ENERGY OPTIONS

US energy policy directions in the short and long term

National leaders debate plans to free US from foreign oil dependence. Verdict: We can do it.


He notes that the Obama plan emphasizes the demand side of the energy supply-demand equation-reduce energy consumption in order to reduce both oil imports and global warming. Thus, Obama looks forward to promoting more efficient use of electricity and hybrid cars as significant parts of his plan.

McCain, on the other hand, like many a Republican before him, stresses increasing the supply of domestic oil to cope with high petroleum prices-drill in ANWR, drill off the coasts, drill wherever oil might be found. For McCain, energy conservation is clearly secondary, and greenhouse gas emissions are treated largely as an afterthought.

Both candidates decry irresponsible speculation-which our sources credit with driving 15-20% of the increase in oil prices in recent years-but only Obama offers specific policies to reign in the energy futures markets.

McCain believes the issue needs further study before an appropriate response can be mounted, assuming one is justified. Our friendly oil exec divided the competing energy plans along a different axis-government intervention.

Like most traditional Democrats, Obama has no problem with relying on Washington for guidance in achieving his energy goals. Thus, his plan is replete with mandates and targets. McCain, on the other hand, displays the traditional Republican aversion to government meddling and bases his plan largely on market forces.

Mandates and targets exist only where there is no obvious alternative. Interestingly, both our contacts came to the same conclusion, which is as follows:

• Any realistic energy plan will have to address both sides of the equation. We need both more energy and more efficient use of whatever energy is available.

• We need fossil fuels and will have to obtain them wherever they can be found.

• Market forces must be tapped wherever possible, but without government mandates and targets the US will not achieve energy independence or anything near it within the time available to the next president.

Forecasting Intl can only agree. The Obama and McCain plans both offer features that belong in any realistic national energy plan, and both omit measures that will also be necessary. There are also a few policy clinkers in the plans. Here is how we rate them. When it comes to drilling, the US has no choice.

Although it will take 7-10 years before we see oil from any field where development begins today, the country's need for oil is not about to disappear. Whatever the US can supply domestically, it must. Yet drilling in ecologically sensitive areas requires due concern for the environment.

So, while we advocate drilling in coastal areas, we advise using the safest possible technology to prevent oil spills. If ANWR is opened up, care should be taken to minimize the footprint of wells and restrict drilling to the winter, when the tundra is hard enough to support the passing trucks without damage.

And double-walled pipelines should be used to ship the oil to market. Interestingly, our oil executive colleague had no problem with doing everything possible to minimize the environmental impact of drilling.

It seemed to him an obvious necessity. By the way, those undeveloped leases that oil companies have been sitting on hold an estimated 4 billion barrels of oil per day in missing production-more than half the current American output.

It's time to give the oil companies a choice: Develop those fields in a reasonable time, or give up the leases-without compensation. Neither candidate mentioned one energy resource that Forecasting Intl believes will be crucial for the long run-oil shale.

The US and Canada have the world's largest deposits of oil shale-enough to supply the total US energy need for the next 300 years. Unfortunately, oil derived from shale tends to be costly, and recovering it is one of the dirtier processes in the modern economy.

Unless the US weans itself completely from petroleum, shale will eventually become a major part of the American oil economy. This will require a significant R&D commitment to finding cleaner ways to obtain and use shale oil.

There is not much choice when it comes to energy speculation, either. According to all the sources we have seen-in government and industry-speculation accounts for at least 15% of oil's rise to its current peak at $145 per barrel.

Call it around $20 per barrel. Recent declines in the price of oil seem to have been caused almost solely by loss of speculative fervor as it becomes clear that voters will demand an effective response to their soaring gas and oil bills from whichever candidate takes the White House.

Since there is no guarantee that the price will not rise again, studying the situation doesn't help. It's time to throw some cold water on this market to make sure it does not get overheated again.

Cap-and-trade programs-which set limits on greenhouse gas emissions and let "clean" companies profit by selling their unneeded "polluter license" to those who cannot get their emissions down far enough to meet their limits-reduce emissions, because the limits decline over time.

They should be incorporated into any national energy plan. Much R&D will still be needed to minimize waste energy and bring solar, wind and other renewable energy sources into the marketplace.

Government support for energy R&D should be as large and broad as possible. However, when it comes to funding this research, we believe that clean coal technologies should go somewhere near the back of the line. We know of no economically viable clean coal proposals, even with petroleum well north of $120 per barrel.

Barring the kind of dramatic technological breakthrough that seldom emerges from government-funded research, we feel safe in saying that this is an idea whose time has not yet come.

Conclusion Neither Barack Obama nor John McCain has yet offered the kind of comprehensive energy plan that the United States will need in the years ahead. One largely omits new energy production (save from renewables that may still require a long development time), while the other slights energy conservation and renewables.

Neither plan is acceptable as it stands. Whichever candidate takes the oath of office next January, American voters will have to push for adoption of whatever energy measures the new president neglects. We believe this pressure will bring action on energy in the early days of the next administration.

Whatever specific plan is proposed, enacting it will require cooperation from both Republicans and Democrats. Fortunately, both candidates have experience in cooperating successfully with colleagues on the other side of the aisle.

Voters will need to pay close attention to make certain that legislators do not produce a bland compromise bill which can get passed through Congress but offers relatively little benefit. Late breaking news As this article went to press, a coalition of 5 Democratic and 5 Republican senators-referred to as the "Gang of 10"-forged a comprehensive energy proposal which appears to be gaining support.

The proposal would give incentives for efficiency measures and renewable energy, and would promote nuclear power and offshore drilling. Its $84-billion cost would be met by killing tax breaks for oil and gas.

Marvin Cetron is a forecaster/futurist and president of Forecasting Intl. His study for the Pentagon, Terror 2000, which was written in 1994, offered a prediction of the subsequent course of terrorism.

3


1 | 2|