Energy Markets

Our savior Barack has been busy. Besides vowing to get the economy back on its feet, he is also waging a minor little battle over healthcare reform. I think it's a joke the way he's handling the economy and an even bigger joke the way he's handling health care, but we'll save most of those points for another day.

Today, we'll go back to the issue of energy, a subject near and dear to my heart. Previously on these pages, I put up commentary in support of high gas prices, as such high gas prices provide an incentive for the use of alternative fuels. With current technology it is in fact possible to manufacture light crude oil from things like medical waste, raw sewage, or old tires. We can do it. The problem is that the production cost for gasoline, for example, hovers at around $4-5 using those techniques. While the technology is already there, its not being used, because we can pump oil out of the ground, ship it where in needs to go, refine it, and get it to customers in such a way that the customers only pay about half that amount per gallon. There are alternate sources of oil and power available. We just rely on oil because, believe it or not, oil is an exceptionally cheap form of energy. As oil becomes more scarce, that equation will change, but much slower than most people really think. And in the meantime, people will best continue to rely on oil as the cheapest option, which it unquestionably is.

That cheapness is important these days. Energy costs are a primary controller of economic health, because nearly every exercise of commerce requires something to be moved. Crops from fields to processing plants. Goods from manufacturers to wholesalers to retailers. Even you getting from your home to the grocery store and back depends on an expenditure of energy, and no matter how well-stocked any single link of the distribution chain is, it's only the movement of goods along that chain that creates commerce. That movement takes energy. Fuel for trucks. Fuel for trains. Fuel for planes. Energy IS commerce, and for better or worse oil IS energy. As I've stated before, the closest thing that America will ever have to a guarantee that its businesses and economies will continue to function is a healthy oil industry.

Thus, while I am all for the development of alternative power, I think that that needs to be driven by economic factors. The price of oil WILL reach the point where those alternative power sources become viable. And in the meantime, we kind of need energy to stay cheap, what with this pesky recession thing, and all. You think things suck now? Imagine the economy also having to deal with $6/gallon gasoline. That means not only that you have to pay higher prices at the pump, but also that every single plane, train, and truck that is involved in commerce has to pay that higher price as well. Guess who that added cost gets passed on to. As a consumer, doesn't that sound like fun?

Clearly, it is in the interest of America for oil and energy to remain cheap. While there is certainly room for the expansion of green energy, let's aim for a slow, gradual change. Preferably one that allows a gradual rise is the costs being bourne by the consumer; we are the ones who will be footing the bill for the change to green energy, after all. Maybe we can rely on oil at least a little bit for a while? You know: build those big, expensive, inefficient solar plants a few at a time?

But our President has only a limited term in office, so we don't have time for a rational solution. Notwithstanding the fairly dire need that critical commodities (oil) remain cheap these days, our President has taken action to the contrary, trying to force through a "green energy" bill. While it's not getting nearly the press play it deserves, I believe that this bill, if passed, will have a FAR more substantial effect on National and World politics than anything else he's doing, and I include in that comparison the billions being spent keeping auto makers afloat and the trillions expected to be spent providing cheap, bad, and hard-to-get healthcare to the American populace.

Because it's not an energy bill. It's a tax bill. Barak has proposed an energy tax. The specific stated goal of this tax is to increase the cost of traditional energy sources, such as coal and oil. Rather than letting the economy dictate the market, our politicians are attempting to dictate the market: they are going to make alternative energy viable. However, they are not doing this by lowering the price for alternative energy. Rather, alternative energies are to be made competitive by increasing the cost of traditional energies. In short, the bill does not and is not intended to make green power more viable. Rather, the focus is to make traditional energy LESS viable, by placing huge tax burdens on producers and users of such energy. The plan itself is based on "cap-and-trade" (which, incidentially, was tried in Europe, without success): it will place a moritorium on greenhouse gas emissions from large producers, and sell pollution permits to manufacturers of energy. Manufacuters will not be allowed to generate energy beyond the levels of their allotted emission of CO2. Any power needs beyond those levels will have to come from sources that don't require those emissions permits: inefficient, expensive processes like solar and wind energy. All in an expressed attempt to make green energy more viable by making traditional energies drastically more expensive.

I've written before about what happens when governments decide that they know the economy better than the business do. Hopefully, this instant bit of Democratic Party hubris is not going to lead to the catestrophic meltdown that California suffered under Grey Davis, but frankly, I don't see it going any other way.

First of all, the cap-and-trade plan is about as close as you will EVER find to blatant political/economic cronyism. Since the ability to produce oil or coal energy is tried to whether or not you have the permit to produce the related gases, and since the government is the party that issues those permits, the government essentially decides what businesses are going to be able to function. Add in things like some companies being either grandfathered in or granted legislative exceptions.

In the end, history will be made similar to history past: governments weilding that sort of power generally don't make their choices based on economics or reason. Pet projects that are cute or trendy will be given a disproportionate share, while the engines that keep us moving - Exxon/Mobil, Royal Dutch Shell, etc. - will be told to suck it up. It won't take long before the prices of energy rise, since the fact of the matter is that, even if distribution of emissions permits is handled will, a multitude of small corps using inefficient "green" production methods will NEVER be able to produce as much energy as quickly or as cheaply as the establishement. Even Barack's own staff estimate that the energy costs will increase substantially. Mark Furman, head of Obama's National Ecomonic Counsel, says the plan is going to cost about $250 billion per year. Other estimates show an across the board increase in American's energy and utility expenses by about 50%.

What's gonna happen then? Especially with rampant unemployment and a weak job market, people start writing to their legislators about the high cost of energy, and complaining that they can't afford their heating/air conditioning bills. And then? That's right. Price caps will be put into place by a democratic government pandering to the needs of the moment, complete with the resulting long-term cluster-fuck. With one hand, the government will sign law ordering the manufacturers to generate energy, but with the other hand, they will sign law limiting the amounts that those manufacturers will be able to charge. The end result will probably be the same as it was in California in the early 2000s. Demand will rise. Supply will stagnate, as energy producers don't have the capitol to build new infrastructure or plants. There will be a crunch, and we will ALL BE FUCKED. Astronomical energy bills. Rolling blackouts. Nothing in abundance except shortages.

If this energy bill gets passed, that's the way it's going to go. I can say that with confidence, because that part has happened before, at the state level. Our current economic situation will not support this, should the resulting hike in oil and coil reach anywhere near the projected levels.

Which brings us to the next point: this bill does not make oil itself any more expensive. It just makes MANUFACTURING oil into into usable fuels more expensive. It's not a change to the commodity, but a change to the tax structure. It doesn't take a genius to realize that a big part of Barak's Master Plan is to pay America's way to health care and welfare reform by wringing the necks of the traditional energy giants. Problem is that, for better or worse, we depend on this giants.

I see serious threat for backfire here. What exactly is stopping Exxon/Mobil, etc., from simply packing up and moving to Mexico or Canada? Why would they sell a barrel of oil here and pay $50/barrel in extra taxes, when there's rampant demand for that same oil in India or China? Why would they maintain their refineries and plants in Houston and New Orleans, and live under the Barack tax burden, when industrial real-estate is readily available on other shores? Why does Barack think the industrial giants will sit still for this, and why can he not see how fucked we are going to be without those industrial giants?

Finally, and least obviously, there is Texas. Which has always been an oil state. I honestly believe that the only way that the United States could fall as a nation would be through a civil war with Texas, and this bill is EXACTLY the sort of thing that will have that entire state in an uproar. I can hear it now: "There's a damn oil pump in my backyard! Why the hell do I gotta pay $6 a gallon for gas?" And they're right. The passage of this bill will be a crippling blow to the Texas oil industry. Thousands of jobs will depart overseas when Exxon decides that it's just not worth it to live under Barack's regime. Millions will be paid by Texans into the Fed in taxes, to be spent on "green" energy projects, like solar plants in California.

If you're a Texan, do you think sticking with this whole United States thing is really worth the loss of a critical grass-roots industry? Are you okay with businesses (and not just small businesses) being taxed into oblivion, so Wall Street and welfare can continue business as usual? If this bill gets passed, count on hearing about the Texas secessionist movement gaining momentum among the mainstream. One step closer to economic collapse and/or civil war.

Thanks Barack. You're doing a bang-up job. With everything that's going wrong with the country and the economy, what we really do need right now is to intentionally take on a discretionary 50% increase in energy costs on top of it all. Good thinking.