Spaghetti and Meatballs Anyone?

By Steve Kopperud, Policy Directions, Inc.

More than one member of Congress has lost reelection for failing to listen to constituents. The November elections are coming down to a single issue and a subset, namely the economy generally and energy costs specifically. The problem is neither party has a comprehensive energy plan, but rather they’re engaged in what we in Washington call the “spaghetti approach” to legislation: They’re tossing everything and anything against the wall to see which perceived “solution” sticks.

The GOP has seized energy as its signature issue, pointing to various polls and surveys that show nearly half of Americans want to expand U.S. energy exploration and development. At the same time, the GOP revels in blaming the Democrat majority in Congress for the doubling of gas prices in the last two years. Meanwhile, House Speaker Nancy Pelosi (D-CA) wants the president to start emptying the Strategic Petroleum Reserve to drop gas prices. Others want the import tariff on ethanol eliminated and others call for billions to be spent on wind and solar.

Senator John McCain (R-AZ), the presumptive GOP presidential candidate, supports a moratorium on the federal gas tax, along with a plethora of energy initiatives on biofuels, and has embraced the exploration issue as his own. The Democrat’s presumptive nominee, Senator Barack Obama (D-IL) agrees with much of McCain’s stand, but distancing himself from exploration while talking windfall profit taxes on big oil. Food and agriculture are split over efforts to waive 50 percent of the Renewable Fuel Standard (RFS), based on a petition filed with the U.S. Environmental Protection Agency by Texas Governor Rick Perry, with feed companies, grain processors, and food processors lined up in support of the Texas petition, and farmers opposing the effort.

Then there’s the market manipulation crowd, a growing gaggle of legislators who are convinced if drastic measures are taken to curb or outright end speculation in energy and agriculture commodity futures markets, the problem of high oil/high corn prices will be solved. Pelosi is fond of telling the media that if energy market speculation were curtailed, the price of a barrel of oil would drop 30 percent overnight. Senator Joe Lieberman (I-CT) stunned markets by saying he would introduce legislation to move institutional speculators to the sidelines of energy markets, but backed off his threat when Wall Street mounted a massive lobbying campaign alleging the only victims of such action would be small investors and pensioners.

The Commodity Futures Trading Commission (CFTC), once a quiet backwater charged with regulating futures markets, is now squarely in the spotlight as members hope the commission can come up with a silver bullet to bring down energy prices. Fully 40 bills have been introduced in Congress, throwing money and manpower at the CFTC – long considered the red-headed stepchild in federal markets oversight when compared to the its big brother, the Securities and Exchange Commission – or giving the CFTC new authority to whack speculators and bring under U.S. rules those overseas exchanges offering linked contracts to U.S. futures markets. Pelosi wanted to bring a bill to the floor by the end of July that will merge all House legislation into a single CFTC package, and incorporate the findings of three days of hearings on CFTC authority and actions over time held in mid-July by the House Agriculture Committee.

Meanwhile, the congressional battle to pass legislation to extend for another year a package of alternative energy tax breaks, including extension of biodiesel tax credits, continues. The ethanol boys were smart enough to put the extension of their 51 cent a gallon tax credit into the 2008 Farm Bill, though they had to agree to carve that credit back to 46 cents a gallon once the RFS hits 7.5 billion gallons. And while the House passed its extenders package handily – including equalizing all biodiesel tax credits at $1 per gallon no matter the feedstock, the Senate has struggled to overcome a very partisan divide pegged to whether extending existing tax credits needs to be offset, i.e., paid for by cutting other programs.

Senator John Ensign (R-NV) in April attached the Senate’s list of tax credit extenders to the housing/mortgage relief bill, and while that amendment was approved on an 88-8 vote, Senate Democrats pulled it from the bill because it wasn’t “paid for” through offsets. In reaction, Ensign blocked Senate consideration of the housing bill, but has offered a compromise – trim federal spending across the board, except for veterans, and the $8 billion package of energy cuts will be “paid for.” Ensign says his action will create 116,000 jobs and result in $20 billion in economic investment. What Ensign and others choose to ignore – or simply don’t know – is that much of the biofuels being produced in the United States are going for export, with one Chicago Board of Trade firm estimating upwards of 75 percent of biodiesel from all sources is sold overseas.

Perhaps there’s some hope. A bipartisan posse of 10 Senators, led by Senator John Thune (R-SD), sent Senate leaders a letter in early July pleading with them to convene a one-day “energy summit” before August to bring in “unbiased experts” to inform the Senators as to what can be done practically to create a comprehensive energy program in the United States. Thune said his goal is to take the politics out of the policy debate. As I type this, there’s been no reaction from either Senate Majority Leader Harry Reid (D-NV) or Minority Leader Mitch McConnell (R-KY).

Energy policy must begin with the fundamentals. The United States relies on oil and gas, and has alternatives enjoying nice niche markets but unable to fulfill national needs. This argues for a serious look at a mature approach to exploration, both within U.S. borders and offshore. The United States has refining issues. This country hasn’t built a refinery in 30-plus years. The current ones are reportedly in need of serious infrastructure improvement. Incentives and mandates to increase refining capacity, targeted to areas of the country current deficient in storage – as in both coasts – are likely targets.

Let’s move on to alternatives. Biofuels hold great promise, but we aren’t there yet and may not be for several years. And even if the United States was in a position to produce sufficient biofuels to make a dent in national energy use, there isn’t the infrastructure to move ethanol and biodiesel to deficit areas of the country, so investment must be made. There are such things as nuclear energy, liquid-to-coal technologies and coal gasification, and wind and solar – all have commercial applications.

There is also the “green” factor, as in how do we increase energy production and still not run up greenhouse gas levels and water/land pollution? Judging by the number of industries advertising on television about their “green” products, we’re already there. But a healthy dose of reality must be taken. If you’re a greenie, then be a realistic greenie. Understand that the United States cannot be turned on a dime to become a self-sufficient energy and environmentally friendly machine that can, at the same time, maintain manufacturing capacity, exports, and its food production, at least not without significant cost to individuals and companies.

Perhaps we “lead” Congress by example, or perhaps we elect a Congress that gets it.

View from Washington – August 2008 RENDER | back