Energy incoherence

National Review, July 14, 2008

JOHN MCCAIN is finally starting to exploit Barack Obama's weakness on the energy issue. With gasoline topping $4 per gallon, McCain reversed his stance on offshore drilling and called for Congress to lift a 27-year-old moratorium on coastal energy exploration. With this shift, McCain has put himself on the same side as two-thirds of the American people, according to a recent poll. Obama, meanwhile, has said that he "would have preferred a gradual adjustment" toward $4-per-gallon gasoline, but otherwise he seems amenable to it--as we would be, if that $4 price reflected market conditions instead of government restriction of the energy supply.

Lifting the ban on offshore drilling will not increase supply right away, but would signal to oil speculators that the U.S. is serious about increasing domestic production, long smothered under regulatory and tax practices that discourage exploration and the expansion of our refining capacity. It could thus immediately put downward pressure on the price of oil; it would surely do more to reduce the price at the pump than anything Barack Obama has proposed. But McCain should go even farther.

He remains opposed to drilling in a minuscule section of the Arctic National Wildlife Refuge (ANWR), and so far he has not said anything about oil shale, a type of oil-producing rock found in abundance on federal lands in the western U.S. Although the price of traditional crude will have to rise even more before shale becomes a viable alternative, it is worth considering given the trajectory of the market. President Bush has called on Congress to lift the offshore-drilling ban, reiterated his longstanding support for drilling in ANWR, and asked Congress to repeal a ban on oil-shale leasing on federal lands. Since he is right on all counts, McCain should join him.

The U.S. Minerals Management Service estimates that drilling offshore could produce as much as 86 billion barrels of oil. Drilling in ANWR--which would affect approximately 2,000 of its 19 million acres--could supply 5 percent of America's oil each year for 12 years before it starts to decline, according to Energy Department estimates. Though there are barriers to their exploitation, oil-shale deposits in the western U.S. could yield up to 800 billion barrels: three times the proven reserves of Saudi Arabia.

To his credit, McCain has been touting nuclear power and wants to streamline the permitting process for new plants. He has also proposed to offer a $300 million prize to anyone who can develop an advanced battery capable of powering automobiles more cheaply and efficiently than can current hybrid technology. The right to patent such a battery should be incentive enough to create one, but there is no harm in offering a sweetener, given the potential benefits of such a device.

On the other hand, McCain continues to plug "energy independence" as though it were a revolutionary policy, when it has been a standard Washington promise since the Nixon administration and remains a chimera. He foolishly talks of wind, solar, and tide power as though they were viable near-term substitutes for fossil fuels. And he feels compelled to condemn the "obscene" profits of the oil and gas industry, as though the industry were responsible for the increased prices--set by a global market--for its products.

McCain should realize that anti-business demagoguery is a Democrat's game. Indeed, the most ambitious energy proposal we've seen from Obama so far is a punitive new tax on oil companies, intended to produce pain rather than revenue. In reality, a "windfall" profits tax would function as a tax on investors in oil companies, including many pension plans and retirement funds. The Congressional Research Service found that the last time Congress imposed such a tax, it reduced domestic production by discouraging investment in oil companies. It also puts the government in the business of deciding what profits are acceptable, which ought itself to be unacceptable.

Americans favor increasing--not reducing, or making more expensive--energy production. We are glad McCain has taken one step in that direction.