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Column: Hot air clouds the energy debate
June 23, 2008
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 remainder of this column can be read here. Please post comments below.
Obama’s characterization of the prospects for offshore drilling is accurate – that is to say, it really cannot help much.
There is a lot of money to be made with $140/barrel oil even with a small field, so of course companies want to do it, but there is no chance that offshore drilling in America is going to turn around the developing situation. None.
Exploration and development take years, and once brought on-stream, even billion barrel fields do not produce dramatic amounts. The actual amounts depend on the nature of the oil-bearing structure, and some offshore structures are very complex, but finding a billion barrels means enjoying a billion barrels only over, say, the next twenty years.
The U.S. today imports about 13.5 million barrels each day, roughly 5 billion barrels per year.
As far as comparisons with the North Sea, there are, so far as I know, no American offshore prospects resembling it.
And things are only likely to become worse. Apart from Bush’s ignorant shooting up of some of the world’s great centers of production, the rise of China and India and their competition for resources mean the United States is entering a new era altogether.
Lumbering SUVs and grotesque, over-sized pick-up trucks - two and three to a family - each with one passenger are rapidly becoming a thing of the past, unless you are rich enough to burn money.
So is the seemingly endless suburban sprawl that has made America an ever-uglier place since WWII. Endless new cheap tracts in the cornfields and deserts are going to go the way of the Dodo. The costs of transportation and heating and public services are going to end this phenomenon.
While Obama has appealed to popular prejudice about Big Oil – and just try being elected president without appealing to at least some of these - he nevertheless is dead right about prospects for offshore production.
America’s coastlines, from Maine to Florida and from California to Oregon, are heavily developed for tourism and recreation and fishing, hundreds of billions invested and industries which produce substantial incomes. These are put at risk by offshore drilling, especially the kind of all-out stampede, a crazed gold-rush on the water, that Bush or Cheney would like to see.
I actually do not believe McCain embraces this in quite the same way. Indeed, it is hard to understand his attaching himself to views shared by Bush at this date.
Today, environmentalism is anything but a left-wing philosophy. There are definitely people in his own party McCain will alienate.
The oil industry has never enjoyed great public sympathy either, and today as we enter a new era in the cost of petroleum products, I would expect that sympathy is going nowhere but down.
But, as you may know, there are rumors on the Internet that McCain will not get the nomination in the summer. There has always been a good-sized faction of Republicans who hate John McCain the same way that all Republicans hate Hillary Clinton. So McCain in advocating offshore drilling may be playing to the Republican political crowd who does not like him.
I am concerned about friendly words Obama has made about ethanol. Apparently, too, his staff includes some people associated with ethanol.
Ethanol, made from corn, has always been a poor choice as a fuel, but the scientific and economic considerations behind that statement don’t stop politicians from claiming otherwise.
American use of ethanol blended into gasoline actually represents a hidden subsidy to corn farmers, a subsidy on top of other subsidies, because American corn production itself has long been subsidized. The American program, being expanded now by a leader widely recognized for wisdom and insight, George Bush, subsidizes farmers hurt by the abundance of their own subsidized production.
Subsidies plus the extent of Midwestern farmland suitable for its production are why America produces such an abundance of corn. Its use in motor fuel on any scale started as a way to stretch America’s fuel supply in the face of Arab anger over foreign policy.
But it does not really do this. Although numbers naturally change over time, ethanol has roughly 70% the energy content of gasoline, yet it costs about 40% more to produce and distribute. In order to deliver this economic bargain to motorists, the government forgoes taxes paid by the users of gasoline, taxes which, of course, pay for important government services.
You don’t need to study economics to appreciate that as a bad bargain.
In the years since the original strategic argument, arguments for the use of ethanol in fuel have developed around its being a benefit to the environment. It is no surprise that many embrace this at first hearing: growing something for fuel just sounds cleaner and healthier than using a minerals dug out of the ground.
But this is a false argument, false at several levels. If you have a certain distance to drive, requiring a certain amount of energy, you will have to fuel up more often, and you will be paying the same or more for this privilege with ethanol as part of each fill-up.
The motorist, re-fueling his or her car, will not be aware that significant amounts of petroleum products go into growing corn before any fuel is manufactured.
It will be the furthest thing from the motorist’s mind that ethanol for fuel cannot be shipped by pipeline, the cheapest form of shipping liquids and gases, because ethanol picks up water on it way underground, so ethanol must use more expensive truck transport, and what do the trucks run on?
The motorist also likely will not be aware that while burning some ethanol with gasoline reduces carbon dioxide emissions, if you account for the carbon dioxide emissions of the corn’s production, there is almost no net gain.
A recent, published finding that ethanol increases ozone in the lower atmosphere is also unlikely to drift through his or her thoughts while squeezing the pump handle. Ozone is a constituent of smog which affects those with respiratory problems. Ironically, ozone in the lower atmosphere is itself a greenhouse gas.
Now, corn is a staple food for many poor people, especially throughout the Americas, and it is a simple matter of supply and demand that if large quantities of corn go to fuel, poor Mexicans and others will be eating less because its bounty in the food supply will drop and its price will rise.
I actually do not believe sound energy policy is possible in the United States until it bumps up against a crisis. The babyish indulgent quality of so many Americans combined with a sense of entitlement and a corrupt political system mean many or most voters are only turned on an important issue after the pain of pounding their heads against a wall.
We’ve seen this psychological phenomenon many times, in matters both foreign and domestic, including in Vietnam and today in Iraq.
Jimmy Carter, a much-maligned but wise and highly intelligent man, focused on this issue two decades ago. He was utterly ignored. The U.S. has done nothing but party in petroleum terms for those two decades, never so much as raising the CAFE standards for light trucks. It’s now time to pay the piper.
Posted by: JOHN CHUCKMAN, TORONTO | June 23rd, 2008 at 3:01 pm | Report this commentObama’s characterization of the prospects for offshore drilling is accurate – that is to say, it really cannot help much.
There is a lot of money to be made with $140/barrel oil even with a small field, so of course companies want to do it, but there is no chance that offshore drilling in America is going to turn around the developing situation. None.
Exploration and development take years, and once brought on-stream, even billion barrel fields do not produce dramatic amounts. The actual amounts depend on the nature of the oil-bearing structure, and some offshore structures are very complex, but finding a billion barrels means enjoying a billion barrels only over, say, the next twenty years.
The U.S. today imports about 13.5 million barrels each day, roughly 5 billion barrels per year.
As far as comparisons with the North Sea, there are, so far as I know, no American offshore prospects resembling it.
And things are only likely to become worse. Apart from Bush’s ignorant shooting up of some of the world’s great centers of production, the rise of China and India and their competition for resources mean the United States is entering a new era altogether.
Lumbering SUVs and grotesque, over-sized pick-up trucks - two and three to a family - each with one passenger are rapidly becoming a thing of the past, unless you are rich enough to burn money.
So is the seemingly endless suburban sprawl that has made America an ever-uglier place since WWII. Endless new cheap tracts in the cornfields and deserts are going to go the way of the Dodo. The costs of transportation and heating and public services are going to end this phenomenon.
While Obama has appealed to popular prejudice about Big Oil – and just try being elected president without appealing to at least some of these - he nevertheless is dead right about prospects for offshore production.
America’s coastlines, from Maine to Florida and from California to Oregon, are heavily developed for tourism and recreation and fishing, hundreds of billions invested and industries which produce substantial incomes. These are put at risk by offshore drilling, especially the kind of all-out stampede, a crazed gold-rush on the water, that Bush or Cheney would like to see.
I actually do not believe McCain embraces this in quite the same way. Indeed, it is hard to understand his attaching himself to views shared by Bush at this date.
Today, environmentalism is anything but a left-wing philosophy. There are definitely people in his own party McCain will alienate.
Posted by: JOHN CHUCKMAN, TORONTO | June 23rd, 2008 at 3:04 pm | Report this commentCONTINUED:
The oil industry has never enjoyed great public sympathy either, and today as we enter a new era in the cost of petroleum products, I would expect that sympathy is going nowhere but down.
But, as you may know, there are rumors on the Internet that McCain will not get the nomination in the summer. There has always been a good-sized faction of Republicans who hate John McCain the same way that all Republicans hate Hillary Clinton. So McCain in advocating offshore drilling may be playing to the Republican political crowd who does not like him.
I am concerned about friendly words Obama has made about ethanol. Apparently, too, his staff includes some people associated with ethanol.
Ethanol, made from corn, has always been a poor choice as a fuel, but the scientific and economic considerations behind that statement don’t stop politicians from claiming otherwise.
American use of ethanol blended into gasoline actually represents a hidden subsidy to corn farmers, a subsidy on top of other subsidies, because American corn production itself has long been subsidized. The American program, being expanded now by a leader widely recognized for wisdom and insight, George Bush, subsidizes farmers hurt by the abundance of their own subsidized production.
Subsidies plus the extent of Midwestern farmland suitable for its production are why America produces such an abundance of corn. Its use in motor fuel on any scale started as a way to stretch America’s fuel supply in the face of Arab anger over foreign policy.
But it does not really do this. Although numbers naturally change over time, ethanol has roughly 70% the energy content of gasoline, yet it costs about 40% more to produce and distribute. In order to deliver this economic bargain to motorists, the government forgoes taxes paid by the users of gasoline, taxes which, of course, pay for important government services.
You don’t need to study economics to appreciate that as a bad bargain.
In the years since the original strategic argument, arguments for the use of ethanol in fuel have developed around its being a benefit to the environment. It is no surprise that many embrace this at first hearing: growing something for fuel just sounds cleaner and healthier than using a minerals dug out of the ground.
But this is a false argument, false at several levels. If you have a certain distance to drive, requiring a certain amount of energy, you will have to fuel up more often, and you will be paying the same or more for this privilege with ethanol as part of each fill-up.
The motorist, re-fueling his or her car, will not be aware that significant amounts of petroleum products go into growing corn before any fuel is manufactured.
It will be the furthest thing from the motorist’s mind that ethanol for fuel cannot be shipped by pipeline, the cheapest form of shipping liquids and gases, because ethanol picks up water on it way underground, so ethanol must use more expensive truck transport, and what do the trucks run on?
The motorist also likely will not be aware that while burning some ethanol with gasoline reduces carbon dioxide emissions, if you account for the carbon dioxide emissions of the corn’s production, there is almost no net gain.
A recent, published finding that ethanol increases ozone in the lower atmosphere is also unlikely to drift through his or her thoughts while squeezing the pump handle. Ozone is a constituent of smog which affects those with respiratory problems. Ironically, ozone in the lower atmosphere is itself a greenhouse gas.
Now, corn is a staple food for many poor people, especially throughout the Americas, and it is a simple matter of supply and demand that if large quantities of corn go to fuel, poor Mexicans and others will be eating less because its bounty in the food supply will drop and its price will rise.
I actually do not believe sound energy policy is possible in the United States until it bumps up against a crisis. The babyish indulgent quality of so many Americans combined with a sense of entitlement and a corrupt political system mean many or most voters are only turned on an important issue after the pain of pounding their heads against a wall.
We’ve seen this psychological phenomenon many times, in matters both foreign and domestic, including in Vietnam and today in Iraq.
Jimmy Carter, a much-maligned but wise and highly intelligent man, focused on this issue two decades ago. He was utterly ignored. The U.S. has done nothing but party in petroleum terms for those two decades, never so much as raising the CAFE standards for light trucks. It’s now time to pay the piper.
Posted by: JOHN CHUCKMAN, TORONTO | June 23rd, 2008 at 3:05 pm | Report this commentSorry for the duplication. The first full posting seemed for some minutes not to have been accepted.
Posted by: JOHN CHUCKMAN, TORONTO | June 23rd, 2008 at 3:08 pm | Report this commentTerrific work of graphic art accompanying this article. Captures the ‘Twin Peaks’ like spookiness of American political debate: enter the twilight zone. Clive, of course, conveys this very well in his writing and the graphic artist interpreted the mood of his column perfectly.
Posted by: RCS | June 23rd, 2008 at 3:51 pm | Report this comment“Jimmy Carter, a much-maligned but wise and highly intelligent man, focused on this issue two decades ago. He was utterly ignored”….and the US has enjoyed 3 decades of (near) uninterrupted economic growth, a massive amount of new investment in technology and healthcare, and a huge increase in standard of living with over 20 million people rising out of poverty in the US, communism thwarted and China/India/Russia sort of democratic, all thanks to our utter ignorance of a well-meaning but muddy minded president.
JBP
Posted by: John Powers | June 24th, 2008 at 3:08 am | Report this commentJohn Powers,
decades of growth that have seen median incomes stagnate (still not at 1991 levels in real terms), except nobody noticed due to cheap imports from China and plentiful low-interest credit - but now both those ships have sailed…
Posted by: David | June 24th, 2008 at 8:59 am | Report this commentRather thoughtless comment, Mr Powers.
You could have much higher economic growth had you suspended clean-air requirements, water-pollution controls, or allowed more allowance for shady operations generally.
As far as China, India, Russia you truly don’t know what you are talking about. These nations are following the historic patterns, well known to economic historians, of the development of nations.
Democracy flows directly from economic growth once there is a large enough middle class, as does greater recognition of human rights.
It does not come from the likes of the comic-book president, Ronald Reagan, as one senses you likely believe.
I suppose you also believe that democracy comes from the bellies of B-52s, for that is how your nation consistently behaves abroad.
Posted by: JOHN CHUCKMAN, TORONTO | June 24th, 2008 at 12:29 pm | Report this commentDavid,
Of course those stagnation statistics fail to take into account 401K and other tax shielded plans, which have skyrocketed since 1991. Low-Middle income workers are buying 50in Plasma TV at Costco by the carload for about 1/3 the price of 2 years ago.
Chuckman, the important thing is that China/Russia/India have became rather democratic via capitalism, and not via the belly of a B-52.
JBP
Posted by: John Powers | June 24th, 2008 at 1:01 pm | Report this comment“Chuckman, the important thing is that China/Russia/India have became rather democratic via capitalism, and not via the belly of a B-52.”
What does that cryptic comment mean?
I am an economist by training and past profession and I have a great interest in history. That democracy comes from anywhere but economic growth, you never read me saying. So why tell me what I already understand and assume always?
But what does that have to do with the United States ignoring its responsibilities in fairly regulating and ordering its society? Nothing, clearly.
You know, you could have an almost pure, bare-knuckles economy, one in which the principles of Darwinisam were exactly mimicked, and you’d have explosive growth. Lots of deaths and maimings and misery too.
All laws and regulations slow growth to some degree, so society must judge constantly what is the right mix of let-her-rip and regulation. Some choices though lead to long-term results that are destructive. These are the choices America has made in energy for years.
Carter understood this precisely. He does not deserve the contemptuous comments from people full of themselves and responsible for the great adjustment difficulties soon ahead for the United States. I’m sure you think Bush - who wouldn’t understand what I’m saying yet would confidently put forward arrogant, destructive ideas - is an example of something other than a bitter joke.
As far as B-52s, isn’t that precisely what America has tried to do in Vietnam, Afdghanistan, and Iraq, to “bring democracy” through invasion and mass killing? It’s pure insanity.
There is a lot of confusion in your country, and your comments only offer further substantial evidence of it.
Posted by: JOHN CHUCKMAN, TORONTO | June 24th, 2008 at 2:16 pm | Report this commentChuckman,
I’ll take a double dose of that confusion over your certainty wrt to Jimmy Carter if it gets us 30 years more of economic growth, the end of communism, and a mass exodus from poverty.
JBP
Posted by: John Powers | June 24th, 2008 at 3:31 pm | Report this commentTo: JP and John Chuckman.
In view of the debate now unleashed (better late than never) in the USA about alternative energy, the environment etc., I would have thought Al Gore is the obvious choice for BO’s running mate. Is that likely? What do you think?
Posted by: J.J. | June 24th, 2008 at 6:04 pm | Report this commentOn the basis of his muddle minded environmentalism, I am not convinced that Gore is qualified. He needs to have more political dealings with the Chicago Machine to fit into the Obama camp.
Perhaps a shady real estate deal with an Iraqi Oil Minister who wants to buy an adjacent lot to his Tennessee Mansion in exchange for carbon offsets, and Gore would be qualified.
JBP
Posted by: John Powers | June 24th, 2008 at 7:36 pm | Report this commentJohn Chuckman wrote: “All laws and regulations slow growth to some degree, so society must judge constantly what is the right mix of let-her-rip and regulation. ”
On the contrary, the rule of law is a prerequisite for economic growth. You cannot have growth where there is a free-for-all. Even regulating the environment does not inhibit growth, if a wide enough definition is given, which should encompass social welfare and not just production and measurable GDP.
Of course, there is such thing as too much red tape, but it is a question of kind, not of quantity.
Posted by: RCS | June 24th, 2008 at 7:56 pm | Report this commentThis was a good article, but it makes what I believe to be a serious error when it refers to the “environmental cost of carbon”. Without atmospheric CO2 none of us would be here, and there be zero vegetation nor any animal and marine life. In a forthcoming paper I show that increases in world food production since 1980 are most strongly correlated with rising atmospheric CO2. Reducing emissions by 80% as proposed by Lord Stern will reduce them to around 2.8 billion tonnes of carbon p.a., below the current level of net uptakes of CO2 by the marine and terrestrial biospheres, which is over 5 billion tonnes of carbon a year. The impact on food prices will be such as to provoke the mother of all famines. All that just to save us from a couple of degrees of warming at most when we already cope with much larger annual and diurnal variations, and when people live happily in Dubai or Singapore with average temperatures way above (as much as 20oC) those in London or Helsinki.
Posted by: Tim Curtin | June 25th, 2008 at 8:31 am | Report this commentIf America subsidises the production of corn causing over supply and then subsidises its conversion into fuel (reducing supply) then the two may actually cancel each other out. All for the benefit of reducing oil import by about 1 million barrels a day, which equates to a saving of some US$ 51 billion dollars a year at current oil prices. Somehow I doubt the subsidy bill is that large. Plus America gets another benefit, by putting corn in fuel it restricts the supply of a product of which it is the dominant exporter and therefore benefits its terms of trade. It may not be great for Mexicans but the ethanol policy is a win win for the US.
Posted by: James | June 25th, 2008 at 9:12 am | Report this commentIt is all very well to ask Americans to cut down on driving and to use smaller cars, but what about the Department of Defense which, reportedly, uses 144,000 barrels of oil per day? When there is an elephant in the room, should we look only at the mice?
Posted by: algasema | June 25th, 2008 at 3:14 pm | Report this commentMr. Crook makes a fine theoretical argument. However, his ?practical? policy recommendations require that the ?environmental cost of carbon? be known to some reasonable level of accuracy. This cost of carbon is then to be used to ?get the price of energy right?.
Unfortunately, the true cost of carbon is not is not understood at all (there is some chance that it is a net benefit) and the right price of energy depends on a number of unknown factors and relationships between factors (besides carbon) that are all unknowable.
This is an example of an apparently well reasoned argument that is completely unreasonable.
Posted by: Greg McMurran | June 25th, 2008 at 5:17 pm | Report this commentThis “hot air” is the perfect renewable energy source: there seems to be an infinite amount of it, if only we could harness it!
Posted by: Eva Roemer | June 26th, 2008 at 2:04 pm | Report this commentIn parliaments with a European-style (horseshoe-shaped) seating pattern, one could imagine some sort of parabolic receptor focusing the energy where the Speaker etc are now seated, whereas in parliaments with UK-style confrontational seating some sort of reverse-flow turbine would be required. And then we just let the politicians talk…
All our energy problems would be solved!
Good article which focuses on the 800 pound gorillas in the room that many prefer to ignore. One quibble though - CC states:
“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…”
It’s true that the right price will resolve many issues across the economy, but not all, including fuel economy and transportation emissions.
One study recently showed that a price of $100/t CO2 would result in a rise of approx. $1 per gallon of gas. Not only is this increase dwarfed by the recent rises, but also $100/t CO2 is not politically feasible for some time to come in the US. Therefore, to tackle transportation emissions (a major component), regulations of some issues such as fuel economy standards will still be required. McKinsey Global Institute research demonstrates similar lessons regarding energy efficiency measures in homes.
Posted by: DKM | June 26th, 2008 at 5:41 pm | Report this comment“…in homes and offices” I should have said in the previous post.
Posted by: DKM | June 26th, 2008 at 6:15 pm | Report this comment