Energy

Always fact-check - I appreciate the AP's efforts in correcting the "errors" in several RNC speeches:

Attacks, praise stretch truth at GOP convention

By JIM KUHNHENN, Associated Press WriterWed Sep 3, 11:48 PM ET

Alaska Gov. Sarah Palin and her Republican supporters held back little Wednesday as they issued dismissive attacks on Barack Obama and flattering praise on her credentials to be vice president. In some cases, the reproach and the praise stretched the truth.

Some examples:

PALIN: "I have protected the taxpayers by vetoing wasteful spending ... and championed reform to end the abuses of earmark spending by Congress. I told the Congress 'thanks but no thanks' for that Bridge to Nowhere."

THE FACTS: As mayor of Wasilla, Palin hired a lobbyist and traveled to Washington annually to support earmarks for the town totaling $27 million. In her two years as governor, Alaska has requested nearly $750 million in special federal spending, by far the largest per-capita request in the nation. While Palin notes she rejected plans to build a $398 million bridge from Ketchikan to an island with 50 residents and an airport, that opposition came only after the plan was ridiculed nationally as a "bridge to nowhere."

PALIN: "There is much to like and admire about our opponent. But listening to him speak, it's easy to forget that this is a man who has authored two memoirs but not a single major law or reform — not even in the state senate."

THE FACTS: Compared to McCain and his two decades in the Senate, Obama does have a more meager record. But he has worked with Republicans to pass legislation that expanded efforts to intercept illegal shipments of weapons of mass destruction and to help destroy conventional weapons stockpiles. The legislation became law last year. To demean that accomplishment would be to also demean the work of Republican Sen. Richard Lugar of Indiana, a respected foreign policy voice in the Senate. In Illinois, he was the leader on two big, contentious measures in Illinois: studying racial profiling by police and requiring recordings of interrogations in potential death penalty cases. He also successfully co-sponsored major ethics reform legislation.

PALIN: "The Democratic nominee for president supports plans to raise income taxes, raise payroll taxes, raise investment income taxes, raise the death tax, raise business taxes, and increase the tax burden on the American people by hundreds of billions of dollars."

THE FACTS: The Tax Policy Center, a think tank run jointly by the Brookings Institution and the Urban Institute, concluded that Obama's plan would increase after-tax income for middle-income taxpayers by about 5 percent by 2012, or nearly $2,200 annually. McCain's plan, which cuts taxes across all income levels, would raise after tax-income for middle-income taxpayers by 3 percent, the center concluded.

Obama would provide $80 billion in tax breaks, mainly for poor workers and the elderly, including tripling the Earned Income Tax Credit for minimum-wage workers and higher credits for larger families. He also would raise income taxes, capital gains and dividend taxes on the wealthiest. He would raise payroll taxes on taxpayers with incomes above $250,000, and he would raise corporate taxes. Small businesses that make more than $250,000 a year would see taxes rise.

MCCAIN: "She's been governor of our largest state, in charge of 20 percent of America's energy supply ... She's responsible for 20 percent of the nation's energy supply. I'm entertained by the comparison and I hope we can keep making that comparison that running a political campaign is somehow comparable to being the executive of the largest state in America," he said in an interview with ABC News' Charles Gibson.

THE FACTS: McCain's phrasing exaggerates both claims. Palin is governor of a state that ranks second nationally in crude oil production, but she's no more "responsible" for that resource than President Bush was when he was governor of Texas, another oil-producing state. In fact, her primary power is the ability to tax oil, which she did in concert with the Alaska Legislature. And where Alaska is the largest state in America, McCain could as easily have called it the 47th largest state — by population.

MCCAIN: "She's the commander of the Alaska National Guard. ... She has been in charge, and she has had national security as one of her primary responsibilities," he said on ABC.

THE FACTS: While governors are in charge of their state guard units, that authority ends whenever those units are called to actual military service. When guard units are deployed to Iraq or Afghanistan, for example, they assume those duties under "federal status," which means they report to the Defense Department, not their governors. Alaska's national guard units have a total of about 4,200 personnel, among the smallest of state guard organizations.

FORMER ARKANSAS GOV. MIKE HUCKABEE: Palin "got more votes running for mayor of Wasilla, Alaska than Joe Biden got running for president of the United States."

THE FACTS: A whopper. Palin got 616 votes in the 1996 mayor's election, and got 909 in her 1999 re-election race, for a total of 1,525. Biden dropped out of the race after the Iowa caucuses, but he still got 76,165 votes in 23 states and the District of Columbia where he was on the ballot during the 2008 Presidential primaries.

FORMER MASSACHUSETTS GOV. MITT ROMNEY: "We need change, all right — change from a liberal Washington to a conservative Washington! We have a prescription for every American who wants change in Washington — throw out the big-government liberals, and elect John McCain and Sarah Palin."

THE FACTS: A Back-to-the-Future moment. George W. Bush, a conservative Republican, has been president for nearly eight years. And until last year, Republicans controlled Congress. Only since January 2007 have Democrats have been in charge of the House and Senate.

Following on Simon's post, it's clear that the RNC not only has a flare for drama, but will straight up lie if necessary. Throughout the RNC Convention we have heard eloquent stories, partisan attacks, but no real solutions. The RNC is doing exactly what they criticized Barack Obama for doing: giving nice speeches with no substance. While during the DNC Convention, not a single speaker focused on the RNC - they might have made differences known on issues, but at no time were speakers condescending or snide about Senator McCain.  Instead, they focused on presenting their candidate and on Barack Obama's specific proposals in the areas of Energy Reform, Immigration, the Economy, and Health Care. Stories can be entertaining for awhile, but in the end, voters will ask for substance. As Gov. Sebelius stated in the Huffington Post, hockey moms may be moved by speeches, but in the end they want to know exactly how the next President will make health care affordable, increase their wages, or improve schools. As Barack Obama pointed out at Mile-High Stadium, "it's not about me" - this election should be about the American people, but the GOP strategy is precisely to make it about stories and characters. Rep. Wasserman-Shultz put it best: "Where is the beef? Where is the evidence? Sarah Palin is not a reformer...If her best example of being a reformer was trying to sell a plane on E-Bay, that is not my definition of reform." Reform is not found in the usual stretching of the truth in politics. To be successful tonight, John McCain will have to shift from this strategy of making it about Barack Obama and instead focus on how he proposes to pay for the pipelines, nuclear power, solar, and expensive alternative energy sources that Gov. Palin spoke about. He will have to explain the incentives to businesses to conserve energy, to have acessible health care for employees, and how he will make the U.S. competitive in a global, 21st century, marketplace.

As the Senate begins to debate climate change following a 74 to 14 vote to proceed, the strategy of opponents is already clear. They are painting the bill as a huge tax hike. A Wall Street Journal editorial salvo led off the barrage yesterday, describing it as a vast tax-fueled expansion of government. In turn, Republican leader Mitch McConnell of Kentucky dubbed the bill a "giant tax on virtually every aspect of the economy" and later in the day, President Bush duly termed it a "huge spending bill that... would impose roughly $6 trillion in new costs on the American economy."

Conservatives have used the expansion of government argument to great effect before, for example, in killing President Clinton's health care initiative. And the tax and spend charge is a Republican staple going all the way back to Reagan But will it fly, this time around?

It will only if proponents allow the bill to be framed in terms of the present. In present terms, a price on carbon costs money--although this legislation captures the cost and recycles it back into the economy. But the bill is not, really about the present, it's about the future. To ward off the tax charge, proponents need to show that the bill is not about taxes which people don't like but about protecting our environment--which they do--and moving our economy forward toward a better future.

The incentives created by putting a price on carbon will help create a whole new 21st Century post-carbon economy, wholly outside of government regulation, dynamic and fueled laregly by innovation that can restore America's technological leadership and economic strength. That's the argument proponents need to make.

In short, if opponents can keep the focus on the present, they can kill the bill. If proponents can make the debate about building our economic future, they can move it, if not this year, then next.

George Soros will throw his considerable weight behind the theory that hedge funds are driving up oil prices in testimony before the Committee on Commerce, Science and Transportation today. According to Soros, allowing large funds to invest in indices is new and their financial heft on the buy side is helping to push markets up beyond what fundamentals justify. If the hedge funds were to switch to the sell side, it could lead to a huge market crash.

Crashing oil and gas prices may seem like a good thing to you and me--but a potential crash is the sort of thing that makes regulators pay attention. The committee is gathering information for the FTC to use in devising rules to prevent market manipulation.

This is not the first time Soros has sounded the alarm on commodities market manipulation which he has said is creating the mother of all bubbles. But in supporting the testimony of Michael Masters in hearings by a different committee, a few weeks ago, he gives additional credibility to the hedge fund theory of skyrocketing prices. Of course the underlying fundamentals, rising demand in Asia and a falling dollars remain supportive of high prices.

Patrick Duffy of the Chicago Mercantile Exchange will argue just that in his testimony. So while Soros' testimony may set some regulatory wheels in motion, it's probably not yet time to short oil.

In other words, keep working on those electric cars, guys... we're going to need them one way or the other.

I'll be the first to admit that I love offbeat news stories. I adored a wonderful story datelined out of England in which a plucky piglet had been rescued from near-certain death after being buried in a truckload of toilet paper destined for a large supermarket chain. So of course, an article in today's New York Times by Susan Saulny, As Oil Prices Soar, Restaurant Grease Thefts Rise, caught my eye.

The article turned out to be no laughing matter, but it was fascinating in a morbid, we-are-so-incredibly-energy-dependent sort of way. As it turns out, as sky-high oil prices have led to sky-high gas prices, opportunistic "oil rustlers" have started slinking around after nightfall near trash bins behind restaurants, where most grease containers are kept. The rustlers vacuum up the grease and trade it on a commodities market.

And just what happens to this hijacked lard? Well, according to the New York Times article, biodiesel is made by processing vegetable oil or animal fat with alcohol. It is increasingly available around the country and of course, you can find do-it-yourself instructions on the Internet. The fuel can be burned on its own or used as a cheap additive to regular diesel.

The New York Times goes on to point out that in 2000, yellow grease was trading for 7.6 cents a pound. Yesterday, its price was aboout 33 cents a pound -- or $2.50 a gallon. An interesting note: grease in which only one type of food is fried is premium -- so if you are thinking about becoming a grease criminal, try to hit a speciality joint.

Before writing this post, I consulted with my colleague, NDN Fellow and Green Project Director Michael Moynihan. As I am not an expert on why oil prices are so high and he is, please read his most recent blog post on that subject here. However, he was no stranger to the grease theft phenomenon. He even pointed out that there was a spot market for grease.

A spot market for grease?

That's it. I'm going home tonight and emptying my cabinets of any Crisco and Wesson to make a little extra cash.

Actually, I'm kidding (kind of). This story truly is a sad commentary on our inability to wean ourselves from fossil fuels to greener sources of energy.

I would like to know (and if any readers know please email me) how it came to pass that the White House finally released a four year late report on the impact of climate change on the eve of Senate consideration next week of the Lieberman Warner Climate Change legislation.  The Bush Administration has fought release of the report for four years and from its contents it is clear just why.  Perhaps someone in the Office of Science and Technology Policy cared deeply enough about the climate change issue to release the report in time for next week's debate.  In any case, the picture of the future it paints is brutal.  Essentially, it predicts the end of the America we know today.

A few tidbits: By 2080, heat related deaths will soar particularly among the old and frail, streams will warm, sea levels will rise, wildfires will rage, droughts will afflict the Southwest, pests will threaten crops and billions will need to be spent both to combat flooding and air condition a hotter country.

The report only summarizes dozens of other studies but the overall effect, particularly, released on the eve of Senate debate of climate change legislation is stunning.   You can read it here. 

mmoynihan@ndn.org

In advance of Senate consideration next week of the Lieberman Warner legislation on climate change, Tony Blair has penned a thoughtful and compelling op-ed in today's Washington Post that puts forth the case for a cap and trade system in the United States. 

Why is a former British PM writing editorials in a Washington paper?

As members of the Brown government in the UK told me in London recently, Europe views US leadership as critical to global action on climate change.  The US withdrawal from Kyoto was harmful to the world's climate.  By passing strong climate legislation now, the US can set the stage for a real global accord next December in Copenhagen when the UN will lay out a successor accord to Kyoto to take effect in 2012.

If the US fails to take action on climate change by next year, it will go into the Copenhagen meeting in a considerably weakened position.  The US would then be following, equivocating and reacting, rather than leading.  Alternatively, if the US passes climate change legislation before then, we will have the opportunity to shape the Copenhagen accord and resume our rightful leadership position on the issue as the world's largest economy.  Without meaningful US leadership, it is doubtful developing countries such as China and India can be brought in, further raising the stakes for legislation and the future.

President Bush has threatened to veto the Lieberman Warner legislation and the bill the Senate will debate next week faces clear obstacles.  However, the debate next week--even if the final vote falls short--will help set the stage for action next year.  Since all three remaining Presidential candidates support climate change action, the prospect of getting a bill done will increase dramatically on January 20th.  But so will the stakes.

The urgency Blair expresses is well considered.  The Senate should do its best to move the ball forward because, on this issue, there is a deadline.

Last week I wrote about two causes of what I am calling the Third Oil Shock: 1) increased demand from China and India combined with flat supply as the world approaches its peak oil production and 2) the impact of the falling dollar which is responsible for almost half the rise in the dollar price of oil compared to the Euro price. This week I want to discuss a third possible cause: hedge fund speculation. While the first two causes suggest high oil prices are likely to be here for some time, if high oil prices reflect speculation, then there is a chance prices may come down. The role of speculation in skyrocketing prices lies behind the belief of some that we are in the midst of a commodities bubble. However, there is a lot of debate about this point. Here are a few obervations.

First, my own informal poll of hedge fund managers, none of whom invest in oil futures themselves but who track the strategies of others, suggests there is something to the speculation theory of skyrocketing prices. The word among traders and analysts is that hedge funds are driving up prices--both by bidding up oil index futures or, when they do go short, having to cover positions if bets turn sour. Hedge funds, of course, have huge leverage at their disposal...a $5 billion hedge fund can command $50 billion in capital through borrowing. And by buying futures which are already highly leveraged, the leverage becomes enormous. This was the thrust of a much talked about Barrons article that appeared about a month ago. That article and others in Seekingalpha and other investor-focused publications have detailed the strategies Hedge Funds are using to play in oil.

Second, a number of influential Senators seem to think speculation is part of the problem. Senator Lieberman has been holding hearings on the subject this past week.

While one would not expect traders to come out and talk about how they are destroying the American way of life, one hedge fund manager, Michael Masters of Masters Capital did put the blame for prices on what he called "index speculators", hedge funds buying futures of indices. His testimony included a primer for Senators on commodity speculation and graphs showing how speculators are moving the market.

The Lieberman hearings prompted a rebuke from John Dizard in yesterday's Financial Times in which he cited studies by the Commodities Futures Trading Corporation in Chicago that speculation can not lead to sustained higher prices because the participation in the markets of users--like industrial companies and the airlines--is sufficiently great to outweigh speculation. Speculators who bet against the real world, the CFTC, argues will eventually lose their shirt. The operative word, however, is eventually. It is quite possible that speculation may exacerbate spikes and how long speculation-induced bubbles continue can be anyone's guess. After all every market, even the housing market for example, eventually must reckon with supply and demand--but the reckoning may be put off for years if capital is sufficienlty abundant. And capital is certainly abundant in the oil business today--especially with money having flowed out of other asset classes such as property and structured debt.

My own guess is that there is something to the speculation theory. The history of financial markets for many years has been a pursuit of what investors consider their God-given right to double digit returns. When any one market slows, this has led them to seek out a a series of alterantive investments--from tech stocks to real estate to now, perhaps, commodities-- that by virtue of the inflow of capital alone eventually turn into bubbles.

However, the other two causes of rising oil prices, skyrocketing demand from China, India and the developing world as well as a falling dollar are still with us. If a correction does ensue as a result of the real economy intervening, it is not likely to happen until after the summer driving season. And it will not address the long term force of increasing demand for a finite resource.

The Third Oil Shock and the Dollar

Oil prices have jumped so high so fast, that we are arguably in the midst of the Third Oil Shock. But why is oil rising? Part of the answer is demand from India and China. But there's more to the story. It's not often that I find myself in agreement with the editorial page of the Wall Street Journal, but David King, a former Fed economist, makes an important point in an oped today, echoed in an editorial, that a large share of the current run-up in oil prices as well as prices of all commodities is due simply to the decline of the dollar.

According to King, in Euro terms, oil is up but far less than in dollar terms. Had the greenback not undergone its steep drop since 2002, oil would be selling for about $75 today instead of $135. The good news here is that managing the exchange rate--though not easy--is something the Treasury in concert with the Fed does every day. The bad news, of course, is that the dollar has not collapsed by accident. Arguably, it has long been overvalued and its high value allowed Americans to stock up on massive amounts of cheap goods from abroad--for which we incurred a trillion dollar debt, now held by the Bank of China in the form of US bonds--and also killed US exports.

The decline of the dollar in Euro terms but in Yuan terms as well (about 20% as opposed to 60%) will eventually lift US exports. But that will take time. In the meantime, we are importing inflation.

Finally, since so many countries peg their currencies to the dollar, the next shoe to drop in the surge of oil prices may be an inability of some developing countries to pay their oil bill as happend after the second oil shock, triggering the 1980s international banking crisis.

A Magic Bullet for Climate Change?

On a separate topic, climate change, Freeman Dyson asks an interesting question in the current New York Review of Books. Could there be a silver bullet to solve the climate change problem? In reviewing a new book by William Nordhaus, Dyson points out that CO2 levels vary seasonably by about 8%, with plants absorbing about 8% of the globe's CO2 every growing season and then disgorging it come winter. He hypothesizes that genetically engineered super trees could, in the future, be programmed to pull a lot more carbon out of the atmosphere. To do so, however, a great deal of science and technology development must happen first. That's why allocating money to R&D is likely to be such an important part of a climate change solution.

Senate to Debate Cap and Trade

In advance of consideration by the Senate of the Lieberman Warner bill to create a cap and trade system to combat climate change, currently scheduled for the first week in June, stakeholders are already beginning to float arguments. Legislation foes such as the Heritage Foundation are talking about the potential damage to the economy of higher energy prices that may result from putting a price on carbon--detailing the impact state by state. What they don't mention is that credits if auctioned off will provide revenues that offset higher prices. Nontheless, for climate change legislaton to move forward next year of not this year, these arguments are a necessary part of the process of calling out stakeholders. Before the legislation can pass, it's important to find out where the opposition lies and what the obstacles are in order to address them. Stay tuned.

"The airline industry as it is constituted today was not built to withstand oil prices at $125 a barrel, and certainly not when record fuel prices are coupled with a weak US economy". So said American Airlines CEO Gerard Aprey yesterday in announcing dramatic cuts to service that will eliminate thousands of jobs, remove one of 8 American planes from the sky and charge passengers $15 to check a single suitcase.

Arpey warned the rest of the industry to follow suit or plunge into bankruptcy. And today, the Wall Street Journal reports that the International Energy Agency is anticipating reductions in supply that may drive prices higher.

The wholesale scaleback of air service as we know it is just one of the many ways skyrocketing fuel prices are beginning to alter America's way of life Yet shockingly, we still have no plan or policy to deal with it. President Bush begging Saudi King Abdullah to raise production last week or even Congress ending purchases for the Strategic Petroleum Reserve is not a policy.

While Senators Obama and Clinton have proposed broad energy policies, action is needed now. Conditions in the airline industry are approaching those after Sepember 11th when the Strategic Petroleum Reserve was tapped and energy officials should consider that now. Congress should move immediately to fund the Production Tax Credit and Investment Tax Credit to fund wind and solar investments. And the White House should convene a national energy council, as proposed by both Democratic Senators, modeled after the National Security Counsil, to meet weekly to address the current crisis and long term issues surrounding energy prices, dependence on foreign oil and climate change. Things will get worse before they get better, but at a minimum a crisis such as this needs attention.

Markets work. And so does policy. That's the optimistic message from Guy Caruso, head of the Department of Energy's statistical arm, the US Energy Information Administration who told the Financial Times that US dependence on foreign oil after rising for 30 years will drop from 60% to 50% in the next seven years. Caruso estimates that US imports will fall through 2030 thanks to lower consumption as prices rise and as biofuel mandates tighten. Caruso's prediction is likely to reduce calls to drill in the Alaska National Wildlife Reserve and provide support for biofuel targets.

But is this optimism justified? Today's FT has a secong long article on peak oil, the idea introduced by Shell geologist, Marion King Hubbert that oil production is bound to peak and then decline. Hubbert accurately predicted the peak of US production in the 1960s. His followers see global oil production peaking in the next decade or so, followed by shortages--and according to some--panic in the streets. Even sober analysts believe that the capacity of Saudi Arabia to increase oil production at its mammoth Ghawar field is limited. And such knowledgeable Texans as T Boone Pickens are believers in peak oil. Last week, Pickens plunged down $2 billion as a one quarter downpayment, on 2500 turbines he is installing in the Texas Panhandle to build the world's largest wind farm.

Optimist or pessimist, it's clear that oil capacity is under stress and high prices are probably here to stay. Even under the most optimistic scenarios, renewable sources won't replace oil for decades. The key question is how quickly will markets work to lower oil usage and drive investment in the technologies needed when the wells begin to run dry.