In this podcast, Michael, and Dale discuss the county’s failing energy and economic policies.
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Sometimes the little surprises life hands you are the most pleasant. While in Houston at the Offshore Technology Conference, my trip sponsored by API, I happened to meet another blogger who introduced himself to me as a “raging liberal”. In the course of three days and a few good beers, Chris Nelder and I had some very enjoyable and interesting conversations. And, interestingly, Chris and I agree on where the policy debate stands as it pertains to energy. Chris wrote an outstanding article detailing his observations about the current situation, and, for the most part, I agree completely with his well thought out assessment. Here is his list of “10 Inconvenient Truths” that he feels all policy makers must understand before they can effectively plan for the future:
1. We have extracted nearly all of the world’s easy, cheap oil and gas, and now we’re getting down to the difficult, expensive stuff. The largest untapped resources that remain are in extreme places like deepwater and the Arctic, and marginal formations like shale. As a result, global oil production has for all intents and purposes peaked. Natural gas production will also peak in 10 to 15 years. Neither technology nor high prices will change that. Therefore we must begin to replace those fuels with renewables, and use what remains much more efficiently, with the expectation that most of the world’s oil and gas will be gone by the end of this century.
While I agree with Chris’s point about renewables, I’m not quite ready to buy into the idea that “most” of the world’s gas and oil will be gone by the end of the century, especially if we make progress developing cheap, renewable and clean alternatives. That’s not to say he might not be right, but I continue to look at the improvements in technology and the fact that the same sort of predictions have been made for decades and here we are. But on the main point of gearing up renewables, we agree completely. We must prepare for the possibility Chris is right and we need to do that now.
2. Drilling for oil and gas drilling in the OCS and ANWR must and will be done; our need for those fuels is simply too great to pass them up. An additional 2-3 mbpd will put a dent in the roughly 12 mbpd we now import, but if we drill for it now, it won’t come to market for 10 years or more. By that time, it probably won’t even compensate for the depletion of conventional oil in North America, nor will it do much to reduce prices. But it will be crucially necessary, and producing it won’t make an ugly mess of the environment.
You see someone on the left here who has studied the problem, understands the processes used and has formed an opinion that is outside his side’s political mainstream. He understands that technology has advanced to the point that the oil and gas industry can drill for oil and gas safely and with a very small footprint. In fact, advances in sub sea technology are almost to the point where the entire process can be safely and productively located under the waves. So, in a “comprehensive” scheme, the left has got to drop its almost knee-jerk resistance to such drilling and understand it must be a part of an overall energy solution.
3. Renewables are clearly the long-term answer, as is an all-electric infrastructure that runs on its clean power. However, it will likely take over 30 years for renewables to ramp up from a less than 2% share of primary energy today to 20% or more. They probably won’t even be able to fill the gap created by the decline of fossil fuels. Oil and gas currently provide about 58% of the world’s primary energy, and they will remain our primary fuels for a long time to come.
To believe “green fuels”/renewables are the immediate and total answer to today’s energy needs is to deny reality. We have to remember that there is going to be a growing energy gap as more and more nations come on-line in the first-world and demand more energy as a result. Oil, gas, nuclear and coal are going to play a large and significant part of bridging that gap even as we work to develop renewables. As a nation we cannot afford that sort of short-sighted thinking. It is critical that everyone understand that while the preference is for renewable, clean fuels, the reality is they’re still quite a ways off, while the energy demand continues to grow unabated and certainly with no concern for our personal energy preferences.
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Subject(s): Energy policy and economic/monetary policy. A great twofer.
Dale makes an incredibly important point about investment below – investors aren’t going to commit their money to industries which are being manipulated by government for political goals and payoffs.
And, the Wall Street Journal makes a similar argument about corporate taxation and the Obama administration’s apparent plan to compound the problem he hopes to “deincentivize” by driving both investors and US companies off shore..
The energy picture is no rosier. Because there is no comprehensive and clear-cut, long-term energy plan from government, and because it is clear to many that the present administration’s plans for energy involve achieving political goals dictated by government vs. a straight market based plan which would see decentralized signals and decisions determine the energy future, investors are sitting on the sidelines. As Sen. Murkowski said, too many in national government today see the energy sector, and especially the oil and gas industry, as an “ATM to pay for other programs”.
When government is so deeply involved in picking winners and losers, investors are not going to invest. Especially given the example of the car and financial industries.
You can guess what that means in terms of economic recovery, not to mention economic growth. Investment is the engine of economic growth. Without it, nothing sustainable happens. Government can make all the make-work jobs in the world, but until investors commit to the economy, we only mark time economically speaking. If anything government should create a climate that provides incentives for private investors – low taxes, favorable investment rules, etc. to encourage investors to risk their money here in the US.
Instead, we have at least three critical areas where government intrusion and manipulation is having exactly the opposite effect.
Here at the Offshore Technology Conference in Houston, we were able to hear from a very distinguished panel concerning the energy “debate”. I put the word “debate” in scare quotes because it seemed that the consensus of the panel was there really isn’t a productive debate going on.
Roger Ballentine of the Progressive Policy Institute says that the two sides are talking past each other with little real effort to engage in anything which would actually address strategic energy policy.
Sen Lisa Murkowski, addressed the audience by video and spoke of a “comprehensive” plan which would include all types of energy, obviously including oil and gas. She spoke of a “scarcity of will” on the part of Congress to aggressively go after our own natural resources and cited the Gulf of Mexico as an example. There, she said, lays 45 billion barrels of oil and 320 trillion cubic feet of natural gas that we seemingly refuse to tap.
Yet as API’s President and CEO, Jack Gerard pointed out, when polled 67% of the American public want the exploitation of the oil and gas assets to be found on the Outer Continental Shelf (OCS), and that last week the Florida House passed a bill authorizing drilling off the coast of Florida by a 70-43 margin. That is a huge margin and speaks loudly about the public’s sea change in attitude concerning offshore drilling.
But it seems like no one in power in Washington is listening. And that brings us to the second point this panel made – it is necessary to engage the public/consumer and get them involved in this debate. It is they who will live with and pay for whatever Congress cobbles together regarding energy policy. So far, however, the only thing that has accomplished that level of public engagement is the price of gasoline at the pump. When it was at $4 a gallon, the public emphatically weighed in saying “this is unacceptable” and “do what it takes to fix it (to include drilling in the OCS). Since the price of gas has retreated, to be replaced by the economic recession, the public’s attention has been diverted elsewhere.
But we’re at a critical juncture right now. Legislation is being written and moved ahead within the Congress even while panelists in Houston on both sides of the political spectrum are saying the debate needs to begin in earnest, in a bi-partisan and productive way and the public needs to be engaged.
This was a wide ranging panel and I took 16 pages of notes. This particular post covers 2 of them at best. However this gives you a sense of the frustration to be found among those there representing government, industry and think tanks. Both sides of the broad political spectrum on the panel agreed that the bi-partisan “civil discourse” that would move this sort of policy forward in a positive way doesn’t at present exist even while the legislation outlining future policy is being written.
I’ll have much more to say about this as I wade through the pages of notes I took, but this suffices to give the general impression of where we are when it comes a well thought out and comprehensive strategic energy policy. In a word, nowhere. I’ll get into the “why” of that (“climate change” is the “cultural wedge” that is being used to muddy the energy debate), and the implications in another post.
That problem would be putting up with me for 4 days.
I’m in Houston at the invitation of the American Petroleum Institute (who is kindly picking up the tab) to cover the Offshore Technology Conference here. About 75,000 oil folks are converging on the place for 4 days of conferences and panels on various topics.
Today, the “Meeting The Energy Challenge” panel meets and it should be interesting. We’ll have the president of Shell Oil, a Senior Fellow of the Progressive Policy Institute, the president of the API, the presidents of the American Trucking Associations and Air Transport Association, the president of the Consumer Energy Alliance, the Executive Director of the National Council on Energy Policy and Rep. Shelia Jackson Lee (D-TX) and Sen. Lisa Murkowski (R-AK) here to talk about that – I’m looking forward to it.
And Pogue – if you read this and can respond, yes, I will be glad to buy you a beer – just let me know when (other than monday night) we can do it prior to Thursday before I fly out.
Sometimes math is actually pretty easy. For example, when someone, say some MIT professors, writes a report claiming that a tax on certain businesses will raise a specific amount of revenue for the government ($366 Billion to be exact), and that revenue is divided by an estimated number of American households (117 Million), there isn’t any doubt about how much money per household that tax represents ($366 b./117 m. = $3,128.21). Unless, that is, there are politics involved. Then the math becomes Bistromathic, which allows one of the progenitors of the original numbers to declare “you’re doing it wrong!” and almost everyone will believe him. Unfortunately for them, real math operates on real facts, and thus reality is destined to intrude upon their fantasy.
That, in a nutshell, is basically how the argument over costs of the Obama Administration’s cap and trade policy has unfolded. MIT’s John Reilly co-authored the original study, Republicans used the numbers to derive a cost per taxpayer, Reilly balked, and the media/leftosphere went into paroxysms of outrage about how the GOP were all a bunch of liars. But that was just the main course. For dessert, there will be crow (my emphasis):
During a lengthy email exchange last week with THE WEEKLY STANDARD, MIT professor John Reilly admitted that his original estimate of cap and trade’s cost was inaccurate. The annual cost would be “$800 per household”, he wrote. “I made a boneheaded mistake in an excel spread sheet. I have sent a new letter to Republicans correcting my error (and to others).”
While $800 is significantly more than Reilly’s original estimate of $215 (not to mention more than Obama’s middle-class tax cut), it turns out that Reilly is still low-balling the cost of cap and trade by using some fuzzy logic. In reality, cap and trade could cost the average household more than $3,900 per year.
The $800 paid annually per household is merely the “cost to the economy [that] involves all those actions people have to take to reduce their use of fossil fuels or find ways to use them without releasing [Green House Gases],” Reilly wrote. “So that might involve spending money on insulating your home, or buying a more expensive hybrid vehicle to drive, or electric utilities substituting gas (or wind, nuclear, or solar) instead of coal in power generation, or industry investing in more efficient motors or production processes, etc. with all of these things ending up reflected in the costs of good and services in the economy.”
In other words, Reilly estimates that “the amount of tax collected” through companies would equal $3,128 per household–and “Those costs do get passed to consumers and income earners in one way or another”–but those costs have “nothing to do with the real cost” to the economy. Reilly assumes that the $3,128 will be “returned” to each household. Without that assumption, Reilly wrote, “the cost would then be the Republican estimate [$3,128] plus the cost I estimate [$800].”
In Reilly’s view, the $3,128 taken through taxes will be “returned” to each household whether or not the government cuts a $3,128 rebate check to each household.
In short, Reilly’s claim of “you’re doing it wrong!” amounts to parsing of direct vs. indirect costs. Yes, the cap and trade taxes will be passed onto the consumers in some way, but those aren’t the “real costs” to the economy. Only those direct expenditures made necessary by the policy (the “but for” costs) are “real costs.” As long as the federal government provides a benefit to the taxpayers with the cap and trade taxes, then those higher utility bills are a wash:
In Reilly’s view, the $3,128 taken through taxes will be “returned” to each household whether or not the government cuts a $3,128 rebate check to each household.
He wrote in an email:
It is not really a matter of returning it or not, no matter what happens this revenue gets recycled into the economy some way. In that regard, whether the money is specifically returned to households with a check that says “your share of GHG auction revenue”, used to cut someone’s taxes, used to pay for some government services that provide benefit to the public, or simply used to offset the deficit (therefore meaning lower Government debt and lower taxes sometime in the future when that debt comes due) is largely irrelevant in the calculation of the “average” household. Each of those ways of using the revenue has different implications for specific households but the “average” affect is still the same. [...] The only way that money does not get recycled to the “average” household is if it is spent on something that provides no useful service for anyone–that it is true government waste.
He added later: “I am simply saying that once [the tax funds are] collected they are not worthless, they have value.”
Essentially, Reilly is making the pernicious claim that a dollar in the taxpayer’s hand is the same as one in the government treasury. But we all know that’s not true, including (I’ll bet) Mr. Reilly.
No matter how efficient the government is, it will never be able to take $X from me and return exactly $X of benefit. Indeed, at least some portion of that $X will be needed just to support the system of taking the money and providing the benefit. Already the taxpayer is at a loss.
Moreover, there is an implicit assumption in Reilly’s explanation that, in exchange for this de facto tax, the government benefits provided would be returned in proportion to their costs. But that would defy all historical precedence when it comes to the federal government which, once the money is received, tends to dole it back out to suit its own purposes. As Merv aptly states:
I really doubt the government will return any cost of cap and trade dollar for dollar. If they did it would be just an expensive money swap. To the extent the government does return any money you can bet that it will be based on conduct they want from people and not unconditionally. They will be imposing their choices on American families and their lifestyles.
To be fair, Reilly tacitly acknowledges this fact when he explains what use of his numbers would be acceptable to him:
“If the Republicans were to focus on that revenue, and their message was to rally the public to make sure all this money was returned in a check to each household rather than spent on other public services then I would have no problem with their use of our number.”
The fact is, cap and trade is going to cost taxpayers significantly more than the measly $13/week tax cut that the Democrats and the left are so excited about. While the $3,900 cost cited by John McCormack above is an accurate accounting of what Reilly’s study portends, even that is probably an unrealistically low estimate. Consider how the same policy has affected Europe:
Europe’s experiment with cap and trade has turned into a bureaucratic mess that has failed to live up to its initial expectations. A report by the GAO reveals that the supply of carbon permits has exceeded the demand causing allowance prices to fall substantially. This policy failure has caused the European economy to suffer and expectations to reduce CO2 emissions have been lowered.
Additionally, Europe’s cap and trade experiment has led to decreased employment opportunities and higher energy prices across the continent. In France manufacturers have packed up and left for Morocco. In the Netherlands factories are forced to close early to meet emissions standards. In Germany energy prices have risen 5% each year sparking widespread outrage. All across Europe evidence shows that cap and trade has hurt the economy. If the United States implements a European style cap and trade system, estimates show that it could wipe out between 1.2-1.8 million American jobs by 2020.
So the 95% of you who received a “tax cut” from Obama had better start saving that extra money up. You’re going to need every penny to service the debt required to pay for your costs of cap and trade.
President Obama, has decided that in addition to the health care, energy and education debates, he’ll also crank up the immigration debate:
He said then that comprehensive immigration legislation, including a plan to make legal status possible for an estimated 12 million illegal immigrants, would be a priority in his first year in office. Latino voters turned out strongly for Mr. Obama in the election.
“He intends to start the debate this year,” Ms. Muñoz said.
12 million is the low-side estimate. Others estimate the total to be as high as 20 million.
Here is the argument he can plan on seeing prominently pushed from the other side as it concerns legal status for illegal immigrants:
“It just doesn’t seem rational that any political leader would say, let’s give millions of foreign workers permanent access to U.S. jobs when we have millions of Americans looking for jobs,” said Roy Beck, executive director of NumbersUSA, a group that favors reduced immigration. Mr. Beck predicted that Mr. Obama would face “an explosion” if he proceeded this year.
“It’s going to be, ‘You’re letting them keep that job, when I could have that job,’ ” he said.
The argument that the jobs immigrants hold are jobs Americans won’t do rings even more hollow in a recession.
Additionally, starting this emotional issue up now, while he’s trying to push the other issues I mentioned is going to diffuse focus and may cost him critical support on health care, energy or education.
This is not a smart political move. But it is one I welcome.
Some relatively good news and some bad news. The good news has to do with “cap-and-tax” as the WSJ article cited refers to “cap-and-trade”:
Tennessee Republican Lamar Alexander called it “the biggest vote of the year” so far, and he’s right. This means Majority Leader Harry Reid can’t jam cap and tax through as part of this year’s budget resolution with a bare majority of 50 Senators. More broadly, it’s a signal that California and East Coast Democrats won’t be able to sock it to coal and manufacturing-heavy Midwestern states without a fight. Senators voting in favor of the 60-vote rule included liberals from Wisconsin, Michigan and West Virginia. Now look for Team Obama to attempt to impose cap and tax the non-democratic way, via regulation that hits business and local governments with such heavy costs that they beg Congress for a less-harmful version.
I say relatively good news because the author is right – if the Obama administration can’t get it through Congress, there’s little doubt they’ll look for an administrative way to impose cap-and-trade through the executive branch. One route may be through the EPA.
Of course, there is always the distinct possibility that one of the Democratic Senators who is presently against limiting the filibuster will be pressured into changing his mind. And then there are always the RINOs.
But the possibliity remains that the cap-and-trade economy killer may be defeated in Congress, or at least delayed for a while. If passed, you could rest assured we’d not be seeing an economic recovery anytime soon.
However, cap-and-trade isn’t the only problem on the horizon. The health care push will be coming up soon as well, now that Congress has passed the Obama budget blueprint with no Republican support.
The most important remaining fight this year is over health care. Democrats seem intent on trying to plow that monumental change through with only 50 votes, even as they negotiate to bring along some Republicans. We hope these Republicans understand that a new health-care “public option” — a form of Medicare for all Americans — guarantees that the 17% of GDP represented by the health-care industry will be entirely government-run within a few years. This is precisely Mr. Obama’s long-term goal, though he doesn’t want to say it publicly.
It is a back-door means of claiming the reforms are “market” oriented while setting up the system to be quietly shifted to government control. And this at a time when more and more doctors are leaving the Medicare system because of low payment.
In the case of health care, the use of “reconciliation” appears to be a possiblity. That means, as an exception to the rule which now requires 60 votes for cloture on all measures of law, the Senate could require a mere majority (51 votes) to pass this monstrosity and see the government devour another 17% of GDP.
The game plan is fairly evident. Grace-Marie Turner, president of the Galen Institute, said in an interview:
“We really have a pretty good idea of the outline of the plan they are going to be proposing,” she said. They’ll want to “require everyone to have health insurance and require all employers to pay.”
Since some companies and individuals may not be able to afford that, the taxpayers will be told they are making up the difference, she warned.
The real danger, she suggested, is that with a government-run program, private insurance soon will start disappearing.
“If you expand access to government programs, more and more will drop private coverage,” she said. “A lot of this is going to be, I fear, replacing the private coverage with taxpayer supported coverage.”
That will just raise the costs even higher, and be the first step to what she expects eventually will be “a monopoly player.”
Routed through the government bureaucracy, the same inefficiencies that every government run health care service will emerge. And as with any system in which unlimited demand meets finite supply, some sort of rationing will take place. Since government will be the monopoly player, as Turner calls it, that rationing won’t be by price, as it now works, but instead by denial of service:
Already, she said, $1.1 billion is being allocated for “comparative effectiveness studies.”
That will be “what treatments are good and bad, what’s going to be available to us or not. That’s the first step toward rationing,” she said.
That $600 billion dollar “downpayment”, as Obama calls it, will eventually morph into a deficit of trillions. Why? Because the promise is low-cost universal health care. And there is no such animal that is worth a tinker’s dam.
China has stated it won’t be left holding the financial bag in order to cut greenhouse gas emissions. Calling itself a “poorer” nation, China wants the 7 most developed countries to spend 1% of GDP on helping them and others.
China raised the price of its co-operation in the world’s climate change talks yesterday by calling for developed countries to spend 1 per cent of their domestic product helping poorer nations cut greenhouse gas emissions.
The funding – amounting to more than $300bn (£190bn, €240bn) based on Group of Seven countries – would be spent largely on the transfer of “green” technologies, such as renewable energy, to poorer countries.
Gao Guangsheng, head of the climate change office at the National Reform and Development Commission, the Chinese government’s main planning body, said that even such large funds “might not be enough”.
China’s toughened stance comes weeks ahead of United Nations talks in Poland aimed at forging a successor to the Kyoto protocol, whose main provisions expire in 2012.
China also suggests that to this point, emissions reduction has been mostly talk:
“Climate change policies need a lot of money to be invested, however developed countries have not made any substantive promises about how much they are going to spend on,” said Mr Gao. “And they did not fulfil some of the promises they made in the past very well either.”
Of course a number of reasons relate to why those previous promises haven’t been fulfilled. Most of them relate to economics and the realization that their promises are potentially crippling to their economies. That’s effecting the G20 meeting as we speak:
Fears are mounting that environmental issues could be almost entirely sidelined at tomorrow’s G20 summit in London as leaders of the world’s largest economies resist calls to make clear green commitments as part of the meeting’s closing communiqué.
According to Guardian reports, UK officials are leading a last-ditch effort to have clear environmental commitments incorporated into the global economic recovery package that will back up politicians’ repeated calls for a ” green new deal”.
Gordon Brown has said that the inclusion of a commitment on the environment would be one of the tests of the summit’s success, but he admitted that the negotiations were likely to be tough.
The draft version of the communiqué leaked at the weekend made only a passing reference to climate change and it is thought some nations are resisting more detailed commitments to dedicate a proportion of the global stimulus package to green projects that they fear could provide an excuse for protectionist measures.
There is also reluctance to incorporate climate change commitments that could be seen to step on the toes of the UN’s climate change negotiations, which are continuing this week at a separate conference in Bonn, Germany.
This, of course, is good news. Why?
“Everybody seems to be focusing on short-term recovery and getting long-term regulation of the banks right,” he said. “I haven’t heard anything that suggests green recovery and climate change are a major part of the [G20] agenda.”
That’s because that is the priority – not that anyone should expect the G20 to get any of financial part of it right either. However, the priority does keep them from making commitments that would cripple economic growth. And they, of course, know that – which is why they’re avoiding it and spinning it as a desire not to “step on the toes of the UN’s climate change negotiations”.
But back to China – you’ll enjoy this. It is called “having your cake and eating it too”:
[China's climate ambassador Yu Qingtai]… said that China was willing to make a “due contribution” to curbing emissions, but warned that the country would not see its citizens “left in the dark” as a result of binding emission targets and was within its rights to continue to invest in coal power that allows its economy to grow.
Gotta love the Chinese – they make some of our spin merchants seem like rookies. China will decide what its “due contribution” will be while it builds thousands of coal fired plants. In the meantime, per China, it is up to the rest of the world to do what is necessary to curb emissions because, you know, the poorer nations just aren’t up to it. Su Wei, Chinese delegation chief to the UN climate change talks in Bonn:
Su said the success of the Copenhagen summit lies in whether or not the developed countries would make “substantial arrangements” for transferring climate-friendly technologies to and providing funds for developing countries.
Su noted the establishment of three international “mechanisms” is very important among the “substantial arrangements.”
“The first is to set up an international mechanism on climate-friendly technology development and transfer, to eliminate barriers hindering technology transfer, so that developing countries can get access to such technologies,” he said.
“Secondly, we should set up an effective financing mechanism to ensure the developed countries provide adequate funds for developing countries in their bid to cut emissions and fight climate change,” he added.
Thirdly, Su said an “effective supervision mechanism” should beset up to monitor the above-mentioned technology transfer and funding.
Nice. Known as the “you pay, we take” program, this pretty much excuses China (and the rest of the poorer BRIC nations) from doing much of anything. As long as China is convinced that a) enough technology hasn’t been transfered, or b) there hasn’t been enough “effective financing” of the effort, it can c) exempt itself from any cuts while insisting the rest of the developed world stick by its commitments.
Now that is how a master loots your wallet.