Offshore Oil Royalties and Tar Sands-who need's incentives?

Bravo for life's little ironies! The front page of the New York Times today talks about how oil companies have avoided paying royalties on offshore wells, a program that was put in place to support exploration when prices were low. Supporters say it has no cost to the government and is encouraging additional exploration-wrong! Meanwhile, the Wall Street Journal today writes about exploration in Canada's tar sands-it doesnt get much more expensive than that. If companies can afford to explore the tar sands, then d'oh--we dont need to incentivize further US exploration by forgoing royaties. At these prices, companies have all the incentive they need. More on tar sands later.

Kudos to Corzine, China

While the President and Congress continue to do nothing but talk about energy policy, some politicians are addressing it. In his recent plan to solve New Jersey's budget woes, Governor Jon Corzine proposed a sales tax on those cars getting less than 19 miles per gallon. While I prefer the gas consumption fee (see the Declaration of Energy Independence), Corzine's proposal is excellent policy and welcome. I only wish it wasn't buried in budget blues.

China last week announced plans to raise existing taxes or impose new ones on gas guzzling cars and trucks, bigger taxes on cars with large engines, and lower taxes on those with small ones. Perhaps China is adopting the Declaration of Energy Independence? If China can do it, why can't the United States?

Cleaning up Coal Plants-Increasing Power Costs?

The DC Court of Appeals overturned a Bush EPA regulation that allow certain facilities, including coal plants, to delay the installation of new pollution control technology when making significant modifications to these plants. The Court found that the "plain language" of the Clean Air Act required a stricter approach. During the Clinton adminstration, these modifications clearly required pollution control installation, though there was much debate about what constituted a significant enough change to trigger the modification requirement. Clearly, the decision will result in cleaner coal facilities, and end the practice of continual incremental updgrades to avoid triggering the law.

Industry folks are crying that the decision will result in higher prices to consumers. And the foxes are crying that locking the henhouse at night is bad for the hens. In those jurisdictions with competitive electricity pricing, that price is generally set by the marginal cost of gas, and this decision wont change that. Power companies' costs will increase andprofits will be reduced, but consumers wont see any impact. In regulated jurisdictions, there will be some small incremental price increases, but these will be passed through over an extended period of time.

The decision also points to a weakness in the Clean Air Act. If we want to clean up coal plants, we should simply legislate that requirement and get it done, and not allow the timing of these decisions to rest with the private sector. I'll be writing a longer commentary shortly on the different ways to achieve this goal.

Happy Wind Farmer

Today's New York Times has an article Times Article on some people who are using windpower to save their family farm. Note the picture of the windmill and decide whether that is a vista you want throughout our countrysides. Will we learn to ignore them like we do utility poles, or think of them more like unsightly high tension lines? This is an example of where improved technology, particularly increased blade size, has helped economics, and this is a high wind region, which reduces the need for subsidies. Unfortunately, these plants can only at present supply a small amount of the electricity we need, even with the substantial subsidies they receive.

Pakistani Alternative Energy??? Is Bodman kidding?

Since nuclear energy cooperation is (thankfully) off the table, Secretary of Energy Bodman unveiled his solutions for Pakistan's future energy needs: a list of potential energy sources, including gas pipelines (so long as they are not from Iran), coal, and those new Bush administration favorites, celulosic ethanol, wind and solar. Obviously, Secreatry Bodman doesnt feel the Pakistanis can google energy sources on the web. And he believes that while so far the US is unwillingly to commit in a meaningful way to more expensive alterantive fuel sources, the Pakistanis should do so. And the funding for these uneconomical sources must come from the private sector, as the Secretary noted he had no budget for assistance or subsidy. The US wont pay for or subsidize these technogies, but the Pakistanis should??? And who is going to fund his proposed pipeline from Qatar or Turkmenistan, which would have to be built through Afghanistan. If we dont want the Pakistanis to elect their cheapest option and buy Iranian gas, we have to have a real solution, not more Bush adminsitration rhetoric. Pakistan has substantial coal reserves, and we could aid them in clean coal development (see the National Energy Policy below).