Topic: Energy and Environment

Obama’s Energy Repackaging: Not the Problem but Not the Solution Either

A too little-noted aspect of Obama rhetoric is the incessant repetition of outlandish claims. Energy is a major example. He repeats so often that reiteration of the defects is desirable. Whatever he may say, Obama is actually devoted only to the proposition that global warming is such a threat that the United States should rapidly move away from its reliance on fossil fuels. The basic implementation plans have undergone a major change after the 2009 fiasco of the Waxman-Markey bill. That bill proposed an extremely convoluted program to limit greenhouse-gas emissions. A core element was setting caps on such emissions, allocating them to energy-users, and allowing those users to buy and sell the rights. Government allocation of any valuable rights is always an invitation to unseemly battles for shares. At best, dubious vote-seeking allocations arise. At worse, bribery prevails. The combination of controversial meting out of quotas and the mess of additional regulations imposed by the bill led first to House of Representative passage only through arm-twisting. Next, fear of a similar fight caused the Senate not to consider either Waxman-Markey or various Senate alternatives.

Obama has since turned to his typical response. He has devised a public presentation of limited dubious ideas that supposedly allow the United States both to maintain fossil-fuel use as long as necessary and transition to non-fossil energy. He repeats these frequently. With the rise of gasoline prices, Obama has tried radically to change the form of presentation. Given the inherent defects of his stated objectives and the disparity between them and his actions, Obama has turned to an outrageously vituperative effort to claim that he has presented a vision of the truth that only politically motivated opponents reject. He vainly hopes that the public cannot see past his innocence about current prices to his guilt in wanting higher energy prices that he does cause.

He and Secretary of Energy Steven Chu are also trying to defuse their prior candid admissions that they wanted higher energy prices. Their current statements at best recognize that events beyond their control caused the increases and try to evade the reality that their goals also would produce higher energy prices. Suddenly, the widely available record is ignored. A quick Google search confirms that Obama admitted that cap and trade would cause electricity prices to skyrocket and bankrupt the coal industry. Similarly Chu did say “Somehow we have to figure out how to boost the price of gasoline to the levels in Europe.” They have not backed off from seeking to implement these goals.

Obama’s March 15, 2012 speech kicked off this new packaging. He claimed “What I just said about energy, by the way, is not disputed by any energy expert. Everybody agrees with this.” Obama would have been right if he had only said “There is no such thing as a quick fix when it comes to high gas prices. There’s no silver bullet. Anybody who tells you otherwise isn’t really looking for a solution – they’re [sic] trying to ride the political wave of the moment.” It is agreed both that developing energy substitutes is time consuming and likely to increase energy costs intolerably.

However, he goes on to argue “So if we don’t develop other sources of energy, if we don’t develop the technology to use less energy to make our economy more energy-efficient, then we will always be dependent on foreign countries for our energy needs.” That is disputed at both ends. Dependence on foreign oil is no more undesirable than dependence on other foreign commodities. Removing energy imports would leave the indirect impact of oil instability on our trading partners in other commodities. It is generally believed by advocates of action on global arming that policies that do not include China and India are doomed to failure. Some fear that the proposed alternatives are so unattractive that crash effort are needed to develop alternatives. Obama’s statements of goals (which appear in every energy speech and are reiterated excessively in this one) make things worse

So we can’t have an energy strategy for the last century that traps us in the past. We need an energy strategy for the future – an all-of-the-above strategy for the 21st century that develops every source of American-made energy. Yes, develop as much oil and gas as we can, but also develop wind power and solar power and biofuels. Make our buildings more fuel-efficient. Make our homes more fuel-efficient. Make our cars and trucks more fuel-efficient so they get more miles for the gallon. That’s where I want to take this country.

He adds later the blatantly jingoistic and protectionist assertion, fortunately grossly in conflict with his actual foreign-policy posture:

We can’t allow ourselves to be held hostage to events on the other side of the globe. That’s not who we are. America controls its own destiny. We’re not dependent on somebody else.

His oil statements are selective. His noting of the positive steps taken to increase oil and gas drilling ignores his anti-drilling actions. No mention is made of the anti-coal measures involving restrictions on coal use and making some forms of mining more difficult emanating from the Environmental Protection Agency; indeed the speech makes no mention of coal. The alternative-energy and energy-efficiency goals are widely criticized as too intrusive, too slow moving, and too doubtfully efficacious.  At least two well-researched books argue that alternative energy in general will at best take many decades to become substantial contributors to energy supply. Ethanol, the biofuel now in use, at a minimum produces a stain on food supply and may raise rather than lower greenhouse gas emissions. Experts hold that alternatives such as cellulosics and algae are the only hope and disagree about when, if ever ,either will emerge as viable alternatives.

Mandated energy standards suffer at a minimum as paternalistic measures to impose the supposed values of the government on individuals. A key example is the decision (back in the George W. Bush administration) to offset consumer rejection of the inadequate light from energy efficient light bulbs by banning traditional incandescent bulbs.

Auto-efficiency standards on which Obama ranted at length have at least three drawbacks. First, they are a particularly obnoxious effort to impose standards. Good reasons exist for American to want large cars. (Obama who is always accompanied by a fleet of obvious gas guzzlers and helicopters to the Boeing 747 that is Air Force One makes himself particularly vulnerable in asking others to use more fuel-efficient cars.) Second, the main way to boost fuel efficiency is to make cars lighter and thus expose riders to greater safety risks.  Third, mileage standards are inferior to gasoline taxes in discouraging gasoline use. The tax makes every purchase of gasoline more expensive and thus clearly discourages gasoline consumption. A mileage standard raises the cost of the car itself. This fosters a delay in replacing lower mileage vehicles. Once the car is purchased, the higher mileage lowers the cost of driving. People drive more. Conceivably, that incentive could produce increases in gasoline use.
His further point that the low United States share in reserves makes energy independence impossible was unnecessary political posturing. At best, the numbers are one of the less satisfactory indicators that independence would be inordinately expensive.

Yet another constant is his attack on “subsidies” for the oil industry. This relates to tax benefits. Whether the term subsidy is the best is debatable but not central. What matters is the demagoguery of Obama’s tax proposals. Where the need is simplification and the total cessation of use of the Internal Revenue code for social engineering, Obama wants to give and take to increase such engineering. His actual oil proposals were buried in an annex to fiscal year 2011 budget. The vast majority of the tax changes came from removing oil from inclusion in a stupid provision to benefit manufacturing. The rest come from tax provisions that largely benefit smaller oil companies. More broadly, he argued that rather than eliminate equally unwise tax benefits to alternative energy only the modest offset for oil should be removed.

Obama, moreover, cannot refrain from adding a demonstrably misleading point “Ending these subsidies won’t bring down gas prices tomorrow.” Since he goes on to talk of other things, it might charitably be concluded that he was admitting the tax change was but another symbolic snipe at the U.S. oil industry to make politicians feel good. Given the tone of the speech, the alternative that he was trying to suggest that a tax increase would lower prices seems likely. Whatever the virtues of a tax change, taxing more is a disincentive and would raise oil prices (modestly to be sure, but then why bother with the tax change.)

His March 17, 2012 weekly speech (largely a recap of the earlier one) added the outrageous claim that traders manipulated oil prices but the Dodd-Frank bill would eliminate this.

Thus, the quickly refuted use of an urban legend about Rutherford B. Hayes and the revival of the flat-earth myth are just the most obvious of the misstatements to which Obama is devoted.

EPA and the ‘Necessary Bankrupting’ of Coal

In its proposed rulemaking on emissions from coal-fired power plants, the Environmental Protection Agency has fulfilled President Obama’s campaign statement that his administration would “essentially bankrupt” anyone who had the audacity to hope to build a new generation facility. By essentially prohibiting the production of new plants, the administration is again picking winners and losers in our energy economy, something which is best done by the market.

Supporters of this policy will claim that it is cheaper to generate electricity from natural gas, and that is true for now.  But major producers using hydraulic fracturing and new horizontal drilling techniques in shale formations have recently stopped drilling new wells because the price is so low.

If it ultimately costs more to produce electricity from gas than it does from coal, the administration will have slapped yet another energy price hike on us—in addition to what we already pay to subsidize solar power, windmills, and Chevrolet Volts while taxpayers absorb the debt from the multiple bankruptcies of other politically correct energy concerns like Solyndra, Range Fuels, and a host of others.

Red Team, Blue Team, and Gas Prices

The Washington Post puts public opinion on gas prices in stark red and blue:

Pretty clear Red Team/Blue Team answers. Republicans in 2006 accepted that there wasn’t much the president could do to reduce gas prices, but most of them think Obama could. Democrats show an even sharper shift; they overwhelmingly said that Bush could bring prices down, but few expect Obama to do so. I hope the fact that both Independents and Americans as a whole are 12-13 points less likely to think that presidents set gas prices is a sign of improvement in general economic understanding.

Back around 2003 or 2004 a colleague was escorted through the hallways of CNN by a junior staffer or intern, who asked him, “Do you think Bush is raising gas prices now so he can lower them before the election?” With perceptions like that among budding journalists, is there any hope for better public understanding of economics?

For examples of informed and nonpartisan analysis of gas prices, check out

DOT Moves to Support Even More Wasteful Transit Projects

The Department of Transportation (DOT) is proposing new rules that would allow it to fund exceedingly wasteful rail transit projects that do nothing to relieve congestion. While the existing rules require transit agencies to demonstrate that proposed new rail lines are at least minimally cost effective, the proposed rules focus instead on such vague criteria as “livability” and “environmental justice.”

This rule goes back to 1991, when Congress created the “New Starts” fund to provide grants to transit agencies that want to build new rail lines or other fixed transit lines (such as busways). There were no limits on how much transit agencies could ask for, and the agencies quickly discovered that cities that proposed the most expensive projects got the most money. This sent the cost of rail projects soaring.

For example, in 1986–before New Starts–Portland completed a 17-mile light-rail line that cost about $200 million. In 1998, after New Starts, it completed a 13-mile light-rail line that cost $950 million. Both received the same percentage of federal matching funds, but the second line was “gold plated” as part of Portland’s effort to capture “its share” of the New-Starts pot. Predictably, the city is now working on a 7-mile line that will cost $1.5 billion.

In an effort to put a cap on this wasteful spending, the Bush administration passed a rule in 2005 requiring that New Starts projects meet a minimum test of cost effectiveness. That test required that projects cost no more than $24 for every hour of time that the transit project saved travelers, including both transit riders and highway travelers who enjoyed congestion relief from the project. Even $24 an hour is pretty wasteful considering that most bus improvements save time at a cost of only $1 to $6 an hour, but the rule did put a damper on some excessively wasteful rail proposals.

Also in 2005, Portland Congressman Earl Blumenauer persuaded Congress to create a “Small Starts” program for streetcars and similar projects costing less than $100 million. Blumenauer and others were angered when the Bush administration wrote a rule requiring transit agencies to prove that streetcars were cost effective relative to improved bus service. Since a single streetcar costs ten times as much as a bus, there is no way streetcars can be more cost effective than buses, so no streetcar projects were funded out of Small Starts.

Unlike the Bush administration, the Obama administration has drunk the Kool-Aid of streetcars and rail transit. In 2010, Secretary of Transportation–or, as I prefer to call him, Secretary of Immobility–Ray LaHood announced that he was changing the rules so that he could fund streetcars and other wasteful projects out of Small Starts and New Starts. (Funds for the streetcar grants that LaHood provided to Atlanta, Cincinnati, Dallas, Tucson, and other cities came out of stimulus monies, not Small Starts.) LaHood has freely admitted that his goal is to “coerce people out of their cars.”

Ironically, soon after LaHood’s announcement, the head of the Federal Transit Administration (FTA), Peter Rogoff, gave a speech castigating transit agencies for seeking funds for new rail projects when existing rail transit lines suffer from a $60 billion maintenance backlog. “Paint is cheap, trains are expensive,” Rogoff said, observing that agencies that paint buses a special color and call them a special bus often gain as many new riders as agencies that build expensive rail line. The DOT soon removed Rogoff’s speech from its web site, but copies have been preserved here.

Cato’s 2010 comments on LaHood’s proposal pointed out that a true cost-effectiveness analysis, which is required by law, requires transit agencies to compare rail proposals with a full range of alternatives. The draft rules that the FTA released in January, 2012, however, only require agencies to compare the cost effectiveness of rail against doing nothing.

Moreover, instead of measuring cost effectiveness by the number of hours of time the projects save travelers, the proposed rules would measure it by the number of new transit riders the project is projected to gain. This means that projects that increase congestion (by, for example, building streetcar lines in streets or running frequent trains across grade crossings), wasting most people’s time, will actually score higher because planning models assume congestion leads more people to ride transit.

Cato’s comments on the proposed rules also point out that the law requires the FTA to account for the effect of projects on congestion and mobility. However, the law does not allow the FTA to consider livability, environmental justice, or the other new criteria proposed in the rules. The draft rules therefore violate the law in several places.

Comments on the proposed rules are due March 26 and can be submitted on line. While it is uncertain whether LaHood will pay any attention to your comments, what is clear is that the Obama administration is more interested in imposing its utopian view of how people should live on American cities than it is in increasing people’s freedom and mobility.

This One’s a True Porker

The Senate passed a transportation bill this week to replace a House bill that was killed by fiscal conservatives for being filled with “pork and special interest projects.” Not surprisingly, the Senate bill is far worse.

Where the House bill authorized deficit spending to the tune of about $10 billion a year, the Senate bill would deficit-spend about $15 billion a year. Where the House bill had no earmarks and few big-government expansions, the Senate bill has several earmarks, discourages the states from leasing roads to private partners, and expands federal regulation of public and private transit and intercity bus systems.

Fiscal conservatives pinned their hopes on an amendment that would allow states to opt out of federal funding by raising their gas taxes by the 18.4 cents that the federal government collects, thus cutting out the feds as middle man. The Senate predictably and decisively rejected this amendment by 68 to 30. Sen. Barbara Boxer (D, Calif.) argued that the amendment would “devolve” the highway fund, which of course was the whole point.

I’ve long argued that the only way to devolve federal transportation spending to the states is to first take the pork out of the gas tax. The House bill did this by rededicating gas taxes to roads (making them once again a true user fee), distributing gas taxes using formulas (preventing Congress from earmarking), and paying for transit out of other funds. Once the pork was gone, Congress would lose interest and let the states take over. The Senate bill, of course, does none of these things, and in particular continues to dedicate a share of gas taxes to transit, which will make it a lot harder to devolve gas taxes to the states.

The only good news is that the Senate bill is just a two-year bill, which means the whole debate can begin again in 2014 if not 2013. But the House has just two weeks to accept or reject the bill, as the current law expires on March 31. If they can’t reach an agreement by March 31, they are likely to simply extend the current law, which is not a whole lot different from approving the Senate bill.

If the House had been able to pass its bill, it would have been in a much stronger position to negotiate some improvements to the Senate bill. As it is, it now has a choice between the bad law now on the books or the slightly worse bill passed by the Senate. Fiscal conservatives should encourage the House to reject the Senate bill and start the debate over.

You Keep Using the Word ‘Affordable.’ I Do Not Think It Means What You Think It Means.

The federal government gave a $10 million “affordability” prize to a giant corporation for manufacturing a $50 lightbulb. The Washington Post:

The U.S. government last year announced a $10 million award…for any manufacturer that could create a “green” but affordable light bulb.

Energy Secretary Steven Chu said the prize would spur industry to offer the costly bulbs…at prices “affordable for American families.”…

Now the winning bulb is on the market.

The price is $50.

Retailers said the bulb, made by Philips, is likely to be too pricey to have broad appeal. Similar LED bulbs are less than half the cost.

This is the same federal government that refers to ObamaCare, which costs more than $6 trillion, as the “Affordable Care Act.”

Obama: Running on Empty

Last week’s energy speech was vintage Obama: repeating the same bad ideas that he has advocated since his pre-2008 election campaign and misrepresenting both his actions and the opposition.

To be sure, he is correct that the Republicans are overstating what can be done immediately to alleviate oil price spikes.  However, he falls into the same trap as the Republicans in believing that a sensible policy exists to avoid the inevitable fluctuations in world oil prices. These fluctuations are more tolerable than the possible alternatives.

His selective statement of his policies ignores at a minimum its general anti-fossil fuel thrust with slowdowns in oil and gas leasing on federal land, the temporizing on the Keystone XL pipeline, and the massive anti-coal regulations promulgated by the Environmental Protection Agency. He continues on the paths of dictating fuel-efficiency standards and pursuing dubious alternative energy incentives. Moreover, Republican criticisms of these actions belie the assertion of exclusive concern with drilling.  There may be no silver bullet, but there are more sensible policies than Obama’s.

Otherwise the speech differs in no substantial respect from his prior efforts. Every key point from the America-can-do-it pep talk to his misleading argument about tax benefits to the oil industry was critiqued in my Cato Policy Analysis: “The Gulf Oil Spill: Lessons for Public Policy.”