he calls “credits”). Any company that intends to emit greenhouse gasses would have to buy permits to do so—at auction—no matter what its previous record was. We think that’s a good idea. In addition, the plan would provide incentives for CO2 emitters to send their CO2 to old oil fields for use in the Enhanced Oil Recovery process. The Obama plan would use the proceeds of the plan to support energy efficiency improvements and to help families and communities make the transition to a low emissions, low carbon economy.

Senator Obama says he will work to make the US a leader in preventing climate change by going back to work with the U.N. Framework Convention on Climate Change (UNFCC) and bring the major emitting nations together “to develop effective emissions reduction efforts.”

Senator Obama hopes to create 5 million new jobs by making investments that will reduce our dependence on foreign oil and get low-carbon technologies deployed more quickly:

  • In the next decade, $150 billion will go toward getting plug-in hybrids on the road more quickly, promoting the development and use of renewable energy, developing and deploying “clean coal” technology, and improving the power grid.
  • Obama will invest in workforce training to give American workers the skills needed for “green” jobs, and will create a “Green Vet Initiative” to offer counseling, training, and job placement services to get veterans into “green” jobs.

The Curmudgeon likes Senator Obama’s emphasis on partnerships with private industry to create green jobs, and his emphasis on making sure the workforce—especially veterans—is trained to fill those jobs. Without that sort of emphasis we would likely be using Chinese-made energy-efficient vehicles and appliances, with vets flipping hamburgers. There would be plenty of hamburger-flipping jobs because few of us could afford anything but fast-food restaurants.

Senator Obama would work with the industry to make vehicles more fuel-efficient, and to use less carbon. He proposes to increase the fuel economy standards by 4% a year, and would establish a national Low Carbon Fuel Standard to reduce the amount of carbon in fuels 10% by 2020—and require that 60 billion gallons of advanced biofuels be in our supply by 2030.

Some of the $150 billion mentioned above would be to get a million plug-in hybrid cars on the road by 2015. $4 billion would ensure they are made in the US by helping domestic auto makers to retool to make energy-efficient vehicles—in the US, with American workers.

To help develop the market, Senator Obama commits to having the entire White House fleet converted to plug-in vehicles in a year, and to having half of all cars purchased by the federal government be plug-in hybrids or all-electric vehicles by 2012. The Curmudgeon is not an automotive expert, but feels skeptical that there will be enough plug-in vehicles available in time to convert the White House fleet by December, 2009. There will be flex-fuel vehicles available, however: Obama plans to work with congress and the industry to make sure all new vehicles are Flex-Fuel vehicles.

Senator Obama and Senator McCain would provide a tax credit for buying these advanced vehicles. The difference is that the Obama tax credit is larger than the McCain tax credit, and the vehicles don’t have to be zero-emission vehicles to qualify for the Obama credit. It seems to the Curmudgeon that vehicles qualifying for the Obama credit will be available years before those that qualify for the McCain credit.

Senator Obama will also work to increase domestic oil and gas production. Considering the amount of noise we’ve heard about offshore drilling, the Curmudgeon was interested to learn that the oil companies have drilling rights to 68 million acres of land, 40 million of which are offshore. But they have not developed this land, and Senator Obama would require them to do so—or to turn the rights over to another company that will do so, or to pay a fee.

Obama wants “responsible domestic production” of oil and natural gas. He plans to set up a process for identifying obstacles and delays to developing the Montana and North Dakota shale oil fields, the Texas and Arkansas natural gas shale fields, and the National Petroleum Reserve in Alaska (NPR-A). (The NPR-A is 23.5 million acres of federal land set aside—by President Harding, no less—to secure the US petroleum reserves for national security purposes. It is not the Strategic Petroleum Reserve.) Senator Obama will also make finishing the Alaska Natural Gas Pipeline a priority item.

Senator Obama calls it “diversifying our energy sources,” but what he means is developing and using energy sources other than petroleum: renewable sources like solar, wind, and geothermal; currently dirty sources like coal; and nuclear power:

  • Senator Obama would require that 10% of the electricity we consume be “derived from clean, sustainable energy sources.” like solar, wind, and geothermal. He believes, and we agree, that the requirement would produce more private investment and thousands of new jobs. (He does not say how he would implement the requirement.)
  • Coal is an old, dirty, energy source—but we have lots of it. Senator Obama would provide incentives to speed up the development and deployment of clean-coal technologies. One incentive would be to have the Department of Energy enter public-private partnerships to develop five new coal-fired plants.
  • Senator Obama’s plan insists that nuclear power must be a part of our energy source package, but recognizes that there are serious problems with waste storage. (Obama does not believe that the Yucca Mountain facility is suitable.) The plan also recognizes the national security aspects of using nuclear power, and would take steps to prevent fuel (or waste) from being stolen, and to make nuclear plants more secure from terrorist attack.

Senator Obama tells us that (according to the United Nations) the US is the 22nd most energy efficient nation among the major economies of the world. One may dispute the precise ranking, but as T. Boone Pickens points out, we use 25% of the world’s oil production—and we have about 4% of the world’s population. It should be pretty obvious that we need to become more efficient in our use of energy. Senator Obama would set a goal of reducing electricity demand 15% from the Department of Energy’s projected levels by 2020. He would put a part of the burden on utilities by setting demand reduction targets, and would also set more stringent building and appliance standards. Sounds good, but the Curmudgeon sees two problems: Obama doesn’t say whether the DOE projection includes electricity used by plug-in hybrid vehicles, and we don’t understand how the utilities could reduce demand, except by raising prices ruinously. The Curmudgeon agrees with the goals, but the implementation needs more thought.

In addition, Senator Obama would:

  • Set a goal for all new buildings to be carbon neutral, or produce zero emissions, by 2030.
  • Require a 40% increase in efficiency of all federal buildings by 2014, require that all new federal buildings be carbon-neutral by 2025, and upgrade existing federal buildings to get a 25% increase in efficiency by 2015.
  • Invest in improving the power grid by facilitating adoption of “smart grid” practices, and establish a matching grant program to encourage private investment.
  • Fully fund LIHEAP (Low Income Home Energy Assistance Program) to provide immediate access to heating assistance to low income families, and help to weatherize at least 1 million low-income homes a year for the next decade. (Weatherized homes use 20%-40% less energy, saving both money and energy.)
  • Reform federal transportation funding, make infrastructure improvements, and encourage land use decisions that will permit people to walk, bicycle, and use mass transit instead of cars.

It may not astonish you that the Curmudgeon likes the Obama plan. It seems well thought out, effective, and compassionate to those who will, inevitably, get caught in the wheels of progress.

The McCain Plan

If you like impressive-sounding goals and simplistic solutions, you’ll like Senator McCain’s energy plan. It has a few good ideas, but leans heavily on rhetoric and gimmicks and lacks substance:

  • He wants to end the moratorium on offshore drilling. Drilling offshore would have little impact on production and almost no impact on prices—but sounds good to people desperate for relief from high gas prices.
  • He wants to put up a $300 million prize to improve battery technology—but that’s the wrong approach. (See below.)
  • He “calls on” auto makers to produce more flex-fuel vehicles, and wants to see us use advanced bio-fuels—but does nothing to bring that about.
  • He wants to build more nuclear power plants—but has no suggestions about dealing with nuclear waste.
  • He wants to establish a tax credit for R&D—but doesn’t say what kind of R&D.
  • He wants the US to become a leader in a world dedicated to being more green—but doesn’t say how he’d accomplish this.
  • He wants to rework the current “patchwork” of tariffs and energy subsidies—but he has consistently voted against energy subsidies.

McCain comes out firmly against a windfall profits tax on the oil companies. He may be right: the jury is still out on that one.

There are some positive ideas in the McCain plan. He would establish a cap-and-trade system to bring down the emission of greenhouse gasses, and he has proposed standards for emissions. He wants to enforce the fuel efficiency standards for vehicles more strictly, and he wants to reform the laws and regulations for oil futures trading.

Here are the details:

Senator McCain wants to break our dependency on foreign oil, and he has several ideas for doing that.

He wants to end the moratorium on offshore drilling. That sounds good, but it wouldn’t help lower the price of gas. According to the US Government Energy Information Administration it would take five years to get any production going, and if we started in 2009, there would be no significant impact on production before 2027! And even then the impact on prices would be “insignificant.”

Here are some more of his ideas:

  • He wants a $5,000 tax credit for everybody who buys a zero emissions car. Senator Obama has a similar item in his plan, only he wants to make it a $7,000 tax credit, and he uses it for buyers of hybrid vehicles. The Curmudgeon isn’t going to hold his breath and wait for the McCain tax credit, because it will be years before a zero emissions car appears on the market.
  • He wants to give a $300 Million prize to improve battery technology. But you don’t achieve commercially-viable mass market technological breakthroughs by giving a prize. You do it by entering a partnership between the public and private sectors to combine and utilize the resources of both—at a high priority. That’s how we got to the moon, and that’s how we’ll get electric cars.
  • He wants to see more flex-fuel vehicles, and he’ll call on auto makers to make a more rapid upgrade than their current commitment. Good idea (if we’re talking about vehicles that use advanced bio fuels) but “calling” on US auto makers has yet to produce anything but whines. The McCain plan has no carrots or sticks to make sure it happens.
  • Senator McCain believes alcohol-based fuels “have great promise,” and wants to see us using cellulosic ethanol (which doesn’t compete with food crops) in those cars he’ll call on the auto makers to put on the road. We do too, but nobody has yet developed a new technology based on our beliefs—or on John McCain’s.
  • He wants to enforce Corporate Average Fuel Economy (CAFE) standards more effectively. These are the fuel economy standards auto makers must meet. According to Diesel.net, “From 1983 to 2004, manufacturers paid more than $618 million in civil penalties. Most European manufacturers regularly pay CAFE civil penalties ranging from less than $1 million to more than $27 million annually. Asian and US manufacturers have never paid a civil penalty.” (emphasis mine) so better enforcement is a good idea. But Republican administrations are not noted for strict enforcement of rules for big business.

Senator McCain thunders about drilling offshore, but he doesn’t even mention oil shale. The oil shale in Colorado, Utah, and Wyoming is conservatively estimated to contain 800 billion barrels of recoverable oil. That’s about three times as much oil as Saudi Arabia has. Recent technology improvements indicate that it can be recovered in an environmentally safe manner—at about $60/barrel.

Senator McCain’s says little about alternative energy sources. He wants the US to become a leader in a “new international green economy,” but says nothing about how this is to be accomplished. He does want to commit $2 billion to advancing clean coal technologies, but says nothing about how the money would be spent. Senator Obama has a more detailed proposal.

McCain is high on nuclear power: he wants to build 45 new plants by 2030, and he correctly points out that Nuclear power plants are an efficient, non-polluting way to generate electricity. But he doesn’t say how he would deal with the major problem of nuclear power: what do you do with the highly radioactive waste? There are serious problems with the waste storage facility under development at Yucca Mountain, Nevada—including problems with how you get the waste there! Until we can transport and store the waste safely, in the Curmudgeon’s opinion, nuclear power is a nonstarter.

Senator McCain wants to establish a permanent tax credit for R&D. Sounds good. But he doesn’t say what kind of R&D the tax credit would be for. The Curmudgeon would like to know exactly what kind of development he’s subsidizing. Military weapons research? Development of better dog food?

Senator McCain would “encourage the market” for alternative, low-carbon fuels by “rationalizing the current patchwork” of temporary tax credits for fuels like wind, hydro, and solar power. He would also “eliminate isolationist tariffs and wasteful special interest subsidies.” Sounds good—but he has consistently voted against extending subsidies for alternative energy. And when Grist
asked him, “What’s your position on subsidies for green technologies like wind and solar,” he said “I’m not one who believes that we need to subsidize things.” The Curmudgeon is one who believes we need to subsidize things.

Senator McCain intends to make us more energy efficient by applying a higher energy efficiency standard to government buildings. He claims that such a standard will save the taxpayer “substantial” money in government energy costs, and thinks the effects will trickle down to the folks in other ways, like more energy-efficient construction. Maybe. But trickle-down economics doesn’t work; will trickle-down construction methodology work? We don’t think so. Still, it’s a good idea, although it’s unlikely to help as much as, say, keeping your tires properly inflated.

The senator also wants to move toward electricity grid improvements by reducing red tape to “allow” investment. Here’s something else we need to know more about. Would he reduce red tape to allow construction without environmental impact studies? Reduce safety requirements? We most certainly need grid improvements, because the need for electricity grows and will continue to grow—but the grid needs to be environmentally friendly and safe to workers and neighbors.

The McCain plan’s approach to protecting the environment and addressing climate change has a lot of merit, and may be the best part of his plan. He would establish a cap-and-trade system to set limits on greenhouse gasses. The system, which would apply to electric power, transportation fuels, commercial business, and industrial business, would allot permits to participants (the total of the permits being equal to the cap on emissions). Participants could sell permits to take advantage of their reductions in emissions, or buy permits to cover their excessive emissions. The emissions targets would lower emissions to 2005 levels by 2012, and to 66% below 2005 levels by 2050. (The Obama plan has a similar system, and the Curmudgeon thinks the Obama system is better.)

Senator McCain wants to understand the role speculation is playing in energy prices. So do we all, and Congress is investigating. But the senator also wants to punish abuses and reform the laws and regulations on oil futures (and presumably other futures) to make them “as clear and effective as the rules for stocks, bonds…” The Curmudgeon is in wholehearted agreement with this one, but is compelled to note that it was McCain economics advisor Phil Gramm who was crucial to the passage of the loophole in the first place, and that the McCain campaign finance co-chair Wayne Berman, and McCain’s top campaign advisor Charlie Black lobbied to keep it open. Please forgive us if we doubt the senator’s sincerity here.

Finally, Senator McCain makes it absolutely clear that he opposes a windfall profits tax on the oil companies. The curmudgeon has not yet decided whether to agree with him or not: the idea of taxing the oil industry’s windfall profits—at a time when their profits are at a monstrous all-time high—is tempting. But will it work? The senator may be correct on this one as well, but the issue needs more study.

The Pickens Plan

Mr. 57-years-in-the-oil-business T. Boone Pickens says we’re in trouble. We’re importing more than 70% of our oil, using 25% of the oil the world produces (with about 4% of the population) and sending about $700 billion—four times the cost of the Iraq war—abroad to pay for the stuff.

He’s right. But you knew that. You figured it out when you started paying around four bucks a gallon to fill up the ol’ bus, and wishing it weren’t the size of a bus. Maybe you figured it out before that.

Pickens figured it out, and he’s been spending a lot of money pushing his energy plan, which features wind power and natural gas. That’s hardly surprising, since one of his companies, Mesa Petroleum, is in the process of building the world’s largest “wind farm,” and is a major producer of natural gas.

That said, wind power is an efficient source of energy, taking advantage of the kinetic energy of the wind to generate electricity. Wind turbines don’t take up enough space to bother farmers or grazing animals, and making, installing, and maintaining them is a source of jobs—so their impact on the economy is positive. The down side is that they’re ugly, as the Curmudgeon can testify, having seen them dotting the otherwise beautifully sere hills of Southern Spain. But there is a new technology that puts wind turbines on the roofs of tall buildings where they don’t pollute the visual environment but supply electricity to the buildings that support them—and frequently add electricity to the power grid in the process.

Natural gas is also good. It’s probably the least polluting of any fossil fuel, and it’s relatively plentiful. There are fueling stations (most of them owned by one of Pickens’ companies) dotted across the country where you can fill ‘er up with natural gas at around $2 a gallon. But there aren’t anywhere near enough of them. And gas is a fossil fuel.

The problem with Pickens’ plan is that it doesn’t go far enough. His TV ads mention solar energy, but the plan does not. And even with solar power doing its bit, wind and gas are not going to be enough to get us out of this mess.

Pickens has one thing absolutely right: the people of this country must get excited about the energy problem, and must put intolerable pressure on the Congress to do something about it.

The Bottom Line

All three plans sound good. The Obama plan in particular makes sense because it recognizes that the federal government is going to have to get heavily involved—not just by urging the private sector to do the right thing, but with mandatory standards, partnerships, subsidies, and training programs to upgrade the workforce. Just as important, Senator Obama’s record, and his public statements, tell us that he means what he says in the plan. He may not be able to do it all, because that is up to the congress, but we believe he will try hard. We believe that with a cooperative congress he will succeed.

But the Obama plan is not perfect. The Curmudgeon doesn’t know, for example, whether a windfall tax on oil company profits would be a good thing or not. We are skeptical about Senator Obama’s ability to get enough plug-in vehicles on the road to convert the entire White House fleet next year, although we wish him well, or to reduce projected electricity usage by 15%, given that more and more plug-in vehicles will be available.

The Curmudgeon is also skeptical about the McCain plan. The emphasis on offshore drilling as an antidote to high gas prices is nothing short of fraudulent; where he does put up money his approach, like a prize for developing a zero-emission car, is unlikely to get a practical, large-scale result in place; and all too often he merely “calls on” or “encourages” the private sector to do what it ought. And we note that he has voted against extending subsidies on the development of solar energy eight times. The net of the McCain plan is talk loudly, but don’t do much.

The Pickens plan reads like a brochure produced by an expensive ad agency. He’s right that wind power and natural gas are part of the solution but his emphasis is a way of marketing his companies’ products: wind turbines and natural gas.

Neither of the other plans has as much emphasis on alternative, renewable, clean energy sources as it ought to. In addition to wind, solar energy, and geothermal energy, we could use tidal energy, wave energy, methane hydrate from the seabed, anaerobic digestion…well, you get the idea.

Both Obama and McCain favor cap-and-trade plans to mandate a reduction in greenhouse gas emissions. The Obama plan is more explicit, and because it requires all emitters to buy credits at auction, seems broader and more even-handed. We would be surprised if Senator McCain’s interest lasted past election day anyway.

The bottom line is this: Senator Obama means what he says, and will work hard to get congress and the executive branch to implement his plan. T. Boone Pickens wants to sell wind turbines and natural gas. And Senator McCain won’t actually do much of anything.

In any case, what actually happens is up to us, the American people the politicians like to talk about so much. We have to figure out what we want our government to do about the problem. We have to figure out which national candidates are more likely to make it happen. And We have to put enough pressure on them to make them do what’s necessary.

Gas is $4 a gallon: Why?

June 5, 2008 at 1:16 pm | Posted in Energy | 8 Comments

The other day somebody asked me if I could explain the high price of gas. “Isn’t there a lot of price gouging,” she asked? Maybe, but crude oil made up 58% of the price in 2007, when the average price was $2.80 per gallon. At today’s $4.00 price, crude oil is an even bigger piece of the pie. The higher the price of crude the more you pay for gas, and crude oil prices depend on supply and demand.

On the supply side, we get about half of the crude oil we use from foreign countries. OPEC supplies us with more than half of what we import, and despite the pitiful efforts of the Bush administration, OPEC has refused to pump more oil. More than 20% of our oil imports come from Canada, where the costs of finding and pumping it, called “recovery” costs, have limited the amount of oil they can pump.

We produce the other half of what we use, but like Canada, we’re limited by high recovery costs.

As the price of oil increases, it becomes economically feasible to find and recover more oil, so Canadian and domestic production is likely to increase—but will decrease again if the price drops.

On the demand side, the emerging economies of China and India, as well as the Pacific Rim, have been gobbling up more and more oil, and the U.S. and European markets for oil continue to grow as well. Increased demand in Asia and the Middle East amounted to 60% of the increase in petroleum use between 2003 and 2006. Demand in North America and Europe increased too, sucking up an additional 20% of worldwide demand during the period, while increased demand in the rest of the world made up the other 20%.

So we have two forces—supply and demand—working to increase the price of oil and keep it up. That keeps the price of gasoline up.

How about those greedy oil companies? Their profits are the highest in history! Well Congress is going to investigate to see if there’s price gouging, but look at it this way: If I sell you something for a dollar, making a modest 10% profit on the deal, my profit is a dime. If my costs increase and I sell it to you for two dollars, and I still take my modest 10% profit, my profit becomes twenty cents. The higher the price of gas the higher the profits, even if the percentage is the same.

Is it going to get better? No. The demand for gas will continue to rise, at least in the emerging economies like China and India. As time goes by, existing oil wells produce less and less—and the cost of finding new sources and pumping the oil will become higher and higher.

Luckily, there is an answer. There are alternative energy sources available. Solar, wind, geothermal, biofuels, hydrogen fuel cells and more, are under development or actually in use. More about these in another article; in the meanwhile you need to get on your elected representatives (including the candidates) to provide development support to alternative energy. (There’s a link to Congress.org somewhere on the right of the screen.)

And you could trade in your gas-guzzling SUV or pick-up truck for a hybrid car that gets a lot better gas mileage!

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