T Nation

A Good Energy Bill - Half Passed


#1

To the extent you're fired up about high energy prices and want to do something about it, I suggest, to paraphrase Jim Rome, calling up and "banging the monkey(s)" at both of your Senators' offices to strongly urge them to pass the bill referenced in today's WSJ editorial:


Agony and Energy
October 18, 2005

"Shame! Shame!," cried Democrats, as GOP leaders kept a floor vote open for 48 minutes to pass an energy bill this month. They had the right line but the wrong target. The real shame is that even two hurricanes and $3 gasoline can't get some politicians to understand that the U.S. needs to increase its energy production.

The bill passed, 212-210, though under pressure from their leaders not a single Democrat voted aye. Not one. Senate Republicans seem unsure when they'll take up the bill, if at all. If you want to know why your heating and gasoline bills will be so high this winter, look no further than those who opposed this measure.

The proposal is unusual in the refreshing sense that unlike most recent energy bills out of Washington, this one isn't jammed with business subsidies and environmental rules. Instead, it aims at the real problem: government barriers to supply. This is why the last time the U.S. built a new oil refinery, Elvis was still impersonating himself.

The House bill eases siting and permitting restrictions, for example, by giving President Bush authority to designate certain federal lands -- including shuttered military bases -- as possible new refinery sites. This should bypass the usual not-in-my-backyard fights and would also diversify refining geographically (away from the hurricane-prone Gulf). The bill would also let governors request that the Department of Energy coordinate the permitting process, which is now extremely complicated and a major barrier to new investment.

Another good idea would reduce the number of "boutique fuels" to six from 17. These special gasoline blends are required in different parts of the country in the name of reducing pollution. In fact, 17 distinct fuels aren't needed to meet anti-pollution goals, even as they raise gas prices and make it difficult to move gas around the country during shortfalls. Cities would also be able to petition for more time to meet costly new 2010 ozone standards, a smart move given that many cities are already on track to hit the targets at slightly later dates.

Like any act of Congress, the proposal has its hidden trouble. Republicans fell for phony populism and agreed to require the Federal Trade Commission to set standards for "price gouging" and then punish offenders. So companies that raise prices in order to guarantee supply in a crisis will run the risk of civil fines.

A separate bad idea is a fund to pay refiners for government inaction or for legal costs stemming from fights over their permits. You can think of this as taxpayer-funded insurance against bureaucracy and/or frivolous lawsuits. We dislike the excesses of the trial bar as much as anyone, but subsidies aren't the answer here; tort reform is.

All told, however, the bill is a step forward. What its best provisions have in common is that they'd restore a balance between environmental protection and energy production. Americans became so used to cheap gas and electricity during the 1990s that politicians felt they could indulge the environmental lobby by imposing ever more restrictions on supply at no political or economic cost.

We now know that cost: $3 a gallon at the pump and $13 per million BTUs for natural gas to heat your home. Average household spending on gasoline is almost $2,000 a year, up 45% from just three years ago. And to give you a sense of the burden this all imposes on U.S. industry, consider that the cost of natural gas in China is less than $5 per million BTUs and in Australia less than $4. The U.S. chemical industry is building plants everywhere but America.

That no Democrat voted in favor of this bill even amid these soaring prices suggests that President Bush and his fellow Republicans have been too defensive. They're letting themselves get pasted for supporting "industry" -- as if someone else is going to refine gasoline or drill for natural gas. They need to start telling voters that a major cause of high energy prices are limits on oil and gas exploration and production.


#2

Wow.


#3

This is what I had mentioned on another post a long time ago. If the GOP is in favor of something, the Dems automatically opposes it. If the Dems are in favor of something, the GOP automatically opposes it. It is just one sick fucking game of "I want to win at all costs" to these politicians. Government no longer serves the interests of the people. Its all about what they want.


#4

They voted down an LNG right here on the Gulf Coast a couple years ago. Everytime I hear someone bitch about gas I wanna slap them and tell them that their voting down on that plant contributes to the overall high prices in the energy sector. But who cares... They expect Uncle Sam to come in here and fix everything.

On a side note. Gas was cheaper here in Katrina affected areas than almost anywhere else nationally due to price fixing laws. Insane. Of course. But people complain about the pre-emptive raising of prices a nickle or dime.


#5

Everybody criticises NIMBYism until it is their back yard, then suddenly they get it. If the Feds are suddenly able to bypass local restrictions and site refineries in areas at will, not only will it be a violation of federalist principles, but it will be an indirect assault on property rights.

From the sound of it the following situation would result.

Say you have a middle class 500k home (California). You've poured money into the mortgage over the years and it is your biggest investment as a result. Then the federal government decides in its wisdom to bypass state and local regulations and site a refinery a mile away on federal land. Whereas before your investment had the security provided by the local political will to fight projects such as this, now that power is largely evicerated and you're facing a huge hit to the value of your property.

The feds could've taken the incentive based road by offering pork to localities for siting refineries but instead chose imposition. Nice.

I haven't seen any coverage of this iteration of the bill yet beyond what BB posted so this might be completely irrelevent. :wink:


#6

I don't know where you come up with a "middle class" home of 500k. Even in places like Orange County... the median or average income doesn't cover even a 300k home. No matter which way you push you stats, they're over reaching and should be more diverse.

Now to get after the real point of your argument. Why should someone else bear the burden instead of them? Should we allow pork barrelling and rent seeking instead cause an even greater loss for society as whole? Occasionaly people get screwed by the system and it does suck. But thats the nature of advancment. Do you think Bethlehem Steel is pissed about Nucor and foreigners eroding their market share? Oh yeah. But its better for everyone.

These plants should be placed where they are most beneficial to everyone. The local gov't shouldn't impede national interests because oil rigs/refineries/LNGs are ugly.


#7

Garret-
The median home price in CA is over $500K so a $500K is a 'middle class' home. That is a fact.

Oil companies will not be builing new refineries and that bill did nothing to help our energy needs.

Anyone know the oil companies' accounting reasoning behind not building new refineries?

(*hint depreciation over usable life & less profit)

BB-
Stick to the law...finance is definitely not your specialty.

I bet you think the Medicare bill was a 'good thing'.


#8

Perhaps they rent?

I don't understand how "average" people can afford that kind of housing cost.


#9

Zap's observation is spot on correct.

It is much cheaper to rent in CA now then it is to own a house.

Anyone want to guess what will happen as a result?

(*hint - monthly rental charge verses property cost is like a P/E ratio)


#10

I'll grant that it's not a specialty, but one of my majors in undergrad was essentially a bastardization of econ and finance (for anyone who wants any UCSD trivia, it was originally called Quantitative Analysis and Decision-making Science, but modified slightly and renamed Management Science), so I know a little about finance.

And while I haven't pored over any spreadsheets or anything, I do think that the WSJ editorial makes a fairly compelling case.

Consider a few things: 1) most claims that the oil companies are making "gauging" profits focus on the spread between the cost of the crude and the cost of the refined product to the stations; 2) this implies that a competitor could build a refinery (or several) and capture some of those profits (especially if you consider that the technological advances made since the last refineries were built would add efficiency to the process); 3) However, no one seems to be doing so, which implies a few things, but two big ones are high cost of entry to the market and uncertainty concerning the maintenance of prices to make it attractive given the time constraints, both "real" and regulatory, for getting a new refinery online [ignore for a moment any idea of collusion among the oil companies that own the current refineries - for one it's lasted too long given the obvious incentives to cheat, which is always a problem with oligopolies]; 4) As the editorial pointed out, many of the "costs of entry" associated with breaking into the market are artificial, i.e. imposed by regulations at various levels.

The bill seeks to lower those artificial costs of entry. To the extent it can do so, it would seem to be a good thing, and it would be an incentive to get more refineries built. If nothing else, as a means of protecting themselves from the possibility of new competition entering the market to capture the oligopolistic profits once the barriers are lowered.

Now, I've always hated accounting, and I'm really not certain as to the depreciation issue, but I imagine a simple tweak to the tax code could help with that -- and wouldn't be nearly as hard in terms of getting passage as some of the other items in the bill.


#11

Bullshit. Your logical fallacy screams out. Median home price and "middle" class in ares do not equate. Does the median home price in the pan handle of Texas equate to middle class or possibly in Corona Del Mar. What about in Manhattan?

Case closed on that argument.

But if you like numbers. People agree that the max amount you can spend on housing is around 25% of your gross income. For a $500,000 at 6% for 30 years... Your monthly payment would be a shade under 3k. So your income would have to be 144k. Does this seem like a middle class income? Is it in line with the average income for the area? Or for any county in Cali? No. Please pass your next fallacious statement.

On the topic of refining. Yes, BB is exactly right. Barriers to entry (time to build, red tape, extraneous costs) make it a huge head ache to make a refinery. However, by lowering this they can encourage people to build plants in the US to boost refining capability. Look at the example of Virgin wanting to get a chunk of the supernormal profits that the oil industry has. They want to locate in another country due to barriers to entry in this one.