California's Fuel-Efficiency Battle and Peak Oil

Includes: CHK, CLNE, COP, HMC, TM
by: Michael Fitzsimmons

California's Governor Arnold Schwarzenegger and his staff should be commended for their effort to increase automobile mpg standards in their great state. The Energy Independence and Security Act of 2007 doesn't require new vehicles to meet 35 mpg standards until 2020, which is laughable considering at least 3 big oil CEOs have said publicly that 2015 is the year in which worldwide oil supply will be inadequate to keep up with worldwide oil demand. California and a few other states want to adopt improved mpg standards much faster. Yet the EPA (the Environmental Disaster Agency) is blocking this effort, declaring that California hadn't demonstrated "compelling and extraordinary" conditions that would warrant the state to act independently of the federal government. So, off to federal court we go.

California's arguments for increased mpg standards are based on environmental factors. Instead, what they should be arguing in court in order to demonstrate "compelling and extraordinary" conditions is occurrence of peak oil. If anything in the world today is "compelling and extraordinary" it is the fact that worldwide oil demand will soon outstrip worldwide oil supply! It is an economic argument that should be the focus of California's legal case for requiring increased mpg standards. Imagine for a moment what life will be like in Los Angeles when it's millions of citizens can no longer either afford or obtain gasoline. Boy, if that doesn't scare ya, you've got iron cojones. But, like all US governmental agencies, the facts of peak oil rarely are spoken of let alone properly addressed with a real energy policy. Here is a real energy policy.

Hopefully, someone on the state of California legal team will read this article and decide to change their courtroom strategy. How could they not win their right to higher mpg standards if they can easily prove the state's economy will be thrown into chaos if they don't? Some would argue that oil at $119/barrel should be argument enough....

Meanwhile, the California effort should be applauded. US federal and state tax agencies should continue (or start) to give large incentive tax breaks for citizens purchasing fuel-efficient cars such as the Toyota (NYSE:TM) Prius or the Honda (NYSE:HMC) Civic GX NGV (natural gas vehicle). This car is way cool, but could someone drive across the country in it? The US should also be building out the infrastructure to refuel nat gas powered automobiles. Boone Pickens is a great fan of NGV's and his company Clean Energy (NASDAQ:CLNE) is the largest provider of vehicular natural gas in north America. The move to natural gas transportation should be encouraged and supported by the US government. They'll eventually come around, but there is still time to load up on major gas producers such as Chesapeake Energy (NYSE:CHK) and ConocoPhillips (NYSE:COP).

A more diversified investment would be Fidelity Select Natural Gas [FSNGX] which has a great long term return. California also has many cities which would be perfectly suitable for teaming up with Shai Agassi's Project Better Place. Why is project Better Place being adopted in Israel and Denmark but not California? Sure, the electric car's ranges is an issue, but there are many tight knit communities in California which could benefit from part-time usage of electric cars for short trips. Oh well, perhaps one day a leading US politician will mumble the words "peak oil". Somebody please send me an email when it happens.

Why is it that US policy makers are always years behind the Europeans? Americans should be tired of lagging on every major policy decision. Speak up and send your opinion to your Congress person, Senator, and Governor. The current President obviously doesn't care about real energy policy (his big contribution was ethanol, gee, thanks a lot!), but you may try contacting the current Presidential candidates.

Disclosures: The author is long COP and FSNGX. The author does not own HMC or TM, but admires their automobiles and does drive a Toyota.