The Blog

Palin's Energy Expertise

When it comes to energy policy, the Alaska governor is the most experienced politician on either ticket.

12:00 AM, Sep 16, 2008 • By DAVE JUDAY
Widget tooltip
Single Page Print Larger Text Smaller Text Alerts

In all the analysis, commentary, reaction, second guessing and prognosticating on the impact of John McCain's choice of Alaska governor Sarah Palin as his running mate, her most obvious area of experience and expertise is being strangely negelected: She is the only candidate among the four on the major party tickets who has a firsthand understanding of the energy sector. That is an important credential in a national campaign where anxiety over energy issues now surpasses even war fatigue among voters' top concerns.

Indeed, Congress, lead by House Speaker Nancy Pelosi, is now going to try to cram some kind of fig-leaf legislation through in the last 10 days scheduled for this session. Pelosi has even come up with a plan to have some--but not full--debate on off-shore drilling issues. That discussion, of course, has federal versus state implications with which Palin is quite familiar. The irony is that, despite the scripted disparagement from Democratic politicians and operatives about Palin's experience, she happens to be one of the most experienced elected officials in the nation on the very issue the Democratic House Speaker now deems the top priority for the "last act" of the 110th Congress.

Prior to being governor, Palin served on the Alaska Oil and Gas Conservation Commission, a state entity that manages the state's oil and gas leases. Part of the Commission's management charge is to balance the potential conflict between Alaska's short term revenue interest from high production rates with the longer term interests of maximizing ultimate recovery from slower extraction. In other words, Palin has been a hands-on decision maker dealing with the technicalities of reservoir engineering science within the policy-making context of federalism and economic policy. Her voice of experience should be a welcome one in the debate over energy policy.

Compare that experience to Barrack Obama's energy policy plan. His platform betrays the fact he's still trying to figure out just exactly how the system works. The Obama-Biden campaign website says Obama "is particularly concerned that unregulated energy speculators may be distorting the market by making excessive bets on the future price of oil." So, as president, "he will call for new, disaggregated data on index fund and other passive investments to increase transparency and oversight of the growing number of institutional investors participating in commodities futures markets."

As it turns out, the Commodity Futures Trading Commission has already compiled that very data. And, as it further turns out, speculators' long positions--i.e., those making bets, "excessive" and otherwise, on the future price of oil going up--saw, according to the CFTC report, "approximately an 11 percent decline" over the period December 31, 2007, to June 30, 2008. Over that same period of time, the price of a barrel of oil climbed from $95.95 to $139.96--a nearly 46 percent increase.

But it is not just his specious worry about commodity speculation--lots of politicians, even experienced ones, get caught up in that hype. Obama has a litany of policy prescriptions that experience shows are bad ideas.

One is his call for a federal windfall profits tax imposed on oil companies. America has been there, and done that with Jimmy Carter. Even the Washington Post has editorialized against making that policy U-turn:

Moreover, taxes on windfall profits tend to exacerbate dependence on imports, because companies generally make windfall profits only from their U.S. drilling operations; contracts for drilling foreign oil are usually structured so that the windfall from high prices is captured by the foreign government. As a result, windfall taxes penalize oil drilled in the United States. A study by the Congressional Research Service found that the last such tax imposed on the oil industry, between 1980 and 1988, reduced domestic production 3 to 6 percent and increased imports between 8 and 16 percent.

Another flawed idea is Obama's overly ambitious plan for renewable fuels. The 2007 energy bill, pushed by the Bush administration, and passed by the Democratic Congress, mandates the use of 36 billion gallons of renewable fuels. Since its passage in December, food inflation has been 7.6 percent so far in 2008; by comparison, before we had a renewable fuel mandate written into law, food inflation had a 10 year average of 2.3 percent. As for so-called second generation fuels, even the chairman of the House Agriculture Committee, Rep. Collin Peterson (D-Minn.), author of a bill that put more than $1 billion into developing new feedstock for renewable fuels, has said that, "I'm not sure cellulosic ethanol will ever get off the ground." Despite the current food versus fuel conflict, and the lack of progress on cellulosic ethanol, the Obama campaign plan still calls for increasing the renewable fuels mandate to 60 billion gallons--a two-thirds increase over the current mandatory schedule.

Finally--under what can only be called the "audacity of hope" category--Obama's energy plan calls for China and India to reduce their use of oil. Fat chance. Those two countries--along with Russia--accounted for 50 percent of the world's economic growth last year. But logically pursued, this means that a large part of Obama's foreign policy would be to persuade China and India that a growing middle class in their countries is not in the best interest of U.S. energy policy, and that they should return large portions of their combined 2.2 billion population to below poverty lines to curb growth--and energy use. And Sarah Palin is called naïve on foreign policy.

Then there is the Arctic National Wildlife Refuge (ANWR). For 20 years, we've known from the Department of the Interior's resource evaluation that there is a 95 percent chance of finding at least one "super field" of 500 million barrels of oil there. The estimates of total oil in the Coastal Plain--one small corner of the total ANWR--are between 4.8 and 29.4 billion barrels. Barrack Obama states: "I strongly reject drilling in the Arctic National Wildlife Refuge because it would irreversibly damage a protected national wildlife refuge without creating sufficient oil supplies to meaningfully affect the global market price or have a discernable impact on U.S. energy security." Obama's running mate, Joe Biden, has also voted against drilling in ANWR during his 34 years in Congress.

McCain too has opposed drilling in ANWR. But as far back as June, he admitted to reconsidering that long held stance, following the adage of William Seward, the secretary of state who engineered the purchase of Alaska from Russia in 1867, "the circumstances of the world are so variable that an irrevocable purpose or opinion is almost synonymous with a foolish one." More so than Seward, however, the voice McCain is hearing on ANWR is now that of Sarah Palin. He calls her "persuasive" on the topic. Proof positive that Sarah Palin--alone among the top four candidates for national office in having experience in the real world of energy--is having an important impact on the energy policy debate.

Dave Juday is a commodity market analyst.