Sunday, May 20, 2007

Obama's Energy Crisis

Illinois Senator and Presidential aspirant Barack Obama laid out his energy policy in a May 7th speech at the Detroit Economic Club. It's idiotic--and proof Obama's too lightweight for the top job.

Barack begins by decrying "the tyranny of oil":
[T]he very resource that has fueled our way of life over the last hundred years now threatens to destroy it if our generation does not act now and act boldly.

We know what the dangers are here. We know that our oil addiction is jeopardizing our national security - that we fuel our energy needs by sending $800 million a day to countries that include some of the most despotic, volatile regimes in the world.
After channeling Al Gore on the coming climate "catastrophe" and the danger of "dirty, dwindling fossil fuel," Barack focused on "the cars we drive and the fuels we use," and advocated
  • "gradually raising our [vehicle] fuel economy standards by four percent - approximately one mile per gallon - each year" (as, he claims, Europe and Japan have done); and

  • various alternative energy (especially ethanol and biomass) tax credits and subsidies -- covering producers, distributors and consumers -- targeting to "get at least 20% of our energy from clean and renewable sources by 2020."
A day after Obama's address, the Senate Commerce Committee approved S. 357, Section 2(b) of which would raise the minimum required fuel economy for cars and light trucks (the so-called "CAFE standard") to 35 miles per gallon by 2020.

According to Barack, "[t]he need to drastically change our energy policy is no longer a debatable proposition." That's my cue--here's why Obama's off-base (the Senate too):
  • Scarcity of oil: Are we running out of oil? Some experts say reserves remain plentiful; others argue the Saudi fields are drying. I'm not sufficiently skilled to judge--but I'm sure the answer is largely irrelevant. If oil production falls, prices rise, which both cuts consumption and stimulates investigation and production of alternatives, as Tim Haab explains:
    High gas prices are NOT an economic or political problem. They are the result of the natural workings of markets. There is nothing wrong with the market--and no reason, other than self-preservation and the false appearance of being able to do something, for politicians to intervene. Supplies are decreasing--both temporarily through unexpected refinery shut-downs and permanently through stock depletion. Demand is increasing--both in the U.S. and worldwide. Both of these will cause gas prices to rise and that's good. If gas prices don't rise, we will consume gas even faster and run out sooner. Higher gas prices encourage conservation and encourage investment in alternatives.
    We'll never "run out" of oil; instead, we gradually will shift to whatever substitutes are cheaper at the time. In other words, Adam Smith solved the energy crisis in 1776--the free market responds automatically and without the subsidy or bureaucracy Obama favors.

  • Dependence on foreign oil: I'm no fan of subsidizing anti-democratic Middle-Eastern despots by the tankful--one reason I support the war on terror. Obama, of course, favors exiting Iraq, a policy not likely to increase pressure on the governments Barack claims to oppose.

    But more fundamentally, the top three sources of imported oil are Canada, Mexico and Nigeria. Even for neo-cons like me, they're not candidates for regime change (though Nigeria's sure trying).

    In any event, buying less Arab oil would be pointless, as John Tamny shows at TCS:
    What Obama missed in talking about energy independence is that the very idea is a mirage. We could surely switch all of our oil buying to friendly countries, but it wouldn't change the fact that oil is a world commodity, and if we seek to make Canada our sole-supplier to the exclusion of Middle Eastern countries, the latter countries will simply shift their exporting capacities to other countries not deluded by the false notion of energy independence. So long as the U.S. and the rest of the world are buyers of oil, oil-producing countries of all stripes will gain oil-based profits. Who we buy from is irrelevant.
    So Obama is 0-for-2 in Econ 101.1

  • The effect of better mileage: The Senator ties higher fuel efficiency to using "less oil." Again, Barack has it backwards, says Tamny:
    Ignored by Obama is a basic truism of economics that when a product becomes cheaper, the product in question is consumed more rather than less. In short, if reduced fuel consumption is truly his goal, the enforcement of greater fuel economy standards will work at cross-purposes with his desire to get us to drive less and consume less gasoline. As a Wall Street Journal editorial noted in response to his speech, domestic fuel economy has risen 60% since 1974, but as Obama correctly pointed out, energy consumption stateside keeps on growing.
    Writing on NRO, Henry Payne agrees, noting that since the introduction of CAFE fuel economy standards in 1975, "Oil imports as a share of U.S. oil consumption have risen from 35 to 59 percent, and Americans today consume 20-percent more fuel driving twice as many miles."

    Make that 0-for-3.

  • Detroit lags foreign automakers: According to Obama, "while foreign competitors were investing in more fuel-efficient technology for their vehicles, American auto makers were spending their time investing in bigger, faster cars." While Detroit fought better mileage, claims Barack, "both China and Japan have surpassed us, with Japanese cars now getting an average of 45 miles to the gallon."

    An average of 45 mpg? Contrary to Obama and Media Matters, this overstates the case, as John Hinderaker and John Hifson have shown. According to Alex Taylor, Senior Editor of Fortune magazine, "Cars average 36 mpg in Europe and 31 mpg in Japan." Adds Henry Payne, "General Motors leads the industry with 23 different models that get over 30 miles per gallon -- hardly the resistance to reform that, the senator says, 'could’ve saved the industry.'"2 Indeed, European carmakers currently are fighting proposed CO2 emission standards that would demand further fuel economy improvements.

    Still, whatever the precise number, American cars drink more gas. So is Obama correct that increasing the CAFE requirement is the answer? No--because governmental mileage fiat isn't the reason Fiats use less fuel than Fords, says Payne:
    Obama says overcoming oil will "require tough choices by our government and the sustained commitment of the American people."

    Obama lauds Japan for "cars now getting an average of 45 miles to the gallon." But he ducks the reason. Japan’s government imposes taxes that drive gas prices in Japan over $5 a gallon -- a "tough choice" Obama avoids.
    Gas actually is a bargain. It's not my preference, but if raising prices is the objective, why not "ditch the CAFE shell game and have the courage to recommend taxing gasoline at $5 per gallon"?

  • Costs vs. benefits: As Obama admits, his approach isn't free. In particular:
    [T]he National Highway Traffic Safety Administration has estimated it would cost $114 billion to comply with the improved fuel standards that Obama supports. The Big Three would bear 80 percent of that cost, adding $3,000 to $5,000 to the price tag of each vehicle, according to the estimate.
    Unsurprisingly, the big three US car makers oppose the similar Senate bill; so does the United Auto Workers union. Even assuming such objections can be overcome, what would be the net effect of raising the CAFE standard to 35 mpg? According to the Wall Street Journal:
    The National Highway Traffic Safety Administration estimates this would add $3,000 to $5,000 to the price of an American vehicle. The United Auto Workers says it could cost the jobs of 17,000 auto workers and 50,000 auto-parts workers.

    What exactly would that get us, in terms of reducing emissions or oil use? Almost nothing. Passenger vehicles account for about 20% of U.S. carbon dioxide emissions; a 10% cut of 20% is just 2%. This would not make a huge difference in domestic oil consumption either, because passenger vehicles account for 40% of U.S. oil demand; so a 10% cut reduces total oil consumption by 4%. These reductions are negligible compared to global emissions and energy demand.
    So Obama can't add.
Conclusion: Senator Barack Obama's assumptions are off; his figures don't compute; he confuses causation; and he's ignorant of freshman-year economics. Concludes Hinderaker, "Obama's comment shows that he lacks common sense," adding:
Just as anyone with normal knowledge of the world should know that a tornado isn't going to destroy an entire town of 10,000 people and kill everyone in it, it should be obvious that no company's entire fleet of automobiles--let alone a country's--averages 45 mpg. Candidates have been ripped for not knowing, say, the price of a loaf of bread. But Presidential candidates do very little grocery shopping, and the gaps in Obama's knowledge that have been revealed in just a few days have much more to do with public policy issues.
Agreed--and Obama's energy plan also casts doubt on his credibility, according to Mark Phelan in the Detroit Free Press:
So his choice to drive a V8 Hemi-powered Chrysler 300C emits a whiff of hypocrisy along with its exhaust fumes. Obama's choice proves once again that fuel economy is seldom the No. 1 factor when Americans buy cars. The 340-horsepower 300C has plenty of room for the lanky senator, his wife, Michelle, and their two daughters. It gets 25 miles per gallon on the highway, good for a big sedan, but far short of hybrids and compact cars.
In sum, Barack's not only a lightweight--he's a typical paternalistic liberal, says Jackal at Rantburg, "I do compliment him on his taste in cars (I drive the same thing), but he wants to take that choice away from the hoi polloi and restrict it to politicians."

Energy policy raises serious questions. Barack Obama isn't a serious candidate to solve them.

1 [Added 5/21] Steven Hayward in
We seldom hear self-sufficiency lauded in connection with other essential goods, like automobiles, airplanes, food, or medicines. The U.S. currently imports about one-fourth of its timber--required for building homes and printing newspapers, books, and magazines. But we don’t hear calls for "ending our dependence on for­eign timber."
2 [Added 5/21] Though Barack demonizes Detroit, a planned modest CAFE standard increase is being challenged by various states--including left-wing California:
The National Highway Traffic Safety Administration approved a one mile per gallon increase in fuel efficiency last year, from 22.2 miles to 23.5 miles per gallon. Attorney General Jerry Brown calls the increase pathetic and illegal. He and the other plaintiffs believe the technology is there to make cars more efficient, but they accuse the government of protecting other interests and not the environment.

Jerry Brown, CA Attorney General: "They may actually increase the gas consumption and encourage gas guzzlers in order to protect certain companies. This bill, I don't think Karl Rove could have done a better job. It has the hand of lobbying, not the might of science."


Jigar Shah said...

To fundementally change the economics of personal transportation we need to change to another energy carrier - electricity. This has failed in the past, but with the advent of hybrid vehicles and Toyota's claim that hybrids will produce the same profit for them per vehicle as non-hybrids soon, this seems like a profitable way to get to a solution. The solution seems to be a plug-in hybrid vehicle where the price of electricity per equivalent gallong will be 50-70% less than gasoline. Given the slow adoption curve of new cars, we won't make a big impact until 2020. I don't believe that gasoline prices will go down due to this approach because the demand for oil continues to rise for non-transportation purposes.

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Drivers Ed Georgia said...

I haven't believe in run out of oil statistics, but to make industry work better and to run a nation economy with positive growth rate their is a need of new technologies which discover the very new field or a new look better product than old one, which is the success behind most of business houses, Now our auto industry is on down trend to make it up words we need some new name, new technology, a new reason by which they can attract the users and run the economy.