Obama’s Energy Plan a Mix of Bad and Good
Some steps forward, but also a crazy carbon reduction scheme.
October 7, 2008 - 12:25 am
“America has always risen to great challenges, and our dependence on oil is one of the greatest we have ever faced. It’s a threat to our national security, our planet and our economy. … We must act quickly and we must act boldly to transform our entire economy — from our cars and our fuels to our factories and our buildings.”
So begins “New Energy for America,” a fairly detailed policy statement issued by the Barack Obama campaign as its proposed path for breaking the hold of foreign oil on the United States. In view of the importance of the issue, it is well worth examining.
At the core of the Obama policy is a proposal to tax American oil companies and use the proceeds to fund a variety of initiatives, including a $500 rebate to every adult in the nation to help him or her to make ends meet in the face of high oil prices. This generous program would cost about $100 billion. Since the U.S. oil industry produces about 3 billion barrels per year, this translates into a tax of about $33 on every barrel produced in America, while leaving the 5 billion barrels per year of imported foreign oil untaxed.
As a method of damaging America’s prospects for achieving energy independence, such a proposal is hard to top. It is true that the federal government is facing a $500 billion deficit, so while quite regressive in its impacts, a tax on oil is fair game. But if the goal is raising revenue it would be much less harmful to tax all oil equally, or better yet, do the reverse of the Obama plan and tariff foreign oil while cutting taxation on American producers. Such a plan would raise more money than Obama’s, while stimulating domestic oil production instead of suppressing it.
In addition to the large cash handout to the general public, the Obama plan specifies a long list of targeted expenditures. Some of these are quite good, such as a hefty increase in federally funded research and development in energy technology. Others, such as proposals for federal subsidies for winterization programs to reduce home heating oil use, are reasonable. But others, notably a proposal to use the money taken from American oil companies to help consumers pay their home heating bills, and thus support high petroleum prices with taxpayer dollars, are crazy.
The craziness gets worse when the plan veers from its practical goal of addressing oil prices to its ideological one of trying to change the weather. Global warming can be stopped, says the plan, by cutting America’s carbon utilization to 20% of 1990 levels by 2050. This is a very radical proposal, as it requires reducing the nation’s total carbon use to about the level it was in 1932. In 2050, the USA is expected to have a population of over 450 million people, or roughly quadruple that of the early 1930s. Under the Obama plan, therefore, it is required that Americans’ per capita use of fossil energy in the mid 21st century will have to be reduced to one-quarter of Depression levels. How this is to be done is not explained, but it may be observed that a sustained negative economic growth rate of 4 percent per year for the next 42 years would be sufficient to do the trick.
Perhaps to achieve such a noteworthy objective, the Obama plan also includes a prescription for creating a carbon cap-and-trade system, an unnecessarily complicated form of carbon tax, which unfortunately is also supported by John McCain. Under this system, the government would require anyone wishing to conduct activities resulting in the emission of carbon dioxide to buy indulgences forgiving them for this sin. These indulgences would differ from those issued by the Catholic Church during the Middle Ages, however, because they would not be graduated to make sin more affordable to the poor. Rather, they would all be flat rate, costing the same per unit CO2 emitted, regardless of the purchaser’s race, class, or income level.
As a result of this admirably fair and modern feature, the carbon indulgences will be tradable securities, with the going price set by carbon exchange speculators. People with ready cash will be able buy the outstanding indulgences, bidding up the price and thus force sinners to pay through the nose for forgiveness. Otherwise, the non-penitent parties will face prosecution from the carbon police. Such cases promise to open up vast new highly lucrative professions in the areas of carbon law and carbon tax accounting. In addition, because they so clearly have monetary value, the carbon indulgences will be able to serve as collateral for loans, which could be used to buy more indulgences, and thus acquire more loans, and so forth. Thus wonderful opportunities will be created for clever people to make fantastic fortunes, at least for a while, after which the taxpayers might still be able to bail the system out.
As a further measure to stop global warming, the Obama plan requires that by 2025 all new federal buildings be zero carbon emitters. How this is to be done is not explained, but it should be possible provided that such buildings use no artificial lighting, air conditioning, or heating, and involve no cement, steel, aluminum, copper, glass, plastic, or paint in their construction. Log cabins, tents, and igloos might all provide acceptable options.
So much for the crazy parts. In other areas, however, the Obama plan does rise to the level of mediocrity, or better. Obama, to his credit, is not particularly anti-nuclear, and the plan is reasonably supportive of nuclear power in general. However, in apparent deference to Senate Majority Leader Harry Reid (D-NV), the plan opposes the establishment of a permanent underground nuclear waste storage facility in the desert near Yucca Flats Nevada. Instead it makes the bizarre argument that it is safer to store radioactive wastes in cooling ponds adjacent to nuclear power plants in or near metropolitan areas across the country. Such an approach promises to hamstring necessary further growth of the nuclear power industry.
The Obama plan calls for increasing automobile fuel efficiency standards by 4% per year. This is probably achievable, and should be done. Yet it must be realized that doing so won’t accomplish much, since only about 8% of the automobile fleet is replaced each year. As a result, a 4% increase in the fuel efficiency of new cars will only decrease overall fuel consumption by about 0.3% — assuming a fleet of constant size. But in fact, the U.S. automobile fleet is growing at a rate of about 2% per year, and for the past ten years oil prices have been rising at a rate of 30% per year.
In the face of these realities, Obama’s other automobile fuel conservation proposal — putting 1 million plug-in hybrids on the road in eight years — is even more lame. Plug-in hybrids are good technology and worthy of government encouragement, since they can probably reduce the annual fuel consumption of a typical driver by about a factor of two. But there are more than 180 million cars being actively driven every day in the United States. Replacing one-half of one percent of them with plug-in hybrids over an eight year period is simply not enough to matter.
The best part of Obama’s plan is his strong support of biofuels. In contrast to John McCain, Obama favors both the renewable fuel standard and ethanol production subsidies. These subsidies cost taxpayers $0.45 per gallon of ethanol produced but save the nation $3 in foreign oil purchases at the same time. Why John McCain prefers to send $3 to Saudi Arabia instead of $0.45 to Iowa is difficult to understand, especially given the strategic nature of the commodity in question, and the fact that the foreign oil money helps to finance acts of war and terror against the United States. Yet he does. So on this question Obama has it right and McCain has it badly wrong.
Moreover, there is one part of the Obama plan which is absolutely splendid, and that is his explicit promise to require flex fuel capability on all new cars sold in the USA by the end of his first term. This is indeed a potential real game changer, especially if the flex fuel standard is written to include not only automobile compatibility with gasoline and ethanol, but methanol as well. Methanol compatibility only adds about $30 to the cost of an ethanol-gasoline flex fuel car (which itself is only about $100 more expensive than a comparable gasoline-only car), but multiplies its versatility, since methanol can be made out of any kind of biomass without exception, as well as coal, natural gas, and recycled urban trash.
If full flex fuel capability were made the American standard, it would effectively become the international standard, as foreign car makers would be impelled to switch their lines over to comply. This would soon put hundreds of millions of cars on the road internationally capable of running on alternate fuels, thereby creating a true open fuel market in which gasoline would be forced to compete at the pump everywhere against both ethanol and methanol made from any number of potential sources all over the globe. Such an open source fuel market would permanently break the power of the oil cartel to raise prices at will, protecting consumers worldwide from OPEC looting. Furthermore, it would result in shifting hundreds of billions of dollars of income from the oil cartel to the world’s farmers, creating a powerful engine for economic growth and development both in the industrial nations and the Third World.
Thus that part of the Obama energy plan is really good, so much so that one could almost forgive the rest. There is, however, one problem: while Obama supports a creating flex fuel standard in his platform, he is not a co-sponsor of the bipartisan bill (S.3303 — the Open Fuel Standard Act) which is in the Senate right now that would do exactly that. Neither is John McCain, despite the fact that he also has made various campaign statements saying he would support a flex fuel standard if elected. This failure could suggest a certain lack of commitment.
So here is my advice to Barack Obama: Sign on as a cosponsor of the Open Fuel Standard Act and then challenge John McCain to do likewise. If he agrees, then you will have accomplished something important for the nation while showing leadership in developing bipartisan consensus on a critical issue. If he refuses, you can expose him as a fraud who is serving foreign oil interests instead of the American people.
Either way, you win. But I suggest you move on this quickly, because if you don’t, he can move first and do the same thing to you.