The Obama/McCain Energy Charade: Nothing But Empty Ideas

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.)

Comments

[buyitcheap:]

I agree with respect to whomever builds the best gas sipper will win, but what astonishing slow reaction times by these car makers. I like the combination of hydrogen/electric backed up with nuclear power. I really think it can work. Clean coal also has tremendous potential as just a 2% reduction in emissions from coal would remove as much as the current installed base of alternative energy applications. Obama has NO idea what his policies should be and his advisors are making him look like a complete fool. If McCain stays on his 45 nuclear reactors, drill now etc. and follows through on half of it, we'll be better off and maybe be able to get serious on this energy independence "thing."

2008 Aug 06 07:19 AM

[naturalsol:]

What would bring me out to vote is if either candidate claimed they would support:
1) Polywell Fusion Research at EMC2
2) Coal to Liquid Technology (across the board)

America has lots of coal, it can be converted to petroleum with about 70% efficiency, and costs about 2X what oil does to produce.

As far as hydrocarbons go, 40 yrs of oil left globally, America has coal. Why not increase mining rate and use the coal? Environmentally dirty...so clean it up. Treat mining waste like nuclear waste.

I was hyped about Algal biopetroleum...then i found that it currently costs about $1,600.00/bbl to produce.

We have no patch to replace oil at present. Our best bet, America, is to use what we have: COAL.

2008 Aug 06 08:01 AM

[john s. gordon:]

liquid transportation fuels from coal is the way to go. - but we have lost 23 years in the race since r.reagan canceled the programs in the 1981-85 period. the data are all in an archive in pittsburgh; let's pick up where we left off.
> jack

2008 Aug 06 08:29 AM

[rdr4:]

The political monopoly enjoyed by the two major parties illustrates why monopolies are considered bad.
Paris Hilton's energy plan is as good as either candidates.

2008 Aug 06 08:32 AM

[Salamantis:]

Drill in ANWR and all along our continental shelf, as well as anywhere within our borders where drillable oil lies. Accelerate the development of oil shale and oil sand resources. Push the development of every alternative energy source we can think of. Build new nuclear power plants. Run our existing power plants on coal, not oil.

2008 Aug 06 09:55 AM

[DougM:]

Don't forget Obama also opposes expansion of nuclear power. Where's the power for all those electric cars going to come from, coal? Obama's selling the same old energy fantasy regarding wind and solar. Germany's been down that road, and now they're looking at turning back to - wait for it - coal, because their green groups just can't stand nuclear. How's that for new ideas?

2008 Aug 06 09:58 AM

[John Lounsbury:]

Good article and discussion.

I don't think a presidential candidate can be elected telling the truth about energy. Will either of the current candidates tell the truth after election? I certainly hope the winner does. Ostrich behavior will not solve our energy problem.

I think McCain's battery prize is aimed at the primary problem to making a long-range plug-in electric (which could be hybrid with an on-board generator).

I think Obama's $150B in incentives for new energy over ten years is a step in the right direction.

If you put together what both candidates propose combined, though, it still comes up short of making significant progress in 10 years. Will Washington face the truth after the election that it is afraid to face while campaigning? I hope so, because this may be an energy crisis but it is also the economic opportunity of the 21st century. If government is supportive of the energy revolution process, significant progress can be made in ten years. Unfortunately, based on history, maybe Washington can not find a way to be supportive and may not even be able to get out of the way of needed change.

"Lead, follow or get out of the way." This has not been the Washington of the past. Can it be that way in the future?

2008 Aug 06 10:28 AM

[Donkatsu:]

Jack, actually the synfuels program was one of the great government investments of all time. US refiners used that same technology (adding hydrogen to carbon-heavy feeds, removing metals) to refine all the way through the oil barrel, so that the US refining sector achieves a yield of "light" products (gasoline, kerosine, diesel, LPG) that is twice what the crude oil would give us without such treatment. We also import heavier (and less expensive) crude than other countries, since we have the technology to extract value from it. Finally, the stuff that no one else wants, the RESIDUAL fuel oil, we import from Europe and South America to use as a feedstock, rather than a fuel.

Over the years, use of this technology has meant many scores of billions in savings when compared to less developed oil refining. If the rest of the world used this oil refining technology, the savings would be in the range of 9% of current crude oil demand (I have a paper on this soon to be published), or about 8 million barrels/day

2008 Aug 06 10:34 AM

[jackooo:]

What does Paris Hilton hsve to say about it???

2008 Aug 06 10:56 AM

[nakedjaybird:]

I didn't know my best response to this article was addressed elsewhere, but here it is:

nakedjaybird
Aug 06 12:52 PMT.

T. Boone for President.

Even tho he's half right by wanting to replace NG electrical power generation with WIND POWER and half wrong by wanting to burn NG in vehicles instead of biofuels, he understands the real problems; the real causes; and addresses the real actions that change the causes of the problems.

His head is where the sun shines and wind blows, as contrasted to ALL THE LEADERSHIP IN WASHINGTON.

2008 Aug 06 12:59 PM

[TinyTim:]

Paris came out with a political ad yesterday to counter the use of her name by McCain.

Any idea what percentage of oil / nat gas goes to non-energy uses such as plastics, medicine, chemicals, etc?

2008 Aug 06 03:05 PM

[Umm, yeah:]

Here's the AP article on Yahoo regarding Paris Hilton: news.yahoo.com/s/ap/20...

I guess you can see the actual clip on a website called Funny or Die.

2008 Aug 06 03:31 PM

[Timothy Stolz:]

The sad truth is Obama is just positioning himself for votes and really doesn't care about the economic consequences of the $1,000 per family rebate, the windfall profit tax or his plan to raid the strategic petroleum reserves.
McCain's ad campagin is becoming tiresome and is promoting apathy among our younger voters. McCain may have a better energy plan, but if he looses the election in November....then we're stuck with a real mess!

2008 Aug 06 11:46 PM

[Kunst:]

All our politicians do is pander and waste time. We have a looming energy crisis (not this current inconvenience) when we will have to get by on half or less of our current usage. Yes, there are some supply increase options, but nothing new, just things that might "make sense" at a much higher price point. Bottom line, we had better figure out how to conserve and improve efficiency in addition to whatever we do about supply.

2008 Aug 07 01:24 AM

[petersterling:]

Forget the idiots in Washington. If you gave them control of a desert, there would be a shortage of sand within 5 years!

buy my company; AOAG a lowly pink sheet stock. Its a very speculative play , which might secure largish oil gas reserves if OCS is opened up

2008 Aug 08 02:41 PM