Column: What an intelligent energy policy would look like

With apologies for the delay in posting it (I forgot), here is a link to my Monday column in the Financial Times--this week, it's on energy policy. In a nutshell, I criticize the approaches taken by both presidential candidates. I accuse them of pandering about equally to their target constituencies, and focusing on irrelevancies. I argue that the key thing is to reconcile the country to more expensive energy.

The US does not know whether to tax energy or subsidise it, promote domestic oil production or forbid it, treat ExxonMobil and Chevron as champions or pariahs. So it does all of the above. What it knows for sure is that it wants energy security, energy independence and clean air – plus the inalienable right to recreational trucks (not to mention freezing its citizens in summer and broiling them in winter) as though energy were a free good.

What would political leadership on this issue look like? It would dispel confusion, insist that expensive energy was necessary and confront voters with choices – as if they were intelligent adults. Somebody should try it.

Mr Obama has lately been pandering to the anti-business sentiment that blames $4-a-gallon petrol on Big Oil and oil-market speculators. It is true, of course, that oil companies are enjoying a profit windfall from the oil price spike. It is also true, or plausible, that futures trading has driven spot prices above their market equilibrium. But these are not the main drivers of the oil price – nor for that matter is the high price of oil a bad thing, if you care about climate change. Done right, a surtax on oil company windfall profits is defensible – as long as one admits it would deter future investment and that working out what “reasonable profit” means would open a can of worms better left closed. The main thing, though, is that it would do less than nothing to cut the price of petrol. It is a sideshow.

Mr McCain is pandering as well – to the view that $4-a-gallon petrol is caused by bunny-hugging curbs on domestic supply. He is busy chasing votes with his own sideshow: new offshore drilling.

Like Mr Obama, Mr McCain has a point. The present ban on offshore drilling is a mistake – just as it would have been a mistake for Britain to ban production in the North Sea. If oil can be extracted profitably and with appropriately strict environmental safeguards from offshore wells (or, for that matter, from the Arctic National Wildlife Refuge, which Mr McCain still wants to protect), well and good. But the reasons to extract it are that it is a valuable resource that would otherwise be wasted and that diversifying US oil supplies has some benefit, not that it would lower the price of petrol. New oil would take years or even decades to come on stream; when the new supplies arrived, they would most likely have no more than a marginal effect on the world market price.

The US has a compelling economic and geopolitical interest in curbing both its use of oil, especially oil imported from unstable suppliers, and its emissions of greenhouse gases. The right thing is to pursue that goal in many different ways: diversified sources of supply, energy conservation, alternative fuels (including nuclear), carbon capture and sequestration, and so on. But whether you strive to achieve this balance through top-down control and a labyrinthine system of quotas, taxes, subsidies and regulations, or else through a simple and explicit carbon tax, energy will have to get a lot more expensive. How refreshing it would be to hear a politician say so.

You can read the whole column here.

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