Our Hopeless Energy Policy
STELZER, IRWIN M.
Our Hopeless Energy Policy Bad questions lead to bad answers. BY IRWIN M. STELZER Students of energy policy despair, and at times believe that Dante’s inscription on the entrance to hell...
...Studies that showed that the environmental cost of drilling in Alaska’s Arctic National Wildlife Reserve and offshore Florida and California exceeded any benefi t from new discoveries are now out of date...
...The notion that the government can outsmart the market by buying low and selling high is, to put it mildly, questionable...
...umbrella, which as Karen Elliott House put it in the Wall Street Journal, “has provided the Saudis with a security blanket that puts this desert kingdom off limits to regional predators” and prevented Iran and Syria from turning Saudi Arabia into another Lebanon...
...Meanwhile, the industry claims to have learned a great deal about reducing the environmental impact of such stepped-up drilling...
...Venezuela’s Hugo Ch?vez, whose government owns some 8,000 Citgo gasoline stations in America, must be astonished to learn that leading American politicians are eager to increase his revenues so that he can step up his propaganda campaign against America...
...But that is not in the cards—all three of the presidential wannabes are pledged to keep Alaska closed to drilling, no matter what the balance of costs and benefi ts...
...Wrong questions and the inevitably wrong policy answers might be one reason Goldman Sachs is talking about a “super spike” that would take oil prices to $200 per barrel...
...Bush wants to fi ll it to its capacity of 727 million barrels this year, and eventually double the capacity...
...Stop buying oil, critics, including John McCain, tell President Bush, and demand pressures will ease...
...Would the president of the United States or the king of Saudi Arabia be the fi rst to blink in a stare down...
...Yes, several have costs that exceed their benefits...
...Answer: Subsidize construction of wind turbines, solar panels, nuclear plants, and the production of corn...
...The reasons that is exactly the wrong policy are too many to list...
...Lower gasoline prices would encourage Americans to drive more, use more of the cheaper gasoline, emit more pollutants, and increase the demand for crude oil...
...So what are the right questions...
...And the farm and ethanol lobbies are prepared to crush the groups calling for an end to the food-for-fuel mandate that requires motorists to use nine billion gallons of ethanol (auto fuel made from corn) this year...
...He knows that the Saudis have about two million barrels per day of shut-in, excess capacity...
...BY IRWIN M. STELZER Students of energy policy despair, and at times believe that Dante’s inscription on the entrance to hell should be emblazoned on the entrances to the Capitol and the White House, “Abandon hope all ye who enter here...
...First, have any of the programs now in place proved counterproductive...
...Net effect on our ability to withstand a supply cutoff: substantial...
...Yes, we benefi t from NAFTA, and its abrogation would impose costs on us...
...and the Saudi-led OPEC cartel, which has held production constant for eight months in the face of a 54 percent increase in prices, exists only because successive administrations have prevented the antitrust authorities from attempting to break it up...
...The Mexican government depends heavily on remittances sent to poor Mexican families from the millions of its citizens working, legally and illegally, in the United States...
...If new studies bear out these impressions, and suggest that the environmental and other costs of drilling are now exceeded by their benefi ts, restrictions on domestic drilling should be relaxed...
...farmers around the world cut down environmentally friendly forests to increase planting of oilsubstitutes...
...Hillary Clinton is on to something when she calls for antitrust action against this cartel, which would not be the fi rst time the Justice Department has moved against a price-fi xing conspiracy by foreign fi rms...
...Net effect of all of this on demand and supply: nil...
...So regimes hostile to the United States would sell us still more oil...
...They might, but only if they are willing to drive down the value of the billions of dollars remaining in their vaults, and damage the value of their U.S...
...Better still, start selling off some of the strategic reserve, and increase supplies of crude oil...
...Hillary Clinton and Barack Obama voted to continue the restriction, and John McCain would have joined them had he not been out of town reveling in the applause for his speech promising to lead the fi ght on global warming...
...Nor is there any indication that we are prepared to harden our line with Mexico...
...Best example: the attempt to grow our way out of the energy problem...
...Next wrong question, and one being asked not only in America, but in most other countries: “How can we replace crude oil with renewable sources of energy...
...A serious American administration would explain to the Saudis and their OPEC allies, and to the Mexicans, that continuation of their present policies would not be without cost to them...
...The benefi ts were estimated when oil prices were less than half current levels...
...Irwin M. Stelzer is a contributing editor to THE WEEKLY STANDARD, director of economic policy studies at the Hudson Institute, and a columnist for the Sunday Times (London...
...Our president has just gone to Saudi Arabia to grovel before the royal family in the hope of persuading the kingdom to open its taps just a bit to bring soaring oil prices down...
...Answer: Yes, if there is the will to act...
...The right question would have been, “Is it good policy to lower gasoline prices...
...Bush knows this...
...Ask the wrong questions, and you get the wrong answers...
...Which leaves corn...
...For one thing, the negative environmental impact of these biofuels seems to outweigh their positive effect...
...One is that oil producers, or oil companies, or service station operators would raise prices by an equivalent amount...
...Higher prices seem to be persuading Americans to use less gasoline, witness the increased use of mass transit reported in many cities around the country...
...As is the assumption that it is smart enough to distinguish a shock, which might justify use of the reserve, from a trend, which should be allowed to play itself out so that the economy can readjust to the new prices...
...The wrong question—how do we lower prices?—also led Congress last week to pass legislation ordering the president to stop buying oil for the Strategic Petroleum Reserve...
...And he knows how vulnerable the Saudi-led OPEC cartel is to antitrust action...
...investments...
...Second, are there cost-effective ways of increasing the supply of conventional crude oil...
...In essence, rich countries are trying to fi ll their gasoline tanks at the expense of empty stomachs in Africa, Central America, and parts of Asia...
...Continued defense of the Saudi regime, a staying of the hand of the antitrust authorities, and continued absence of restrictions on remittances to Mexico will, they should be told, depend at least in part on their willingness to allow Western fi rms to develop new reserves and to wring more oil from existing fi elds, and to relax cartel restrictions on current output...
...That’s what a coalition of environmentalists, livestock producers, and consumer groups last week called on Congress to do...
...Hillary Clinton, in her new populist incarnation, might dismiss this as the ranting of pointyheaded economists, but it is nevertheless true...
...Asking them produces politically diffi cult answers— higher not lower taxes on gasoline to encourage new technologies and discourage consumption, the opening of now-closed areas to exploration and development, the end of massive subsidies to farmers to grow corn-for-fuel...
...Perhaps he worries that if he deploys any of these weapons the Saudis will dump some part of their dollar pile on the market, driving down the value of our currency, and increasing infl ationary pressures and interest rates in America...
...Remember: These are the guys who were laughed at when they predicted that the price of oil would hit $100...
...Final sensible question, Can anything be done to increase supplies of oil from the world’s important suppliers...
...The right answer is “no...
...Unfortunately, the right questions are precisely the sorts of questions that politicians abhor...
...But so does Mexico’s ban on U.S...
...Among other things, production requires the use of huge amounts of fertilizers, causing run-off that pollutes streams and rivers...
...and acreage previously devoted to growing food is converted to growing fuel...
...They are unlikely to overcome the powerful farmer-ethanol lobby...
...The question now being asked by Hillary Clinton, John McCain, and other politicians whose notion of the long run extends only for the six months until the November election is, “How can we lower gasoline prices...
...Probably...
...That has contributed to the massive increases in food prices that are affl icting not only Americans but, with greater ferocity, the world’s poor...
...participation in its oil industry...
...Admit that we have erred, and wind down the subsidies that are denuding forests and contributing to food shortages without significantly adding to fuel supplies...
...We will never know, since the administration prefers the role of supplicant to that of tough bargainer...
...Better that, fi gure our politicians, than to take the political risk of increasing taxes on gasoline, reducing demand, and getting to the consumers’ wallets before OPEC and its allies do...
...The answer produced by the wrong question has serious negative consequences...
...So would Vladimir Putin...
...Their answer: Reduce the approximately 18 cent-per-gallon federal tax on gasoline during the summer driving season...
...He knows that nothing frightens the Saudi regime more than the threat of the furling of the U.S...
...military umbrella for its survival...
...Antitrust lawyers tell me that the immunity of sovereign governments from antitrust prosecution does not extend to their commercial activities...
...As for nuclear, few of these costly plants—and cost estimates seem to be doubling every few months —will be built unless overt or covert subsidies are offered to privatesector players, licensing proceedings and construction times are shortened, and politicians are willing to override Senate Majority Leader Harry Reid to allow the opening of the Yucca Mountain nuclear waste depository...
...The reserve now contains 701.3 million barrels, a record...
...the Saudi regime depends on the U.S...
...So the benefi ts of stepped up exploration have multiplied with the price and value of oil...
...But give the pandering pols the benefi t of the doubt, and assume that prices would go down...
...The caribou lobby in the Senate has voted down a bill that would have opened a small portion of Alaska’s untapped oil fi elds to exploration and development...
...Is it unreasonable to suggest that free trade in goods and services, and the virtually unhindered movement of labor across the border, must be accompanied by the free fl ow of capital across borders...
...A good part of the energy policy muddle stems from a tendency to ask the wrong questions...
...Dante might have been referring to what happens to good ideas on energy policy when they are sent to the halls of Congress or the White House, when he wrote, “Through me you pass into the city of woe . . . into eternal pain...
...Besides, oil companies are likely to increase their own inventories when the government stops stockpiling, stepping up purchases of imported crude oil in order to do so...
...No one has suggested that Mexico’s continued refusal to allow American capital to fl ow into its oil industry might be considered when NAFTA is reviewed...
...Congress has mandated that farmers be paid huge subsidies to grow corn to be converted into ethanol, a gasoline substitute, while quite inconsistently maintaining a tariff wall to deny motorists access to cheaper imported ethanol...
...And the Saudi fi nanciers of jihadists and of the Wahabbi mullahs who fuel anti-Americanism would be pleased to have a few extra hundred million...
...But neither wind turbines nor solar energy, on the cheeriest of assumptions, can make a signifi - cant dent in the demand for crude oil and its products...
Vol. 13 • May 2008 • No. 35
