Energy

Last night, in the few minutes we weren’t talking about the financial crisis and the impending bailout, President Clinton waxed political on the potential for energy investment in the United States.  According to the President, the near-certain reality of approving legislation liberalizing off-shore drilling should be seen as a political opportunity for progressives interested in sustainable environment and combating climate change. But if we’re going to “give” drilling to the right, the left should negotiate hard for the environment, including:

Never in a million years did I think I would be writing my blog about Paris Hilton.  Not because I don't like pop culture-I love it, and am not ashamed to admit I own a Britney Spears cd (or four).  But after McCain's attacks against Obama, calling him a "celebrity" and flashing pictures of Paris and Britney, Paris was savvy enough to shoot a message back to McCain.  What was really interesting to me is that in her message, which can be watched here, she delivered her own energy plan.

Yes, that's right, even Paris Hilton realizes that our planet is in trouble, and that if we don't do something today, her popular catchphrase, "That's hot," will not be used to describe a fantastic new handbag but our planet in general. 

Part of me is ecstatic because energy and environmental issues are finally becoming a major issue for this year's election, but the other part is disappointed that what is making the headlines is the drama: the attacks the two candidates are expending on each other rather than the details of their energy plans.  In fact, when reading the news, I find myself confused -am I reading a story reporting about our presidential election, or am I reading a story in Us Weekly?

Associated Press (08/06) cites William Hartung on potential cooperation with China on energy security.
Washington Post (08/06) quotes Flynt Leverett on Iran's continuing uranium enrichment.
National Interest (08/01) cites Peter Bergen on Washington's evolving strategy against terrorism.
Somerville Journal (08/01) quotes Daniel Levy's analysis on Israel negotiating through Turkey and Egypt.

The Department of Transportion announced today that we drove 9.6 billion fewer vehicle-miles traveled (VMT) in May 2008 compared to May 2007. While that is good for reducing carbon emissions, it is bad for the Highway Trust Fund. When we use less gasoline, less gasoline excise taxes are collected.

According to Transportation Secretary Mary E. Peters: "By driving less and using more fuel-efficient vehicles, Americans are showing us that the highways of tomorrow cannot be supported solely by the federal gas tax."

Our current federal gasoline excise tax is 18.4 cents per gallon. It is not adjusted for inflation. It has been known for some time that adjustments would eventually need to be made in the rate or HTF funding approach as MPG of cars increased. Various studies have been done to get an idea of the problem and possible solutions to provide more funds for the HTF to maintain and build roads.

Two fascinating news stories deserve to be juxtaposed, but I don't have much time between meetings today.

First, is the recently concluded conference launching the Union for the Mediterranean, led by French President Nicolas Sarkozy.

The second item, related to the first, is that UK Prime Minister Gordon Brown and Sarkozy are backing a £35bn supergrid for Europe and North Africa that would facilitate the the kind of renewable energy economy that T. Boone Pickens could only dream of and that Al Gore is only just starting to talk about.

Contrast that bold, sustainable initiative with China's quest for coal in Australia and the utterly disheartening and, really, dysfunctional news that there are up to 90 billion barrels of oil under the Arctic ice sheet, which of course is becoming thinner due to our previous oil use.

Sometimes it is good to provoke an unconventional thought. I'm wondering whether Al Gore's energy speech, which Senator Obama has not yet fully embraced, could be picked up by Senator McCain to upset the curious balance between the two candidates and secure the win in November.

Let me start at the beginning. In his path-breaking address yesterday, Al Gore shook loose the bonds of political gravity and finally proposed a key element of any new American grand strategy: 100% carbon-free electricty by 2018.

Saying "100%" about anything in the context of sustainability in America is nearly impossible in Washington, but the former Vice President seems to understand what McCain and Obama have yet to fully grasp: the nation is hungry for a decisive, bold step towards a new economic engine for the United States.

Governor Charlie Crist hosted a Climate Summit in Miami 2 weeks ago and here are a few observations from the front row...

- In his opening keynote, Gov. Crist showed the value of leadership - - just one year ago, he challenged his state to tackle climate change and the result was a massive energy bill that will dramatically increase renewables (solar, wind, etc), improve energy efficiency (the cheapest power comes from the power plant you don't have to build!), and greenhouse gas reductions.

- Ray Anderson, founder and Chairman of Interface, a billion dollar American carpet company, told us how he had slashed energy consumption and greenhouse gases 60% in the past 10 years while doubling profits. Any doubts that we can be both environmentally and economically sustainable simultaneously were erased from the minds of 800 in attendance that night!

- Governor Arnold Schwarzenegger delivered a knock-out punch of sorts - - he said the politicians who claim they can lower gasoline prices by drilling offshore or investigating oil companies are "blowing smoke". He challenged us to do the job ourselves, by inflating our tires properly, driving a bit slower, tuning up our engines, and using other simple methods to improve MPG by as much as 20% overnight. He made other suggestions of things we can do to take our economic and environmental destiny into our own hands - - great point - - we can't wait for politicians to do it!

There is an old truism that goes, "where you stand depends on where you sit." This was the case for former Treasury Secretary and former Goldman Sachs chief Robert Rubin and his policy of "Rubinomics" that elevated a few short- and medium-term macro indicators (e.g. annual budget deficit, Fed Funds Rate, S&P 500, etc.) above long-term economic health.

Similarly, his successor, current Treasury Secretary and also former Goldman Sachs chief, Hank Paulson. In Paulson's case, stability of the macroeconomic status quo is the highest priority and thoughts of longer-term, broad-based domestic prosperity are given short shrift.

If you're a banker in Wall Street these policies make complete sense. If you're the next President of the United States, however, that kind of narrow thinking is insufficient.

That is a long introduction to my critique of T. Boone Pickens' new energy plan. In today's Wall Street Journal, the renowned oil executive offered up his plan to, as he puts it, "escape the grip of foreign oil." While Pickens' proposals rightly establish the scale of the problem -- "Now our country faces what I believe is the most serious situation since World War II" -- the package of solutions is clearly designed by an Energy executive, and is not ready for consideration by the next president.

With the rising price of oil, a consensus has been building that the world is becoming less "flat" than it was in Tom Friedman's bestseller The World is Flat. With higher energy prices global supply chains will fail, countries in East Asia will re-think their export orientation and try to stimulate domestic demand, and countries such as the United States may gain a competitive edge in their domestic market. Oil makes up nearly half of total freight costs and over the past three years every one dollar rise in oil caused a 1% increase in transport costs.

Snapshot asks, will higher energy costs make U.S. manufacturing more competitive?

Business Week - Can the U.S. Bring Jobs Back from China?
Morgan Stanley - High Transport Costs to ‘Un-Flatten' the World
Wall Street Journal - China's Export Machine Threatened by Rising Costs
CIBC - Will Soaring Transport Costs Reverse Globalization?

Everyone hates their taxes being spent on subsidies -- unless it's to subsidize their own industry. It's time for an honest debate about the role of subsidies in a 21^st Century economy and, at least, a restructuring to a more level playing field.

Examples? When I served in California state government, the Schwarzenegger administration tried for three years to push through a solar incentive package. Ultra-conservative State Senator Tom McClintock rose during the debate in red-faced indignation and bitterly opposed any subsidy of an industry that couldn't stand on its own two feet. I've heard that argument repeatedly, often by the same politicians who support massive subsidies to the oil and coal incumbents, despite the fact such "incentives" are hardly needed to get fossil fuels out of the ground.

The latest salvo comes from President Bush, who yesterday said it was time to end subsidies to "multimillionaire farmers." He was addressing a point about sharp increases in food prices, making wealthy agribusinesses even wealthier, partially the result of rising fuel costs and ill-conceived government mandates/incentives to produce ethanol. Ironically, the President told Congress he would veto any bill than shifts even a small portion of the $100 billion/year subsidies given to oil companies towards alternative energy sources.