“The auto industry is the nation's largest manufacturing sector, accounting for almost 4% of U.S. gross domestic product. It employs about 2.5 million people directly or indirectly, and spends tens of billions of dollars a year in research and development.” (WSJ)
And yet regulators think they know what’s best for consumers, the auto industry, and the economy. In April, the National Highway Traffic Safety Administration (NHTSA) proposed a 25 percent mandatory increase to fleet-wide fuel economy standards (CAFÉ) by 2015. Auto Alliance spokesman Charles Territo said about this proposed rule-making, "The price of gas has certainly created a market for more fuel-efficient vehicles, but it hasn't lessened the amount of time or the financial investment necessary to bring them to market.”
The oft-heard argument that the US auto industry brought these troubles on itself by being short-sighted making large cars and trucks doesn’t take into account the extra costs per car that US companies have. As GM’s Vice Chairman Bob Lutz says, “US auto manufacturers were pretty much stuck selling gas-guzzling SUVs.”
A University of Michigan study in January 2006 compared the labor costs per vehicle for Hyundai production in Alabama versus the composite average for the traditional Big 3 in North American production. Hyundai had costs of only $551 per vehicle whereas the Big 3 had $2,903. These extra costs included labor, health care, jobs bank and retirement plan costs.
“Auto makers made upwards of almost three times the profit on SUVs compared with small cars,” according to Jeff Bennett in the WSJ. This is how the US auto industry survived.
But now with the cost of gas, demand for these larger vehicles has decreased, causing the industry and the many related industries to suffer their worst year in over a decade.
On top of this, a district court in California has now decided that if the EPA grants California a waiver so they can impose even higher CAFÉ standards, the auto industry has to begin selling this higher mpg mix of cars in only 45 days. Since this is impossible and because twenty-one percent of new cars are sold in California, this means that the auto makers need to spend billions of dollars now to comply in case EPA grants the waiver.
An “excess profits” tax on oil companies — which liberal Congressional leaders support — may well harm you by taking money out of your retirement fund, not just by discouraging oil production and exploration. Your pension fund is probably invested partly in oil companies or oil-related commodities. As the Washington Post reports today:
“Soaring fuel prices that are burning a hole in the wallets of consumers are not only benefiting oil companies . . . They are also lighting up the investment returns of pensions funds, which millions of ordinary Americans are counting on for their retirement. California’s public employees’ pension fund, the world’s largest, made its first investment of $1.1 billion into oil and other commodities early last year, and since then, Calpers has seen it soar 68 percent. Fairfax County pension managers have enjoyed a 61 percent return from a similar move over the past 12 months, far outpacing any other segment of the fund’s portfolio.”
I’m not a public employee, but I’m in the same boat when it comes to oil. My own 401(k), IRA, and 403(b) retirement accounts contain mutual funds that own stock in Exxon Mobil and other oil companies. An excess profits tax might enrich the government, but it will make it harder for me to ever retire.
If recent polls are any indication, Americans will have difficulty enjoying a carefree summer, facing, as they are, the reality of rising fuel prices. Despite overwhelming calls for action transcending partisan lines, there was no definitive congressional action taken prior to the July 4 break to initiate plans for America's energy independence. House Minority Leader John Boehner and his Republican colleagues said that GOP lawmakers "made it clear that Congress should not leave town without voting on meaningful solutions to increase American energy production. But Democrats did." Democrats can balk, but they cannot deny the facts – even when those facts are provided by an organization not always in sync with Republican policies.
Congress is out this week, and most Senators and Representatives are back home talking with their constituents. They’re probably hearing a lot of complaints about gasoline prices. That’s why last week the House tried to pass several bills to show that they’re trying to do something. What they are trying to do is pass the buck and blame $4 gas on speculators and oil companies. The House passed H. R. 6377 by a vote of 402 to 19, which directs the Commodity Futures Trading Commission to stop “excessive speculation” in oil futures markets.
But the House defeated by 223 votes to 195 a bill, H. R. 6251, that would have prevented the Interior Department from awarding new oil and gas exploration leases to companies that haven’t “diligently developed” existing leases. Of course, the main reason companies don’t develop the leases they have already paid for is because they turn out not to have any oil. The bill won a majority, but needed two-thirds to pass under suspension of the rules. H. R. 6346 also failed narrowly under suspension by a vote of 276 to 146. It’s the latest version of anti-price gouging legislation that passed both the House and Senate last year in different forms. It would have directed the Federal Trade Commission to find and punish anyone who charged “unconscionably excessive” prices for gas.
The Democratic leadership apparently feels that the public is more interested in punishing someone for high gas prices than in taking action to lower them. Consequently, they are doing everything they can to make sure they are not the ones punished by voters. The Republican leadership in both houses continues to talk up the need for more domestic oil production on federal lands and offshore areas.
Rep. John Peterson (R-Penna.) once again tried to offer his amendment to open offshore areas to oil and gas exploration at a meeting of the full House Appropriations Committee on Wednesday, June 25th. Chairman David Obey (D-Wisc.) thereupon adjourned the meeting and warned that the prospect of Peterson’s amendment would probably force him to cancel all further markups of appropriations bill and instead ask the House to pass a continuing resolution to fund the federal government for the 2009 fiscal year beginning on October 1st. If this is a real threat, it’s amazing that the House leadership is so opposed to more domestic oil production that they would forgo all the pork barrel projects and other goodies that are part of appropriations bills. This got little press attention, but it’s really one of the big stories of the 110th Congress.
Hopes have dimmed for stronger action on climate change – a central goal of this week's G8 summit in Japan – with countries such as the United States and Canada resisting calls for the group to set hard midterm targets for reducing emissions.
According to UPI, the latest nationwide survey by the Pew Research Center for the People & the Press finds that half of the respondents now support drilling in Alaska's Arctic National Wildlife Refuge, up from 42 percent in February, 2008. Changing attitudes toward energy were most demonstrated in results showing that the proportion saying it is more important to increase energy conservation and regulation has declined by 10 points, from 55 percent to 45 percent. By contrast, nearly half (47 percent) of Americans now rate energy exploration as the more important priority, up from 35 percent in February. The findings came from a poll conducted June 18-29, 2008 among 2,004 adults.
President Bush was on message Wednesday in a Rose Garden news conference when he kept up the pressure on his a drill, drill, drill offensive. He said he knows Americans are worried about gasoline prices, and said he wants them “to understand fully that we have got the opportunity to find more crude oil here at home in environmentally friendly ways.” He specifically mentioned opening up ANWR, the outer continental shelf, and oil-shale exploration. He also took a whack at lawmakers, saying “the Democratically controlled Congress has refused to budge.”
Next week, the leaders of the G8 countries will be meeting in Hokkaido, Japan, for their annual summit. Once again it will at least provide the world with the opportunity to reflect on whether this is the kind of institution the world needs for the 21st century. Like many of the institutions of the 20th century shaped by distinct but now bygone circumstances, the G8 has started to look like a rather arbitrary gathering.
Diplomats from the world’s industrialized countries are lowering expectations for climate change mitigation policy at the upcoming G8 Summit in Japan. A month ago, European officials hoped to put global warming at the top of the agenda at the annual summit, but recent inflation in food and energy costs have relegated climate negotiations to the backburner.
This week, John Ashton, Britain’s top climate envoy, told reporters that, “We should be careful not to expect too much of the conversations” on climate policy. That was echoed by a Japanese official, who said that the summit's focus is likely to shift from climate change to rising prices. And a source involved in preparatory climate policy negotiations in advance of the Summit told Reuters that "The G8 statement will be weak."
It is worth noting that the preferred “solutions” to climate change—a cap-and-trade scheme and a carbon tax—are designed to increase the price of hydrocarbon energy, including gasoline, so that consumers use less and emit less. It is also true that biofuel policies adopted by developing countries to reduce greenhouse gas emissions have contributed to inflation in the price of food.
The California Air Resources Board (CARB) released its draft "scoping plan," which lays out the regulatory steps needed to comply with AB 32. It calls for an ambitious cap-and-trade program involving seven Western States and three Canadian provinces, more fuel-efficient vehicles, a big hike in wind and solar power, more energy-efficient appliances and stricter building standards, and even sets up a voluntary program to build methane digesters over manure pits at the state's dairies and ranches. CARB chair Mary Nichols told the LA Times that the regulations will have a “net positive economic impact,” but Republican lawmakers disagree, and they have indicated that they will fight the implementation of CARB’s proposals during budget deliberations this summer.
In Florida, Republican Governor Charlie Crist kicked off the state’s second annual climate summit by signing new energy legislation, HB 7135. Other than making construction more expensive by forcing builders to adhere to costly “green” standards, the law contains little policy. Rather, it calls upon state regulators to develop plans to increase Florida’s supply of renewable energy and reduce emissions.
Dominion Virginia Power cleared the last regulatory hurdle for a proposed $1.8 billion coal-fired power plant in Wise, Va., after the Air Pollution Control Board voted 5-0 to permit the facility. The Board’s approval was conditional on Dominion Power significantly reducing sulfur emissions, as well as the conversion of a coal-fired plant in central Virginia to natural gas. The plant could, however, face legal challenges from environmental groups that oppose coal power.
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