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Political Energy Policy Just for Laughs

by: Steven Hansen September 11, 2008 | about stocks: F / GM / NUCL / OIH / OIL / PBD / PBW / PZD / UNG / USO / XLE    

Steven Hansen

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"A good politician is quite as unthinkable as an honest burglar." – H. L Mencken

Drill here, drill now. Energy independence. Alternative energy.  Our two Presidential candidates continue to bombard us with solutions – and most are pie in the sky fiction.

Alternate Energy – Private enterprise invests in things that are profitable. Most of the alternate energy options, such as solar or wind farms, in the USA have been used as tax dodges for the rich due to state and federal rebates, tax incentives and guaranteed high price energy purchase agreements. We all have been paying for this, and this is no different than the take over of Fannie and Freddie – the taxpayer is paying the bill. The current technology is not good enough yet. We need a major investment in R & D through joint research by universities and private industry. You can debate who pays for the research, but research is a massively cheaper investment then building a product which will not do the job. Let us not get into a situation where the rich laugh their way to the bank at taxpayers expense.

Nuclear Energy – What a joke. Half the people in America equate nuclear energy and the nuclear bomb. What the hell are we going to do with the waste? Newsflash …. I would rather live next to a nuclear power plant than a coal fired one but you will not like the reason why. There are proven technologies for dealing with the waste if we wanted to hear about them. I built nuclear generating plants when I started my career. But ignorance will govern, the licensing process would be painful, and the engineers to design the plants, the manufacturers to build the components, and the construction hands to build them literally do not exist. Even if America was willing, it would take at least 10 years from now to get the first one on line. This is a long term solution at best, and will only be viable with a consensus from the American people.

Reduce Imports – Watch the price of oil drop every day. Pretty soon you will see the SUV armies out in force. I was building nukes in the 70s during the great oil crisis. Oil went up and was expensive and never went down in price. Yet within a few years I was driving down the road in my muscle car paying a buck a gallon instead of 25 cents. We had our chance then and America voted with its wallet to continue its love with oil. Demand destruction only happens with a REAL cheaper alternative. Not an alternative you have to conjure up with incentives and smoke & mirrors.

Hybrid Cars – At our current level of technology, the only hybrid option at our doorstep is plug in battery. And of course it gets its power from electricity so we can use our alternate energy sources to make this electricity. And we are okay in creating some sort of toxic soup which will be created from all those batteries that last a year or two. We need R & D – not production.

Natural Gas – This is actually the only energy option which is readily available, relatively clean, and has adequate technology today to support wider use. We could make a pretty good sized dent in imports by converting cars. The economics are currently in place. This would probably need some government and state intervention at the beginning to develop and plan and build an infrastructure. To me this is the best chance for a short to medium term energy source to offset imported oil.

Energy from renewable sources– And for those of us who like taxpayer’s money going to the rich who will produce this renewable energy for subsidies, this would be a great option. The economies for production with our current technology are not there. But that is not my reason for opposing alternate energy. It is taking food from the poor. I have watched it drive up food prices, cut down rainforests, and replace crops which people can eat with crops people cannot eat. You are playing with fire if this option is pursued.

Climate Change – Anyone who does not believe climate change is here is dead from the neck up. Did man create this mess or it is a climatic cycle – this is a subject for discussion at the bar. I have personally been involved in projects which actually changed the climate. Man is the solution to climate change. An initiative to address climate change would pump money into an economy which is stalling. And I am against carbon offsets or another other faux remedies. We need a consensus plan which involves taxation and not incentives.

Drilling for oil – Please drill and deplete these oil fields so we can stop talking about it. They will be drilled eventually so let’s get this over with. There is no argument it would reduce a small percentage of imported oil beginning in five years time. Oh, don’t think the oil will start flowing tomorrow. The oil industry is in boom conditions. Offshore construction is backed up for years in the future. The more remote drilling locations do not have infrastructure which adds costs and time.

Conservation – It will take years for the effects of conservation to be felt so we need to start now.  Raise new car’s fuel economy standards, institute a strict national building code relating to energy conservation features on new builds, and tax energy inefficient appliances,. The states can use their non-existing budget surpluses to retrofit existing houses little by little.

Another detail conveniently left out by the Presidential Candidates is that they do not have the authority to get any of these energy solutions implemented. Of course Congress does if you can stomach a solution coated with pork.

Oh, by the way, we are in an economic slump. How are we going to pay for this?

Disclosures: None

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This article has 31 comments:

  •  
    Sep 11 06:20 AM
    Don't confuse us with facts.
    Reply
  •  
    Sep 11 07:38 AM
    The real story here is to pick several options that make some sense and commit, as a nation, to getting them done, similar to the Brazilian model. Ethanol may not be the best solution as it has been implemented in Brazil, but they are 100% free of foreign oil and are making a significant positive impact to the environment. That was only possible because the country agreed on a plan. A good plan today is better than a perfect plan in 15 years.

    I think the real answer is a combination of some of these options, maybe even regional solutions where wind, tidal, geo thermal make sense.

    But whatever the solution is, it would require congress to get together, it would require those with a special agenda to get together, and it would require commercial enterprise to get together. Only the last has promise. The weakness of America is the inability of our political leadership to agree on a solution for anything and act on it....energy policy, health care, etc. They have failed us all....both parties.
    Reply
  •  
    Sep 11 07:56 AM
    The sarcasm hit the nail on the head.
    DRILLING MORE WILL ONLY MAKE A SMALL DENT IN THE TRADE DEFICIT and SUPPLY/DEMAND SITUATION.
    There is no doubt that eventually XOM and CVX will be back up to the 90's.
    See:
    www.crossprofit.com/vi...
    and
    www.crossprofit.com/vi...

    For some reason, most seem to buy these two when they are at their peak. The time to buy is when they are 20+% below where they will be in several months from now. In the interim; the dividend isn't much, but it's still a dividend.

    CrossProfit
    Disclosure: no current conflicts (bias - long in the near future, for clients/associates)
    Reply
  •  
    Sep 11 08:11 AM
    A very good and accurate review. And those are far and few between in this enviornment.
    Reply
  •  
    Sep 11 08:27 AM
    the last commentt had it right. Don't confuse us with the facts beacuse the average voter has a 2 minute attention span and can't read this whole article in 2 minutes.
    Reply
  •  
    Sep 11 08:34 AM
    Some sensible arguments. I am all for more conservation and R&D and a permanent R&D tax credit. However, according to National Science Foundation data, the energy companies have invested less than 1/2 percent on average of their net sales in R&D from 2001 through 2005 while the pharmaceutical and semiconductor industries spent 9.7 and 10.3 percent, respectively. Not a sterling track record.
    Reply
  •  
    Sep 11 08:51 AM
    "Natural Gas – This is actually the only energy option which is readily available, relatively clean, and has adequate technology today to support wider use. We could make a pretty good sized dent in imports by converting cars. The economics are currently in place. This would probably need some government and state intervention at the beginning to develop and plan and build an infrastructure. To me this is the best chance for a short to medium term energy source to offset imported oil."

    I agree. I am surprised at how little this is mentioned besides tboons adds.
    Reply
  •  
    Sep 11 08:54 AM
    I tend to agree with Steven Hansen. He hits the nail on the head when he writes, "Another detail conveniently left out by the Presidential Candidates is that they do not have the authority to get any of these energy solutions implemented. Of course Congress does, if you can stomach a solution coated with pork." The problem is not that Congress refuses to get its act together, but that when it does it is swayed by special interests to pick what those interests tell them are winners, rather than to create technologically neutral, enabling legislation that will allow the market to work out solutions to broadly set priorities. Congress should stop subsidizing production and support research, tying development and demonstration to results.
    Reply
  •  
    Sep 11 09:01 AM
    I'm only going to take issue with one item you mentioned. Why NOT wind farms? They produce unsubsidized energy for about 4 cents a kw. The only assistance they need from government is a centuries old practice known as eminent domain, so they can be connected to the electric grid. What's wrong with that?
    Reply
  •  
    Sep 11 09:07 AM
    Last time I checked, this beats the hell out of the 81 cents a gallon subsidy given to the corn ethanol industry, which doesn't take into account the food inflation this stupidity causes.
    Reply
  •  
    Sep 11 09:17 AM
    It is also true that wind energy requires subsidies to get started. But once up and running, they hold their own in comparison to other types of electric generation.

    Nuclear's cheaper now, but wait until new plants are built (if they ever are). The regulatory costs for each run into the billions alone. Not to mention the additional billions in government guarantees the utility companies are demanding to build them in the first place.

    To say that the federal government (with the assistance of their handmaiden environmental lobby) has screwed up energy production in this country is the UNDERSTATEMENT OF ALL TIME !!!
    Reply
  •  
    Sep 11 09:23 AM
    The original Alaskan oil pipeline was built and producing energy to the lower 48 in 3 years. Imagine that today! Now it would take 3 years just to do the "studies" required if ANWR were approved tomorrow.

    This would be some kind of bad joke (or Twilight Zone script) if we weren't living in the middle of it.
    Reply
  •  
    Sep 11 09:28 AM
    And that's the real "genius" behind wind energy in a nutshell. No long protracted studies, no bureaucratic nightmares, they just go out and build the damn things in the middle of nowhere. No doubt the Congress and the Greens are figuring out how to get their hands on them as we speak!
    Reply
  •  
    Sep 11 09:32 AM
    What? All constructive comments. Is this really SA?
    I have to admit, T Boone makes even more sense live and in person. Unfortunately, I think we will pi** this opportunity for change away, just like the early 80s. Big Oil and Big government have no incentive to change; no continuing revenue stream and no political contributions. That why all the alt energy bashing.

    Like 9/11, we will wait for the catastrophe, and then do something (usually wrong). Nationalization of oil, similar to Fannie and Freddie
    is already in the works. Government and industry will get theirs,
    everyone else will be left to fend for themselves.
    Reply
  •  
    Sep 11 09:40 AM
    And the "Twilight Zone" analogy is precisely where we're at. If we don't get of our butts and DEMAND our government end this energy folly, we're going to find ourselves in the "twilight" of the American economy. Indeed, we already have!
    Reply
  •  
    Sep 11 09:55 AM
    Paulk, that all sounds great, except if you double, triple or whatever the production of wind farms it's still a tiny fraction of what we use every day.

    Oh, BTW, you live in a dream world if you think there is no resistance to wind farms. "They bother migrating birds", "the shadows disturb wildlife", "the noise bothers animals". Don't worry, if you want to do it someone will oppose it.

    Corn ethanol does not drive up the price of food, that is BS. The cost of oil drives up the price of food. If the cost of food went up because of short supply, farmers would make more on the corn, instead they are making less after costs.

    Ethanol from corn is not an alternative to foriegn oil, because of the large amount of oil that goes into fertilizer and tilling.

    Ethanol from switchgrass, no fertilizer, no tilling just cut it once a year uses far less petroleum to produce. Ethanol can be made from any organic source, not just corn.

    Ethanol, Nuclear, CNG, Wind, Solar are all parts of the solution, but yes, 10 years or more is the timeframe. It took us 100 years to dig this hole, there is no 6 month solution.
    Reply
  •  
    Sep 11 09:59 AM
    PC,

    No, nationalizing the oil and gas industry isn't the worry. They don't need the government (other than to get out of their way).

    But the $50 billion the Congress is "loaning" to the Detroit 3 surely qualifies. All together, they don't have that much equity.
    Reply
  •  
    Sep 11 10:04 AM
    Come to think of it, the feds don't even have the "equity" to buy out our energy producers. Not that this would stop the Congress. But, fortunately, we're standing in the way.
    Reply
  •  
    Sep 11 10:17 AM
    User,

    Hold on now. The last I looked the price of corn was 3X what it used to be. And it still takes more energy to make a gallon or corn ethanol than it produces, unless the laws of biology and physics have been repealed.

    We only have to look at Brazil if we want to see how ethanol CAN work. Derive it from SUGAR, not corn. Unfortunately, U.S. sugar farmers have gone in the other direction. They get their government subsidies through artificial price mechanisms and import tariffs.

    Yet another stunning government failure!

    Reply
  •  
    Sep 11 10:21 AM
    I too have become interested in the NGV (Natural Gas Vehicles) as the best and quickest way to begin to free America from this foreign oil dependence and to help stop this endless debt that could eventually destroy the framework of our country.

    I am astonished that NGV's are not discussed more about the potential impact it could have with a minimal effort and work on our consumption of oil.

    Sure there are many things to be discussed about the best ways to implement everything but the technology is ready now and is being used in a small scale in this country and around the world but would have a very substantial impact for individuals and the country if we got together and did this on a large scale.

    First, I think the country needs to become informed about what NGV's are all about and how this could be the simplest, most effective and quickest way to change our gasoline consumption and save money too!

    Hopefully the media, a celebrity, the government, business or maybe even the politicans in this election will be start to make some noise about the potential with this and lets see if Americans want to show oil
    we no longer have to be at their mercy.

    Here's one hyperlink I found informative about NGV's from Canada, there are more just need to do some internet searches.

    www.uniongas.com/about...
    Reply
  •  
    Sep 11 10:36 AM
    User,

    Ethanol (and other biofuels) don't drive up the price of food? Driving up the price of corn was the whole POINT of support of corn ethanol. That is why the National Corn Growers Association loves it so much, and fights so hard for continuation of the government subsidies and mandates.

    If one measures effects of the diversion of corn to ethanol on final consumer spending (as measured by the USDA, 45% of which is weighted by the cost of meals eaten in restaurants), ethanol's impact on year-on-year price rises is modest in percentage terms (though still more than $10 billion in absolute terms). If one measures the effect of ethanol on GRAIN and OILSEED prices, however, the percentage is much, much larger. That is the measure that counts, by the way, for the poorest people in the world, who are spending more than 50% of their household income ($2 per day or less) on basic foodstuffs, not the highly processed, highly packaged stuff that we all buy in supermarkets.

    See: papers.ssrn.com/sol3/p...
    Reply
  •  
    Sep 11 10:40 AM
    Alas, as an engineer I agree with much of what he says.

    Alternate energy = heavily subsidized boondoggles. It is just throwing money at a problem so you can "feel good."

    Nuclear energy = the best longterm solution which means, of course, that it is unfeasible. The gentleman is absolutely right, the engineers and construction people it would take to build nuclear power plants do not exist. It would take a decade to put that infrastructure in place. However, just because it would take a decade doesn't mean we should not do it.

    Conserve = good idea and, unfortunately, that will take high energy prices. We need to keep oil at $100/bbl either by allowing the marketplace to do it, or putting government fiat in place.

    Natural Gas = good shorterm fix. But, longterm, natural gas is going to be as hard to get as oil.

    Hybrid cars = I don't know if I agree with him here. At some point you have to make them and with production a lot of R&D is going to be easy to justify. So, maybe a little tax incentive here makes sense.
    Reply
  •  
    Sep 11 12:01 PM
    "and the engineers to design the plants, the manufacturers to build the components, and the construction hands to build them literally do not exist."
    If you would care to look beyond the edge of Island America, you might notice that that nuclear plants have been going up all over the world for a long time.
    Reply
  •  
    Sep 11 02:46 PM
    Epeon,

    No offense, but as an engineer you should do your homework about our nation's NG reserves. As of this time, we have an 118 year supply at current rates of usage. And gas hydrates off our coasts, which will be in production in coming decades, contain 160X (!) the density of our present NG.
    Reply
  •  
    Sep 11 04:47 PM
    There is a lot more potential in conservation than people think. I could easily cut my family's use of energy, in our vehicles and our home, in half. That is without reducing our standard of living. Why have I not done it? The time has not been right, and still is not right. Energy is too cheap. Energy has been so cheap for so long that we are presumably wasting 3/4 of what we use. This fall I will probably do a little of the conservation I have in mind.
    Reply
  •  
    Sep 11 08:38 PM
    I would like to add to my Hybrid Car opinion.

    Today we are technologically able with much stretch to build a car which comes close to 60 mpg. what is stopping us is the road safety standards on collisions which add weight to the car, and possibly emissions standards. Think of the significant reduction in oil imports just through this item alone.

    Steven Hansen
    Reply
  •  
    Sep 12 01:06 PM
    The only solution to the massive oil induced energy crisis in the US is a strategic, long-term, comprehensive energy policy:

    thefitzman.blogspot.co...

    Failure to adopt something along these lines in the next year or so will be catastrophic to the US economy and our way of life as we enter an era of peak oil where worldwide oil supply will not keep pace with worldwide oil demand. For a country that imports 15 million barrels of foreign oil a day (and uses 21 million barrels), it should be obvious to any thinking human being what steps need to be taken, and taken very soon. The last 8 years have been a complete waste, and 2015 is d-day according to energy company CEO's. That is only 7 years away....
    Reply
  •  
    Sep 12 05:20 PM
    You severely missed the mark on your analysis of alternate energy. It is not funding of R&D that is needed at this point. It is keeping the existing tax credits in place so solar and wind can reach economies of scale in production. No significant new technology is needed. Both of these energy sources are racing ahead now with continuous new innovations and price reductions. The tax credits speed that process because it increases the incentive and reduces the risk to commit capital.

    Also, you don’t understand the Fannie and Freddie situation. Though the taxpayer is currently bailing them out and it is a very large amount of money, it is a small amount of money compared to the economic benefit that those 2 have given to the US over the past several decades. Because they were implicitly backed by the federal government, they offered lower rate loans and higher risk products. The 30 year mortgage would not exist without these 2. Granted the companies were mismanaged lately under the eye (or lack of eye) of the Bush administration and Greenspan, but that doesn’t diminish what they added to the long term economy of the US.

    So what if the solar and wind tax credits are not perfect by some people’s estimate (it seems like yours). The overall benefit far surpasses that. That benefit being the acceleration into the future of alternate energy. It goes back to the old saying: “What would you rather have? One million dollars or a penny that doubles every day for a month?”
    Reply
  •  
    Sep 13 06:46 PM
    Fitz, You hit the mark by saying we need a comprehensive energy plan now, I think that plan starts with setting a 5 year goal for less import of oil.and a ten year goal. I suggest 5m barrels/day less in 5 years and 10m barrels less in 10 years. If we can get our Congress to set these goals and the presendential candidates to do the same, then perhaps we will argue less about how to get there but concentrate on the solution[s] for reaching the goals. I pick 5 years so that the presidential candidates can't set a goal which is beyond an 8 year term. I picked 5m barrels because it compares nicely to numbers we import now from possible unstable and/or countries that don't have our interest at heart. Having set these goals our decision to put people in office or in the case of the congress keep them in office can be predicated on the programs they put in place to achieve the stated goals. I also believe that regional plans make sense, that the cost of wind and solar is more tied to infra-structure , gov regulatios,and litigation costs. Except for the first of these all of which can be addressed by gov without any subsidies. Two examples come to mind: the texas wind farm project instigated by T Boone where he put up 2.6b for the windmills and the state of texas put up 4.6b for the infra-structure and greased the skids for the right away,etc.; the cape wind project which after 5 years of studies and legal action is inching along. The whole project is privately funded. The licensing process requires 11 licences. The state of Mass, just granted the project the third one and the opponents say well they still have 8 to go. I don't put a lot of stock in demand destruction for two reasons, we are not disiplined enough and only do do when economic hardship forces the issue. Usually in these instances it's the people at the bottom of the economic chain who actually suffer and the oil market is not purelydriven by supply and demand, since it is significantly driven by a monopoly and/or state run companies. The declaration that opec wants to maintain $100/ barrel oil illustrates the point. Think back, wasn't it just a short time ago when $100/barrel oil was viewed with all kinds of economic apprehension. Look at what happened overnight to the price of gas in geogia because of the hurricane. Steps we can take right away is to raise the margin limits on commodities to 80 cents on the dollar, encourage tax incentives on new housing developments that build in solar panels for supplementary electric power. Remove state and local delay tactics where wind power can be supplied near existing kw cost, say within 15%, layout a plan for a mass transportation system for a selected urban area like los angeles and drive a focused R& D program for natural gas and hydrogen fuel cell cars that includes the infra-structure for accessability.
    Reply
  •  
    Sep 13 06:53 PM
    Oh and by the way dill for 2to 3 million/ barrells a day from domestic sources to be supplied in 5 years.
    Reply
  •  
    Sep 15 02:42 PM
    Can you imagine the votes that would accrue to a candidate for president who espoused a real energy plan instead of the BS they offer at present.
    Reply
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