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Power to the People
Washington policy makers stand in the way of sensible energy policies. OnLine Journal - November 28, 2005
By John Fund

After Hurricane Katrina temporarily knocked out 30% of America's oil refinery capacity and caused gasoline prices to spike, it became dramatically obvious that the nation needed to build more refineries away from the vulnerable Gulf Coast. But when a bill to streamline the permitting process and provide incentives to build refineries on closed military bases was headed for the Senate floor, Sen. Lincoln Chafee (R., R.I.) joined with every Democrat on the Senate Environment Committee and blocked the bill.

Mr. Chafee says he opposed the bill only because it lacked provisions to develop alternative fuels and raise fuel-economy standards, although he offered no amendments to that effect. But even if conservation takes center stage in the future, existing energy sources must be expanded now before the economy's health is jeopardized. A just published report by the New England Energy Alliance warns that "energy shortages could be acute soon--by 2010 at the latest" if policy makers in the region don't act aggressively. Unfortunately, Mr. Chafee and other senators appear more concerned about fending off the aggressive criticism of the green lobby. Mr. Chafee's spokesman noted there is strong local opposition in Rhode Island to using two shuttered military bases to add refinery capacity.

Sen. Jim Inhofe of Oklahoma, chairman of the Environment Committee, says he personally urged Mr. Chafee to back his bill, noting that the nation hasn't built a new refinery since 1976. "He sweats a lot," Mr. Inhofe told Human Events, referring to his fellow Republican's re-election battle next year. "He said, 'I just can't do that. I have to win that election. Right now I have a perfect record with the environmentalists.' "

Mr. Inhofe then approached some committee Democrats who he knew were under pressure from home-state businesses to vote for the bill. They rebuffed him too. Noting that a House-passed bill to streamline refinery permitting also failed to get even one Democratic vote, Mr. Inhofe concludes the nation's refinery policy is now being held hostage to partisan politics. "In the next election, high gas prices will be one of the Democrats' big campaign issues."

But on other energy issues it's Republicans standing in the way of progress. This month, House leaders had to bow to the demands of some two dozen GOP moderates and strip a budget bill of provisions to allow exploration for oil on Alaska's North Slope and permit states like Virginia that wanted to opt out of moratoriums on oil and natural gas exploration off their coasts to do so. Sen. Judd Gregg, a New Hampshire Republican, has been touting a "windfall profits" tax, even though the net profit margin of oil and gas companies on the Standard & Poor's 500 is 9%, barely above the S&P average of 8%.

Some members of Congress still believe their demagoguery somehow restrains prices. Sen. Dick Durbin (D., Ill.) told CNBC's Larry Kudlow that "the energy companies push [prices] to the ultimate limit until Congress is raging mad on both sides of the aisle and then retreat with their prices."

In reality, high energy prices are often the direct consequence of misguided government policy. After House leaders were forced to remove natural gas drilling provisions from the budget, Jack Gerard of the American Chemistry Council said he was "flabbergasted that some in Congress continue to live in a fantasy world, in which the government encourages use of clean-burning natural gas while cutting off supply, and then they wonder why prices go through the roof." Natural gas prices recently spiked at $14 per million BTUs, the highest in the world and the equivalent of $7 a gallon gasoline.

Not only will such price spikes increase the cost of heating homes this winter, but they are already costing jobs. Andrew Leveris, CEO of Dow Chemical, testified before Congress this month that high energy prices were a major reason that Dow has closed 23 of its plants in North America, shedding 7,000 of its 25,000 U.S. jobs. Out of 120 chemical plants currently under construction around the world, only one is being built in the U.S. More than 50 are going up in China, where natural gas costs half of what it does in the U.S.

Given the parochial interests that are retarding a sensible energy policy, national leadership is necessary to avoid continued gridlock. President Bush has been tarred as a tool of oil companies ever since his days working in a Texas oil patch, but the American people also intuitively feel that something is out of whack with energy. They are willing to listen to straight, direct talk.

Example: Polls show that the public is now much more willing to consider an expanded role for nuclear power, an environmentally clean way of generating electricity that could also someday help to make hydrogen cars or other alternative means of powering cars economically viable. New plant designs have laid to rest many fears about the safety of nuclear power plants and Mr. Bush now appears to ready to announce a major initiative to promote nuclear energy and also help discourage developing countries from making plutonium that can also be used to manufacture nuclear weapons.

In light of the Nimby opposition to storing spent nuclear fuel from utilities at the Yucca waste repository in Nevada, the Bush administration is likely to announce plans to have Washington step in--using a national security justification--and take the spent nuclear fuel off of the hands of utilities. It would then be stored at a federal facility in Nevada where a fuel recycling facility could be built. Fuel could also be recycled at the Savannah River national laboratory in South Carolina. Federal recycling facilities could handle fuel not just for U.S. utilities, but also for those nations who would be willing to give up plans to develop a complete nuclear fuel cycle.

That would help with the campaign against proliferation of nuclear weapons as well as improve the environment and spur economic growth in the developing world. "The U.S. could encourage the use of cleaner nuclear technology by offering to reprocess nuclear fuel on their behalf," says James Lucier, an energy analyst with Prudential Securities. "Why should fast-growing India burn cow dung if it can use nice American uranium?"

Expect a firestorm of controversy when the new Bush nuclear policy is announced. Environmental groups, which have long trumpeted national mandates for everything, will suddenly discover states' rights and rail against federal intrusion. But for every political action there is often an equal and opposite reaction. If members of Congress are afraid to challenge the orthodoxies of the green lobby, they can't be too surprised if President Bush exercises national leadership in a dramatic way to make sure the lights stay on while Washington fiddles. Some of them may privately even be thankful someone is willing to break a small part of the energy gridlock.