Obama Energy Plan

I've been looking at Obama's Energy Plan, direct from his website and I'm left scratching my head. Don't worry, McCain; I'm going to look at yours next!

Here are the issues I see with Obama's energy plan:

· Enact a Windfall Profits Tax to Provide a $1,000 Emergency Energy Rebate to American Families.
Obama will enact a windfall profits tax on excessive oil company profits to give American families an immediate $1,000 emergency energy rebate to help families pay rising bills. This relief would
be a down payment on Obama’s long-term plan to provide middle-class families with at least $1,000 per year in permanent tax relief.

Taxing a specific industry and then giving the money to the public? Really? This equates to a redistribution of wealth. It's a slippery slope. Who decides when an industry has made too much profit, and by what standard? Where does it stop? Companies in the Pharmaceutical industry make huge profit margins; perhaps we should hit them with a windfall tax as well. We could give another $1,000.00 per year to each middle class family. If we look hard enough, perhaps we could find about 30 more industries; say, fast food, Big Box Retail, Home Improvement, the Pulp and Paper industry, etc. That way, every middle class family could receive thousands of dollars every year. If we play our cards right, the middle class could double their incomes; right? I don’t think so. Who do you think ultimately will have to pay for that windfall tax? All of us will; in the increased cost of goods. Who will be most negatively impacted? The lower income and middle class will, of course.

While it is true that oil companies have been making record profits, it is not because – as Obama and others might have you believe – they are gouging the American Public. In fact, the reason our prices are not higher is because of subsidies and tax breaks that oil companies receive now to provide an incentive for selling their oil domestically. As it stands; Oil companies make; on average; an 8% profit margin on each gallon of gas. Your local filling station, by the way, makes about 12-25 cents per gallon. The oil companies are making record profits because of record consumption. They are selling more product than ever, which stands to reason that they would make more money than ever. What proponents of the windfall tax do not tell you is that despite their tax breaks, “Big Oil” still spends about 50% of their revenue on taxes. Hit these companies with a few billion in extra taxes and they will have no choice but to cut development of new supply, and raise their prices. Think gas is expensive now?

· Crack Down on Excessive Energy Speculation.
Barack Obama will close energy industry market loopholes and increase transparency to prevent traders from unfairly lining their pockets, while driving up oil prices at the expense of the American people.

What loop holes is he talking about? This is another potentially slippery slope. If you start to restrict futures trading in one commodity market, you have to do it across the board. In doing so, you will hobble those who use futures to hedge their future costs. Let’s consider what a speculation market is all about. The purpose of futures is to enable buyers of commodities to lock in a price option for the future purchase of a commodity to control the fluctuation of costs. This enables companies like the airlines, restaurants, and even manufacturers to keep their costs from rising sharply and suddenly. Without this capability, these companies would be at the ever-changing whim of the market for these commodities. Imagine going to Burger King today and paying $2.50 for a burger, and then tomorrow, it is $2.85. The following day, perhaps its $3.50! These businesses are able to keep their prices more constant because of the ability to purchase futures options.

· Swap Oil from the Strategic Petroleum Reserve to Cut Prices.
With oil prices doubling in the past year, Barack Obama believes we have an economic emergency that requires a limited, responsible swap of light oil from the Strategic Petroleum Reserve (SPR) for heavy crude oil to help bring down prices at the pump.

This isn’t too bad a plan, except that Barrak has said he wants to release about 70 million barrels. This is a useless gimmick. Some analysts point out that this is about 10% of what we would really need to release to make any difference at all. In addition, the swapping of light for heavy crude must make the assumption that we need that much heavy crude and not as much of light oil. If that is the case – maybe it is – why are those barrels of light oil in our reserve in the first place? The next issue is that any oil we release today, we need to buy back later. If that is the case, then what we wind up with is a net zero effect, since you could reasonably expect an opposite effect that releasing the oil did in the first place.

· Get 1 Million Plug-In Hybrid Cars on the Road by 2015.
These vehicles can get up to 150 miles per gallon. Barack Obama believes we should work to ensure these cars are built here in America, instead of factories overseas.

This number is a drop in the bucket, compared to the number of cars on the road today. “Overall, there were an estimated 250,851,833 registered passenger vehicles in the United States according to a 2006 DOT study” (Wikipedia, 2008). This means that over the next 7 years Obama plans for less than one half of one percent of the cars on the road to be hybrid electric cars! If we really want to make a dent, we should be looking for a percentage that would actually have some significant impact on the total US automobile population.

Having said that, current electric technologies are highly limited and any plug-in plan that would have a significant effect at the gas pump would simply transfer that energy demand to the electric grid; which in many states is already over-taxed; particularly in the summer months when air conditioners add additional load. Which production Hybrid gets 150 mpg and is also a plug-in? The answer is none. There are no plug-in hybrids currently in production. The first models are expected to roll off assembly lines in Japan and China later this year and in 2009. Several manufacturers are planning to make these vehicles, but the expected list prices I have seen range from $40,000 to $80,000.00 per vehicle.

By the way, while we are on this topic, how does Obama plan to ensure that these one million cars get on the road? He doesn’t really say. Is this something government can or should do?

· Create a New $7,000 Tax Credit for Purchasing Advanced Vehicles.
For most people, this will have less than a (one-time) $1,000.00 impact on their tax return. Meanwhile, the currently available hybrid cars cost at least $10,000.00 more than comparable conventional vehicles; combined with the additional interest you will pay on the interest, you will pay $15,000.00 more for the vehicle over the life of the loan than you would pay for a comparable conventional vehicle. In about 4 years you will also need to replace the batteries. On the Prius, the cost to do this is about ¼ the original price of the car! Imagine if this Advanced vehicle credit only applies to Plug-in Hybrids. It would have no effect at all!

· A “Use it or Lose It” Approach to Existing Oil and Gas Leases.
Obama will require oil companies to develop the 68 million acres of land (over 40 million of which are offshore) which they have already leased and are not drilling on.

This should not be hard, considering that this law already exists and is enforced! Having said that, the 68 million acres of land is land that leases were placed on for the purpose of exploration. Most of it has been determined not to have any oil at all. If this were not the case, every viable acre would already be drilled. Oil companies make no money at all, but continue to pay leases, if they do not drill for oil they know exists.

· Promote the Responsible Domestic Production of Oil and Natural Gas.
An Obama administration will establish a process for early identification of any infrastructure obstacles/shortages or possible federal permitting process delays to drilling in the Bakken Shale formation, the Barnett shale formation, and the National Petroleum Reserve-Alaska.
An excellent idea. Why wait! Obama should insist that Pelosi bring the Democrats back from vacation and get them to work with the Republicans to make this, and other drilling options happen now. Actions speak louder than words. The fact is, Obama has every bit as much opportunity – as a member of the senate majority – to make this happen as he ever would as President. If we recall, President Bush already lifted the executive moratorium. The political road blocks are in the Senate!



References

Obama, Barak (2008) Retrieved August 10, 2008 from
http://my.barackobama.com/page/content/newenergy_more#relief

Wikipedia (2008) Retrieved August 10, 2008 from http://en.wikipedia.org/wiki/Passenger_vehicles_in_the_United_States