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The peak oil crisis: a frenzy in Washington

Last week the peak oil phenomenon reached a turning point when official Washington began to realize it has a problem. The problem, however, is currently being framed as high-gas-prices-going-into-the-next-election rather than worldwide oil depletion. Thus the first round of solutions being proposed ranged from the bizarre to unachievable.

The fun started on Sunday of last week, right after oil has reached a new high of $75 a barrel, when Senator Arlen Specter said the US should back a plan to tax away the excess profits of the oil companies. The senator opined that that the US has allowed too many oil companies to merge so that we have reduced competition and higher prices.

On Monday, Presidential spokesman Scott McClellan revealed that the President had directed the Energy and Justice Departments to investigate "illegal manipulation of gasoline markets" and that the President would unveil a set of plans the next day to deal with high oil prices.

On Tuesday morning, the Washington Post weighed in with a story on how the President and congressional Republicans were beginning to feel the heat from high gas prices and were starting to fear what the electorate would do next November. After consulting various energy experts, the Post concluded that anything the President or Congress could do to increase the supply of oil or reduce demand would take years to have an impact.

Later that day, the President appeared before the Renewable Fuels Association to announce his plan for dealing with $3+ gasoline prices. In addition to the previously announced efforts to root out illegal price gougers and oil company collusion, the President said he would temporarily suspend the requirement to replenish the Strategic Petroleum Reserve with oil that had been borrowed after the hurricanes last fall. As this replenishment was occurring at the rate of roughly three-tenths of a percent of daily US oil consumption, few observers thought it would make a noticeable difference. Even the Wall Street Journal had the grace to note that the effects would be "mostly psychological."

The President also directed the EPA to waive clean air rules in areas where the transition to the clean air additive ethanol was causing gasoline shortages. He asked Congress to roll back about $2 billion of the $10 billion worth of tax breaks they had given the oil companies last year and give increased tax breaks for hybrid purchasers.

The commentators immediately noted that these measures would do nothing to bring down gas prices, but they sounded so good the price of oil dropped right after the President's speech. In a burst of candor, and to his credit, the President said, "energy experts predict that gas prices are going to remain high throughout the summer, and it is going to be a continued strain on the American people."

After the President had his say, it was Congress's turn to weigh in. At various times during the week, they proposed a 60-day federal gas tax holiday, a $100 federal tax rebate check, and reworking of the accounting standards pertaining to inventories so that oil companies, and every other kind of company, would have to pay higher taxes. All of this was accompanied by numerous press conferences and photo ops staged at gas stations.

By the end of the week, the demagoguery of all this was apparent to nearly everybody and, one by one, the proposals sunk of their own weight or threat of presidential veto. The $100 rebate came in for the most scorn with liberals and conservatives both seeing it as nothing more than an effort to buy votes. The proposal did, however, have a couple of interesting features. The rebate was tied to oil drilling in the Arctic Wildlife Refuge so that the Democrats would have to vote against it just before the election. It also had a provision that the $100 check would go to families with an income of $218,000 or less -- causing some to wonder if this might just might be a new definition of the poverty level.

There were other proposals including one to raise automobile fuel efficiency standards. The President insisted however that increasing fuel efficiency only be done in the context of a complete overhaul of the standards system so as not to harm the US automobile industry too badly. Nothing is simple anymore.

On Sunday, Energy Secretary Bodman appeared on “Meet the Press” to explain why gasoline prices had increased by 60 cents per gallon in the last month. The secretary sees high gas prices as fallout from President Bush's successful efforts to build a stronger economy and the "inability of suppliers to make the flows equal to demand." The secretary foresees tight oil supplies as continuing for the next two or three years when either supply will catch up with demand or the administration will be out of office and high gas prices will be somebody else's problem.

Absent from the week's torrent of words was any mention of peak oil or even a hint the beginnings of worldwide oil depletion just might be at the root of the gas price problem. Many serious commentators, however, noted a gap was opening between supply and demand due to vigorous world economic growth. Widespread appreciation of this point is, of course, a step in the right direction.

Sadly, one searches in vain for any mention of conservation as a first, inexpensive, step towards mitigating the problem. It is clear that the country, the media, and our leaders in Washington have a ways to go before we are discussing the real issue and real choices. Someday, the historians will note that in late April 2006, a national discussion of oil policy, however surreal, began in earnest.

Editorial Notes: Author Tom Whipple was recently profiled in a Voice of America piece on peak oil. (Also posted at EB). -BA

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