Reps. Peter King (D-NY), Ed Markey (D-MA), and Rosa DeLauro (D-CT) have written President Obama urging him to release oil from the U.S. government’s Strategic Petroleum Reserve (SPR) in order to help drive down high gas prices. Congressional Republicans are opposing the effort “to politicize” the SPR. Who’s right in this latest political squabble?
Well, Democrats are maybe 10 percent right. Congress should release oil from the SPR, but not just some—all of it! The SPR was created in 1975 after the OPEC oil embargo, which was instituted as retaliation for the U.S. intervention in the Yom Kippur War. President Nixon responded to the embargo with oil price controls. These controls created artificial scarcity as investors withdrew oil from the market to sell at higher prices later, causing massive shortages and gas lines.
In other words, the energy crisis was of Nixon’s own creation. Supposedly, the OPEC oil embargo so rapidly decreased oil imports that it was necessary for the U.S. to create a national reserve to hedge against another embargo. Except oil imports did not go down in 1973, or 1974, or 1975, they went up. All the embargo did was shift OPEC’s U.S. oil to other countries, and other oil normally intended for those countries to the U.S. Moreover, investors created private reserves as soon as they saw that Middle East oil was compromised, which means we exported less and imported more.
The SPR was created to solve an oil shortage, but since this was caused by Nixon’s controls, it seems that the reserve was actually created as a hedge against future politicians’ economic illiteracy—not future embargoes.
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President Barack Obama’s frantic efforts to deflect blame for rising gasoline prices continued this week and became even more incoherent and contradictory. Following up his speech on energy policy last week at the University of Miami in Florida, on 1st March the President spoke at Nashua Community College in New Hampshire.
President Obama repeated some of the same points that he made in Miami, but dropped any mention of the promising research in using algae to produce biofuels. He took credit for increasing domestic oil and gas production, but argued that “…anybody who tells you that we can just drill our way out of this problem does not know what they’re talking about or they’re not telling you the truth. (Applause.) One or the other.”
According to the President, that’s because the United States consumes 20% of the world’s oil production, but has only 2% of the reserves. “And no matter what we do, it’s not going to get much above 3 percent.” This is a simple misunderstanding that anyone who knows anything about oil statistics could correct. The U. S. has only 2% of the world’s proven reserves. The U. S. also has more areas of high potential reserves that haven’t been explored than any other country. Until those areas are explored, the oil that they possibly contain is not included in the estimate of proven economically recoverable reserves.
The President went so far in taking credit for recent increases in U. S. oil production that he had a chart handed out to those attending his Nashua speech. As has been pointed out repeatedly, increasing domestic oil and natural gas production has come entirely from private lands. Production from federal lands and Outer Continental Shelf areas has declined and is forecast to continue to decline as a result of Obama Administration policies.
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(Revised March 8, 2012)
Donna Laframboise asks the key question about Fakegate: “Where do Gleick Apologists Draw the Line?”
In a recent post on her Web site, No Frakking Consensus, she provides excerpts from scientists, ethicists, and activists who excuse or even lionize Peter Gleick for stealing Heartland Institute budget documents, impersonating a Heartland board member, misrepresenting himself to bloggers as an anonymous “Heartland insider,” and palming off as genuine — maybe also authoring — a fake climate strategy document in which Koch supposedly funds Heartland to keep opposing voices out of Forbes magazine, sell doubt as their product, and dissuade teachers from teaching science.
Laframboise comments: “Climate change is a strange beast. When it enters the room, even ethicists lose the ability to think straight.”
At the end of her post, she asks Gleick’s apologists what other unlawful actions they believe would be justified if necessary to advance their cause:
I get it. Lying and stealing and misleading are OK so long as they help advance a good cause. What else is acceptable? Old fashioned burglary? Arson? Car bombs?
Where is the line? [click to continue…]
The title of an op-ed published in The Wall Street Journal claims: “A Flex-Fuel Mandate Is Pro-Market.” The ethanol industry has made this argument time and time again, that somehow forcing private corporations to adjust their products in a way that will pad the wallets of certain energy sectors is somehow pro-market. Unsurprisingly, his argument relies on the notion that OPEC controls significant portions of oil output, so thus, the U.S. government ought to intervene to level the playing field:
The price of oil is set by a foreign cartel. The Organization of Petroleum Exporting Countries (OPEC) owns almost 80% of global oil reserves yet produces only 36% of daily global supply. This dominant position enables OPEC to raise or lower their production to maintain the global supply-demand relationship that suits their interest. If U.S. oil companies produce more, OPEC will produce less.
…
Let’s open our market to good old American competition. Friedrich Hayek and Milton Friedman stressed that the foremost economic duty of government is to eliminate cartel pricing. Bills are now pending in both houses of the Congress (HR 1687 and S1603) that seek to do exactly that by requiring car makers to enable fuel competition in their own product lines—adding flex-fuel, all electric, hybrid electric, or any other way auto makers choose to implement the law. [click to continue…]
An ongoing theme of this blog is that green energy spending in the Stimulus was a gigantic waste of money. This is for one of two reasons: Invariably, either (1) a Members of Congress tried to influence Stimulus spending as a constituent service or (2) the Obama administration steered investments to friends and campaign contribution bundlers. Whether it’s parochial politics or crony capitalism, the results are the same—bad bets and taxpayer losses.
It takes a while to spend scores of billions of dollars, so the returns of the Stimulus are only now coming in…And they are terrible for proponents of venture socialism. Nary has a week gone by without another green Stimulus beneficiary hitting the skids. In previous posts, I’ve addressed these failures in real time, as they’ve happened. I’ve compared this depressing litany of bankruptcies, layoffs, and production cutbacks to a green albatross burdening President Barack Obama‘s 2012 electoral prospects.
Last week, for example, we learned that engineers at Tesla Motors, which makes Brad Pitt’s favorite green car and also received Stimulus largesse, overlooked a fatal design flaw that easily renders the engine a “brick,” and therefore useless. This is what happens when the Energy Department operates an investment bank.
Yesterday, another government-picked “winner” announced it is “losing.” Reports Paul Chesser of the National Legal & Policy Center,
Yet another solar company that received loan guarantees from the Department of Energy has dismissed factory workers, lopping off 70 percent of its U.S. employees. Loveland, Colo.-based Abound Solar announced Tuesday it would lay off 280 workers at its production plant near Longmont, leaving 120 still employed. The start-up (2009) company attributed the cutbacks to the need for upgrades at the plant to manufacture more efficient solar panels, with plans to restore production levels and rehire most employees within six to nine months.
Mr. President, are you still sure that you want to “double down” on green energy?
Conservatives often complain that government shouldn’t be “picking winners and losers” in the market, by for instance, lavishing some politically favored and connected constituencies (solar companies, unions, et al) with subsidies that give them an advantage over competing interests.
True enough. Government shouldn’t be picking winners and losers. But that never stops the Feds from trying…and now, they have gotten into the business of pickling the winners and losers in the game of life itself.
The U.S. Fish and Wildlife Service (FWS) has proposed new measures to save the endangered Northern Spotted Owl, that bane of loggers and rodents from the Pacific Northwest. Science Insider fills us in on the FWS’s new pro-owl/anti-owl campaign:
The proposals include designating more critical habitat, encouraging logging to prevent forest fires, and an experiment to shoot a competing owl species.
Wait, come again? What was that last part? “An experiment to shoot competing owls.” OK, I did read that right.
Wow. Science Insider gives the gory details:
The northern spotted owl (Strix occidentalis caurina) ran into trouble in the 1980s as its old-growth forest was severely logged in Oregon and Washington. Even though destruction of its habitat slowed dramatically after the owl was placed on the endangered species list in 1990, its numbers have continued to decrease by an average of 3% a year. A major problem is competition from barred owls, which have invaded its territories.
How dare those Barred Owls out-compete rival species by being more productive and intrepid! That’s the kind of success Obama loves to punish. (The Administration’s attitude toward the Second Amendment appears to go something like this: Guns are bad, unless you are 1) a Mexican drug lord or 2) an Elmer Fudd wannabe out for Barred Owl blood. In either case, you have the Feds’ full support.)
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The expiration of the Volumetric Ethanol Excise Tax Credit (VEETC) at the end of 2011 has led to a number of ethanol plants shutting down, and others operating in the red:
After predicting they would survive the end of a major federal subsidy without problems, it looks like officials at the nation’s ethanol producers may have been too optimistic.
Since the subsidy ended Dec. 31, ethanol profit margins have declined sharply, even slipping into negative territory. Experts see no quick turnaround in sight.
Now that the subsidy has disappeared, the ethanol downturn is being felt nationwide, including in Minnesota. The state’s $2 billion-plus industry ranks fourth in the nation in capacity and production.
At the Al-Corn Clean Fuel ethanol plant in southeast Minnesota, CEO Randall Doyal sees how the loss of the subsidy has hurt this business. He said his profit margin — the difference between the cost of making the corn-based fuel and what he can sell it for — has disappeared.
“Since the first of the year it’s been even-to-slightly negative,” Doyal said.
It’s not exactly satisfying to see economic activity being shuttered during a time of high unemployment, as undoubtedly hard-working individuals at these plants are temporarily out of work. But those who support aligning our energy economy more closely with market principles are in a minority, so we don’t necessarily get to choose when and where some of these decisions (that can be painful in the short run) are made. [click to continue…]
Want wind to get subsidies just like oil does? Then, cut the PTC by 99.9%. Wind’s subsidy is 40% of the wholesale cost. This would work out to $50 per barrel in the oil industry. Instead oil gets 5 cents.
Of course the best deal would be to cut them both to zero.
For the details, see my blog today at The Foundry.
On another point: AWEA and its apologists have fallen back on the “we need certainty” argument. Well here is some certainty: The subsidy will be zero for all time.
David W. Kreutzer, Ph.D. is a Research Fellow in Energy Economics and Climate Change at the Heritage Foundation.
In Friday’s Washington Post, Reps. Henry Waxman (D-Beverly Hills) and Ed Markey (D-Massachusetts) pitched cap-and-trade as a means to balance the budget. According to the Congressmen,
“The debate over how to reduce our nation’s debt has been presented as a dilemma between cutting spending on programs Americans cherish or raising taxes on American job creators. But there is a better way: We could slash our debt by making power plants and oil refineries pay for the carbon emissions that endanger our health and environment.”
This statement is absurd. By design, a cap-and-trade policy makes conventional energy more expensive. It is, therefore, functionally equivalent to a tax on a commodity—energy—that is fundamental to every act of economic production. It’s an economy wide tax. In effect, Reps. Waxman and Markey are claiming that a broad consumption tax (cap-and-trade) avoids “the difficult dilemma” of raising taxes, which doesn’t make any sense. Fortunately, these two Congressmen are in the minority party in the House, so their policy idea is a non-starter.
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