The Obama/McCain Energy Charade: Nothing But Empty Ideas

 |  Includes: DBO, OIL, USO
by: Rick Newman

That smell on the nation's highways isn't just car exhaust. It's also the rank odor of political populism, as John McCain and Barack Obama both try to score points with dubious energy ideas.

Obama has now reversed an earlier stance and declared that the U.S. government should sell 70 million barrels of oil from the Strategic Petroleum Reserve to help ease the sting of $4 gas. That comes less than a week after Obama changed his mind about offshore drilling, deciding that some drilling in sensitive waters would be OK with him after all, given good environmental safeguards.

McCain has had his own inspired moments, including his call to suspend the 18.4-cent-per-gallon federal tax on gasoline, and a $300 million prize for anybody who develops a miracle battery able to cheaply power a car. Hey, how about a prize for building a seven-passenger bicycle? Or a highway with no traffic?

There's no secret behind the energy derby, of course. Record-high gas prices take a bite directly out of American paychecks and, with a shaky economy, pocketbook issues will carry the day for many voters in November. Both candidates are also priming the general disgust over America's dependence on imported oil. And both have proposed some sensible ideas that aren't terribly controversial. McCain, for instance, backs a hefty tax credit for people who buy cars with the lowest emission levels. Obama wants to lift the ceiling on a tax credit for hybrids that gets phased out once the manufacturer's sales for each model hit 60,000.

But as both candidates surely know, some of their headline ideas for lowering gas prices are low-wattage nonsolutions. Here's why:

There's no easy way to make gas cheaper. Take Obama's idea to tap the Strategic Petroleum Reserve, which would put 70 million barrels of oil onto the market over the course of a few weeks. That may sound like a lot, but Americans consume about 7.6 billion barrels of oil per year. That's billion, with a b. So do the math: The emergency release would increase the U.S. oil supply by less than 1 percent. That's supposed to generate a meaningful price break?

Even if all 70 million barrels went straight toward the supply of gasoline—not toward heating oil or jet fuel or other petroleum-based products—it would still represent barely 2 percent of all the gasoline Americans consume each year. So the incremental bump in supply might lower prices by a bit, for a while—say, until the election in November.

The logic gets even weaker. The market for oil is global, not national, and there's no way to increase supply in the United States alone. Since U.S. oil consumption represents just one fourth of the world total, the benefit of an extra 70 million barrels would get spread throughout world markets, diluting the payoff to Americans even more.

Oh, I almost forgot, it would accomplish one thing—create the appearance that the politicians care. Yay!

The Strategic Petroleum Reserve is supposed to be for emergencies. Is $4 gas an emergency? Maybe it seems that way for some of the most strapped consumers, but consider what a real national emergency might look like. It could be a 9/11-style terrorist attack that directly targets energy infrastructure. Or a nightmare scenario in the Middle East, like another Arab-Israeli war or an Iranian blockade of the Strait of Hormuz. Or a natural disaster like Hurricane Katrina, which triggered one of the few releases of oil in the 31-year history of the strategic reserve. Using the reserve to bring down the price of gasoline by a few cents, for a few weeks, doesn't sound so "strategic." It's a pretty marginal use of a national asset.

Other incentives could ease the pain and still encourage conservation. Simply giving Americans more cash—through another tax rebate, for instance—would help offset gas bills, or anything else the recipients chose to spend the money on. If market forces kept gas prices high, people would still have an incentive to drive more efficiently or downsize to smaller cars. Another taxpayer giveaway isn't necessarily a good idea, but it's probably smarter than artificially lowering the price of one product.

Cheap gas and energy independence are mutually exclusive. U.S. energy policy up till now has mainly been to keep gas prices low and consumers content. Artificially reducing gas prices would reverse trends that are actually helping to break our dependence on foreign oil. For the first time in years, for instance, Americans are driving less, not more. Gas consumption is going down. People are fleeing big sedans and SUVs in favor of right-size vehicles that get better mileage. More people are using mass transit. Those developments are direct responses to rising gas prices. If prices fall, Americans will go back to old habits, just as they did the last time gas prices skyrocketed and then fell after the oil shocks of the 1970s.

Costly gas may be the thing that breaks our oil addiction. With gas prices high and Americans clamoring for relief, automakers don't need McCain's $300 million incentive to build breakthrough cars: The market incentive is far greater. Whoever builds a fuel-saving plug-in hybrid—or any affordable car that runs on something besides fossil fuel—will reap billions in profit. But only if the conventional alternative—a gas-powered car—is expensive by comparison. If gas falls back to $2, the market for better hybrids, battery-electric cars, and hydrogen-fueled machines will quickly vanish. But nobody will blame the politicians.

(Disclaimer: John McCain wrote the foreword for a 2006 book I coauthored about American pilots in the Vietnam War, Bury Us Upside Down.)