Wednesday, June 18, 2008

McCain Finally Hitting The Nails On The Head On Energy Policy & Market Distortion

McCain is doing much of what he needs to do on energy. He is calling for the building of new nuclear reactors, pumping billions into clean coal research, and for lifting the ban on drilling off the U.S. coasts. For this, he is being attacked for flip-flopping.

John McCain has made major speeches over the past two days addressing our energy woes. The Houston speech was an abosoutely exceptional. It struck just the right notes and it educated. I particularly liked his remarks on market distortion - an area in which government has a central responsibility to police in a capitalist economy. Here are the highlights:

The next president must be willing to break with the energy policies not just of the current Administration, but the administrations that preceded it, and lead a great national campaign to achieve energy security for America. So in the days ahead I plan to return to the subject in a series of discussions to explain my reform agenda. And I will set forth a strategy to free America once and for all from our strategic dependence on foreign oil.

Energy policy has enormous implications for America's economic security, our environmental security, and, above all, our national security. . . .

When demand exceeds supply, prices always rise, and this has happened very dramatically in the demand for oil. Two powerful forces in the oil market today are China and India, nations in which a third of humanity is suddenly entering the industrial era -- with all the cars, construction, and consumption of oil that involves.

There is the further problem of speculation on the oil futures market, which in many cases has nothing to do with the actual sale, purchase, or delivery of oil. When crude oil became a futures-traded commodity in the 1980's, the idea was to afford a measure of protection against the historic volatility of oil pricing. It takes several weeks to ship oil from the Arabian Peninsula to the offshore port of Louisiana. And for the buyers, it helps to know that the price will not suddenly fall while the oil is in transit. A futures contract assures importers that they can sell the oil at a profit.

That's the theory, anyway. But we all know that some people on Wall Street are not above gaming the system. When you have enough speculators betting on the rising price of oil, that itself can cause oil prices to keep on rising. And while a few reckless speculators are counting their paper profits, most Americans are coming up on the short end -- using more and more of their hard-earned paychecks to buy gas for the truck, tractor, or family car.

Investigation is underway to root out this kind of reckless wagering, unrelated to any kind of productive commerce, because it can distort the market, drive prices beyond rational limits, and put the investments and pensions of millions of Americans at risk. Where we find such abuses, they need to be swiftly punished. And to make sure it never happens again, we must reform the laws and regulations governing the oil futures market, so that they are just as clear and effective as the rules applied to stocks, bonds, and other financial instruments. In all of these markets, reform must assure transparency, prevent abuse, and protect the public interest.

. . . At the time of OPEC's oil embargo, we imported roughly a third of our oil. Now we import two thirds. At that time, every day, we produced more than nine million barrels of oil domestically. Now America produces five million barrels a day. Five million barrels sounds like a lot until we compare the number with the oil we use, which comes to 20 million barrels, or a quarter of all the oil used every day across the earth.

Of that total, a little more than half comes from Canada, from Mexico, and from our own domestic production. That's a heavy reliance on these two nations. But there is a world of difference between relying on two democratic neighbors and partners in NAFTA, and relying on often hostile and undemocratic regimes in the Middle East and elsewhere. When critics of trade talk about unilaterally renegotiating NAFTA, as my opponent has done, that's one more concern they might want to keep in mind.

. . . In oil, gas, and coal deposits, we have enormous energy reserves of our own. And we are gaining the means to use these resources in cleaner, more responsible ways. As for offshore drilling, it's safe enough these days that not even Hurricanes Katrina and Rita could cause significant spillage from the battered rigs off the coasts of New Orleans and Houston. Yet for reasons that become less convincing with every rise in the price of foreign oil, the federal government discourages offshore production.

At the very least, one might assume, America had surely been building new refineries to achieve a more efficient delivery of gasoline to market, and thereby to lower the prices paid by the American people -- especially in the summer season. But the policymakers in Washington haven't got around to that, either. There's so much regulation of the industry that the last American refinery was built when Jerry Ford was president.

As for nuclear energy -- a proven energy source that requires zero emissions -- we haven't built a new reactor in 31 years. In Europe and elsewhere, they have been expanding their use of nuclear energy. But we've waited so long that we've lost our domestic capability to even build these power plants. Nuclear power is among the surest ways to gain a clean, abundant, and stable energy supply, . . .

Quite rightly, I believe, we confer a special status on some areas of our country that are best left undisturbed. When America set aside the Arctic National Wildlife Refuge, we called it a "refuge" for a reason.

But the stakes are high for our citizens and for our economy. And with gasoline running at more than four bucks a gallon, many do not have the luxury of waiting on the far-off plans of futurists and politicians. We have proven oil reserves of at least 21 billion barrels in the United States. But a broad federal moratorium stands in the way of energy exploration and production. And I believe it is time for the federal government to lift these restrictions and to put our own reserves to use.

We can do this in ways that are consistent with sensible standards of environmental protection. And in states that choose to permit exploration, there must be an appropriate sharing of benefits between federal and state governments. But as a matter of fairness to the American people, and a matter of duty for our government, we must deal with the here and now, and assure affordable fuel for America by increasing domestic production.

We should set the highest goals for ourselves for the years and decades to come, and I am a believer in the technologies that one day will free us from oil entirely. But to get there at all, a more pragmatic approach will serve us better. In the short term, we must take the world as it is and our resources where they are -- even as we press on with new and cleaner sources of energy. We must be bold in our plans to break our strategic dependence on oil, and over the next two weeks, I'll be offering a vision that will be bold. But we must also address the concerns of Americans, who are struggling right now to pay for gasoline, groceries, and other necessities of life.

What is certain in energy policy is that we have learned a few clear lessons along the way. Somehow all of them seem to have escaped my opponent. He says that high oil prices are not the problem, but only that they rose too quickly. He's doesn't support new domestic production. He doesn't support new nuclear plants. He doesn't support more traditional use of coal, either.

So what does Senator Obama support in energy policy? Well, for starters he supported the energy bill of 2005 -- a grab-bag of corporate favors that I opposed. And now he supports new taxes on energy producers. He wants a windfall profits tax on oil, to go along with the new taxes he also plans for coal and natural gas. If the plan sounds familiar, it's because that was President Jimmy Carter's big idea too -- and a lot of good it did us. Now as then, all a windfall profits tax will accomplish is to increase our dependence on foreign oil, and hinder exactly the kind of domestic exploration and production we need. I'm all for recycling -- but it's better applied to paper and plastic than to the failed policies of the 1970's.

Oddly enough, though, Senator Obama doesn't want to lower the gas taxes paid by consumers, which would be the most direct and obvious way to give Americans a break at the gas station. Even in tough times for our economy, when folks are struggling to pay for gas and groceries, tax relief just isn't change he can believe in.

Along with the harm that America's dependence on foreign oil has inflicted on our economy, there remain other costs that are even greater and harder to count. The massive wealth we have spent over the years on foreign oil is not flowing to the most upstanding citizens of the world. When trillions of dollars are transferred to other nations in exchange for oil, the consequences are serious and pervasive. But they can be understood in three simple ways.

The first takes the form of a current accounts deficit that has drained vast sums out of the American economy. We are borrowing from foreign lenders to buy oil from foreign producers. In the world's capital markets, often we are even borrowing Saudi money for Saudi oil. For them, the happy result is that they are both supplier and creditor to the most productive economy on earth. For us, the result is both dependency and debt. Over time, in interest payments, we lose trillions of dollars that could have been better invested in American enterprises. And we lose value in the dollar itself, as our debt portfolio undermines confidence in the American economy.

As bad as all that is, the second consequence is worse by far. Oil revenues are enriching the enemies of the United States, and potentially limiting our own options in containing the threat they present. Iran alone receives more than 66 billion dollars a year from oil sales, even as that regime finances terrorists, threatens Israel, and endangers the peace of the world with its designs on nuclear weapons. Moreover, by relying upon oil from the Middle East, we not only provide wealth to the sponsors of terror -- we provide high-value targets to the terrorists themselves. Across the world are pipelines, refineries, transit routes, and terminals for the oil we rely on -- and Al Qaeda terrorists know where they are. Osama bin Laden has been quite explicit in directing terrorists to attack the oil facilities on which so much of America's economy depends. They have come close more than once. And we are one successful attack away from an economic crisis of monumental proportions.

Even if our economy were somehow immune to this threat, the vast wealth we shift to the Middle East, Venezuela, Angola, and elsewhere would still have a third harmful and perverse effect. It would continue to enrich undemocratic, unjust, and often corrupt regimes. Some of the most oil-rich nations are also the most stagnant societies on earth. And among the many luxuries their oil wealth affords them is the luxury of ignoring their own people. In effect, our petrodollars are underwriting tyranny, anti-Semitism, the brutal repression of women in the Middle East, and dictators and criminal syndicates in our own hemisphere.

Read the entire speech. It is one of the best McCain has given. And he needs to repeat these points ad infinitum - particularly given that we have far too many Americans whose only education in economics seems from the polls to have come solely from the disingenuous populism and discredited marxism of the left. And it was good to see the President Bush stepping up to the plate and backing McCain, calling for Congress to end the moratorium.

At a speech in Missouri today, McCain called for building 45 new nuclear plants and extensive funding to make better use of our most abundant energy resource through "clean coal" research.

Democrats are in disarray on the energy issue, to put it tactfully. Gateway Pundit has a superb summation. Obama's response to McCain and his proposals was rather incredible:

Obama, who has been hammering McCain and the Republicans on the economy, said his White House opponent's support of the moratorium in 2000 was "certainly laudable."

"But his decision to completely change his position and tell a group of Houston oil executives exactly what they wanted to hear today was the same Washington politics that has prevented us from achieving energy independence for decades," the Illinois senator said in a statement.

"Much like his gas tax gimmick that would leave consumers with pennies in savings, opening our coastlines to offshore drilling would take at least a decade to produce any oil at all, and the effect on gasoline prices would be negligible at best since America only has three percent of the world's oil.

"It's another example of short-term political posturing from Washington, not the long-term leadership we need to solve our dependence on oil."

Obama is pushing for a "windfall tax" on oil companies' record profits and for federal investment of 150 billion dollars over 10 years in renewable and green energies.

Read the entire article.

McCain is finally responding to the pain Americans are feeling from the incredible rise in oil prices. That is appropriate. For that he is being attacked as a "flip flopper" since he has changed his opinions on these issues. But “as Lord Keynes famously said, ‘When the facts change, I change my mind. What do you do, sir?’”

Lord Keynes's question needs to be put to Democrats. What we are hearing from them are ideologically driven opinions that they refuse to change, regardless of any change in facts. Going from $2 a gallon gas several years ago to $4 a gallon gas today is a changed fact. Iraq of 2006 in comparison to Iraq of 2008 is a world of changed facts. Changing positions on changed facts is not flip-flopping. But what do you call Obama's refusal to acknowledge the changed facts on either our energy woes or our success in Iraq? I do not know what you call it, but I know what you wouldn't call it. Effective leadership.


MathewK said...

If McCain has any brains and ambition of the top job, he'll keeping flipping back towards the Conservatives. I hope he can turn into a real Conservative in the coming months, someone folks can whole heartedly get behind, not just because they don't like the other guy.

Anonymous said...

I may not agree with McCain at all times about all things, but he does have integrity - something I've come to believe is completely lacking in the competition. He has my vote.