Last week’s blog focused on President-elect Barack Obama’s choices for his energy and environment team, save for the most symbolically important selection on US energy policy: secretary of energy. It’s an intriguing choice politically and symbolically but a bit of a puzzle regarding policy direction, although clearly supportive of alternative energy as a climate-change solution.

The choice of Nobel Prize winner Steven Chu to serve as US energy secretary is a direct poke in the eye to a Bush administration that has been accused of ignoring or perverting science by not jumping on the Kyoto bandwagon, among other purported perfidies.

Chu now heads the Lawrence Berkeley National Laboratory, where his pet project, Helios, is a joint initiative of the national lab and the University of California-Berkeley to “store solar energy in the form of renewable transportation fuel. Several approaches under investigation include the generation of biofuels from biomass, the generation of biofuels by algae, and the direct conversion of water and carbon dioxide to fuels by the use of solar energy.”

In 2007, Chu co-chaired a study panel that produced a paper for the InterAcademy Council titled “Lighting the Way: Toward a Sustainable Energy Future.” The report outlined “best practices for a global transition to a clean, affordable, and sustainable energy supply in both developing and developed countries” and advocated development of technologies “that can transform the landscape of energy supply and demand around the globe.”

Basically, Chu’s energy agenda will be focused on promoting biofuels in transportation, among other means, to curb greenhouse gas emissions. According to recent reported comments, he considers coal to be his “worst nightmare” and has little faith in the development of clean coal technologies as a climate change solution. He’s also not especially keen on nuclear power, fretting about nuclear waste disposal and proliferation issues, according to some reports.

Or is that an accurate picture of the man’s views? In the aforementioned paper, Chu wrote that “great urgency must be given to developing and commercializing technologies that would allow for the continued use of coal—the world’s most abundant fossil-fuel resource—in a manner that does not pose intolerable environmental risks.”

Also, Chu, in a 2005 interview, responded to the question “Should fission-based nuclear power plants be made a bigger part of the energy-producing portfolio?” by saying, “Absolutely.”

So where does this keen, scientifically grounded, Nobelized intellect really stand? Despite all the chatter today about Obama’s pointed selection of a pure scientist to take the lead on energy policy, let’s not forget a key point: He runs a national lab for a massive government agency—a lab that competes with other 146 national labs (a sometimes vicious competition) for Congressional dollars that in their combined FY 2009 funding requests totaled almost $27 billion. As indisputably brilliant a scientist as Chu is, today, he’s nevertheless still a bureaucrat.

Surviving the agency budget battles of Washington, DC, requires expedience, accommodation, and, yes, sometimes talking out of both sides of your mouth at once.

So the Mr. Wizard coverboy for Obama energy policy may not be as much of a fire-breathing opponent of conventional energy as some would perceive him to be. Are there glimmers of hope that economic and energy realities may slip into energy policy in the next 4 years? Stay tuned.

Still, Chu is a coverboy of sorts. You want symbolism in a political appointment? In April 2007, the cover of Vanity Fair magazine featured Chu and six other Nobel Prize-winning scientists draped around a huge buckeye tree on the Cal-Berkeley campus. The scientists were posing that way to demonstrate their concern about global warming and energy sustainability.

A tree-hugger. Literally. And on the cover of a magazine named Vanity Fair.

In John Bunyan’s Pilgrim’s Progress, Vanity Fair was a year-round fair in the village of Vanity that was created by the demons Beelzebub, Apollyon, and Legion, to sell all sorts of vanities, e.g., “houses, lands, trades, places, honours, preferments, titles, countries, kingdoms, lusts, pleasures, and delights of all sorts….”

In our world, that village sits on the banks of the Potomac.

If there were any doubts about where the Obama administration wants to push US energy policy, those doubts were erased by the President-elect’s key choices for his energy and environment team this week. Or were they?

Of course, the very fact that Barack Obama has created a team that intertwines environmental policy with energy policy pretty much says it all: Climate change will be the tail that wags the energy dog under Obama.

I’ll save discussion of the President-elect’s choice for energy secretary for next week’s blog. This week the focus is on the other members of the energy and environment team.

There is a feeling of Clintonesque deja vu with respect to the choice of Carol Browner to serve as the new administration’s “Energy and Environment Czar.”

(Uh, wouldn’t that more correctly be “czarina?” And shouldn’t we be more circumspect in anointing politicians with a title redolent of autocracy while the Russians seem to be reverting to that practice now? But I digress.)

Browner was the longest-serving head of the Environmental Protection Agency, under the majority of both Clinton terms. The highlight—or lowlight, as some of us see it—of her EPA tenure was her push to eliminate the gasoline oxygenate additive MTBE (methyl tertiary butyl ether) from the nation’s fuel supply and to ensure that the US has approximately 1 gazillion boutique fuel formulas for reformulated gasoline (RFG). Most amusing moment: When the RFG mandate led to gasoline price spikes (wow, to more than $2 per gallon!) in the Milwaukee-Chicago region in 2000, Browner led a fact-finding mission to Midwestern states—some of which were suing EPA to get a waiver on the RFG mandate—and concluded that the federal investigation had thus far turned up “no reasonable answer” for the rising prices.

For you film buffs, that was her Captain Renault moment: “I’m shocked! Shocked to find gambling going on here,” said the Vichy chief as he pockets his winnings during a Nazi raid of the casino in Casablanca.

Count on Browner to push for regulating greenhouse gas (GHG) emissions from vehicles.

Browner’s former special assistant at EPA, Nancy Sutley, is being tabbed to head the White House Council on Environmental Quality. A deputy mayor for energy and environment for Los Angeles, she has advocated regulation of GHGs at the local level as a response to California’s recent outbreaks of forest fires. Still wondering here, though, how having all of us drive Segways will outlaw lightning strikes and idiot campers. Can’t wait for the PSAs of Smokey the Bear chiding us for not using mass transit enough.

Not much is known outside of New Jersey about Obama’s choice for EPA administrator, Lisa Jackson, other than the mixed reviews she got for running that state’s Department of Environmental Protection. But Jackson is on record as advocating for mandatory reductions in GHGs, a stance EPA has been struggling with since the US Supreme Court in 2007 said the agency could indeed regulate GHG emissions. Looks like that struggle is over. On the other hand, some environmental pressure groups have taken her to task for not being tough enough on industry regarding Superfund sites.

Obama’s choice of Sen. Ken Salazar (D-Colo.) to head the Department of the Interior is also a mixed bag. Salazar, a longtime farmer and rancher, has taken potshots at Interior for its moves to open Colorado’s Roan Plateau to gas drilling and to lease oil shale lands. That would seem to further cement the new administration’s stance as being opposed to domestic resource development.

On the other hand, however, the Independent Petroleum Association of Mountain States praised the Salazar pick. Interestingly, IPAMS contends that Salazar “will play a pivotal role in meeting the administration’s goals of reducing greenhouse gas emissions and increasing energy security.”

IPAMS added, “Natural gas production in the Intermountain West will become even more important as President-elect Barack Obama seeks to carry out his campaign promises of making our nation less dependent on foreign sources of energy and reducing greenhouse gas emissions. Ninety-seven percent of the natural gas consumed in the US is produced in North America (27% of it in the West), and since it emits just over half the CO2 of coal, we will need even more natural gas in order to reduce our carbon footprint in coming years.”

IPAMS reasons that Salazar is “someone who understands that there is a direct connection between federal lands and access to affordable, domestic, clean natural gas.”

No, IPAMS hasn’t lost it (although I imagine some Sierra Clubbers spewed their lattes when they read IPAMS’ reference to natural gas development creating “green” jobs). Despite what some mainstream media outlets have reported, Salazar isn’t totally opposed to Roan Plateau gas drilling; he favors development but in a much more restrictive manner than the Bush administration sought.

On the other hand, just a month ago IPAMS expressed concern about the approach to Roan Plateau gas drilling that Salazar favors. The fact that this group—with a track record of being fiercely pro-development—is taking such an accommodating stance on someone with whom it has butted heads in the very recent past and is talking up natural gas as a green, climate-change solution speaks volumes about how the industry now perceives Obama. That is to say, giving the President-elect the benefit of the doubt as a reasonable centrist open to all views on energy policy, at least until he reveals himself to be a disciple of the Church of Gore.

On the plus side for the Salazar pick is that it has outraged environmental pressure groups. A coalition of 141 such groups recently launched an e-mail and letter-writing campaign in support of Rep. Raul M. Grijalva (D-Ariz.) getting the Interior slot; they are enraged that the job is going instead to Salazar, someone who has perhaps sipped, but not drunk deeply, their Kool-Aid.

Anyone who irks that many environmental extremists can’t be all bad.

The buck drops here.
A hundred billion here, a trillion there. Pretty soon we’re talking real money.
The mad scramble to cash in on the Oprah-like giveaway in DC these days has one pondering what the next inflection point will be in the national debate over how to fix the economy.

The latest with their hands out for handouts:
–Detroit’s Big Three automaker CEOs parked their private jets, apparently to carpool in a Kia to DC and offer up their tin cups to Congress for $34 billion, and perhaps just a crust of bread, sir. Of course, they will receive just enough to tide them over another quarter or so, provided they commit to developing fleets of bumper cars powered by hamsters on Red Bull.

–John Thain, CEO of Merrill Lynch, who insists on getting his $10 million bonus because, gee, he worked really, really hard to steer the iconic Wall Street company to only a $11.67 billion loss and into the arms of bailout beneficiary Bank of America (BOA) in 2008. Rumor has it that had Merrill Lynch actually made a profit last year, Thain would have been elevated to living-god status and fed the hearts of a hundred stockbrokers.

–The powerful Service Employees International Union has decided that, because of the $700 billion bailout of the US financial system, it wants to organize bank workers, according to CNN. The news outlet quotes a union official as saying that companies that receive taxpayer dollars have a “special responsibility to ensure that their workers have a voice on the job…[and] should have a seat at the table.” Or was that a seat at the trough?

– About 200 workers from the United Electrical, Radio and Machine Workers of America that were laid off at a Chicago window factory undertook a “peaceful occupation” of the factory, essentially demanding a “bailout” of their missing jobs after BOA—recipient of $25 billion in federal bailout money—cut off credit to the window factory. (Personally, I’m waiting for Powerball to bail out my retirement.)

Now the mantra among many political pundits and among the mainstream news media—themselves staring into an economic abyss, as evinced by the impending bankruptcy of the Tribune Corp.—seems to be that old-school capitalism is going the way of the dodo and government intervention into markets to rescue industry sectors, job creation, and “redistribution of wealth” will be in vogue.

Please don’t be alarmed. There is ample precedent for this sort of thing: bailouts of the airline industry in 2001, the savings and loan industry in 1989, the energy-loan-related bank failures in 1984, Chrysler in 1980 (talk about déjà vu), New York City in 1975, Lockheed in 1971, and Penn Central Railroad in 1970, among others.

Then there are subsidies, direct and indirect, of every stripe. The US farm program, for example, shells out about $10-30 billion per year in cash payments mainly to producers of wheat, corn, soybeans, rice, and cotton. Subsidized crop insurance, marketing support, and other indirect support adds another $5 billion annually. A good chunk of that cash goes to landowners who don’t farm but use the land for suburban housing development, among other “agricultural” endeavors. About three-fourths of the total goes to the biggest 10% of producers that are growing even bigger by using that fat cash cushion to take over smaller farms. So basically taxpayers are subsidizing the takeover of the small American farm by giant agribusinesses such as Archer Daniels Midland to the point where Willie Nelson must annually step out of his pot haze to inflict Farm Aid on us.

What will be the next industry supplicant for Uncle Sam’s alms? There are many folks in the oil and natural gas industry who are getting pretty nervous over their own future. Although some of us believed that near-$150/bbl oil was unsustainable, the speed and depth of the plunge of more than 70% in oil prices and more than 50% in natural gas prices in 6 months has stunned industry observers. Budgets are getting whacked, production is getting shut in, and the rumor mill is churning out speculation over the threats of layoffs and bankruptcies. There is a lot of nervous anticipation over the inevitable OPEC production cuts this month, as well as over winter forecasts.

What if OPEC and Mother Nature aren’t able to rescue the industry from another all-out collapse? Can the oil and gas industry count on a government safety net too?

Remember the aftermath of the 1986 oil price collapse, when the US government came to the rescue of one of its most strategically critical industries? When Congress and the President authorized the expenditures of hundreds of billions of dollars to rescue floundering oil companies and thereby prevent the layoffs of hundreds of thousands of workers in oil and related industries; stave off megamergers to keep iconic companies such as ARCO, Amoco, Gulf, etc., from disappearing; and use subsidies to prop up oil production that otherwise would plunge by half in 20 years?

No? Don’t remember that historic bailout? Oh wait, that was in an alternate universe.

In our world, some pundits—along with a few congressweasels—are tossing around the notion of forcing the oil industry to use its 2008 profits to bail out the auto industry. The “logic”—for lack of a better term—here is that somehow Big Oil has kept Detroit in its thrall for years, helping to suppress the development of alternative fuel technologies and vehicles that would reduce gasoline consumption and in turn crimp oil markets. Thus Big Oil owes Big Auto big time, or so this line of thought goes.

This “solution” for Detroit comes as the oil industry itself may be looking at the scariest part of its rollercoaster. I guess Big Gov needs to act pretty fast, because those massive Big Oil profits aren’t going to look so massive in 2009.

Gosh, you’d think a buck-and-a-half for regular unleaded would win the industry a few friends—if not a place at the trough.

Will Barack Obama be the worst thing ever to happen to the environmental lobby?
Students of the political dynamic between environmental pressure groups and Washington, DC, know that their fortunes have fared best with conservative, Republican regimes in DC.

The best thing ever to happen to the environmental lobby was President Ronald Reagan’s appointment of James G. Watt as Secretary of the Interior. Watt, a blunt, caustic man given to biblical exhortations in defense of his efforts to rein in what he saw as excessive environmental regulation blocking resource development, immediately drew fire from environmental pressure groups. A major campaign by the environmental lobby to “Dump Watt” netted millions of signatures on petitions to Reagan to dismiss the firebrand Interior secretary—not to mention tens of millions of dollars in donations.

During the administrations of Reagan and George H.W. Bush, environmental pressure groups enjoyed record growth in terms of revenues and memberships, peaking in 1991.
Then Bill Clinton was elected president, and within a few years, the environmental lobby was in disarray, with revenues and memberships declining, staff being cut, programs pared down, etc.

President George W. Bush was a gift to these groups. By appointing a Watt protégé, Gale Norton, as Interior secretary, and his own (and Vice-President Dick Cheney’s) association with the oil industry, Bush II gave the ecolobbyists their best fundraising tool in years.
For example, from 2000 through 2006, the Sierra Club’s membership rocketed to more than 800,000 from 650,000. The organization netted $94 million in 2004 alone amid efforts to defeat Bush in his reelection bid.

But Obama could change all that. The centerpiece of his environmental policies is inextricably tied up with energy and the economy. Essentially he wants to retool the American economy by creating millions of “green jobs” in alternative energy and energy efficiency programs intended to phase out fossil fuels and thereby reduce carbon emissions and dependence on foreign oil. Or so the mantra goes.

What will the green groups do now that they have no one in DC to demonize, no Watt-like lightning rods to set up to attract donations? Without a strawman to spread panic among the enlightened elite of Malibu and the Hamptons trust-fund babies, where will the money come from?

Oh, well, there’s always…luxury travel. The World Wildlife Fund now offers said enlightened elite a luxury world excursion by private jet. The group’s brochure promises a “remarkable 25-day journey by luxury private jet…to some of the most astonishing places on the planet to see top wildlife…” The price tag? Just a hair under $65,000 per person.

The best thing about all this swanky travel to help preserve the world’s wild places? You won’t have to mingle so much with the hoi polloi, if WWF has its way. These exotic travel locales include places such as Fiji and the Galapagos Islands, where WWF has called for limits on local tourism, claiming such efforts by impoverished locals trying to make a buck causes greater environmental damage than larger tourist operations—such as the WWF’s, according to Steven Milloy, publisher of JunkScience.com and an adjunct scholar at the Competitive Enterprise Institute.

A $65K (excuse me, $64,950—note the marketing psychology of dropping the price below the $65K threshold) luxury wildlife-gawking trip is an intriguing proposition coming from an organization that regularly berates American consumers for their profligate ways on carbon emissions. The WWF is helpful enough to provide a carbon footprint calculator on its website so you can figure out just how big that individual carbon footprint is.
Milloy used that calculator to estimate the WWF luxury jet trip’s CO2 emissions: 1,231 tons in 25 days just from the fuel consumption alone.
He writes, “The WWF laments on its web site that the average American produces 19.6 tons of CO2 annually, which is nearly five times the world average of 3.9 tons per person. But during the WWF’s posh excursion, travelers will produce 14 tons of CO2 per person. That’s 71% of the average [annual] American carbon footprint and 360% of the average [annual] global footprint in a mere three-and-one-half weeks.”

So why not just buy carbon offsets to compensate for all that carbon profligacy by supporters of wildlife? Milloy notes that the WWF’s luxury trip brochure didn’t mention that option. He estimates that offsetting the jet trip’s carbon emissions alone would cost about $44,000. However, the WWF’s less-costly wilderness excursions (about $3,000 to about $10,000) do offer the option of purchasing carbon offsets.

Milloy also cites a recent report from the congressional General Accountability Office that concluded the carbon offset market lacks credibility, and the lack of standardization left consumers exposed to waste, fraud and abuse.

I’ll defer to Milloy for the last word:
“I’ve been thinking that WWF’s bandit-like panda bear was an appropriate logo, given the group’s promotion of ‘rip-offsets.’ But now, I think that a new logo may be in order—perhaps a hippo-crite?”

An early holiday note to the US energy industry:
Be afraid.  Be very afraid.  The Waxman cometh.

Perhaps that should really be a belated Halloween note, for Rep. Henry A. Waxman’s seizure of the powerful House Energy and Commerce Committee chairmanship from Rep. John D. Dingell should strike terror into the hearts of the petroleum and power industries. Not to mention the auto industry or anyone still clinging to the quaint notion that energy costs won’t eventually spike under new regimes in Congress and the White House.

Dingell (D-Mich.) hasn’t exactly been the energy industry’s best friend, but over the years his stalwart defense of the auto industry has occasionally put him in the good graces of the oil industry, given the two industries’ interconnected fates.

That stance often brought Dingell into direct conflict with Waxman (D-Calif.), ranked No. 2 on the most powerful Congressional committee and an often abrasive and fiercely liberal advocate of onerous legislation promoting radical changes in transportation and fuel use. The two have often clashed on energy and environmental issues.

Most recently, Dingell and Waxman have had dueling bills on climate change that would have had dramatically different impacts on industry. Waxman has been trying to insert language into House energy bills imposing caps on greenhouse gas emissions for nearly two decades. Dingell typically has resisted his colleague’s inclinations to inflict greater pain on the auto and energy industries than would be healthy for Detroit.

Waxman’s favorite tool of garnering support from his main constituency—the wealthy elite of West Hollywood, Beverly Hills, and Malibu—has been to round up the latest group of those in business and industry that he deems scalawags for heavily televised hearings and submit them to Torquemadesque grilling with questions along the lines of “Have you stopped beating your wife, sir?”

Here’s a prediction: Once this excruciating economic downturn is behind us and resurgent demand and crimped supply cause energy prices to spike again, the most widely watched reality show on television will be Energy and Commerce Committee Chairman Waxman’s weekly roasting of oil and energy utility executives on C-SPAN.

Will a pragmatic President Obama or centrist Democrats in Congress hold the favorite pitbull of Hollywood’s political elite at bay?  Don’t count on it. The Obama transition team announced last week that Waxman’s chief of staff, Philip Schiliro, will be White House director of Congressional relations. Gee, I wonder who’ll top his speed dial list.

The same day that Dingell was ousted, the mayors of three California cities—San Francisco, Oakland, and San Jose—announced plans for a $1 billion electric car-charging network. Funny coincidence: All three are in House Speaker Nancy Pelosi’s district.

And now President-elect Obama says his earlier, $175 billion plan to stimulate the economy will cost more and span two years instead of the original one. The core of the plan is to create 2.5 million jobs, many of them in the field of alternative energy. Obama earlier spoke of creating 5 million such “green” jobs, but not necessarily as part of an economic stimulus package. Now those green jobs will factor into economic stimulus as well. Obama also has proposed a “windfall” profits tax on oil companies, along with auctioning off carbon credits under an emissions cap-and-trade program to fund his alternative energy ambitions. And Waxman is likely to be Obama’s point man in Congress to fashion such legislation.

Picture a televised Chairman Waxman breathing fire and raining brimstone on the heads of oil companies, utilities, and automakers stretched on the rack, inveighing against the greedy, bloated captains of industry not just for their intransigence in blocking energy and environmental progress but also the creation of jobs.

See where this is going? Now it won’t just be a case of the left demonizing fossil energy producers in name of hindering energy security and sustainability. The fossil energy industry will also be blamed for crippling economic recovery. Congratulations, you have a trifecta.

The locomotive is roaring down the tracks.  Don’t say you weren’t warned.

An early holiday note to the US energy industry:

Be afraid.  Be very afraid.  The Waxman cometh.

Perhaps that should really be a belated Halloween note, for Rep. Henry A. Waxman’s seizure of the powerful House Energy and Commerce Committee chairmanship from Rep. John D. Dingell should strike terror into the hearts of the petroleum and power industries. Not to mention the auto industry or anyone still clinging to the quaint notion that energy costs won’t eventually spike under new regimes in Congress and the White House.

Dingell (D-Mich.) hasn’t exactly been the energy industry’s best friend, but over the years his stalwart defense of the auto industry has occasionally put him in the good graces of the oil industry, given the two industries’ interconnected fates.

That stance often brought Dingell into direct conflict with Waxman (D-Calif.), ranked No. 2 on the most powerful Congressional committee and an often abrasive and fiercely liberal advocate of onerous legislation promoting radical changes in transportation and fuel use. The two have often clashed on energy and environmental issues.

Most recently, Dingell and Waxman have had dueling bills on climate change that would have had dramatically different impacts on industry. Waxman has been trying to insert language into House energy bills imposing caps on greenhouse gas emissions for nearly two decades. Dingell typically has resisted his colleague’s inclinations to inflict greater pain on the auto and energy industries than would be healthy for Detroit.

Waxman’s favorite tool of garnering support from his main constituency—the wealthy elite of West Hollywood, Beverly Hills, and Malibu—has been to round up the latest group of those in business and industry that he deems scalawags for heavily televised hearings and submit them to Torquemadesque grilling with questions along the lines of “Have you stopped beating your wife, sir?”

Here’s a prediction: Once this excruciating economic downturn is behind us and resurgent demand and crimped supply cause energy prices to spike again, the most widely watched reality show on television will be Energy and Commerce Committee Chairman Waxman’s weekly roasting of oil and energy utility executives on C-
SPAN.

Will a pragmatic President Obama or centrist Democrats in Congress hold the favorite pitbull of Hollywood’s political elite at bay?  Don’t count on it. The Obama transition team announced last week that Waxman’s chief of staff, Philip Schiliro, will be White House director of Congressional relations. Gee, I wonder who’ll top his speed dial list.

The same day that Dingell was ousted, the mayors of three California cities—San Francisco, Oakland, and San Jose—announced plans for a $1 billion electric car-charging network. Funny coincidence: All three are in House Speaker Nancy Pelosi’s district.

And now President-elect Obama says his earlier, $175 billion plan to stimulate the economy will cost more and span two years instead of the original one. The core of the plan is to create 2.5 million jobs, many of them in the field of alternative energy. Obama earlier spoke of creating 5 million such “green” jobs, but not necessarily as part of an economic stimulus package. Now those green jobs will factor into economic stimulus as well. Obama also has proposed a “windfall” profits tax on oil companies, along with auctioning off carbon credits under an emissions cap-and-trade program to fund his alternative energy ambitions. And Waxman is likely to be Obama’s point man in Congress to fashion such legislation.

Picture a televised Chairman Waxman breathing fire and raining brimstone on the heads of oil companies, utilities, and automakers stretched on the rack, inveighing against the greedy, bloated captains of industry not just for their intransigence in blocking energy and environmental progress but also the creation of jobs.

See where this is going? Now it won’t just be a case of the left demonizing fossil energy producers in name of hindering energy security and sustainability. The fossil energy industry will also be blamed for crippling economic recovery. Congratulations, you have a trifecta.

The locomotive is roaring down the tracks.  Don’t say you weren’t warned.< –>

Just how much in the way of energy policy will President Barack Obama and Vice-President Joe Biden accomplish at the outset that will benefit the US oil and gas industry?
Or should that read: How little?

Perhaps surprisingly to some, I found a few items in the Obama-Biden energy policy position paper that, at first blush, are seemingly designed to benefit the oil and gas industry. Or are they? Don’t break out the champagne just yet.

In the Obama-Biden position paper, the then-candidates noted that while “the US cannot drill its way to energy security…US oil and gas production plays an important role in our domestic economy and remains critical to prevent global energy prices from climbing even higher.”

They then reiterate their opposition to opening up “currently protected areas” while citing several “key opportunities” to support increased US production of oil and gas. Among these are the Bakken shale in Montana and North Dakota, Barnett shale in Texas and Fayetteville shale in Arkansas, and National Petroleum Reserve-Alaska. An Obama policy objective would “set up a process for early identification of any infrastructure obstacles/shortages or possible federal permitting process delays to drilling” in these regions.

Whew! What a relief. Now we can dispense with all that fierce opposition to drilling in Texas. Especially the Barnett shale—you know, where opposition to drilling is so intense that the industry is readily getting permits to drill practically on the freakin’ tarmac at DFW. Puh-leeze.

Another one of those “key opportunities” is the previously reported “use it or lose it” approach to existing leases.
This bullet point subtly revives the hoary old chestnut that the Democrats used to combat the Republicans’ “Drill, baby, drill” mantra to end offshore drilling bans during the election campaign. Speaker of the House Nancy Pelosi invented the ridiculous canard that “Big Oil” was sitting on acreage that could somehow magically double oil production from US federal leases to 4.8 million barrels per day but for the fact that these evil plutocrats were suppressing domestic production to keep oil prices high.

According to the position paper, the Obama administration “will require oil companies to diligently develop these leases or turn them over so that another company can develop them.”

Quick show of hands, please, from all of you Big Oil types sitting on all of these hydrocarbon riches while oil was above $100 per barrel.  Oh, wait. Independent producers—which have on average about 20 employees—drill 90% of the nation’s wells and produce 68% of domestic oil and 82% of US natural gas. So I guess that, since it is Big Oil that’s sitting on all of this unproduced oil and gas, it must underlie a tiny fraction of the federal acreage in question. Just where is this Prudhoe Bay-sized accumulation? And where can I buy the stock of the megagiant company that is suppressing its development until oil bounces back to $200 per barrel?

No, instead Big Oil sits around shelling out billions of dollars each year to acquire and maintain leases just to hoard them while they blithely liquidate themselves by not replacing production—or so it goes in the Obama-Pelosi fairy tale. I’m still trying to figure out where the “key opportunity” is here.

And, finally, to encourage all of this drilling that could and should be occurring, Obama said he “will require oil companies to take a reasonable share of their recording-breaking windfall profits and use it to provide direct relief worth $500 for an individual and $1,000 for a married couple. The relief would be delivered as quickly as possible to help families cope with the rising price of gasoline, food, and other necessities. The rebates would be fully paid for with 5 years of a windfall profits tax on record oil company profits.”

The jawboning window for a windfall profits tax is pretty short if oil prices don’t rebound sharply between now and 4th quarter earnings reports. That “windfall” won’t look so convincing then.

During the campaign, Obama also claimed that his opponent, John McCain, “will give more tax breaks to Big Oil,” cutting their taxes by nearly $4 billion.

As it turns out, that number relates to McCain’s proposal to cut the corporate tax rate—second highest in the developed world—to 25% from 35%. The Obama campaign, apparently borrowing Speaker Pelosi’s crackerjack energy policy analyst, figured out what the tax savings  would be under McCain’s plan to the five biggest US oil companies, based on taxes paid in 2007 to the federal government on income from US operations.

What Obama neglects to mention is that McCain’s proposal would have applied to all US corporations, and McCain’s intent was to stem the flight of businesses and jobs overseas. There was no proposed tax break targeting oil companies.

So the question of the day for President-elect Obama is: With the imposition of the 5-year windfall profits tax, the foregone corporate tax reduction, the oil and gas price collapses, and tighter, costlier credit in today’s economy—where will the cash come from for oil and gas companies to fund these “key opportunities” to boost domestic oil and gas production?

You thinking “bailout” too?

Which way will President Barack Obama go on energy?
Will it be President Obama, pragmatist?  Or President Obama, ideologue?
That’s a tough one to call because, to a large extent, we’ve had to deal with Presidential Candidate Obama, enigma.

This week’s blog will kick off a series, of indeterminate duration, of analyses and commentary on how energy will fare under the new regime.

No. 1 on Obama’s to-do list, of course, will be the economy. Short-term fixes, such as a bailout of the auto industry and pressure on banks to further loosen credit will take priority over longer-term challenges that would include alternative energy and climate change questions.

Certainly, Obama has outlined an ambitious agenda for energy, but he also has shown that political expediency can undercut some of those ambitions. He vehemently opposed an expansion of offshore leasing and drilling until gasoline prices topped $4/gallon and polls showed that Americans overwhelmingly favored more drilling, a stance that benefited his opponent in the campaign. That led him to adopt a more pragmatic stance to favor some expansion of offshore drilling. Now that oil prices have plummeted, and it’s beginning to look a bit more like 1999 at gasoline pumps, don’t be surprised if President Obama issues an executive order to re-impose the offshore leasing ban

Obama also has backpedaled a bit over some of his more aggressive proposals on climate change, hinting that such efforts might be a bit more attenuated than expected because of the floundering economy.

The centerpiece of his energy agenda has been a plan to pump $150 billion over the next 10 years “to catalyze private efforts to build a clean energy future.”
He also wants to put 1 million plug-in hybrid cars on the road by 2015.

Both of these efforts will be tied to jobs creation. Obama estimates that the clean energy initiative will create 5 million new jobs. The trouble is that this initiative would be funded from the sale of carbon cap-and-trade permits he puts at $15 billion/year. The devil is in the details, however, as carbon credit trading to date in Europe has proven horribly complex to implement and subject to abuse. So that initiative could take years to implement.

As for the plug-in hybrids initiative, this will no doubt be preceded by a massive bailout package for the Big Three automakers that Obama is already signaling he will undertake early on.  It is likely that his administration, in concert with a Democrat-dominated Congress, will insist on commitments to a quota for low-carbon-fueled vehicles as part of the Detroit bailout deal. One million new vehicles is really just a tiny fraction of the nation’s vehicle fleet, but the initiative will resurrect the debate over alternate-fueled vehicles and their potential. That revived debate will now occur against the backdrop of $2/gallon gasoline vs. $4/gallon gasoline. Remember California’s failed mandate for a certain minimum percentage of autos sold in the state to be zero-emission? Sometimes you can build it…and they won’t come.

Given Obama’s already-demonstrated predilection for political pragmatism, a windfall profits tax seems a sure bet, especially if Congress proceeds with his plan to confiscate oil company revenues—remember, the earlier WPT was an excise tax on domestic production, not on “excess” earnings—in order to redistribute that unseemly wealth to all Americans.  The trick is in the timing. Count on quick action here, as Obama and Democratic congressional leaders will point to ExxonMobil’s record 3Q 2008 earnings to justify the raid on oil company coffers to hand out $500 to $1,000 to individuals and families under the banner of economic relief. Once the 4Q2008 earnings reports are released, and the picture of voraciously greedy petrocrats doesn’t look quiet so convincing, then Robin Hood will have disappeared into the forest. The very, very green forest.

I have a confession to make:  I am a tree-hugger.
Yes, I’m sure I elicited guffaws from certain quarters when some weeks ago I used this space to identify myself as an environmentalist. There are those would disqualify from the ranks of environmentalists anyone who favors development of oil and gas resources to meet our energy needs. I threw the term out there in my attempt to point out that renewables are not always good for the environment, with the subtext that the term “environmentalist” has ceased to have any real meaning.*

But I love trees. As a boy, I often roamed alone in nearby woods just to “explore.” I still bear a few childhood scars from the backyard pecan tree I favored for climbing. (For the record, pecan tree branches are notoriously fragile when one is pretending to be Tarzan swinging through the jungle). I have backpacked in rain forests from Alaska to the Amazon, in woods from the Sierras to the Grand Tetons to the Rockies to the Ozarks. I mourned the loss of much of Tulsa’s urban forest canopy due the massively destructive ice storm of last December. I have given the Shel Silverstein book The Giving Tree as a gift more often than any other kind to children, including my own. Joyce Kilmer may not rank with Keats or Shelley as a poet, but he was spot on in his sentiments about trees.

I was especially appalled when the frantic rush to anoint biofuels as the magic bullet to address energy and climate change issues resulted in the destruction of huge swathes of pristine rain forest in Asia for the sake of producing more palm oil to be used for biodiesel in Europe. Even the environmental pressure groups wouldn’t give that snafu a pass.

Now there is new evidence emerging that trees may play a key role in addressing climate change concerns.

I won’t revisit my usual sniping at the climate change alarmist bunch. Let’s assume, just for the sake of argument—and that argument not only isn’t over, it seems to be getting louder—that greenhouse gas-induced global warming is accelerating at a dangerous pace, and we have to do something about it. All the screeching back and forth about Kyoto’s flaws and costs and ending our addiction to fossil fuels isn’t getting us anywhere.

Here’s a notion that we can all agree on: Why don’t we plant more trees and better manage the timber resources we already have to help mitigate carbon emissions?  The Intergovernmental Panel on Climate Change has concluded that “a sustainable forest management strategy aimed at maintaining or increasing forest carbon stocks, while producing an annual sustained yield of timber fiber or energy from the forest, will generate the largest sustained mitigation benefit.”

In a new study by the Institute for Climate & Atmospheric Science at Leeds University in the UK, scientists found that forests produce particles of terpene compounds (which give pine trees their distinctive smell). These terpene particles reflect sunlight back to space and make clouds brighter, which acts to cool the climate. In a study published in the Philosophical Transactions of the Royal Society, institute scientists Dominick Spracklen and Ken Carslaw have shown that these forest-derived particles could exert a considerable cooling effect that may offset the warming. Hmmm. Maybe we could synthesize these compounds and seed clouds everywhere with them.

There’s more. Researchers at Södra, a Swedish company that is Europe’s largest producer of wood pulp, claim that if half the world’s forests were run like Sweden’s, the entire greenhouse effect could be eliminated. They contend that a radical overhaul of global forestry along Swedish lines would see carbon locked in a growing reserve of timber rather than remain in the atmosphere in the form of carbon dioxide.

According to Södra’s siviculture manager, Göran Örlander, “The world’s forests cover some 4 billion hectares. We could increase forest growth by more than 1% per year across half of this area (only half of the world’s forests are suitable for management based on the Swedish model). To implement this, we would need to break the negative trends of deforestation, forest damage, and poor forest management on a global basis, but we’d be rewarded with an increase in carbon uptake of almost 2 billion tonnes per year.”

Continuous growth of 1% in half the world’s forests could halt growth in emissions of CO2 altogether, possibly within as little as 20 years, the Swedish company says. And it isn’t promoting a ban on cutting down trees to get there. Because timber is Sweden’s most valuable resource, intelligent forestry management is a must—and Sweden manages to increase the amount of timber in its forests every year even as it constantly harvests more.

But the Swedes are the exception. Every year, 7 million hectares of forest are felled, Södra estimates—the worst case being Southeast Asia, which has lost almost 1% of its forest every year in the past 20 years. Everyone agrees that mindless deforestation is a bad thing. The World Resources Institute has estimated that during the past 150 years, deforestation has contributed about 30% of the atmospheric build-up of CO2.

While I am reluctant to resort to business buzzwords, maybe it is time to “think outside the box” on the conjoined issues of energy and climate change.  If that box is made from Swedish wood, so much the better, because it contributes to the global economy.

And even if afforestation and reforestation don’t provide a magic bullet to end the purported climate crisis once and for all—well, hey, it couldn’t hurt. That was the usual verdict on moms serving sick kids chicken soup—until science caught up with Mom’s wisdom and found that, yes, chicken soup contains compounds with health benefits to ameliorate colds.

So let’s try to open our minds to possible out-of-left-field solutions that might just work without having to wreak havoc on an already stressed economy.

And go hug a tree—preferably one you’ve planted.

*http://www.pennwellblogs.com/pennenergy_perspectives/2008-09-29/renewable-good-for-the-environment-not-always/

Just curious:  Why are some environmental groups allowed to retain their tax-exempt status while they campaign aggressively against selectively targeted politicians? For most of these groups, that’s not allowed under IRS rules, and yet some questionable activity has enabled an explosion of spending by these groups to topple politicos of a certain party they don’t like.

Outright political involvement by 501(c)(3) tax-exempt organizations is a violation of IRS rules, and the tax agency is stepping up its monitoring and enforcement of its ban against these tax-exempt organizations’ participation in partisan politics.

The IRS determines which organizations qualify for tax-exempt status. IRS rules state that while nonprofit organizations may be involved in advocacy and legislative activism, they may not engage in partisan politics. So they risk losing their tax exemption if a significant portion of their activity can be construed as political.

In fact, in recent years, a number of churches have either lost or been threatened with losing their tax-exempt status for inveighing against or urging votes for a candidate for public office.

As always with the US tax code, there are loopholes with qualifications. Certain types of nonprofit, tax-exempt entities are allowed to participate in some political activity and retain their tax-exempt status overall, although that activity may be subject to tax (e.g., MoveOn.org) . Not so 501(c)(3)s. But reinvent yourself under said loophole, and the partisan guerrilla war is on, baby.

A recent surge in partisan political activity and campaign spending by environmental organizations has raised eyebrows in Washington, DC.

Sen. James Inhofe (R-Okla.), ranking member of the Senate Environment and Public Works Committee, recently launched an investigation into the political activity of environmental groups and their supporting foundations.

According to a report to the Senate Environment and Public Works Committee, “supposed nonprofit, nonpartisan organizations can shift funds very easily to organizations formed for the sole purpose of partisan political activity.”

For example, 501(c)(3) entities can shift funds to 501(c)(4) organizations, which can participate in partisan activities, although those shifted funds cannot be used for campaign activities.

“Clearly, without a system for tracking funding in these types of organizations, a donor could contribute to a nonpartisan, nonprofit organization, and the donation could ultimately be used for partisan political activities,” the committee report said. “While this practice, if caught, would cause a 501(c)(3) to lose its tax-exempt status, it is nearly to impossible to detect these funding shifts.”

That’s because the 501(c)(4) is not subject to donor disclosure requirements. The committee noted that in 2006 two entities affiliated with the League of Conservation Voters (LCV) were fined by the Federal Election Commission for several violations of federal election law, including failure to register with the FEC as a political action committee and donor disclosure violations. Afterwards, the LCV restructured its organization into a 501(c)(4), which allows the organization to function with fewer disclosure restrictions.

In an Oct. 22 article, the trade publication Greenwire reviewed the partisan activity of major environmental groups in certain key battleground political campaigns and concluded that “in every instance, the environmental groups are backing the Democrats” and that “since the start of the fall campaign, every dollar spent by these organizations has been aimed at helping Democrats.”

(Disclaimer: Believing that the two-party system should go the way of the dodo, buggy whip, and 8-track, this writer has always and always will register as an independent.)

Inhofe, not exactly the BFF of the LCV, said in late September:
“Campaigns to ’save the cuddly animals’ or ‘protect the ancient forests’ are really disguised efforts to raise money for Democratic political campaigns.’
“Environmental organizations have become experts at duplicitous activity, skirting laws up to the edge of illegality and burying their political activities under the guise of nonprofit environmental improvement.”

Perhaps there is a certain irony in the IRS cracking down on churches for partisan politicking while environmental pressure groups seem to be getting a pass. After all, in a column I wrote for Oil & Gas Journal some years ago, I likened environmental extremists to the ancient people who would sacrifice humans in worship of trees they held to be sacred. I thought I was pretty clever in dubbing them “Neodruids.”

That was before Google. Now I find that there are, in fact, actual practicing Neodruids. So I guess apologies are in order to atone for my cultural insensitivity.

In fact, I got a hint of the existence of Neodruidism after that column appeared: Someone wrote a letter to me that used some pretty harsh verbal pummeling to question my intelligence and cultural awareness on the topic of ancient beliefs.

The writer didn’t sign his or her name. But the return address was one of the tonier, think-tank-harboring suburbs of Washington, DC.

I wonder if there’s going to be tax code-writing congressional committee retreat at Stonehenge next year.

We Americans are in the thick of the silly season—no, not football, for in these parts that subject is discussed in hushed, reverential tones.

This silly season in fact involves a much less rational game: US energy politics in an election year.

Note the specific reference to US energy politics, not US energy policy. The former term is said silly game, the latter, an oxymoron.

There is no and never has been a US energy policy. There have been occasional, piecemeal efforts to address concerns—meaning when the public gets riled up—about energy supply and prices. As in, respectively, not enough and too high. Those efforts have included white elephants (Synfuels Corp.) and the creation of a giant (is there any other kind?) agency that has “energy” in its name yet devotes 39% of its budget to maintaining the nation’s nuclear weapons stockpile.

But no one in the US talks about energy policy unless Joe Sixpack is getting apoplectic at the gas pump and Granny is shivering under layers of clothing because she had to choose between paying her heating bill and paying for her medicine.

There have been some fairly respectable efforts at cobbling together a US energy policy. The energy task force led by US Vice-Pres. Dick Cheney—whatever your opinion of the man—was one such effort. Unfortunately, much of the momentum the resulting task force policy report might have had was dissipated by Cheney’s truculence over not disclosing the participation of energy producers in policy discussions. Gee, input on energy supply from the entities that actually supply energy. The horror.

Energy “policy” often has been framed in the context of the “moral equivalent of war” that quickly lost resonance when its symbol was a cardigan sweater.

Sometimes energy “policy” initiatives are couched in terms of an Apollo Project or a Manhattan Project. But those accomplishments, however technically impressive and important, were engineering feats with a single goal in mind. Energy is such a multifaceted and all-pervasive part of an even more multifaceted world that addressing it as a single “mission” is, well, silly. Move along, no magic bullets here.

What passes for US energy policy is really the crazyquilt legacy of decades of knee-jerk measures on energy from politicians reacting—often overreacting—to an irate public that itself needs education on basic economics.

In other words, the best energy policy may be none at all. The market pretty well sorts things out by itself, as has been borne out by the 50% drop in oil prices since July owing to demand destruction and a similar decline in natural gas prices because of an emerging supply glut.

And yet politicians still talk about taking on Big Oil—yeah, the guys who own a whopping 3% of the world’s oil reserves—and smacking them with a new “windfall profits” tax. Yes, the same WPT that crippled upstream investment in US E&P that in turn helped get us to almost $150/barrel oil. Of course, that WPT applies only to US operating companies. So our government would slap a massive confiscatory tax on US companies that already have among the highest finding and development costs in the world, while the state oil companies in countries often hostile to the US and that enjoy the lowest F&D costs garner an even bigger competitive advantage. As we saw before, such a tax simply causes capital investment to shift abroad and ultimately results in reduced flow to US Treasury coffers.

One of the few semi-bright spots in the US energy scene has been the lifting of the ban on Outer Continental Shelf leasing. Or so it would seem. It must be recalled that congressional Democrats reluctantly agreed to let the 26-year-old OCS leasing ban expire at the end of September because President Bush threaten to veto a stopgap funding bill—which would have shut down the federal government amid a financial crisis—because it contained the ban renewal. And yet those same congressional Democrats and their friends in antidevelopment pressure groups have vowed to reinstate OCS leasing bans, under the presumption that they will have the White House and bigger majorities in Congress next year. I’m sure that was music to the ears of Hugo Chavez and Mahmoud Ahmadinejad.

These are the same folks who brought you the “analysis” that concluded that oil and gas companies were “stockpiling” federal leases they weren’t drilling and thereby “hoarding” potential oil and gas production in order to keep energy prices high. As preposterous as that claim was, it no doubt resonated with some of the True Believers, or every Democratic Party leader wouldn’t have repeated it ad nauseam in the weeks that followed the claim.

Now that gasoline prices have plummeted in recent weeks, perhaps the chants of “Drill, baby, drill” will die down. And antidevelopment forces will seize the opportunity created by lower energy prices and a friendlier DC regime to redouble their efforts in 2009 to hobble new US oil and gas production.

It’s true that new production from lifting the OCS ban won’t do much to lower oil and gas prices in the near term. The impenetrable thicket of permitting delays, environmental impact studies, lawsuits, etc., will ensure that such new production is years away.

But it boggles the mind that, in the midst of an emerging economic catastrophe, the US government isn’t doing everything it can to bolster revenues to the Treasury and create more jobs right away in a way that doesn’t hit the average American with still more taxes or further indenture future generations with once-inconceivable debt through subsidy of unproven energy technologies.

A recent Congressional Research Service analysis found that leasing and developing acreage on the OCS and in the Arctic National Wildlife Refuge would generate roughly $1 trillion in federal royalty and corporate income tax revenue. That doesn’t include the economic ripple effects of the additional high-paying jobs such development creates. Or lease sale bonus payments in the tens–perhaps hundreds—of billions of dollars that new leasing in these untouched and highly prospective areas would bring.

So instead of a coherent energy policy in 2009, we will probably see more incoherent—and self-destructive—energy politics that reduce revenues, shift investment overseas, destroy jobs, help keep energy prices high, and help bolster some unfriendly regimes.

One wonders whether we will run out of toes before we do bullets.

So as you go into that voting booth Nov. 4, please try to remember the distinction between energy policy and energy politics and consider who comes closest to an energy policy that makes sense for America.

Maybe that is just a really simple energy policy that rests upon a borrowed phrase from the physician’s oath:

“First, do no harm.”