Remember the heady days of September when the chant at Sarah Palin rallies was "Drill, baby, drill"? Even Obama seemed to be wavering from his "car tuneup" energy policy as he viewed strong public support for offshore oil drilling. Then there was a so-called bipartisan initiative where they might allow, upon state approval, at least 100 miles offshore, certain limited drilling. In an era where drilling is going on off Cuba's shores, this was patently insufficient. But ever since gasoline prices have been retreating from over $4/gallon to around $1.77/gallon (yesterday near my Safeway store).
You need no further proof of upcoming Obama administrative incompetence than the leaked plan to quickly repeal Bush's recent executive order opening up offshore areas to oil exploration. Now the Obama folks will want to tell you that with Obama's $150B investment in alternate energy, we are going to be off dependence on Middle East oil (note that's only a fraction of our oil imports, which of course they don't say). And when we're facing $200/barrel oil, are we going to hear the same liberal/Obama song and dance about a 10-year lead time on getting domestic oil to market? Are you kidding me?
The burden of proof is for Obama and his cronies to explain exactly how government intervention with respect to alternative energy is necessary given the natural market incentive of high prices for fossil fuels. Time-to-market doesn't just apply to offshore oil production; we also need to consider legacy infrastructure (e.g., a quarter billion personally-owned vehicles, most of which are gasoline-fueled, fuel outlets, etc.) and certain inherent restrictions (e.g., solar and wind power generation are constrained by weather conditions and we don't have scalable, inexpensive battery storage to store it). Nevertheless, I believe that Obama is underestimating time-to-market of certain creative destruction technologies (e.g., very large scale battery storage capacity for weather-dependent energy production) and market-distorting effects of government intervention in the energy markets and picking winners and losers in the marketplace.
Some Steps Towards a Coherent Energy Policy
--Use Government Purchasing Power to Promote Energy Independence
For example, offer multi-year contracts to supply solar panels for government buildings and public housing. Require flex-fuel and hybrid/electric and/or compressed natural gas technology in government-owned passenger vehicles. Require government vehicle refueling at stations providing E85, compressed natural gas, or other fuel alternatives.
--Displace Use of Foreign Fossil Fuels with Domestic Fossil Fuels
We are increasingly importing most of our oil, while existing domestic fields continue to mature and dwindle. Our economic dependence on foreign oil is a national security issue. Whereas we need to engage in better conservation and develop fossil fuel independence, in the short term, we have an enormous infrastructure of vehicles and home heating dependent on fossil fuels. We need to aggressively explore and develop new fossil fuel sources and set aside various regulatory and/or legal hoops (e.g., environmental impact studies), including offshore, oil shale, etc. Despite the current respite from this past summer's peak prices, a global recovery is just a matter of time. We cannot delay investment until after we're back to $150/barrel.
The US government should seed the building of a couple of coal-to-liquid refineries (convenient to our abundant mining sources), welcoming industry investments, just as Sasol (South Africa) has agreed to help construct in China. Pickens has already outlined a conceptually similar approach where he talks about substituting wind or solar power to natural gas electricity generation and using compressed natural gas for vehicles.
--Aggressive Buildout of Nuclear Power Plants
--Subsidize (Means-Tested) Loans for Lower-Income Households
Provide means-based vouchers/discounts for replacing or converting primary household vehicles with alternative source, older energy-inefficient appliances, solar paneling or other energy-saving technologies
--Provide a Floor Price for Oil
Some economists have suggested establishing a floor price for oil (e.g., $100/barrel) to allow for substitute energy alternatives to emerge as a viable business. For instance, if the market price of oil was $67, the government would essentially charge a surcharge tax of about $33/barrel.
--Capacity First, Regulation/Control Second
Richard Nolan in the MIS literature promoted an S-shaped curve in terms of describing a stage hypothesis for managing the computer resource. The basic idea is to first establish the effective deployment of computer technology, minimizing the management footprint or rules and regulations which would get in the way of resource utilization. Once you reach a critical mass adoption, you start imposing various controls to encourage efficiencies.
I worked for a market research firm specializing in statistical modeling of customer data. They discovered that they could get a payback from converting their mainframe applications to Sun Microsystems boxes within 6 months. Prior DBA's and developers had been given full privileges to do whatever it took to get the applications migrated. The company discovered that the technical staff was devouring hundreds of gigabytes of storage, contracted data loads were not scheduled as required, and they were running into disk procurement and cost issues; I was tasked with management and control of the key production databases.
In a similar manner, I would argue that the key issue is energy independence. Now green power advocates also discuss energy independence, but after 40 years, we are seeing single-digit percentage production of current energy consumption. I'm not underestimating the potential impact of flex-fuel/hybrid/electric cars, new nuclear power plant impact, etc., but, for example there are vehicle production constraints and a huge number of legacy cars to turnover. We cannot grow enough corn to put all vehicles on E85, and the energy yield on corn-based ethanol is low. The point is, current domestic oil production is on the decline, and we need new oil finds and production, if for no other reason than to defer the need for even higher foreign oil imports. The Democrats and their environmentalist allies have created barriers to finding additional domestic supplies--barriers we don't see for China, Brazil and other large oil consumers.
Conclusion
Obama's campaign responses to energy resource shortfalls--e.g., keep your car tires inflated and your car tuned up; lower the thermostat and wear sweaters--are short-term tactics, not long-term strategy. It's time for the Democrats to come up with realistic market-based solutions, not snake-oil hype of alternative energy/fuels. It is simply not viable to say "stop the use of fossil fuels". I understand the motivation and the goal; I'm not arguing that we can maintain an indefinite dependence on a resource for which we have no hope of ever being self-sufficient under current utilization patterns. For years, the American automakers have been in a state of denial, dragging their feet on Corporate Average Fuel Economy standards, while focusing on production of heavier, fuel-thirsty models like SUV's and trucks. They skipped a first-generation hybrid competitive response to the Prius, GM gambling on the Volt.
Obviously conservation is important: bikeriding short distances, park and ride, public transit, carpooling, telecommuting, etc. Fuel extenders (e.g., ethanol), multi-fuel capability, synthetic or alternative fuels using more abundant domestic fossil fuels (e.g., coal-to-liquid, compressed natural gas). We need to find more scalable, more energy-yielding approaches to biofuels (e.g., bypassing starch-to-sugar conversion). We need to adopt carbon-filtering technologies for coal power plants, but provide a more market-based, flexible, realistic approach.
Draconian changes in energy utilization are not feasible. In the meanwhile, we cannot basically shoot ourselves in the foot by refusing to further develop domestic supplies and the relevant jobs those would bring to our economy and increasing our dependence on foreign energy suppliers. More importantly, we cannot allow falling oil and energy prices, an artifact of a global recession, reignite public demand in fuel-inefficient vehicles and lapses in hard-achieved gains in energy conservation.
