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McCain’s Energy Plan: Correct Diagnosis, Killer Prescription

John McCain seems to have identified our energy problems accurately. But are his solutions equally laudable?

by
Jérôme Guillet

Bio

June 26, 2008 - 12:40 am
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With his proposals to open currently closed off areas of the USA for oil production, John McCain seems to think that the problem is addiction to foreign oil rather than to oil per se. But a country that controls 3% of world oil reserves while consuming 24% of world demand cannot seriously expect to be self-sufficient for very long. Indeed, the 21 billion barrels of inaccessible reserves that McCain wants to open to production represent barely three years of total US consumption. Even if they were brought to the market rapidly, their impact would be temporary.

In fact, the Energy Information Agency, in a report published in 2007, concluded that “access to the Pacific, Atlantic, and eastern Gulf regions would not have a significant impact on domestic crude oil and natural gas production or prices before 2030″ and that “any impact on average wellhead prices is expected to be insignificant.”

Authorizing drilling in currently closed areas will not bring more oil to the market and will not bring prices down. Pushing it as energy policy perpetuates the hope that it is somehow possible to come back to worry-free times of cheap and plentiful oil. But this is by no means a distinguishing feature of John McCain: this is the real “third rail” of US politics, and no politician has dared touch it so far.

Similarly, his policies with respect to coal and nuclear are focused on the supply side rather than the demand side; but at least, in that case, his prescriptions can be implemented. Nuclear energy has become endlessly controversial, as arguments about what to do with the waste or about vulnerability to terrorist attacks are brought against those that point out, as McCain does, that it is an essentially carbon-free, relatively cheap power source. However, it is certainly possible to move towards a significant share of electricity generation coming from nuclear. After all, it took France less than 15 years to go from no nukes to 80% of its consumption coming from 58 nuclear plants — all using an identical US design provided by Westinghouse.

On the coal front, US reserves are also sufficient to ensure plentiful power generation for some decades; however such a policy would go against McCain’s professed goal to reduce carbon emissions, as carbon capture and storage is still a theory rather than an industrial reality and is likely to remain that way for many years. Moreover, nukes and coal are not — yet — substitutes for the main use of oil: transportation. Until plug-in hybrids or other electric vehicles become dominant — or people move massively to light rail — electricity will not be a meaningful substitute for oil. And coal to liquids technology is unlikely to ever be scaled to the current needs of US motorists, given the need for vast volumes of water in the process.

So, despite his claims to provide a break from the past, McCain’s proposals are stuck in the very same mindset he criticizes — the one that drove Hillary Clinton to push for lower gas taxes, Bush to call for renewed offshore drilling, or Obama to support coal production in the Appalachians: the fundamentally American notion that there is no limit to what one can do, and that solutions will be found by going for more, or bigger, rather than doing less or smaller.

But as the global scarcity of oil — that incredible, irreplaceable gift of nature which packs energy in a dense, easily transportable form — becomes more obvious, and as we need to increasingly fight with the Chinese and others for it, a revolution in our minds will be necessary to no longer take it for granted. It is a pity that McCain, whose description of today’s crisis is spot on, cannot take that jump yet beyond that minimalist $300 million reward for better batteries. That would make him a maverick — and a much needed one.

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Jérôme Guillet is an investment banker providing project finance to the energy sector. He blogs as "Jerome a Paris" at the Oil Drum and European Tribune.
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