Energy Wire

January 2009 Archives

January 6, 2009 12:36 PM

Ukraine, the Real Crisis on Russia's Doorstep

Last month NATO allies met in Bucharest and talked about the membership applications from Ukraine and Georgia. It was the latest episode in an 11-year-old courtship between the Western military alliance and the two former Soviet republics that Russia still sees as part of its orbit.

But NATO would have done more for Ukraine's - and Europe's - security if it had insisted that Ukraine reform its energy sector. Just one month after the Bucharest meeting, Ukraine is mired in its third annual natural gas contract dispute with Russia's state gas company, Gazprom, and the dispute is threatening supplies for much of western Europe because Russia's main pipeline to Europe transits Ukraine.

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January 9, 2009 10:08 AM

Exxon Chief Embraces Carbon Tax

It says a lot about the changing climate in business circles and in Washington that Exxon Mobil chief executive Rex Tillerson yesterday came out in favor of a carbon tax in a speech at the Woodrow Wilson Center. When I asked him afterward how high a price he thought would be needed, he said the tax should probably start out "somewhere north of" $20 a ton.

That's enough to qualify as a serious suggestion. It's about what carbon has cost in the European Union for much of the time the continent has been using a cap-and-trade approach to pricing carbon emissions. And it's almost half as much as the price many people suggest would be needed to help spur carbon capture and storage at coal plants. It's also about the level that Sen. Jeff Bingaman (D-N.M.), chairman of the Senate Energy and Natural Resources Committee, once suggested as an initial upper limit on a price for carbon.

Yes, this Tillerson is from the same Exxon Mobil that for years gave funds to groups that denied the existence of climate change or mankind's role in speeding it along. It's the same Exxon Mobil that puts the carbon-breathing tiger in your tank.

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January 17, 2009 1:04 PM

Obama's (Gas) Taxing Problem

Goodness knows, President-elect Obama has his legislative hands full. Maybe that explains why he has taken the idea of increasing gasoline taxes off the table, saying that Americans had enough economic burdens at the moment. Nominees like Steven Chu, the Nobel Prize winning physicist who will become Energy Secretary, dutifully echoed Obama's view even though in Chu's case he has long supported higher fuel taxes.

But by failing to raise the gasoline tax, the president-elect risks complicating another problem: Fixing the U.S. automobile industry.

Here's the problem. Obama and leading members of Congress keep saying they want ailing automakers to make more fuel-efficient vehicles. But the automakers in the past made more money on the guzzlers; in the future, they will have trouble charging enough to make money on new cars using costly new technologies for plug-in or hybrid cars. So the car company of the future may be a money-losing operation, just like the car company of the present.

Raising the gasoline tax would increase consumer demand for more fuel-efficient vehicles. That could help automakers charge more for them and make more money on sales of plug-ins, hybrids or more efficient conventional engines. Not surprisingly, Ford and General Motors both belong to the U.S. Climate Action Partnership, which this week proposed a detailed blueprint for a cap-and-trade system for carbon dioxide emissions. Such a system would put a price on carbon and would effectively tax gasoline and all other fossil fuels.

After being burned last summer by sky-high gasoline prices, do Americans really need higher gasoline taxes to get them to buy fuel-efficient cars? Yes, actually. Americans have an astonishingly short memory about gasoline prices. Sales of the Toyota Prius have hit the skids now that gasoline prices are back below $2 a gallon. And sales of SUVs are relatively strong compared to many other models.

If Obama did want to raise gasoline taxes without imposing a hardship on Americans at a time of economic duress, there are (at least) two ways of going about it other than throwing it out the car window. First, he could cut other taxes to compensate people for the fuel tax. Second, he could delay the effective date of the tax, or increase it in small steps over time. A phased-in tax increase would still have a big impact on the choices people make when purchasing cars, which tend to stay on the road for 10 years or so.

A gasoline tax has a variety of other benefits. Harvard economics professor and former chairman of the Council of Economic Advisers under President George W. Bush, Greg Mankiw, listed them in an October 2006 Wall Street Journal article. (Full disclosure: I have known Mankiw since grade school.) The other benefits include: helping the environment by reducing fuel use; reducing road congestion by encouraging mass transit or car pooling; boosting government revenues and shrinking the deficit (unless other taxes are cut by equal amounts); reducing crude oil prices by reducing demand (as a result, the increase in retail pump prices would be less than the increase in the tax); and bolstering national security. If the United States cut consumption, it would also help the trade deficit; oil imports make up a huge share of the imbalance.

The list is more timely than ever. But the gasoline tax, while popular among economists and some columnists, remains one of Washington's most feared issues. Ever since President Clinton was burned for trying to raise it, the gasoline tax has been frozen in time, becoming smaller and smaller in inflation-adjusted terms. For Republicans who claim to rely on market mechanisms rather than regulation, the tax should be attractive because it might be more effective than the complicated CAFÉ regulations for fuel efficiency. For Democrats, it should be attractive for environmental reasons. Members of both parties should be worried about the deficit.

But for the moment, this is one good idea that seems destined to die yet again.

January 21, 2009 2:28 PM and Energy Efficiency

There was no red carpet at the Green Inaugural Ball at the Donald W. Reynolds Center for American Art and Portraiture on Monday night. Only a green - well, somewhat olive - colored swath near the entrance for celebrities to give interviews about their views on energy and environmental issues. My favorite was the singer, dressed in his trademark fedora. I listened in as another reporter in the scrum elicited his views on energy.

"The technology is there," he said, arguing that the U.S. economy could be much more energy efficient. He said that after he puts solar panels on his house later this year, "I'll be completely off the grid. There's a lot we can do."

One technology he cited was the electric car. When asked whether they were still too expensive for most people, said "90 G's? That's a lot of money but not that much money." The only electric car that costs "90 G's" is the Tesla sports car and he confirmed that he owned one. It goes from zero to 60 miles an hour in 3.9 seconds. "Crazy torque," said.

I asked him whether he owned any other cars. After all, the Tesla is a two-seater with a trunk big enough for a set of golf clubs. Yes, he said. He owns a Bentley.

Here's what the Web site says about the 2008 Bentley Azure. The manufacturer's suggested retail price is $329,990. And it gets only 9 miles a gallon in the city, and 15 miles a gallon on the highway. So much for fuel efficiency.

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January 27, 2009 10:53 AM

China's Oil Demand Tanks

More evidence is emerging that oil demand in China is fizzling - and that China's economy is fizzling too.

The oil analyst Paul Ting emails that China's December oil demand declined by 4 percent. This is the sharpest monthly demand decline in the past decade and the second consecutive monthly demand decline, Ting says. Ting notes that Chinese petroleum inventories have been increasing and that actual demand might have dropped by even more than 4 percent.

This is startling news because China was supposed to be the engine of growth for worldwide oil demand. Less than two years ago, in July 2007, the International Energy Agency was forecasting an increase of half a million barrels a day of oil demand in China every year through 2012. Earlier this month, the IEA predicted that China's oil demand would grow 1.1 percent this year, or about 80,000 barrels a day.

This has important implications for the oil market. OPEC and other oil exporters have long assumed stagnant oil demand in the United States and Europe, but they have been counting on fast growth in emerging markets to fuel demand growth - and high prices.

Now one reason for a slowdown in Chinese oil demand is the elimination of subsidies in June last year. But greater fuel efficiency isn't the only thing happening here.

Sagging Chinese oil demand provides further evidence that China's economy has not just slowed down, but may actually be in reverse. China announced 6.8 percent growth from December 2007 to December 2008. But given how much faster the annual growth rate was early in 2008, simple math would indicate that the economy actually contracted late in the year. New York University economics professor Nouriel Roubini commented on this over the weekend: "Indeed if one were to convert the 6.8 percent y-o-y [year over year] figure in the more standard quarter over quarter annualized figure Chinese growth in Q4 [the fourth quarter] would be close to zero if not negative," he wrote. "Other data confirm that China was in a borderline recession in Q4 and that it may be in an outright recession in Q1: production of electricity plunged 7.9 percent in y-o-y basis."

Paul Ting said much the same thing when he responded to an email I sent him last week. "The GDP growth rate shows an 'accelerating slippery slope,'" he said. "4Q was lower than 3Q, 3Q lower than 2Q, and so on.

Indeed, although China does not release numbers on monthly GDP growth, the industrial value added monthly data would suggest that throughout the fourth quarter, economic activity level fell, with December being the lowest. Thus, the oil demand data showing the sharpest decline in December is consistent with the fact that GDP growth was also the slowest in that month."

Treasury Secretary-to-be Timothy Geithner testified the other day that China has been manipulating its currency to make its exports more attractive. Getting it to do otherwise seems like a tougher task than ever now that the economy is in trouble.

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