Topspin
Verified User
McCain Obama enter silly season on energy
By Darrell Delamaide
WASHINGTON (MarketWatch) -- It's not even July yet, and it seems the "silly season" in politics is upon us already, as the two presidential candidates scramble to capture headlines on energy policy.
John McCain's contribution to silly season was his proposal this week to award $300 million -- is that paid for, Senator? -- to anyone coming up with an electric battery that will power cars. Aside from being a silly idea, it makes you think that the presumptive Republican nominee really doesn't have a coherent energy policy but only a grab-bag of whatever his advisers come up with from day to day.
The energy situation is too critical right now to be part of a game in political one-upmanship.
Barack Obama, the presumptive Democratic nominee, was right to mock the McCain proposal as a "gimmick," and to accuse his rival of not having a serious energy policy. But how serious is Obama's backing of a windfall profits tax on oil companies? That policy under the Carter administration led to a decade of depressed investment by oil companies -- one of the reasons we are facing the current oil crisis.
Amidst all this blather from the candidates, and the congressional witch hunt against "speculators" in the oil markets, there is one voice of reason and sanity in the nation's capital, at least for a day. Daniel Yergin, probably the most lucid analyst of energy markets anywhere, in testimony today (Wednesday) before the Joint Economic Committee, describes the current crisis in its full complexity and sketches the range of policies needed to meet that crisis. See Yergin's prepared testimony.
Top on his list of solutions that would help ease the oil price situation now is a call for investment. "New fields can take five to ten years to develop. But their impact is anticipated earlier in the price," Yergin said in his prepared testimony. "A major contribution to alleviating today's oil shock would be to create an environment, based upon realistic assessments, that ensures that timely investment is really and convincingly on the way."
Without using those hot-button words, Yergin supplies the rationale for proceeding with offshore drilling and for rejecting a windfall profits tax. Yergin notes that the costs to exploit new energy resources have shot up due to insufficient investment in the past so it's hardly the time to deprive oil companies of the funds they need to develop new resources.
While Yergin acknowledges that financial markets may exaggerate price trends in oil and gas, he sees the fundamental causes of rising energy prices in the radical alteration of the supply-demand picture and the decline of the dollar -due ironically to the chain of events set in motion by the subprime mortgage crisis. The constraints on supply from the rebel attacks in the Niger Delta to the uncertainty of investment are driving the price upwards.
Demand needs to slow down and inflation expectations to cool
Aside from efforts to aid supply, what can help break this spiral, Yergin says, is movement on the demand front. And this is actually happening - consumers are buying more fuel-efficient cars, carpooling and switching to mass transit in response to high gasoline prices.
Ironically, McCain, who doesn't want to subsidize wind and solar power because it would interfere with market forces, ignores the impact of market forces on compelling energy efficiency.
The inventor of an electric car battery won't need a $300 million "bounty" from the government, because the market will amply reward that company or person. McCain and Obama both could serve the American public better with some genuine leadership on the issue of conservation, rather than pie-in-the-sky gimmicks like an inventor's bounty or a windfall profits tax.
While Yergin sees the Fed's series of interest rate cuts since last summer as a factor in oil prices - they turned oil into the new gold as investors sought a hedge against the declining dollar and rising inflation - he does not in his prepared testimony specifically recommend action on the interest-rate front. And yet it's clear from his analysis that a stand by the Fed against inflation could immediately dampen the inflationary expectations that are fueling the rise in oil prices.
The Fed was not likely to actually increase rates today - that would have been too bold a move for Ben Bernanke, who probably used up his annual allotment for boldness with the Bear Stearns rescue. But a hawkish statement on inflation, with a hint of action on interest rates later this summer, could help rein in those fears of inflation.
The energy situation is too critical right now to be part of a game in political one-upmanship. It is a radical, complex crisis that requires lucid, thought-through solutions. Almost makes you wish Daniel Yergin could be a vice presidential candidate for one of our floundering presumptive nominees.
By Darrell Delamaide
WASHINGTON (MarketWatch) -- It's not even July yet, and it seems the "silly season" in politics is upon us already, as the two presidential candidates scramble to capture headlines on energy policy.
John McCain's contribution to silly season was his proposal this week to award $300 million -- is that paid for, Senator? -- to anyone coming up with an electric battery that will power cars. Aside from being a silly idea, it makes you think that the presumptive Republican nominee really doesn't have a coherent energy policy but only a grab-bag of whatever his advisers come up with from day to day.
The energy situation is too critical right now to be part of a game in political one-upmanship.
Barack Obama, the presumptive Democratic nominee, was right to mock the McCain proposal as a "gimmick," and to accuse his rival of not having a serious energy policy. But how serious is Obama's backing of a windfall profits tax on oil companies? That policy under the Carter administration led to a decade of depressed investment by oil companies -- one of the reasons we are facing the current oil crisis.
Amidst all this blather from the candidates, and the congressional witch hunt against "speculators" in the oil markets, there is one voice of reason and sanity in the nation's capital, at least for a day. Daniel Yergin, probably the most lucid analyst of energy markets anywhere, in testimony today (Wednesday) before the Joint Economic Committee, describes the current crisis in its full complexity and sketches the range of policies needed to meet that crisis. See Yergin's prepared testimony.
Top on his list of solutions that would help ease the oil price situation now is a call for investment. "New fields can take five to ten years to develop. But their impact is anticipated earlier in the price," Yergin said in his prepared testimony. "A major contribution to alleviating today's oil shock would be to create an environment, based upon realistic assessments, that ensures that timely investment is really and convincingly on the way."
Without using those hot-button words, Yergin supplies the rationale for proceeding with offshore drilling and for rejecting a windfall profits tax. Yergin notes that the costs to exploit new energy resources have shot up due to insufficient investment in the past so it's hardly the time to deprive oil companies of the funds they need to develop new resources.
While Yergin acknowledges that financial markets may exaggerate price trends in oil and gas, he sees the fundamental causes of rising energy prices in the radical alteration of the supply-demand picture and the decline of the dollar -due ironically to the chain of events set in motion by the subprime mortgage crisis. The constraints on supply from the rebel attacks in the Niger Delta to the uncertainty of investment are driving the price upwards.
Demand needs to slow down and inflation expectations to cool
Aside from efforts to aid supply, what can help break this spiral, Yergin says, is movement on the demand front. And this is actually happening - consumers are buying more fuel-efficient cars, carpooling and switching to mass transit in response to high gasoline prices.
Ironically, McCain, who doesn't want to subsidize wind and solar power because it would interfere with market forces, ignores the impact of market forces on compelling energy efficiency.
The inventor of an electric car battery won't need a $300 million "bounty" from the government, because the market will amply reward that company or person. McCain and Obama both could serve the American public better with some genuine leadership on the issue of conservation, rather than pie-in-the-sky gimmicks like an inventor's bounty or a windfall profits tax.
While Yergin sees the Fed's series of interest rate cuts since last summer as a factor in oil prices - they turned oil into the new gold as investors sought a hedge against the declining dollar and rising inflation - he does not in his prepared testimony specifically recommend action on the interest-rate front. And yet it's clear from his analysis that a stand by the Fed against inflation could immediately dampen the inflationary expectations that are fueling the rise in oil prices.
The Fed was not likely to actually increase rates today - that would have been too bold a move for Ben Bernanke, who probably used up his annual allotment for boldness with the Bear Stearns rescue. But a hawkish statement on inflation, with a hint of action on interest rates later this summer, could help rein in those fears of inflation.
The energy situation is too critical right now to be part of a game in political one-upmanship. It is a radical, complex crisis that requires lucid, thought-through solutions. Almost makes you wish Daniel Yergin could be a vice presidential candidate for one of our floundering presumptive nominees.
