Oil spill crisis as opportunity

Oil spill crisis as opportunity

Here is Rahm Emanuel’s famous quote, from November 19, 2008. You don’t need to watch more than the first minute.

The President’s Oval Office address last night suggests an implementation of this principle, as he tries to reconfigure the climate change / cap-and-trade debate into a new War on Fossil Fuels. It appears the President will attempt to use the oil spill crisis as an opportunity to enact cap-and-trade legislation which otherwise has almost no chance of becoming law.

In launching this war he is foregoing an opportunity for targeted legislation addressing only the risks of deepwater drilling. This alternative legislative path could give America and her President a quick, easy, bipartisan policy victory which I believe could rally and unify the nation when we sorely need it.

The War on Fossil Fuels

Let’s look at the words used by the President last night. We begin with his heavy use of military imagery:

… the battle we’re waging against an oil spill that is assaulting our shores and our citizens …

We will fight this spill …

I’d like to lay out for you what our battle plan is …

I’ve authorized the deployment of over 17,000 National Guard members along the coast. These servicemen and women …

I urge the governors in the affected states to activate these troops …

The same thing was said about our ability to produce enough planes and tanks in World War II.

We can see that fossil fuels are the enemy:

For decades, we’ve talked and talked about the need to end America’s century-long addiction to fossil fuels.

The transition away from fossil fuels is going to take some time …

… as long they seriously tackle our addiction to fossil fuels …

The use of “war” with “addiction to fossil fuels” suggests a closer communications parallel may be the “war on drugs.”

We can also see that climate change, cap-and-trade, global warming, and greenhouse gases are not the communications priority. The President referred once to “a strong and comprehensive energy and climate bill” passed by the House earlier this year. He did not say any of the other phrases, most notably not “cap-and-trade.” That language appears to be nearly dead. Then again, he did refer to “pricing carbon” one week ago.

Most importantly, the President defined the policy goal as “the need to end America’s century-long addiction to fossil fuels.” He reiterates this by saying,

So I’m happy to look at other ideas and approaches from either party – as long they seriously tackle our addiction to fossil fuels.

Q: How does the President reply if the minority party offers, ‘We will work with you in good faith on an answer to deepwater drilling safety, but will continue to disagree with you on broader questions of fossil fuels and specifically on cap-and-trade.” Does he take the partial win and solve the deepwater drilling problems? Or does he refuse and hold out for the rest of his energy/climate agenda?

One climate issue, two separable energy issues

If you are focused on carbon emissions, then oil, coal, and natural gas naturally group together as “fossil fuels” and are the combined source of the problem. If you are focused on energy, then oil is one issue (transportation), and coal and natural gas are another (electric power).

We use almost no oil to produce power in the U.S., and electricity powers only a tiny fraction of our transportation, despite recent increases in hybrid and natural gas vehicles. Yes, they’re growing at a rapid rate. But the overlap between oil as one type of energy source vs. coal and natural gas as another is vanishingly small. My favorite energy graph makes this clear. Look at the thin green lines that go from petroleum to supply residential and commercial power, and at the even thinner orange and turquoise lines that show how much our transportation is fueled by electric power and natural gas.

(Source: The University of California, Lawrence Livermore National Laboratory, and the Department of Energy)

Someday when battery technologies improve, the fuel and power worlds will blend in the U.S., and there will be strong and direct economic relationships between the production of electric power and the use of oil. Until that day, from an energy perspective, “fossil fuels” conflates oil with coal and natural gas in a way that is at best confusing and at worst misleading. Substituting biofuels for oil or making vehicles more fuel efficient has almost no effect on the amount of coal or natural gas we use. “Produc[ing] wind turbines,” “installing energy-efficient windows, and small businesses making solar panels” are quantitatively irrelevant to our use and production of oil. All the windmills and solar panels you could imagine will not reduce our dependence on oil as a transportation fuel.

The President’s gamble

The President risks overreaching by trying to use a crisis in one subset of domestic oil drilling to enact a policy agenda that applies to all types of oil drilling and imports, and to coal, and to natural gas. Were he to focus just on solving the deepwater drilling problem, he’d have a slam dunk. Instead he’s trying not to let this crisis go to waste, and to use it as an opportunity to enact indirectly related policies that are much more hotly disputed.

Two scenarios

Scenario 1 – Imagine that the President proposes new legislation targeted at the problem of engineering safety in deepwater drilling. Imagine his legislation contains five provisions:

  1. Require that all deepwater wells have a relief well in place before production begins.
  2. Mandate requirements for double piping and a list of other industry engineering best practices. The prior best practice for engineering safety becomes the legally mandated minimum.
  3. Mandate that each deepwater drilling operation be insured for at least $20 B of environmental damage before production can begin. Insurers will therefore require further engineering stringency to protect themselves.
  4. Raise the legal liability cap for any drilling platform to $50 B, just to be safe.
  5. All new wells must meet all of the above requirements, and all existing wells must cease production until they meet them. (The details here might need some work.)

With these requirements, some amount of deepwater drilling would cease because it wouldn’t be economical with the added costs. I’m confident that policymakers across the board would say, “Fine. If the added protection is not worth that extra cost, then don’t drill there. I want a belt, and suspenders, and Velcro too.”

I believe the legislation in scenario 1 would pass the House and Senate within a week or two, with overwhelming and possibly unanimous bipartisan majorities. The President could quickly unify the country and celebrate a wise bipartisan solution to preventing the recurrence of a painful problem. That would still leave the existing crisis, but the long-term policy issues would be solved.

Scenario 2 – The President pushes for enactment of cap-and-trade legislation which raises the cost of gasoline and diesel fuel, and of power produced from coal and natural gas. He insists that Congress include all the policies from scenario 1 in this bill.

Scenario 2 is a huge gamble. If the President succeeds, it will probably look like the health care fight. It will be a long, vigorous, largely partisan debate, overlaid with regional economic and energy interests. Legislation will become law only after squeaking out a 60th vote to overcome a filibuster.

The President knows he cannot enact cap-and-trade before November without a game changer. He assumes his legislative margin will be (much) smaller next year. He is rolling the dice to see if he can turn this crisis into a legislative opportunity, in what may be his last chance to enact a national carbon price.

My view

Sometimes it’s good to vigorously debate important policy issues. Sometimes America needs to make a huge directional change and only a strong President can lead us in a new direction. These directional shifts are painful for the country as we argue and fight, but if you agree with the new direction, that squabbling is worth it.

I think America is as deeply divided on climate change issues as it is on health care. I’d like us to change direction on energy, but I’m OK doing so gradually as technology allows us to do so without imposing enormous costs on our economy. This explains why I often support policies focused on energy technology research and development.

I think solving our deepwater drilling engineering safety problems is now a top national policy priority. I think our other top domestic policy priority needs to be near-term economic growth. I rank climate change lower on my list of policy problems.

The President could have a quick, clean, bipartisan win on legislation that would eliminate the risk of another spill like this one.

Instead he is rolling the dice again, gambling that he can leverage the problems with drilling for oil in deep water to get legislation that also raises costs for power production. He is also choosing a path that he knows will provoke partisan conflict. Maybe he sees an electoral benefit to having the fight.

I assume the President believes what he says, and he thinks that fossil fuels and the combined problems of environmental damage from deepwater drilling, the national security externalities and economic costs of our oil dependence, the pollution and climate change externalities from carbon emissions from all sources, all must be solved at once and immediately. He wants to change America’s direction sharply and suddenly, even if doing so is painful economically.

I respectfully disagree with sharply and suddenly, because the benefits are uncertain and the costs are significant. Also, the specific cap-and-trade bills being debated are a horrible mess of political bargaining and implementation nightmares.

The President’s War on Fossil Fuels will reinvigorate an intense policy debate on the future of energy and environmental policy in America. He may be successful in bending the Congress to his will, as he did with health care. He may fail.

I prefer another path that is simpler, faster, more unifying, and more targeted at the problem that is in the forefront of our consciousness this summer.

I think it would be good for America to unite and say, “We worked together to prevent that problem in the Gulf from happening again.” It is easy to do so, and I wish the President would choose that path instead.

(photo source: White House)

18 responses

  1. Pingback: Tweets that mention Oil spill crisis as opportunity | KeithHennessey.com -- Topsy.com

  2. I wish someone in the government would ask the question "Why are we pushing the wells out to deep water when there are plenty of places to drill closer in and where a leak would have been plugged weeks ago."

  3. Great post, I enjoyed reading this.

    I have two questions:

    What is stopping a Congressman from proposing stricter drilling regulations?

    Why is the President proposing a cap-and-trade system instead of a simple carbon tax?

  4. As terrible as it is, this oil spill is a minor inconvenience when compared with the current and future cost of having the United States and most of the industrial democracies dependent on procurrinng oil from some of the least democratic and most dangerous places in the world. No amount of off shore drilling will provide a secure energy future at the current rate of oil consumption. If we don't begin to slowly but inexorably raise the price of motor fuels, this and every previous "oil" crisis will indeed have been wasted. This has been a colossal failure of leadership from both parties for 35 years.

    • This is trickier than it sounds. Because there is also a cost to _not_ purchasing oil from them. I'm not drawing conclusions on which is better, because I don't know, but if you want to destabilize and antagonize already touchy and hostile governments, you couldn't do much better than utterly destroying all of their national economies.

  5. Dispelling the Global Warming Myth

    Here are some articles about the flawed science supporting Global Warming. They are clear and convincing to me. Maybe they can add to the debate, or add references for pleasant arguments with the believers.

    The most recent revelation about global warming is about the tree ring data underlying past estimates of Earth's temperature going back 2,000 years. It seems that the whole warming trend is based on just 10 tree cores from Siberia! These cores have been chosen from among 200 cores, without explanation by the reporting scientist. Other studies are derived from this one.

    This tree core data has been promoted in favor of global warming, despite the fact that it contradicts historical accounts and archeological data showing past warm and cold periods with greater temperature variation than in modern times.

    A big red flag against global warming promoters is their refusal to release their data and methods. They publish their results and deny others the access that would allow support or criticism.

  6. Global Warming is pushed worldwide by the left because

    () It gives a reason to take control of all industries
    () Restricting industrial development appeals to conservationists
    () It addresses the guilt of the wealthy classes
    () They think carbon taxes are a windfall of revenue. Even if Cap n Trade is originally proposed as tax neutral, the carbon exchanges are owned by prominent politicians, such as Al Gore. Later, the original scheme can be converted to yield tax revenues, if not from the start.
    () These new taxes are hidden in the cost of carbon fuels, always good for a tax.

    The actual reduction in carbon will be insignificant, especially given that global warming caused by increased atmospheric carbon is at most a mild change over hundreds of years. There are already big scams in Europe, where carbon trading has been implimented.

    There will be tremendous fraud in any cabon market. There is fraud in the usual government program where the intent is to buy something. There will be even more fraud when the intent is to buy nothing (!), in fact to buy a negative something, defined as less carbon than was previously produced. Carbon credits are a license to print money by setting levels politically.

    And, because nothing is actually delivered, the entire scheme depends on regular and detailed investigation to verify that (1) carbon was being produced, and (2) now less carbon is being produced. How are they going to do that?

    For example, there is much fraud in subsidizing biofuels, but it is/was entirely legal and tolerated politically. I would guess that politicians were profiting from the loophole.

    Demands for Crackdown on Biofuels Scam – 04/01/08 – Guardian UK

    Up to 10% of biofuel exports from the US to Europe are believed to be part of the rogue scheme reaping big profits for agricultural trading firms.

    The "splash and dash" scam involves shipping biodiesel from Europe to the US where a dash of fuel is added, allowing traders to claim 11p a litre of US subsidy for the entire cargo. It is then shipped back and sold below domestic prices, undercutting Europe's biofuel industry.

    The trade is not illegal, but flouts the spirit of producing green fuel by transporting it needlessly across the Atlantic at a time when campaigners are voicing concern about emissions from global shipping.

  7. Keith,

    Such an interesting post. I think how you framed the policy response, as narrow / quick vs. broad / prolonged, is very intriguing. It begs the question, "What does this deep water, offshore oil spill say about the United States' energy policy"?

    Clearly the oil spill illuminates failures in regulatory (i.e. MMS) and financial (i.e. legal liability / insurance requirements) incentive systems to provide reasonable measures of protection against possible risks. It also brings to the forefront of American's minds the environmental consequences of mineral excavation. All (or close to all) forms of mineral extraction and refinement result in the displacement of toxic compounds. There is an interesting parallel here to what could happen if our growing stockpile of nuclear waste was ever mis-handled.

    As you stated in your post, it does not relate to the downstream consumption of said oil products or to the air pollution, greenhouse gas emission, or trash created from the crude oil. To say that this crisis should spur us to further regulate GHGs does not really make sense, whatever your beliefs are about climate change. Interestingly, it could provide support for reforming incentives for renewable alternatives to gasoline for transportation

  8. Kenneth and other commenters: how is it at all possible that a carbon tax would NOT be subject to the same loopholes and insider deals as cap and trade was?

    Therefore, functionally, there is no difference between these two approaches.

    Furthermore, even a weak cap and trade or carbon tax to start would pave the way for it to be tightened as the effects of warming magnify in the coming years. Therefore it’s good to get it started now.

    Andrew Garland, I’d happily trade other tax reductions for a carbon tax or a robust cap and trade system. You haven’t the slightest understanding of the science, the risks, or the reasons why “the left” thinks as it does. Oh yeah, I’m a capitalist, with not the slightest socialistic tendencies. But I know that a real effort to reduce carbon, with a carbon price, will be a net generator of profits and jobs…and economic strength for the USA.

  9. To Len Franklin,

    You wrote "I'd happily trade other tax reductions for a carbon tax or a robust cap and trade system." Could you explain why you would want to trade a tax reduction for a tax increase (a carbon tax)?

    You wrote "a real effort to reduce carbon, with a carbon price, will be a net generator of profits and jobs and economic strength for the USA".

    Great, I would like to improve overall wealth. Would you fill in the detail, how an extra burden (separating and storing carbon) increases wealth? For example, Spain has found its Green Energy program to be disastrous. Are they doing something wrong that we could do better in the U.S.?

  10. "Someday when battery technologies improve, the fuel and power worlds will blend in the U.S., and there will be strong and direct economic relationships between the production of electric power and the use of oil."

    Can you unpack that statement a bit more? It seems very important if you accept that it's likely that there will be an irreversible decline in global oil production (starting this decade? i.e. Peak Oil). Thanks.

  11. The problem of how to address the environmental and political devastation caused by our various power sources- is hopelessly complex and unsolvable, as long as we accept the premise that we have no alternative to consuming massive amounts of power.

    Which is errant nonsense; as an architect, I know that we have the technology to build buildings so energy efficient that an entire house can be run on no more power than a hair dryer; we can make cars that get 60 mpg;

    There are plenty of solutions- we just are reluctant to give up our energy-guzzling habits.

  12. I assume he was talking about heating/cooling the house. I am not sure about the figure quoted, but a house with a lot of thermal mass and very good insulation coupled with a ground loop heat exchanger and passive solar would take very little energy to maintain temperatures.

  13. Pingback: Our Impotent President

  14. Imagine a world where there is no reliance on dirty fuel! Imagine a world where energy is affordable and clean. Imagine a world where a disaster like the Deepwater Horizon Gulf Gusher will never happen again – guaranteed! There are many things we can imagine….

    I leave it to your own imagination.

    What can you do right now?

    You can learn as much as you can about these new innovations and technologies. You can start asking pertinent questions of your governments and authorities. You can find out why this information has been withheld from you personally, and the world as a whole. You can push for openness and transparency, and see to it that starting immediately – research takes place to develop these sources of future energy supplies. http://just-me-in-t.blogspot.com/

  15. If the Conservatives would accept the scientific evidence, and stop trying to discredit the bulk of scientific opinion regarding climate change because of their own financial gain–being heavily invested in fossil fuels–then this nation could work together for the common good.


  16. The uncertainty is precisely the reason to act now, as Martin Weitzmann argues. The financial crisis shows us that catastrophic risks in a fat left tail need to be addressed. With a risk-averse utility function, we should be willing to take sudden and drastic measures to insure against these possibilities


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