Approaching the summer "driving season" when gas prices often spike, President Bush has pumped up a new set of energy proposals. Even the mainstream media regard them as window dressing. (Witness the Washington Post.) But I’ll take the proposals as serious and comment.
1. The Bush administration proposes to allow oil refineries on abandoned military bases, claiming that limited refinery capacity is driving up gas prices and that it’s hard to get permission to build new refineries. Military bases, as federal property, are exempt from most local regulations.
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The overwhelming cause of high motor fuel prices is high world oil prices. World oil prices are high because of lots of demand, especially from the United States and China, and—especially—because the oil markets have built a big "risk premium" into prices. "Risk premium" is Wall Street talk for cold sweats. Oil traders are afraid that world oil supply will be disrupted dramatically by violence in the Middle East, such as by crippling the main Saudi oil port. These fears are thoroughly justified. The Bush Administration’s military policy in the Middle East is behind this "risk premium."
World oil prices are especially high for the United States because the dollar is down. The dollar is down mostly because of massive federal deficits, created by tax cuts without corresponding spending cuts. The Bush Administration is the cause of this fiscal policy.
Some observers also think the world is already close to "peak oil"–the highest annual rate of production we’ll ever reach. At peak oil, most analysts believe, prices go up and become more volatile. This is bad. It may even be very, very bad. According to some few analysts, peak oil also hearkens all manner of other terrible things—pretty much the end of life as we know it. It’s the veritable apocalypse. (Excuse my sarcasm. It’s just that some of the peak oil folks strike me as scary: they seem positively enthusiastic about dreaming up worst case scenarios. These people, possessed not by reasonable concerns about peak oil but instead gripped with a cult-like obsession about it, remind me a lot of the Y2K cult that held sway in the late 1990s. They also remind me of fringe fundamentalist Christians who believe the end is near, that Armageddon is upon us, and that the Rapture is imminent.)
Refinery capacity is a tiny bit limited in a very few places—the Northwest not one of them—because the nation’s fuel appetite is bloated by falling fuel economy (aka, trucks supplanting cars). But mostly, Bush’s proposal is irrelevant. Rescuing the dollar by showing serious intent to end deficit spending would have more short-term and long-term benefit to US oil purchasing power. Fully inflating car tires would have far more benefit. And, of course, finding some way out of the quagmire in Iraq would help lower oil prices.
As WaPo notes:
Industry leaders said it is not clear that companies would want to build new refineries because the business historically has not been highly profitable. While demand and profit margins are high now, companies are not convinced those margins will remain high enough to justify new refineries.
2. Bush’s plan includes "renewing tax credits for hybrid vehicles and adding them for efficient "clean diesel" vehicles."
That’s a good idea. It’s just a tiny idea. Hybrids and clean diesel together make up such a tiny share of the vehicle fleet—well under one percent—that they have hardly any effect on total fuel demand. Why not extend the idea to the entire fleet through feebates?
3. Bush also proposes to override state and local government and make the federal government the ultimate arbiters of proposals to build liquid-natural-gas terminals. At least five of these risky facilities are proposed in Cascadia. Such federal intrusion on state and local land-use regulations is wholly unwarranted. If LNG facilities are worth building, the communities that accept them should have a say.
P.S. Oh, and the Bush "plan" also tries to create new incentives for building nuclear power plants. As if nuclear power needs more subsidy than it already has. Even with these subsidies, though, it’s unlikely anyone will build any.