Obama's Energy Plan
On August 3, 2008, Democratic presidential candidate Barack Obama presented an outline of his energy plan for America in a speech. Here is an analysis of the contents of that plan, point by point as listed in the official document of the speech from the Obama campaign website. First, the introduction.
“America has always risen to great challenges, and our dependence on oil is one of the greatest we have ever faced. It’s a threat to our national security, our planet and our economy. For decades, Washington has failed to solve this problem because of partisanship, the undue influence of special interests, and politicians who would rather propose gimmicks to get them through an election instead of long‐term solutions that will get America closer to energy independence.”
Supposedly, Obama’s comprehensive New Energy for America plan will:
- Provide short term relief to American families facing pain at the pump
- Help create five million new jobs by strategically investing $150 billion over the next ten years to catalyze private efforts to build a clean energy future.
- Within 10 years save more oil than we currently import from the Middle East and Venezuela combined
- Put 1 million Plug‐In Hybrid cars – cars that can get up to 150 miles per gallon – on the road by 2015, cars that we will work to make sure are built here in America
- Ensure 10 percent of our electricity comes from renewable sources by 2012, and 25 percent by 2025
- Implement an economy‐wide cap‐and‐trade program to reduce greenhouse gas emissions 80 percent by 2050
Let's take these main points one at a time, first, giving Obama's proposed remedies and, second, analyzing each remedy to see if it good, bad or just foolish.
Immediate Relief for Pain at the Pump — since rapidly rising gas pricies have cought the public's attention, Obama is calling for an: emergency energy rebate; an aggressive plan to crack down on speculators; and a swap of oil from the Strategic Petroleum Reserve to help provide immediate relief from soaring energy prices. Will these steps be effective? Do they even make sense?
Giving a government relief check of $500 for an individual and $1000 for a family may garner popular support—who doesn't like getting money back from the government—but this really doesn't affect anything long term other than adding to the government deficit. This is pandering.
Passing more regulations on oil speculators is typical of the way lawyers and liberals think: they are for the “victims” and must find those responsible for the crime. As the Economist reported, speculation amounts to less than 2% of the fluctuation in the price of oil. The real problem is supply and demand, as the world continues to develop demand is growing for energy of all types. Blaming those who make world wide trade in energy possible will not lower the cost or make more energy appear on world markets. This is shifting the blame.
The United States Strategic Petroleum Reserve (SPR) is there for a purpose: to help Americans in times of crisis. Look up crisis. Look up emergency. A crisis could be a war disrupting the international shipping of oil, an emergency could be the temporary loss of refinery capacity due to a hurricane. Rising prices are neither. The amount in the reserve is only sufficient for around two months of domestic use, not enough to change the supply and demand situation in any meaningful way. And what happens after the reserve is gone? Of course, Obama has proposed that we use the light (sweet) crude in the reserve and replace it with heavier crude he calls “more suited to our long‐term needs.” In what way is oil that contains more impurities (pollutants) and is harder to refine better for us in the long term? This is a parlor trick.
Nothing that Obama has proposed makes any sense in terms of reducing the current spike in oil prices. This is typical of people who are always looking for a quick fix to long-term problems. The Democrats are fond of saying “this is one crisis we can't drill our way out of,” well it is also a crisis we can't bullshit our way out of.
How about the more meaningful, long-term ideas? Obama thinks that our dependence and climate change are somehow related. To a great extent he is correct in this, we have said repeatedly that climate change, to the extent is is being caused by human activity, and pollution in general are a byproduct of using dirty energy sources like fossil fuels. Rich nations that have the wealth and technological means to wean themselves off of oil and coal should be doing so, instead of competing with the developing nations for limited hydrocarbon resources. And since oil comes from countries that are governed by dictators and despots, many who revel in causing international discord, it is doubly beneficial to break the fossil fuel habit. Let's see how Obama's ideas for medium and long-term solutions fair.
New Energy for America — interestingly, Obama leads off the section on long-term solutions with a move against climate change, at least the cause of climate change according to the Al Gore, IPCC chicken little crowd. In other words, CO2.
The trouble with cap-and-trade is that it takes something we really want to get rid of (carbon dioxide) , turns it into a commodity with guarantied scarceness and then invites industry to figure out any and all possible ways of making money off of trading it. Aside from inviting Enron like scams, it divorces the cost of carbon emissions from the production, since dirty polluters can buy their way to greenness. A coal plant can buy credits from a solar or wind plant and still produce cheaper power, leaving the alternative energy producers at a competitive disadvantage. We say tax carbon if it is carbon you wish to get rid of, and quit trying to hide a tax increase from the consumer by hiding it behind a complex scheme who's purpose will quickly be come lost in the search for financial gain. Furthermore, it turns the whole scheme into a revenue stream for the Federal Government, and those never go away.
Obama proposes using a portion of the revenue generated from the cap‐and‐trade permit auction to make investments that will reduce our dependence on foreign oil and accelerate deployment of low‐carbon technologies. The investments will target three critical areas: 1) Basic Research; 2) Technology Demonstration and 3) Aggressive Commercial Deployment and Clean Market Creation. To accomplish these goals a number of actions are proposed.
“Invest In A Clean Energy Economy and Help Create 5 Million New Green Jobs. Obama will strategically invest $150 billion over 10 years to accelerate the commercialization of plug‐in hybrids, promote development of commercial scale renewable energy, encourage energy efficiency, invest in low emissions coal plants, advance the next generation of biofuels and fuel infrastructure, and begin transition to a new digital electricity grid. The plan will also invest in America's highly‐skilled manufacturing workforce and manufacturing centers to ensure that American workers have the skills and tools they need to pioneer the green technologies that will be in high demand throughout the world. All together these investments will help the private sector create 5 million new green jobs, good jobs that cannot be outsourced”
There are two things here we can cheer for: accelerating the production of plug-in hybrids, the first logical step to fully electric cars, and improving the nationwide electrical grid. The rest is flummery. Hybrid's are available right now and adding a plug is more a matter of cutting political red tape than technology. The only way that intermittent alternative energy sources like solar and wind can effectively contribute to the nation's electricity supply is to allow power to be sent to where it is needed. The current US power grid is not up to the job, something T. Boone Pickens has also commented on. Since government regulations impact shipping power interstate it needs to be involved.
Biofuels are a red herring that provide a piddling amount of energy for a massive amount of effort, cause extensive environmental damage due to agricultural runoff, and press marginal crop lands into production when they are best left as natural grasslands and meadows. The only people who benefit from biofuels are large agricultural companies like ADM and favor currying corn belt politicians. Clean coal is an oxymoron and the least green, most dangerous energy source on the planet (see The Cost of Coal and the section Coal's False Promise in TRE Chapter 17). As for creating jobs, this will happen as a consequence of getting energy policy right, not because it was mandated in a political speech. Industry creates jobs, not the government.
“Create a 'Green Vet Initiative'. The renewable energy economy is exploding in the United States. In terms of venture capital alone, private investment in the sector topped $2.6 billion dollars in 2007. At the same time, more than 837,000 troops who served in Iraq or Afghanistan are now veterans. As president, Barack Obama will ensure that more of our veterans can enter the new energy economy. He will create a new 'Green Vet Initiative' that will have two missions: first it will offer counseling and job placement to help veterans gain the skills to enter this rapidly growing field; second, it will work with industry partners to create career pathways and educational programs.”
We are all for supporting our veterans and assisting their transition back to civilian life but this program has nothing to do with creating new energy. We also think any such assistance should not attempt to steer or limit their career choices. Leave the Vets choose.
“Convert our Manufacturing Centers into Clean Technology Leaders. America boasts the highest‐skilled manufacturing workforce in the world and advanced manufacturing facilities that have powered economic growth in America for decades. Barack Obama believes that America companies and workers should build the high‐demand technologies of the future, and he will help nurture America’s success in clean technology manufacturing by establishing a federal investment program to help manufacturing centers modernize and help Americans learn new skills to produce green products. This federal grant program will allocate money to the states to identify and support local manufacturers with the most compelling plans for modernizing existing or closed manufacturing facilities to produce new advanced clean technologies. This investment will help provide the critical up‐front capital needed by small and mid‐size manufacturers to produce these innovative new technologies. Along with an increased federal investment in the research,development and deployment of advanced technologies, this $1 billion per year investment will help spur sustainable economic growth in communities across the country.”
This is simply a Federal government handout program to help economically distressed regions of the country under a green facade. It could be useful but government money can't overcome fundamentally uneconomic energy production schemes.
“Create New Job Training Programs for Clean Technologies. The Obama plan will increase funding for federal workforce training programs and direct these programs to incorporate green technologies training, such as advanced manufacturing and weatherization training, into their efforts to help Americans find and retain stable, high‐paying jobs. Obama will also create an energy‐focused youth jobs program to invest in disconnected and disadvantaged youth. This program will provide youth participants with energy efficiency and environmental service opportunities to improve the energy efficiency of homes and buildings in their communities, while also providing them with practical skills and experience in important career fields of expected high‐growth employment. Participants will not only be able to use their training to find new jobs,but also build skills that will help them move up the career ladder over time.”
It's just a jobs program, like so many others before. Now let's turn to something with a prospect of real impact, improving the efficiency of cars and trucks. To achieve this goal, Obama would implement a strategy to allow us to reduce our consumption of oil “by more than we currently import from the Middle East and Hugo Chavez’s Venezuela combined,” and do so in 10 years. In order to do that, he proposes:
“Increase Fuel Economy Standards. Obama will increase fuel economy standards 4 percent per each year while protecting the financial future of domestic automakers. The plan, which will save nearly a half trillion gallons of gasoline and 6 billion metric tons of greenhouse gases, will establish concrete targets for annual fuel efficiency increases while giving industry the flexibility to meet those targets.”
Fuel efficiency standards have had an impact in the past and some reasonable increases could help motivate automakers to improve efficiency in the future. However, nothing the government does will get the American people to buy cars they don't like or want. The numbers stated are dubious and there are unanswered, but very important details missing, such as how to rate the efficiency of a plug-in hybrid. In all this is a bureaucrats solution: pass an arbitrary mandate and let the industry worry about meeting the targets.
“Invest in Developing Advanced Vehicles and Put 1 Million Plug-in Electric Vehicles on the Road by 2015. As a U.S. senator, Barack Obama has led efforts to jumpstart federal investment in advanced vehicles, including combined plug‐in hybrid/flexible fuel vehicles, which can get over 150 miles per gallon of gas As president, Obama will continue this leadership by investing in advanced vehicle technology with a specific focus on R&D in advanced battery technology. The increased federal funding will leverage private sector funds and support our domestic automakers to bring plug‐in hybrids and other advanced vehicles to American consumers. Obama will also provide a $7,000 tax credit for the purchase of advanced technology vehicles as well as conversion tax credits. And to help create a market and show government leadership in purchasing highly efficient cars, an Obama administration will commit to: within one year of becoming President, the entire White House fleet will be converted to plug‐ins as security permits; and half of all cars purchased by the federal government will be plug‐in hybrids or all‐electric by 2012.”
This is perhaps the best part of the Obama plan. Anything that helps get plug-in hybrids on the road in greater numbers is a good idea. You can argue over the monetary incentives but they will be temporary. Of course the target of one million vehicles is only a drop in the bucket compared with the 250,000,000 cars and trucks on America's highways today and the White House fleet is meaningless in the grand scheme of things. Perhaps most troubling is that flex fuel vehicles (FFVs) are thrown into the mix. As was stated on the blog, FFVs are just a red herring and part of the great biofuel swindle.
“Partner with Domestic Automakers. Obama will also provide $4 billion retooling tax credits and loan guarantees for domestic auto plants and parts manufacturers, so that the new fuel‐efficient cars can be built in the U.S. by American workers rather than overseas. This measure will strengthen the U.S. manufacturing sector and help ensure that American workers will build the high‐demand cars of the future.”
This is just a tax break for the auto industry, meaning it is aimed at getting union votes in the auto producing states. No real impact on energy or the environment.
“Mandate All New Vehicles are Flexible Fuel Vehicles. Sustainably‐produced biofuels can create jobs, protect the environment and help end oil addiction – but only if Americans drive cars that will take such fuels. Obama will work with Congress and auto companies to ensure that all new vehicles have FFV capability – the capability by the end of his first term in office.”
This is totally inane. As we have said, FFVs are a bad idea; automakers should concentrate on plug-in hybrids, fuel cell and electric vehicles. Biofuels are one of the worst ideas to come out of a crisis that is constantly producing bad ideas. This is a total non-starter on both accounts.
“Develop the Next Generation of Sustainable Biofuels and Infrastructure. Advances in biofuels, including cellulosic ethanol, biobutenol and other new technologies that produce synthetic petroleum from sustainable feedstocks offer tremendous potential to break our addiction to oil. Barack Obama will work to ensure that these clean alternative fuels are developed and incorporated into our national supply as soon as possible. He will require at least 60 billion gallons of advanced biofuels by 2030. Obama will invest federal resources, including tax incentives and government contracts into developing the most promising technologies and building the infrastructure to support them.”
This is a continuation of the previous bad idea, only this one is based on unproven, experimental technologies. Perhaps not as bad as competing directly with food crops cellulosic feedstocks still mean cultivation and harvesting on land that would otherwise be left fallow or allowed to return to a natural state. What happened to the idea of treading lightly on the land? One of the reasons that North America is a net carbon sink is because we now have less farm land in production than we did a century ago. This plan would reverse that trend. A much better idea would be to build a nice, clean nuclear plant on a couple of hundred acres and use the output to fuel electric or hydrogen powered cars.
“Establish a National Low Carbon Fuel Standard. Barack Obama will establish a National Low Carbon Fuel Standard (LCFS) to speed the introduction of low‐carbon non‐petroleum fuels. The standard requires fuels suppliers in 2010 to begin to reduce the carbon of their fuel by 5 percent within 5 years and 10 percent within 10 years. The Obama plan will incentivize increased private sector investment in advanced low‐carbon fuels and has a sustainability provision to ensure that increased biofuels production does not come at the expense of environmental conservation. The LCFS is an important mechanism in ensuring that our efforts to reduce our oil dependence also reduce carbon emissions.”
This is pretty much the same as the previous item, based on highly speculative science with no possibility of a quick or even timely return. Promoting research is fine, trying to hold the outcome to a time line is not.
Promote the Supply of Domestic Energy — though it is not obvious from the sound bites being traded on the evening news, Obama's plan does address the expansion of domestic energy production, sort of. Not all the actions would be productive or useful, but some would.
“A 'Use it or Lose It' Approach to Existing Leases. Oil companies have access to 68 million acres of land, over 40 million offshore, which they are not drilling on. Drilling in open areas could significantly increase domestic oil and gas production. Obama will require oil companies to diligently develop these leases or turn them over so that another company can develop them.”
Given the price of a barrel of oil on today's market you can rest assured the oil companies would be drilling on those acres if there was oil to be found there. Oil companies are in business, they wouldn't stay in business long if they drilled where there isn't any oil. And what the posturing pols don't mention is that oil leases already expire.
“There’s an abundance of irony surrounding this bill and the gentlemen who introduced it,” Rep. Don Young of Alaska, top Republican on the House Natural Resources Committee said. “Oil companies with federal leases already have very defined time limits to produce oil or natural gas on existing leases. If the companies do not produce on those leases within the time limit, they will lose their lease.” It seems most of Congress can't even come up with new bad ideas.
Promote the Responsible Domestic Production of Oil and Natural Gas. An Obama administration will set up a process for early identification of any infrastructure obstacles/shortages or possible federal permitting process delays to drilling in:
- Bakken Shale in Montana and North Dakota which could have as much as 4 billion recoverable barrels of oil according to the U.S. Geological Survey.
- Unconventional natural gas supplies in the Barnett Shale formation in Texas and the Fayetteville Shale in Arkansas.
- National Petroleum Reserve?Alaska (NPR?A) which comprises 23.5 million acres of federal land set aside by President Harding to secure the nation's petroleum reserves for national security purposes.
Ok as far as it goes, but we will need to drill in more places than the ones he lists. If these are the only places Obama wants to drill he is laboring under a delusion.
“Promote the Responsible Domestic Production of Oil and Natural Gas. An Obama administration rioritize the Construction of the Alaska Natural Gas Pipeline. As president, Obama will work with stakeholders to facilitate construction of the pipeline. While this pipeline was proposed in 1976, and Congress authorized up to $18 billion in loan guarantees for this project in 2004, there has been no progress in building this critical energy infrastructure under the Bush Administration. The planned pipeline would have a daily capacity of 4 billion cubic feet of natural gas, or almost 7 percent of current U.S. consumption. Not only is this pipeline critical to our energy security, it will create thousands of new jobs.”
Building more pipeline is a good thing and this is at least a start.
“Getting More from our Existing Oil Fields. Nationally, experts believe that up to 85 billion barrels of technically recoverable oil remains stranded in existing fields. Enhanced oil recovery (EOR) using carbon dioxide offers an immediate? to medium?term opportunity to produce more oil from existing fields. And in the EOR process, large quantities of CO2 can be sequestered underground, reducing global warming pollution. Under an Obama Administration, we will pass a carbon cap-and-trade bill, which will incentivize emitters to send their CO2 to old oil fields for EOR, thereby providing economic benefits while also stimulating additional domestic oil and gas production. To speed that process, we will map all stationary CO2 sources and develop a database to help industry calculate the most cost-effective oil field destination for each source's CO2.”
You can tell some staff policy wonk got a hold of this one—EOR using CO2 injection, combining that with carbon sequestration efforts, the government in the middle of it all building a database to support the effort and finally tying it all to a cap-and-trade carbon tax increase. That, plus the use of the term “incentivise,” screams policy wonk angling for a high-level appointment in the Obama administration. Getting more out of existing oil fields is good, the amount of carbon that can be sequestered in this manner is quite small compared with emissions totals, and cap-and-trade is just a way to hide a carbon tax (not that we are against a carbon tax, we just want to be upfront about it).
Diversify Our Energy Sources. After admitting there are no silver bullet solutions to the energy crises, Obama states that, “our economy, security and environment will be best served through a sustained effort to diversify our energy sources.” Obama proposes a mish mash of expanded regulation, goal setting, and feel-good items:
- Deploy the Cheapest, Cleanest, Fastest Energy Source — Energy Efficiency.
- Set National Building Efficiency Goals.
- Overhaul Federal Efficiency Standards.
- Reduce Federal Energy Consumption.
- Flip Incentives to Energy Utilities.
- Invest in a Smart Grid.
- Weatherize One Million Homes Annually.
- Build More Livable and Sustainable Communities.
The only really novel idea is to “flip” incentives for utility companies. This entails creating an inverted market for energy utilities where selling more energy will lower their profits while conserving energy pays them more. Only a politician or bureaucrat would think of “decoupling” profit from what a company sells as an incentive. And what's with all the goals with “one million” in them? They want one million hybrids and to weatherize one million homes. Why one million? Does one million seem like a cool big number to use?
Well there it is, the Obama energy plan. It has some good points: plug-in hybrids, more oil & gas production, conservation and even a tepid embrace of the inevitable use of nuclear power. But it also has its down sides: expanding biofuels, flex fuel vehicles, limits on offshore drilling, and jobs programs masquerading as energy/environmental legislation. And there are also some just plain goofy points: incentive flipping, tapping the SPR, and gas money give-a-ways. In all, not quite as bad as it could have been, but far short of what America needs. Professor Doug gives this plan a C-.