Ron Wyden, Democratic Senator from Oregon who serves on the Senate Finance Committee and the Energy Committee, is generally considered a liberal, though with a mixed bag of positions that hardly qualify on all grounds. He is against the estate tax and favors lowering rates of capital gains taxes, neither of which makes sense, from my perspective, in an economy already tilted to favor capital (and hence those in the upper distributions) and in need of revenue. His positions on the environment have been fairly consistently progressive. Back in 2004, for example, he worked on legislation to "get tougher" on responses to oil spills and get kinder in expediting loans to people impacted by those spills. See this press release. He has supported the US addressing CO2 emissions even if the big economies of China and India don't (S. Con. Res. 70, May 15, 2008).

So what happens when you put tax policy (where I'm not terribly impressed with many of his positions) together with environmental policy (where he seems to have a fairly decent record)?

Today, Wyden introduced a bill (S. 1588) that deals with both of these issues. It would end a tax break currently enjoyed by speculators who trade in oil and gas. They'd have to pay tax at the ordinary income rates, rather than getting the preferential capital gains rates (o% for the first two income brackets, then 15%). This would be achieved by treating the gains as short-term capital gains (or losses) even if they would be treated as long-term under other provisions. Gains in trading by tax-exempt investors--e.g., Harvard's endowment and similar funds-- would be taxed as unrelated business income.

What's the rationale? "To amend the Internal Revenue Code of 1986 to provide the same tax treatment for both commercial and non-commercial investors in oil and natural gas and related commodities, and for other purposes." The first section has a short title that perhaps reveals more--it is the "Stop Tax-breaks for Oil Profiteering Act" (STOP Act). The bill also calls for a study of commodities exchanges and the effect of tax policy on the demand and price of commodities, and particularly of oil and gas.

I'm no expert in this area, but this sounds at first impression like a good idea. Wyden's point is that those who use such fuels in their businesses have to purchase those commodities and treat any profits on related trading as ordinary. But speculators pay lower capital gains rates on trading profits, which may well mean that their trading distorts the market and raises prices.

Of course, I've long argued for eliminating the capital gains preference altogether, either through repeal of the provision in the regular tax or adding it as an adjustment in the alternative minimum tax. While I'd rather there be a wholesale change--to remove all the characterization games that taxpayers play and to help move the tax system towards a fairer one that does not give such inordinate preference to owners of capital over workers, these commodities trades may be an appropriate target, especially given their likely impact on pricing in an era when we can expect increasing oil and gas scarcity.

Any thoughts?

Tom Bozzo

thinks the path of Chinese energy and climate policies is interesting but the prospect of international trade creating a game of carbon whack-a-mole is not a great argument for the ex ante unworkability of a U.S. cap-and-trade program. Take a look at the sectoral distribution of U.S. emissions, via the EIA:



The industrial sector accounts to 27 percent of U.S. emissions, and the especially hard-to-offshore residential and transportation sectors generate 54 percent of U.S. energy-related CO2. It also just so happens that the residential and transportation sectors are ripe with low-hanging fruit for emissions reduction — i.e., reduction opportunities that can be carried out at essentially no cost (*) via reductions funded with energy savings. The emissions reductions from picking the low-hanging fruit in the U.S. economy may be offset in whole or in part by Chinese emissions, but that need not be futile in the sense that the U.S. domestic reductions would cause China or similarly situated countries to emit more given their development paths.

What's especially interesting about China is that their current resistance to emissions reductions has to be viewed in light of the sustainability of their current emissions path. China has relatively large coal reserves but also very high production rates, so rapid in fact that today's Chinese infant can look forward to depletion of their domestic coal resource before s/he hits middle age. This points to a direction for resolution of the current tension between belching-smokestack China, imposing external costs on Minnesota fisherpeople, and futuristic greener China. Perhaps they will delay the reckoning by endeavoring to make coal exporters fantastically rich (at least until climate reckoning day), but it looks like Stein's Law will bind and I might even get lucky and see it happen.

(*) That in turn points to something (for later discussion) that's wrong with this Tax Foundation article on the implicit tax burden of cap-and-trade, which in fairness I should note gets an impressionistic picture of the distributional consequences more-or-less right.

Tom Bozzo

John "Don't Say" Boehner makes (or should make) Greg Mankiw cry:

Mr. Boehner likewise criticized Mr. Obama’s cap-and-trade emissions permits proposal, saying, “Cap-and-trade is code for increasing taxes and killing American jobs, and that’s the last thing we need to do during these troubled economic times.”

As the NYT reports, the Obama budget actually would (mostly) rebate the proceeds of selling the credits via the 'Making Work Pay' credit, so Boehner is (mostly) lying about the tax increase part of the proposal. The administration should be concerned that the implicit tax will be passed on for fairness and political reasons, and a conceptually good way to deal with that is to make people approximately whole in a way that doesn't take away the price signal to reduce carbon emissions.

As for the job-killing business, I'd like to see any other job that Boehner would save in the name of inefficiency; jobs whose existence depends on free carbon emissions are being subsidized by the rest of society. Of course it's the net job creation or destruction that really matters. Insofar as there's not much net tax increase, usual arguments regarding incentive distortion of taxes don't really apply, and the net proceeds would go to low-carbon energy infrastructure and R&D that would be reasonably calculated to have substantial long-range returns, the job-killing claim looks histrionic. But if you don't have ideas, then I suppose there's not much to do but try to pound the table.

by Tom Bozzo

Transforming the electricity sector by building a few hundred thousand megawatts of green generation capacity seems neither excessively expensive nor excessively risky this evening.

by Tom Bozzo

Transforming the electricity sector by building a few hundred thousand megawatts of green generation capacity seems neither excessively expensive nor excessively risky this evening.

Meeting projected (latent) demands for oil and other liquid hydrocarbon fuels over the next couple of decades — taking global production and consumption to the vicinity of 113 million barrels/day in 2030, from the current ~85-86 million b/d — will require bringing online the equivalent of a new Persian Gulf's worth of new oil production, plus whatever it takes to replace the output from declining fields. The periodic political fantasy of making the U.S. self-sufficient at roughly current consumption levels would take "only" something on the order of a Saudi Arabia's worth of purely domestic production.

If you find that daunting, then you're not in the part of the conservative commentariat that's out there saying that those Saudi Arabias could be us were we only to exploit some hitherto off-limits and/or uneconomical sources with the gusto of the 'drill here and drill now' set.

Last week, reader sammy pointed us to a couple of op-eds from the Investor's Business Daily, one on prospective fossil fuel supplies in the Arctic, and another on shale oil. Even In Liberal Madison, we have right-wing gadflies and one of them, Rick Berg, sounds similar notes in our alt-weekly. The argument, in a nutshell, is that shale oil and new (mostly) offshore fields can provide ample oil for the foreseeable future if only access to it were unfettered. The implication, courtesy of Daniel Henninger in the W$J, is that we shouldn't overreact and abandon our carbon economy which "run[s] like a Swiss watch (transportation, distribution, production, commuting)" for the uncertainty of low-carbon energy sources. No less of a light than Larry Kudlow says that the mere threat of new U.S. drilling has been working its magic on the oil markets, so maybe that panic-dumping of SUVs on the used-car market was hasty. And last Friday's Weekend Journal had Todd Buchholz damning the hippies and their stupid Priuses whose fuel-saving features pay for themselves in much less than the life of the car, double-underscored by Stephen Moore.

It's enough to make a suspicious liberal think there's an organized campaign on to try to save the status quo, and some people may even be falling for it. But should they? Perhaps needless to say (you didn't think this was going to be a "credit where due" post to Kudlow?), there are big problems with the pitch. Warning: Long post after the jump.

1. Resources versus reserves

Accounts of extravagantly large unconventional oil amounts elide critical distinctions between measures of oil-in-the-ground and recoverable oil-in the ground. Both the IBD editorials and Berg's op-ed cite the hundreds of billions or even trillions of barrels of oil in shale formations. IBD:

The quantity of oil to be found in this shale is almost unfathomable. The government conservatively puts it at 800 billion barrels. Other estimates say we have as much as 2 trillion barrels, though some of that wouldn't be recoverable.

Berg:

Experts say the "Balkan Formation" [sic; he means "Bakken"] two miles below western North Dakota could yield between 270 and 500 billion barrels of crude oil. The famed North Slope of Alaska that Congress and President Clinton put off-limits in the 1990s has, by comparison, about 60 billion barrels of crude.

The large figures for oil shale both IBD and Berg refer to are estimates of the "resources" as opposed to "reserves" that actually can be produced using current technology. Particularly in the case of oil shale, the latter can be much smaller than the former depending on the formations' geologies. The Bakken Shale is a case in point. The current USGS estimate of technically recoverable undiscovered oil from the Bakken formation has a range of 3 to 4.3 billion barrels; the state of North Dakota's estimate is 2.1 billion recoverable barrels from a resource of 167 billion barrels. These are enormous increases from previous estimates, but aren't going to make North Dakota the Saudi Arabia of the Plains. The existence of large oil shale resources isn't news to the oil market, either. They've been known to be a large resource for the better part of the last century, and the last oil crisis brought about an oil shale boom and subsequent bust.

Likewise, IBD treats the recent estimate of recoverable oil and natural gas in the Arctic as if it were a sure thing as opposed to the result of a statistical analysis. Are they as deferential to the scientific consensus on anthropogenic global warming? Shockingly, they are not. The oil is treated as all but in the gas tank:

So by putting our Arctic resources into play, we would more than double our reserves overnight.

What's more, there could be more oil up there — much more — according to Donald Gautier, who wrote the report.

[...]

This again puts the lie to the "peak" oil theorists, who have asserted repeatedly that the amount of oil we can use is in terminal decline and that it's therefore futile to drill for more. It's not.

The 90 billion barrel figure is a mean, so the true amount could be less, of course. The issue is not that the estimate is implausible, but rather that it's an estimate that doesn't even say "drill here." Determining how much oil and gas the Arctic actually could supply (and where exactly it is) is a matter for future exploration, assuming it's feasible to carry out. Feasibility of Arctic oil production is not a trivial matter, as an important caveat for USGS's analysis (not mentioned by IBD) makes clear:

For the purposes of this study, the USGS did not consider economic factors such as the effects of permanent sea ice or oceanic water depth in its assessment of undiscovered oil and gas resources.

Neither factor is trivial when, according to the USGS study, 84% of the estimated resources would be found offshore. K Harris in comments has another telling quote and gloss:

Here, from a press piece reviewing the same data and also [quoting] Gautier... from Oppenheimer's oil analysts. "We don't have to go to the [Arctic] for new supply. Right now in the U. S. there are billions, trillions of cubic feet of natural gas and billions of barrels of oil." The point to the quote is that while the data are getting more accurate, there is not really much surprise among experts at the amount of oil being found. They [k]new it was there, but also knew it was mostly not economical to extract. The Oppenheimer guy is pointing out that, at prices which make much of our Arctic reserves exploitable, it is now affordable to exploit resources in the lower 48.

An amusing irony is that if global warming were to turn out to be a myth after all, the resurgent Arctic sea ice would make the resource especially difficult to recover, whereas circumstances that made offshore Arctic oil not much more difficult than any other offshore oil production in extremely remote places would not inconceivably be associated with carbon prices that discouraged the production.


2. From reserves and resources to production

Another big part of the oil-price picture is the rate of (sustainable) production, as commenters noted in the previous thread. On this front, the IBD Arctic oil editorial just assumes a production rate:

Using a conservative estimate, let's say we pump 3 million barrels a day after developing these Arctic resources. That would boost total U.S. crude output of 8 million barrels a day [sic — the ~8 million b/d figure includes crude oil and natural gas liquids] by 38%.

The IBD editorial doesn't say whose "conservative estimate" that might be, but I wouldn't be surprised if it weren't the editorial writer supposing that if we have 30 billion barrels of new oil reserves in Arctic Alaska and can make 5.2 million b/d out of the current 21 billion barrel reserves, then 3 million b/d must be "conservative." The Great Gazoogle might have told them that the Trans-Alaska Pipeline's capacity is 2.1 million barrels/day, which is an effective ceiling on near-term production from the Alaskan Arctic. (This isn't a binding near-term constraint, though, as production from the existing fields that feed the pipeline is 20 years past peak and declining; a looming issue is meeting the pipeline's minimum flow rate.) Natural gas resources in the Alaskan Arctic are stranded until a separate gas pipeline is built. The need for substantial oil and gas infrastructure development on top of exploration means that the new resources can not be made productive in the near term.

The EIA's Annual Energy Outlook forecasts unconventional liquids production (including production from oil shales) to gradually ramp up to approximately 2 million b/d in 2030 in its baseline scenario, and 3 million b/d in the "high price" scenario. However, it's inappropriate to add that production, or hypothetical future Arctic or OCS production, to the current U.S. liquids output, since some of it would offset declines in production from conventional sources — about 1 million b/d in the baseline, less in "high price" where the projected U.S. conventional production peak is later.

Moreover, oil shale roduction rates may be economically limited by the energy and water intensity of the production processes. Commenter Michael Cain recounted:

A couple of years ago, I had the opportunity to listen to Shell engineers talk about their in situ process at the Colorado School of Mines. One of the interesting back-of-the-envelope points that came out was that producing a million bbl/day using the process would require an amount of electricity just about equal to the current generating capacity in Colorado. Building that much generating capacity in that part of the country is problematic at best: water for cooling is in short supply; and the most readily available fuel is coal.

You can do the back-of-the-envelope calculation yourself. There's about 5.8 million BTU, or 1,700 kWh, in a barrel of oil. So if you want to make a million barrels of oil at an EROEI of 4:1, then energy input is the equivalent of 250,000 barrels. The equivalent in electricity is 424,750 MWh, which requires 17.7 GW of 'round-the-clock generation capacity to produce in 24 hours. That is, indeed, more than the nameplate capacity of all of the electric generating units in Colorado as of 2005 (xls). I assume electricity isn't the process's only energy input, but Cain's story does accurately report the order of magnitude of the energy-input problem for low-EROEI unconventional resources. EIA forecasts note that the carbon-intensity of oil shale and coal-to-liquids among other unconventional sources makes their prospects particularly sensitive to potential carbon emissions regulation.

In a sign that oil companies respond to the price mechanism, current drilling for oil (in locations where it's currently allowed) actually has increased markedly from its cheap-oil trough, as measured by the number of crude oil rotary drilling rigs in operation. This is the drilling that can plausibly add to near-term domestic supplies.



The effect of this so far has been to stabilize if not slightly increase domestic crude oil production, which otherwise has been in a long decline. (In a sign that the Bush Administration was too lazy or distracted to convert its own domestic-drilling policies into reality, the rig counts bounced along at their trough into the second term; U.S. crude oil production [xls] remains a few hundred thousand b/d lower than when our oilmen-in-chief took office.) Drilling rig utilization rates are also very high, so that's another near-term supply constraint.


3. More supply lowers prices, other things equal, but relative to what?

The reality-based view of expanded drilling is that it will have relatively small and distant effects on oil prices, simply reflecting that unexplored resources can't be turned into reserves and then into large-scale production overnight. Particularly in evaluating stay-the-carbon-course commentary from the likes of Henninger, it's worth considering the baseline scenarios against which the modest long-term effects of additional drilling would accrue. This brings us back to the long-range forecasts mentioned at the top of the post.

The EIA's baseline scenario from its 2008 Annual Energy Outlook — published in June, but reporting analysis clearly developed much earlier — figures on an oil supply of 113.3 million b/d in 2030 at a light crude oil price of $70.45 in 2006 dollars. As an exercise, inflate that to 2030 dollars; e.g., if the Fed managed to produce 2% CPI inflation between now and then, that means that the nominal price of oil in 2030 would be approximately the same as it is now.



Since actual production for the year-to-date has averaged 85.5 million barrels, someone has to come up with 27.8 million b/d of net new production. Again, that's a little more than a Persian Gulf's worth of production, which currently is 24-25 million b/d. The AEO's "high price" scenario (which has looked optimistically low for much of the year-to-date) makes for less of a production challenge, but still calls for 97.7 million b/d of 2030 production, now with a light-crude price of $118.65/bbl in 2006 dollars. That inflates to the better part of $200 in nominal terms with low inflation.



Drilling advocates may well look at this and say 'let's get cracking.' However, all the sources that Republicans have been eager to drill put together are no more than a small downpayment on the production needed to bring back real prices to levels of the AEO reference scenario that, don't forget, were still incipient Armageddon for SUVs, big rigs, and airlines among other notable elements of the oil economy. What passes for the political discourse hasn't been going out of its way to point out that what we might be buying via the drilling route is $9.95 gas instead of $10 the next time oil supplies prove to be a couple million b/d short. Meanwhile, lots of money will have been made and run off with, and the oil that might be more valuable to future generations in the ground can't be unburnt.

Barry Ritholtz recently posted a picture that's worth quite a few words on the recent paths of world output — a proxy for latent demand growth — and oil production. When, as has happened, supply plateaus and latent demand grows onward, prices need to rise to 'destroy' enough latent demand to equilibrate actual demand and supply. So what have we seen recently? In part, oil production stagnated since rising to its current plateau:



This would be no big deal in the face of a cyclical downturn, but this was not the case in '05 (much as we might find fault with the expansion out of the 2001 recession). Having price-inelastic demands and supplies is a recipe for price volatility, and in this case there was a fair amount of demand to shed. The last Annual Energy Outlook figured on 2008 oil supply of 87.23 million b/d with a light crude price of $83.59 in 2006 dollars, or around $91 in current dollars. For the first five months of the year, oil supplies actually have been 85.5 million b/d [yet another .xls]. Prof. Hamilton has been telling the rest of the story.

There's been a lot of demand destruction with $4 gas, plus the business cycle isn't what it used to be, so there's no reason why we couldn't see $91 oil or lower in the near term. In that regard, I wouldn't necessarily bet against sammy on near-term price increases.

But keeping on the EIA's "high price" path involves keeping world oil production growth at 0.6% per year and of course holding world oil demand growth to 0.6% per year while (we hope) general economic growth is rather more robust. Even the more generous baseline from the Annual Energy Outlook involves reducing global demand growth 0.3% per year as compared to the last twenty years' average while coming up, as we've seen, with vast new supplies. Can this happen? Sure it can, but knocking out decent chunks of demand growth over long periods of time and refusing to restructure the the more oil-intensive economies risks trouble. If 0.6% supply growth were to prove optimistic over the longer haul, then we're likely to find that we wanted the economic restructuring Henninger considers "risky" yesterday.

Meeting projected (latent) demands for oil and other liquid hydrocarbon fuels over the next couple of decades — taking global production and consumption to the vicinity of 113 million barrels/day in 2030, from the current ~85-86 million b/d — will require bringing online the equivalent of a new Persian Gulf's worth of new oil production, plus whatever it takes to replace the output from declining fields. The periodic political fantasy of making the U.S. self-sufficient at roughly current consumption levels would take "only" something on the order of a Saudi Arabia's worth of purely domestic production.

If you find that daunting, then you're not in the part of the conservative commentariat that's out there saying that those Saudi Arabias could be us were we only to exploit some hitherto off-limits and/or uneconomical sources with the gusto of the 'drill here and drill now' set.

Last week, reader sammy pointed us to a couple of op-eds from the Investor's Business Daily, one on prospective fossil fuel supplies in the Arctic, and another on shale oil. Even In Liberal Madison, we have right-wing gadflies and one of them, Rick Berg, sounds similar notes in our alt-weekly. The argument, in a nutshell, is that shale oil and new (mostly) offshore fields can provide ample oil for the foreseeable future if only access to it were unfettered. The implication, courtesy of Daniel Henninger in the W$J, is that we shouldn't overreact and abandon our carbon economy which "run[s] like a Swiss watch (transportation, distribution, production, commuting)" for the uncertainty of low-carbon energy sources. No less of a light than Larry Kudlow says that the mere threat of new U.S. drilling has been working its magic on the oil markets, so maybe that panic-dumping of SUVs on the used-car market was hasty. And last Friday's Weekend Journal had Todd Buchholz damning the hippies and their stupid Priuses whose fuel-saving features pay for themselves in much less than the life of the car, double-underscored by Stephen Moore.

It's enough to make a suspicious liberal think there's an organized campaign on to try to save the status quo, and some people may even be falling for it. But should they? Perhaps needless to say (you didn't think this was going to be a "credit where due" post to Kudlow?), there are big problems with the pitch. Warning: Long post after the jump.

1. Resources versus reserves

Accounts of extravagantly large unconventional oil amounts elide critical distinctions between measures of oil-in-the-ground and recoverable oil-in the ground. Both the IBD editorials and Berg's op-ed cite the hundreds of billions or even trillions of barrels of oil in shale formations. IBD:

The quantity of oil to be found in this shale is almost unfathomable. The government conservatively puts it at 800 billion barrels. Other estimates say we have as much as 2 trillion barrels, though some of that wouldn't be recoverable.

Berg:

Experts say the "Balkan Formation" [sic; he means "Bakken"] two miles below western North Dakota could yield between 270 and 500 billion barrels of crude oil. The famed North Slope of Alaska that Congress and President Clinton put off-limits in the 1990s has, by comparison, about 60 billion barrels of crude.

The large figures for oil shale both IBD and Berg refer to are estimates of the "resources" as opposed to "reserves" that actually can be produced using current technology. Particularly in the case of oil shale, the latter can be much smaller than the former depending on the formations' geologies. The Bakken Shale is a case in point. The current USGS estimate of technically recoverable undiscovered oil from the Bakken formation has a range of 3 to 4.3 billion barrels; the state of North Dakota's estimate is 2.1 billion recoverable barrels from a resource of 167 billion barrels. These are enormous increases from previous estimates, but aren't going to make North Dakota the Saudi Arabia of the Plains. The existence of large oil shale resources isn't news to the oil market, either. They've been known to be a large resource for the better part of the last century, and the last oil crisis brought about an oil shale boom and subsequent bust.

Likewise, IBD treats the recent estimate of recoverable oil and natural gas in the Arctic as if it were a sure thing as opposed to the result of a statistical analysis. Are they as deferential to the scientific consensus on anthropogenic global warming? Shockingly, they are not. The oil is treated as all but in the gas tank:

So by putting our Arctic resources into play, we would more than double our reserves overnight.

What's more, there could be more oil up there — much more — according to Donald Gautier, who wrote the report.

[...]

This again puts the lie to the "peak" oil theorists, who have asserted repeatedly that the amount of oil we can use is in terminal decline and that it's therefore futile to drill for more. It's not.

The 90 billion barrel figure is a mean, so the true amount could be less, of course. The issue is not that the estimate is implausible, but rather that it's an estimate that doesn't even say "drill here." Determining how much oil and gas the Arctic actually could supply (and where exactly it is) is a matter for future exploration, assuming it's feasible to carry out. Feasibility of Arctic oil production is not a trivial matter, as an important caveat for USGS's analysis (not mentioned by IBD) makes clear:

For the purposes of this study, the USGS did not consider economic factors such as the effects of permanent sea ice or oceanic water depth in its assessment of undiscovered oil and gas resources.

Neither factor is trivial when, according to the USGS study, 84% of the estimated resources would be found offshore. K Harris in comments has another telling quote and gloss:

Here, from a press piece reviewing the same data and also [quoting] Gautier... from Oppenheimer's oil analysts. "We don't have to go to the [Arctic] for new supply. Right now in the U. S. there are billions, trillions of cubic feet of natural gas and billions of barrels of oil." The point to the quote is that while the data are getting more accurate, there is not really much surprise among experts at the amount of oil being found. They [k]new it was there, but also knew it was mostly not economical to extract. The Oppenheimer guy is pointing out that, at prices which make much of our Arctic reserves exploitable, it is now affordable to exploit resources in the lower 48.

An amusing irony is that if global warming were to turn out to be a myth after all, the resurgent Arctic sea ice would make the resource especially difficult to recover, whereas circumstances that made offshore Arctic oil not much more difficult than any other offshore oil production in extremely remote places would not inconceivably be associated with carbon prices that discouraged the production.


2. From reserves and resources to production

Another big part of the oil-price picture is the rate of (sustainable) production, as commenters noted in the previous thread. On this front, the IBD Arctic oil editorial just assumes a production rate:

Using a conservative estimate, let's say we pump 3 million barrels a day after developing these Arctic resources. That would boost total U.S. crude output of 8 million barrels a day [sic — the ~8 million b/d figure includes crude oil and natural gas liquids] by 38%.

The IBD editorial doesn't say whose "conservative estimate" that might be, but I wouldn't be surprised if it weren't the editorial writer supposing that if we have 30 billion barrels of new oil reserves in Arctic Alaska and can make 5.2 million b/d out of the current 21 billion barrel reserves, then 3 million b/d must be "conservative." The Great Gazoogle might have told them that the Trans-Alaska Pipeline's capacity is 2.1 million barrels/day, which is an effective ceiling on near-term production from the Alaskan Arctic. (This isn't a binding near-term constraint, though, as production from the existing fields that feed the pipeline is 20 years past peak and declining; a looming issue is meeting the pipeline's minimum flow rate.) Natural gas resources in the Alaskan Arctic are stranded until a separate gas pipeline is built. The need for substantial oil and gas infrastructure development on top of exploration means that the new resources can not be made productive in the near term.

The EIA's Annual Energy Outlook forecasts unconventional liquids production (including production from oil shales) to gradually ramp up to approximately 2 million b/d in 2030 in its baseline scenario, and 3 million b/d in the "high price" scenario. However, it's inappropriate to add that production, or hypothetical future Arctic or OCS production, to the current U.S. liquids output, since some of it would offset declines in production from conventional sources — about 1 million b/d in the baseline, less in "high price" where the projected U.S. conventional production peak is later.

Moreover, oil shale roduction rates may be economically limited by the energy and water intensity of the production processes. Commenter Michael Cain recounted:

A couple of years ago, I had the opportunity to listen to Shell engineers talk about their in situ process at the Colorado School of Mines. One of the interesting back-of-the-envelope points that came out was that producing a million bbl/day using the process would require an amount of electricity just about equal to the current generating capacity in Colorado. Building that much generating capacity in that part of the country is problematic at best: water for cooling is in short supply; and the most readily available fuel is coal.

You can do the back-of-the-envelope calculation yourself. There's about 5.8 million BTU, or 1,700 kWh, in a barrel of oil. So if you want to make a million barrels of oil at an EROEI of 4:1, then energy input is the equivalent of 250,000 barrels. The equivalent in electricity is 424,750 MWh, which requires 17.7 GW of 'round-the-clock generation capacity to produce in 24 hours. That is, indeed, more than the nameplate capacity of all of the electric generating units in Colorado as of 2005 (xls). I assume electricity isn't the process's only energy input, but Cain's story does accurately report the order of magnitude of the energy-input problem for low-EROEI unconventional resources. EIA forecasts note that the carbon-intensity of oil shale and coal-to-liquids among other unconventional sources makes their prospects particularly sensitive to potential carbon emissions regulation.

In a sign that oil companies respond to the price mechanism, current drilling for oil (in locations where it's currently allowed) actually has increased markedly from its cheap-oil trough, as measured by the number of crude oil rotary drilling rigs in operation. This is the drilling that can plausibly add to near-term domestic supplies.



The effect of this so far has been to stabilize if not slightly increase domestic crude oil production, which otherwise has been in a long decline. (In a sign that the Bush Administration was too lazy or distracted to convert its own domestic-drilling policies into reality, the rig counts bounced along at their trough into the second term; U.S. crude oil production [xls] remains a few hundred thousand b/d lower than when our oilmen-in-chief took office.) Drilling rig utilization rates are also very high, so that's another near-term supply constraint.


3. More supply lowers prices, other things equal, but relative to what?

The reality-based view of expanded drilling is that it will have relatively small and distant effects on oil prices, simply reflecting that unexplored resources can't be turned into reserves and then into large-scale production overnight. Particularly in evaluating stay-the-carbon-course commentary from the likes of Henninger, it's worth considering the baseline scenarios against which the modest long-term effects of additional drilling would accrue. This brings us back to the long-range forecasts mentioned at the top of the post.

The EIA's baseline scenario from its 2008 Annual Energy Outlook — published in June, but reporting analysis clearly developed much earlier — figures on an oil supply of 113.3 million b/d in 2030 at a light crude oil price of $70.45 in 2006 dollars. As an exercise, inflate that to 2030 dollars; e.g., if the Fed managed to produce 2% CPI inflation between now and then, that means that the nominal price of oil in 2030 would be approximately the same as it is now.



Since actual production for the year-to-date has averaged 85.5 million barrels, someone has to come up with 27.8 million b/d of net new production. Again, that's a little more than a Persian Gulf's worth of production, which currently is 24-25 million b/d. The AEO's "high price" scenario (which has looked optimistically low for much of the year-to-date) makes for less of a production challenge, but still calls for 97.7 million b/d of 2030 production, now with a light-crude price of $118.65/bbl in 2006 dollars. That inflates to the better part of $200 in nominal terms with low inflation.



Drilling advocates may well look at this and say 'let's get cracking.' However, all the sources that Republicans have been eager to drill put together are no more than a small downpayment on the production needed to bring back real prices to levels of the AEO reference scenario that, don't forget, were still incipient Armageddon for SUVs, big rigs, and airlines among other notable elements of the oil economy. What passes for the political discourse hasn't been going out of its way to point out that what we might be buying via the drilling route is $9.95 gas instead of $10 the next time oil supplies prove to be a couple million b/d short. Meanwhile, lots of money will have been made and run off with, and the oil that might be more valuable to future generations in the ground can't be unburnt.

Barry Ritholtz recently posted a picture that's worth quite a few words on the recent paths of world output — a proxy for latent demand growth — and oil production. When, as has happened, supply plateaus and latent demand grows onward, prices need to rise to 'destroy' enough latent demand to equilibrate actual demand and supply. So what have we seen recently? In part, oil production stagnated since rising to its current plateau:



This would be no big deal in the face of a cyclical downturn, but this was not the case in '05 (much as we might find fault with the expansion out of the 2001 recession). Having price-inelastic demands and supplies is a recipe for price volatility, and in this case there was a fair amount of demand to shed. The last Annual Energy Outlook figured on 2008 oil supply of 87.23 million b/d with a light crude price of $83.59 in 2006 dollars, or around $91 in current dollars. For the first five months of the year, oil supplies actually have been 85.5 million b/d [yet another .xls]. Prof. Hamilton has been telling the rest of the story.

There's been a lot of demand destruction with $4 gas, plus the business cycle isn't what it used to be, so there's no reason why we couldn't see $91 oil or lower in the near term. In that regard, I wouldn't necessarily bet against sammy on near-term price increases.

But keeping on the EIA's "high price" path involves keeping world oil production growth at 0.6% per year and of course holding world oil demand growth to 0.6% per year while (we hope) general economic growth is rather more robust. Even the more generous baseline from the Annual Energy Outlook involves reducing global demand growth 0.3% per year as compared to the last twenty years' average while coming up, as we've seen, with vast new supplies. Can this happen? Sure it can, but knocking out decent chunks of demand growth over long periods of time and refusing to restructure the the more oil-intensive economies risks trouble. If 0.6% supply growth were to prove optimistic over the longer haul, then we're likely to find that we wanted the economic restructuring Henninger considers "risky" yesterday.

Last week, the Senate failed to invoke cloture on S.3335, a measure which among other things would extend the production tax credits for solar and wind energy, plug the Highway Trust Fund deficit, and keep the Alternative Minimum Tax at bay for elements of the lower-upper-middle-classes for another year. The vote was 51-43, with a few mostly endangered Republicans joining the Democrats, and Harry Reid voting Nay for procedural reasons — so the bill does have at least majority support.

In fact, since the elements of the package are broadly popular if not useful, this bizarrely enough seems to be an effort of the Republicans to be against a package of tax cuts before they're for it. (More Republicans than Norm Coleman and Gordon Smith would be hard pressed to vote Nay in a final vote, methinks.) Whether this represents Pyrrhic support for the Bush administration's idiotic plan to raid transit funds for the highways, or an effort to get the Democrats to accept oil drilling to get essential legislation passed, is unclear from the reporting I've seen.

I'd seen Tom Ridge on TV yesterday claiming that it's the Republicans with a comprehensive energy plan, whereas Obama is supposedly opposed to the zero nuclear plants currently under construction. In fact, not only are the Republicans working to effectively throw a spanner in the works of the rapidly expanding renewables industry — providing generating capacity with no sensitivity to fossil fuel prices in multi-gigawatt quantities now. In fact, it may be down the page but McCain supports the tax credits his caucus is opposing.

It makes me wish I were rich enough to get on the air with an ad on this flip-flopping and obstructionism by the Grumpy Old Party.

Last week, the Senate failed to invoke cloture on S.3335, a measure which among other things would extend the production tax credits for solar and wind energy, plug the Highway Trust Fund deficit, and keep the Alternative Minimum Tax at bay for elements of the lower-upper-middle-classes for another year. The vote was 51-43, with a few mostly endangered Republicans joining the Democrats, and Harry Reid voting Nay for procedural reasons — so the bill does have at least majority support.

In fact, since the elements of the package are broadly popular if not useful, this bizarrely enough seems to be an effort of the Republicans to be against a package of tax cuts before they're for it. (More Republicans than Norm Coleman and Gordon Smith would be hard pressed to vote Nay in a final vote, methinks.) Whether this represents Pyrrhic support for the Bush administration's idiotic plan to raid transit funds for the highways, or an effort to get the Democrats to accept oil drilling to get essential legislation passed, is unclear from the reporting I've seen.

I'd seen Tom Ridge on TV yesterday claiming that it's the Republicans with a comprehensive energy plan, whereas Obama is supposedly opposed to the zero nuclear plants currently under construction. In fact, not only are the Republicans working to effectively throw a spanner in the works of the rapidly expanding renewables industry — providing generating capacity with no sensitivity to fossil fuel prices in multi-gigawatt quantities now. In fact, it may be down the page but McCain supports the tax credits his caucus is opposing.

It makes me wish I were rich enough to get on the air with an ad on this flip-flopping and obstructionism by the Grumpy Old Party.

Shorter McMegan:

I once heard these terms of art from the electricity industry. No quizzes!

P.S., Al Gore is fat.

------------------

Update: Hoisted from comments...

Kolohe:

A quick point for the negative team - the required* additions to the power grid, (i.e. new hv power lines, speficially 765 kV ones) will not really get started, much less be able to come on line in less than 10 years due to the (legitimate) length of the permitting process and (illegitimate) lawsuits brought by NIMBY'ers and uncomprimising environmentalists.

*required because the re-located power generating facilities (e.g. boone's wind farm) do not currently have the capacity that electrical export regions (applachia, tenn/ohio valleys) currently do. See page 8 of this pdf - recently linked by the daily kos when discussing the 20% wind strategy - for one (industry) revised power distribution plan.

gibbon1:

Pretty much, Al Gore suggests collective action to build the infrastructure needed to handle solar and wind. The Liberations hear 'collective action' which is 'bad' and decide Al Gore is 'one of those' and then proceed to make fun of him.

Me I made it half way through the comments and nary a mention of return on investment.

CoRev:

The issue with his proposal is maintaining a viable baseload. Wind and solar do not produce at any near peak capacity for days on end and when that happens where you gonna get your power? Who is going to maintain investment in that level of backup? maintain that level at peak? Actually test that level? And on and on.

So for the new sources to work we need nearly 100% of the old to back it up.

ilsm:

If only it were as hard for the US to waste a trillion in warfare state waste securing China's oil flow as to fight the NIMBY world order.

CoRev would do well to read the detailed post by Jerome a Paris at The Oil Drum on a program to meet a substantial fraction of the Gore challenge via wind. The key distinction is substitution of generation vs. generating capacity — a distinction also seemingly lost on McArdle. Intermittent renewables provide the latter, which is what primarily matters for decarbonization, quite well. That does require a fair amount of grid reinforcement, which will be a challenge for current opponents of long-distance transmission projects (who on the environmentalist side are often motivated by concern that they're being asked to foot bills to import power from dirty-coal plants).

As for cost, I've been living the cost decreases for wind generation. At the beginning of the year, the green-power premium we'd been paying dropped from 2.7 cents/kWh to 1 cent. Net of an increase in the base dirty-power rates, we still saw a price decrease of more than 1 cent/kWh on our electric bill. So the green electricity is not ruinously expensive by any means, and the premium plus the production tax credit comes to about $30/ton of CO2 reduction.

Shorter McMegan:

I once heard these terms of art from the electricity industry. No quizzes!

P.S., Al Gore is fat.

------------------

Update: Hoisted from comments...

Kolohe:

A quick point for the negative team - the required* additions to the power grid, (i.e. new hv power lines, speficially 765 kV ones) will not really get started, much less be able to come on line in less than 10 years due to the (legitimate) length of the permitting process and (illegitimate) lawsuits brought by NIMBY'ers and uncomprimising environmentalists.

*required because the re-located power generating facilities (e.g. boone's wind farm) do not currently have the capacity that electrical export regions (applachia, tenn/ohio valleys) currently do. See page 8 of this pdf - recently linked by the daily kos when discussing the 20% wind strategy - for one (industry) revised power distribution plan.

gibbon1:

Pretty much, Al Gore suggests collective action to build the infrastructure needed to handle solar and wind. The Liberations hear 'collective action' which is 'bad' and decide Al Gore is 'one of those' and then proceed to make fun of him.

Me I made it half way through the comments and nary a mention of return on investment.

CoRev:

The issue with his proposal is maintaining a viable baseload. Wind and solar do not produce at any near peak capacity for days on end and when that happens where you gonna get your power? Who is going to maintain investment in that level of backup? maintain that level at peak? Actually test that level? And on and on.

So for the new sources to work we need nearly 100% of the old to back it up.

ilsm:

If only it were as hard for the US to waste a trillion in warfare state waste securing China's oil flow as to fight the NIMBY world order.

CoRev would do well to read the detailed post by Jerome a Paris at The Oil Drum on a program to meet a substantial fraction of the Gore challenge via wind. The key distinction is substitution of generation vs. generating capacity — a distinction also seemingly lost on McArdle. Intermittent renewables provide the latter, which is what primarily matters for decarbonization, quite well. That does require a fair amount of grid reinforcement, which will be a challenge for current opponents of long-distance transmission projects (who on the environmentalist side are often motivated by concern that they're being asked to foot bills to import power from dirty-coal plants).

As for cost, I've been living the cost decreases for wind generation. At the beginning of the year, the green-power premium we'd been paying dropped from 2.7 cents/kWh to 1 cent. Net of an increase in the base dirty-power rates, we still saw a price decrease of more than 1 cent/kWh on our electric bill. So the green electricity is not ruinously expensive by any means, and the premium plus the production tax credit comes to about $30/ton of CO2 reduction.

by Tom Bozzo

Another major energy proposal in the McCain economic plan is ending subsidies for corn ethanol and eliminating the tariff that effectively bars to importation of sugar cane ethanol. Greg Mankiw scored these on behalf of the economics profession as points for McCain over Obama in the NYT over the weekend. I agree that corn ethanol subsidies are best eliminated as soon as possible — though I note that Obama, while not going so far as McCain on subsidies, is pretty straight-talking about the limitations of corn ethanol especially considering that he represents the corn belt and not the desert.

On the McCain plans for promoting trade in cane ethanol — the Shorter Version of which is that he's proposing to substitute dependence on foreign ethanol for dependence on foreign oil (*) — there are significant issues that go to the suitability of "free" markets for provision of biofuels. Whether or not expanding trade in ethanol is a good thing depends on other institutional arrangements that are not automatic consequences of reducing tariffs and other moves to freer trade. Since critical policy decisions are outside the reach of U.S. policymakers, economists should be concerned about making policy with the institutions we have, and not the institutions we'd like to assume we have.

There's been a broad dawning that not all biofuels, and not all methods for producing all biofuels, equally satisfy all of the policy goals that they might purport to help satisfy. Those include substituting domestic resources for imported resources, reducing fossil fuel use, and reducing the carbon intensity of liquid fuel use. Land use issues are critical both for the global warming-related goals for biofuel use and for avoiding blowback from high food prices. (Recent research out of UW-Madison shows that redirecting marginal agricultural lands to cane ethanol in fact can be beneficial, but conversions from forests and other uses are not.) The problem is that lowering tariffs on cane ethanol doesn't guarantee, and indeed in the absence of other interventions would probably work strongly against, desirable land use patterns.

Brazil produces a lot of ethanol by the standards of the ethanol industry, but not a lot relative to U.S. petroleum-based fuel imports. The former was 327,000 barrels/day in '07, whereas the latter is 13-14 million b/d (unadjusted for the energy densities of the fuels). Growing enough cane to replace U.S. oil imports with ethanol would require on the order of half the arable land area of Brazil; major cane ethanol substitution would necessarily occur at scales where adverse land-use consequences can't be assumed away. Note that the current food-price spike, largely blamed on biofuel mandates, happened with only a couple percent of arable land devoted to biofuel crops.

Economists certainly can imagine market-based remedies for the problem, such as Pigovian taxes on certain land-use changes, to name one that Mankiw ought to support in principle. But removing U.S. tariffs won't make land-use regulation in countries suitable to cane growing appear by magic.

It wouldn't hurt to add in liquid-fuel demand destruction on hitherto unprecedented scales for the U.S. Along those lines, apart from his willingness to commit 15% of one year's "clean coal" research funds to the cause of battery technology, McCain isn't explicitly committed to more than the pending tightening of fuel economy regulations. McCain's long-standing hostility to rail and apparent indifference towards non-automobile transportation modes doesn't make the job of reducing petroleum-based fuel consumption (and doing it in less painful ways to consumers than letting the price mechanism work its magic) any easier.


(*) Economists wouldn't tend to be bothered by this, but it's at odds with McCain's energy independence rhetoric.

by Tom Bozzo

Another major energy proposal in the McCain economic plan is ending subsidies for corn ethanol and eliminating the tariff that effectively bars to importation of sugar cane ethanol. Greg Mankiw scored these on behalf of the economics profession as points for McCain over Obama in the NYT over the weekend. I agree that corn ethanol subsidies are best eliminated as soon as possible — though I note that Obama, while not going so far as McCain on subsidies, is pretty straight-talking about the limitations of corn ethanol especially considering that he represents the corn belt and not the desert.

On the McCain plans for promoting trade in cane ethanol — the Shorter Version of which is that he's proposing to substitute dependence on foreign ethanol for dependence on foreign oil (*) — there are significant issues that go to the suitability of "free" markets for provision of biofuels. Whether or not expanding trade in ethanol is a good thing depends on other institutional arrangements that are not automatic consequences of reducing tariffs and other moves to freer trade. Since critical policy decisions are outside the reach of U.S. policymakers, economists should be concerned about making policy with the institutions we have, and not the institutions we'd like to assume we have.

There's been a broad dawning that not all biofuels, and not all methods for producing all biofuels, equally satisfy all of the policy goals that they might purport to help satisfy. Those include substituting domestic resources for imported resources, reducing fossil fuel use, and reducing the carbon intensity of liquid fuel use. Land use issues are critical both for the global warming-related goals for biofuel use and for avoiding blowback from high food prices. (Recent research out of UW-Madison shows that redirecting marginal agricultural lands to cane ethanol in fact can be beneficial, but conversions from forests and other uses are not.) The problem is that lowering tariffs on cane ethanol doesn't guarantee, and indeed in the absence of other interventions would probably work strongly against, desirable land use patterns.

Brazil produces a lot of ethanol by the standards of the ethanol industry, but not a lot relative to U.S. petroleum-based fuel imports. The former was 327,000 barrels/day in '07, whereas the latter is 13-14 million b/d (unadjusted for the energy densities of the fuels). Growing enough cane to replace U.S. oil imports with ethanol would require on the order of half the arable land area of Brazil; major cane ethanol substitution would necessarily occur at scales where adverse land-use consequences can't be assumed away. Note that the current food-price spike, largely blamed on biofuel mandates, happened with only a couple percent of arable land devoted to biofuel crops.

Economists certainly can imagine market-based remedies for the problem, such as Pigovian taxes on certain land-use changes, to name one that Mankiw ought to support in principle. But removing U.S. tariffs won't make land-use regulation in countries suitable to cane growing appear by magic.

It wouldn't hurt to add in liquid-fuel demand destruction on hitherto unprecedented scales for the U.S. Along those lines, apart from his willingness to commit 15% of one year's "clean coal" research funds to the cause of battery technology, McCain isn't explicitly committed to more than the pending tightening of fuel economy regulations. McCain's long-standing hostility to rail and apparent indifference towards non-automobile transportation modes doesn't make the job of reducing petroleum-based fuel consumption (and doing it in less painful ways to consumers than letting the price mechanism work its magic) any easier.


(*) Economists wouldn't tend to be bothered by this, but it's at odds with McCain's energy independence rhetoric.

by Tom Bozzo

I was working on a much more detailed post when The Onion, Priceless National Treasure it is, gave a portion of the subject the treatment it arguably deserves.

Somewhat more seriously, though, the McCain briefing document is heavy with what would be long-term solutions to an array of more-or-less urgent short-term problems.

• Oil drilling: The near-term features of the McCain program for the oil market amount to Really Tough Talk ("John McCain believes we should send a strong message to world markets"). There's nothing in the plan to address near-term supply tightness -- and they're so slick with that Intarwebby thing that the campaign web site still proposes to stop filling the SPR. The big issue, though, is the expectation that guys like T. Boone Pickens are right and the current amount of global supply (85-90 million barrels/day) is about all we can expect to see, versus well over 100 million b/d in recent official forecasts. Undoing that effect requires adding Saudi Arabia-like quantities to the market more-or-less permanently, not the couple million barrels/day that off-limits U.S. sources will produce at their peak in a couple of decades. I wouldn't expect a big price response. Should McCain manage to win and enact his plan (or Republican pro-drillers manage to peel off Democrats who think we need to Do Something!1!!), don't go putting down a deposit on that Escalade.
• Transportation: Apart from the silly battery prize, the big proposal is a tax credit for zero-emissions cars. There are worse ideas, but a big shift to electric cars would require R&D and other investments in the electricity grid, distributed power technologies, and the like which could use considerable funding (see money to be thrown at coal, below). As for other transportation modes, there are no other transportation modes as far as the published McCain program is concerned. So in McCain world, the path out of transportation-caused oil dependency is from power plants to your future car's battery pack.
• Electricity: The McCain plans, as we've previously seen, promote nuclear and "clean coal." The 45 new reactors would probably be needed just to maintain nuclear's share of the generation portfolio, given the age of the fleet. As it happens, the nuclear industry is more aggressive than McCain, with applications for 15 reactors somewhere in the NRC permitting pipeline, and 19 more applications expected between now and 2010. Getting nuclear economics to work would be greatly facilitated by the McCain cap-and-trade plan, whose absence in the briefing document is a huge omission, whatever we're to make of it. The "clean coal" program is in disarray and would need substantial funding to get back on track, but with theoretically more efficient approaches to carbon capture just taking their initial steps out of the laboratory, it's not obvious that McCain can do much to get the technology to market very far ahead of the 2020s time frame assumed by the Electric Power Research Institute, not exactly a tree-hugger's hangout by throwing his $2 billion/year at the problem. Meanwhile, there are no specific plans to fund any other needed electricity-system R&D. Making the renewables tax credit permanent is a genuinely useful feature of the McCain program, if not exactly a radical proposal, and otherwise staying out of the way of renewables development is not bad for a Republican.
• Energy Efficiency: McCain is pro-CAFE and pro-energy-efficient building, but doesn't stake a position on whether current and forthcoming standards are adequate or how they might be improved. Should oil prices drop substantially, we'd need some substance here to support McCain's anti-oil-dependency rhetoric, as the '90s experience shows.
  

So what do we have? Long-term commitments to do Things Republicans Like (drill for oil, burn coal) surrounded with a lot of hand-waving and redirection as to how those will solve current problems.

by Tom Bozzo

I was working on a much more detailed post when The Onion, Priceless National Treasure it is, gave a portion of the subject the treatment it arguably deserves.

Somewhat more seriously, though, the McCain briefing document is heavy with what would be long-term solutions to an array of more-or-less urgent short-term problems.

• Oil drilling: The near-term features of the McCain program for the oil market amount to Really Tough Talk ("John McCain believes we should send a strong message to world markets"). There's nothing in the plan to address near-term supply tightness -- and they're so slick with that Intarwebby thing that the campaign web site still proposes to stop filling the SPR. The big issue, though, is the expectation that guys like T. Boone Pickens are right and the current amount of global supply (85-90 million barrels/day) is about all we can expect to see, versus well over 100 million b/d in recent official forecasts. Undoing that effect requires adding Saudi Arabia-like quantities to the market more-or-less permanently, not the couple million barrels/day that off-limits U.S. sources will produce at their peak in a couple of decades. I wouldn't expect a big price response. Should McCain manage to win and enact his plan (or Republican pro-drillers manage to peel off Democrats who think we need to Do Something!1!!), don't go putting down a deposit on that Escalade.
• Transportation: Apart from the silly battery prize, the big proposal is a tax credit for zero-emissions cars. There are worse ideas, but a big shift to electric cars would require R&D and other investments in the electricity grid, distributed power technologies, and the like which could use considerable funding (see money to be thrown at coal, below). As for other transportation modes, there are no other transportation modes as far as the published McCain program is concerned. So in McCain world, the path out of transportation-caused oil dependency is from power plants to your future car's battery pack.
• Electricity: The McCain plans, as we've previously seen, promote nuclear and "clean coal." The 45 new reactors would probably be needed just to maintain nuclear's share of the generation portfolio, given the age of the fleet. As it happens, the nuclear industry is more aggressive than McCain, with applications for 15 reactors somewhere in the NRC permitting pipeline, and 19 more applications expected between now and 2010. Getting nuclear economics to work would be greatly facilitated by the McCain cap-and-trade plan, whose absence in the briefing document is a huge omission, whatever we're to make of it. The "clean coal" program is in disarray and would need substantial funding to get back on track, but with theoretically more efficient approaches to carbon capture just taking their initial steps out of the laboratory, it's not obvious that McCain can do much to get the technology to market very far ahead of the 2020s time frame assumed by the Electric Power Research Institute, not exactly a tree-hugger's hangout by throwing his $2 billion/year at the problem. Meanwhile, there are no specific plans to fund any other needed electricity-system R&D. Making the renewables tax credit permanent is a genuinely useful feature of the McCain program, if not exactly a radical proposal, and otherwise staying out of the way of renewables development is not bad for a Republican.
• Energy Efficiency: McCain is pro-CAFE and pro-energy-efficient building, but doesn't stake a position on whether current and forthcoming standards are adequate or how they might be improved. Should oil prices drop substantially, we'd need some substance here to support McCain's anti-oil-dependency rhetoric, as the '90s experience shows.
  

So what do we have? Long-term commitments to do Things Republicans Like (drill for oil, burn coal) surrounded with a lot of hand-waving and redirection as to how those will solve current problems.

In comments to PGL's post, Michael McKinlay writes:

We need a immediate and massive effort to produce plug in hybrid and electric cars while upgrading our electrical grid.

I agree, with the proviso that the incremental electricity generation should be relatively net-carbon-free. Which leads to El Presidente's response:

Electric cars are not a solution; they just introduce new inefficiencies by moving power over the grid after power is produced. And eliminate different inefficiencies by eliminating transport of gasoline to stations.

It's not a solution. Supporting electric cars as an energy "solution" is like throwing a sheet over a pile of garbage; the problem is still there, just a little bit harder to see.

Our comments section works in that we get the correct responses. First, Coberly notes:

[O]verall, counting all losses, carbon efficiency of electric cars is twice that of gas cars for the same service levels.

and Pierre adds:

[Y]ou can get eletricity from pretty much anything even oil, this is the stupid way, or wind, water, wave, man and woman, sun, nuclear...

The economics of the situation is that we shouldn't necessarily care if we introduce "inefficiencies" through substitution of less-scarce resources for more-scarce resources. The fundamental problem is not that energy is scarce per se — the nearest working fusion reactor provides us with astronomical amounts. What is scarce is the ability to convert energy into useful work without leaning on natural processes that store millions of years' worth of solar energy in conveniently combustible forms. Overcoming that scarcity (or not) is, to a considerable extent, a matter of policy.

In comments to PGL's post, Michael McKinlay writes:

We need a immediate and massive effort to produce plug in hybrid and electric cars while upgrading our electrical grid.

I agree, with the proviso that the incremental electricity generation should be relatively net-carbon-free. Which leads to El Presidente's response:

Electric cars are not a solution; they just introduce new inefficiencies by moving power over the grid after power is produced. And eliminate different inefficiencies by eliminating transport of gasoline to stations.

It's not a solution. Supporting electric cars as an energy "solution" is like throwing a sheet over a pile of garbage; the problem is still there, just a little bit harder to see.

Our comments section works in that we get the correct responses. First, Coberly notes:

[O]verall, counting all losses, carbon efficiency of electric cars is twice that of gas cars for the same service levels.

and Pierre adds:

[Y]ou can get eletricity from pretty much anything even oil, this is the stupid way, or wind, water, wave, man and woman, sun, nuclear...

The economics of the situation is that we shouldn't necessarily care if we introduce "inefficiencies" through substitution of less-scarce resources for more-scarce resources. The fundamental problem is not that energy is scarce per se — the nearest working fusion reactor provides us with astronomical amounts. What is scarce is the ability to convert energy into useful work without leaning on natural processes that store millions of years' worth of solar energy in conveniently combustible forms. Overcoming that scarcity (or not) is, to a considerable extent, a matter of policy.

by Tom Bozzo

John McCain gave a speech today intended to brush up his credentials on energy issues, and called for 45 new nuclear reactors to be built by 2030 (and possibly 55 more thereafter) and $2 billion per year in spending on "clean coal" programs.

[sound of crickets chirping]

There are 104 operational civilian nuclear power reactors in the U.S. now. In 2030, the median age of those reactors will be 52 — the youngest will be 34. Figuring the working life of a reactor at 40-50 years, the bold McCain nuclear program might just about replace the nuclear generating capacity that will reach the end of its useful life. That assumes, of course, that the new capacity could be installed at costs more like $2,000/kW (recent experience outside the U.S) than a pessimistic $5-6,000/kW; at the latter figure, wind would already be cheaper and could replace nuclear-generated electrons for the existing pumped-storage hydropower.

The main virtue of the clean coal initiative, meanwhile, seems to be that it would create fewer CO2 emissions from the combustion of cash than McCain's Iraq war policies.

McCain Economic Clown Show Update: Elisabeth Bumiller's version of the story (which manages to omit mention of the coal part of the story) opens:

Senator John McCain said Wednesday that he wanted 45 new nuclear reactors built in the United States by 2030, a course he called “as difficult as it is necessary.”

She also finds Douglas Holtz-Eakin making sure we all know the value of "difficult" is "not too difficult" and seemingly having difficulty with gross versus net additions to the nuclear fleet:

Douglas Holtz-Eakin, Mr. McCain’s chief domestic policy adviser, said Mr. McCain had arrived at the goal of 45 as consistent with his desire to expand nuclear power, “but not so large as to be infeasible given permitting and construction times.”

Practical, maybe, but if it's "necessary" then Mavericky Boldness — really, the one thing McCain has to sell to non-Republicans at least in the eyes of the Village — might dictate policies that recognize that 22 years is a long time to remove existing constraints. Those 52 oldest reactors in the current fleet, after all, came on line in less than 10 years from the late '60s to the late '70s. I'm sure Axelrod and Plouffe will be happy to know that the underlying message is "America: almost as good as in the 1970s."

Also, in the comments Lord and K Harris make excellent points regarding the true underlying socialism practiced by theoretically pro-market Republicans like McCain and George W. Bush. Here's David Cay Johnston with something to keep in mind, from Free Lunch:

The dominant group [in Washington] is thick with politicians like [California Rep. Bill] Thomas. In public they speak of free enterprise and the virtues of competition. Behind closed doors, however, they work to create a paradise of corporate socialism for the few...

These are the Washington corporatists, whose hearts bleed for every company and industry complaining that the rules, and often the market, are unfair.

by Tom Bozzo

John McCain gave a speech today intended to brush up his credentials on energy issues, and called for 45 new nuclear reactors to be built by 2030 (and possibly 55 more thereafter) and $2 billion per year in spending on "clean coal" programs.

[sound of crickets chirping]

There are 104 operational civilian nuclear power reactors in the U.S. now. In 2030, the median age of those reactors will be 52 — the youngest will be 34. Figuring the working life of a reactor at 40-50 years, the bold McCain nuclear program might just about replace the nuclear generating capacity that will reach the end of its useful life. That assumes, of course, that the new capacity could be installed at costs more like $2,000/kW (recent experience outside the U.S) than a pessimistic $5-6,000/kW; at the latter figure, wind would already be cheaper and could replace nuclear-generated electrons for the existing pumped-storage hydropower.

The main virtue of the clean coal initiative, meanwhile, seems to be that it would create fewer CO2 emissions from the combustion of cash than McCain's Iraq war policies.

McCain Economic Clown Show Update: Elisabeth Bumiller's version of the story (which manages to omit mention of the coal part of the story) opens:

Senator John McCain said Wednesday that he wanted 45 new nuclear reactors built in the United States by 2030, a course he called “as difficult as it is necessary.”

She also finds Douglas Holtz-Eakin making sure we all know the value of "difficult" is "not too difficult" and seemingly having difficulty with gross versus net additions to the nuclear fleet:

Douglas Holtz-Eakin, Mr. McCain’s chief domestic policy adviser, said Mr. McCain had arrived at the goal of 45 as consistent with his desire to expand nuclear power, “but not so large as to be infeasible given permitting and construction times.”

Practical, maybe, but if it's "necessary" then Mavericky Boldness — really, the one thing McCain has to sell to non-Republicans at least in the eyes of the Village — might dictate policies that recognize that 22 years is a long time to remove existing constraints. Those 52 oldest reactors in the current fleet, after all, came on line in less than 10 years from the late '60s to the late '70s. I'm sure Axelrod and Plouffe will be happy to know that the underlying message is "America: almost as good as in the 1970s."

Also, in the comments Lord and K Harris make excellent points regarding the true underlying socialism practiced by theoretically pro-market Republicans like McCain and George W. Bush. Here's David Cay Johnston with something to keep in mind, from Free Lunch:

The dominant group [in Washington] is thick with politicians like [California Rep. Bill] Thomas. In public they speak of free enterprise and the virtues of competition. Behind closed doors, however, they work to create a paradise of corporate socialism for the few...

These are the Washington corporatists, whose hearts bleed for every company and industry complaining that the rules, and often the market, are unfair.

Coal-fired generating capacity is decreasingly cheap:

The cost for Alliant Energy's controversial proposed new coal power plant has soared to a range of $1.1 billion to $1.2 billion, the company stated in a regulatory filing.

Alliant previously said the new plant proposed to be the third unit of the Nelson Dewey Generating Station in Cassville would cost $850 million to $950 million. When initially proposed in 2007, the plant's cost estimate was under $800 million.

That's $1.2 billion for 300 MW. This is blamed on producer-price inflation:

Company officials said the increases stem from soaring construction costs that include big cost hikes for items such as concrete and steel.

In case you were thinking that the BLS was incapable of finding inflation, the PPI for iron and steel is up 32.6% year-over-year (NSA), and while PPI for concrete ingredients are "only" up 4.6% over 2007, the 3-year average annual rate to last month is 7.8%.

This is also an obstacle to plans for new nuclear generating capacity in electricity decarbonization a la McCain, since nuclear plants are also plenty steel-and-concrete intensive.

Wind and solar are also construction-cost intensive, but some of that can be offset by economies from mass-production of components. Were I a betting person, I'd expect that little of the projected new nuclear generation will ever show up, and that the renewables projections are low.