"As we live a life of ease, Every one of us (every one of us) has all we need... "-- "Yellow Submarine", the Beatles, 1968
Forty-five years ago Americans were about a few years away from crashing for the first time on the reef of the oil industry monopoly over our transportation system. But we were still living in a hazy, psychedelic yellow submarine world.
Now, almost a half century later, after repeated petroleum price economic shipwrecks (1973, 1979, 2008, 2011) the oil industry confronts the first serious challenge to that monopoly -- an unprecedented variety of alternative transportation technologies that could replace oil are now propelled forward by the combined threats of $100 crude and 2-degree-plus climate disruption.
California is once again the center of the insurgency against oil. In 2007 the state, under former Governor Schwarzenegger, adopted a Low Carbon Fuel Standard. Industry was given until this year to begin reducing the carbon intensity of fuel. By 2020, fuel sold in California must have a 10 percent lower lifetime carbon footprint -- as a practical matter, that means substituting other fuels for oil. The oil industry likes to call this demand destruction. I call it competition.
The industry has thrown everything in the book to try to unplug this threat; funding an initiative to repeal California's underlying Climate Bill, AB 32; backing a gubernatorial candidate, Republican Meg Whitman, who promised to delay and suspend the requirements; legal challenges; continued and intense lobbying.
None of these so far has stuck. But the oil industry has a new weapon -- the narrative of the United States as "Saudi America", and increased domestic oil production, not the elimination of oil dependence, as the key to prosperity and security -- where "everyone of us, has all we need," regardless of climate consequences.
The narrative is bogus at its core -- even with increased production the U.S. oil imports penalty will still remain around $300 billion as far ahead as we can project.
To argue against the Low Carbon Fuel Standard the oil industry trots out magical thinking of the kind that infuses Beatles' songs of the "Yellow Submarine" era. A study the oil industry commissioned by the Boston Consulting Group begins by assuming that markets, instead of finding the cheapest way to displace oil, will choose the most expensive; asserts that "Compressed Natural Gas (CNG), Liquefied Natural Gas (LNG)... technologies are not sufficiently advanced for widespread consumer use" ignoring countries like Pakistan, Iran and Argentina where natural gas fuels dominate the new vehicle market, or U.S. trucking, where gas is making rapid inroads. Finally the industry argues, as Adam Smith and Margaret Thatcher roll over in their graves that reduction in demand for gasoline in California will drive up refinery costs, and hence fuel prices, even though the most expensive refineries will no longer be needed. Decreased demand, in the psychedelic world of big oil, yields higher prices.
The oil industry, of course, is using misdirection, the classic sleight of hand trick, to distract the public and policy makers from what is really going on. It is true, while electricity, natural gas and sugar cane ethanol are readily available low carbon fuels, one important and easy to deploy oil substitute, cellulosic ethanol, has been slower to come to market than anticipated.
Why? The public story has been that the technology just isn't ripe. But a recent investigative report revealed that behind the admitted technology challenges lurks that old oil industry card trick, monopoly. The report in Bloomberg News reveals that by 2007 Chevron-Weyerhaeuser partnership had developed a forest based cellulosic ethanol model which could produce fuel for $2.18 gallon, highly competitive with $4.50 gasoline in California markets. Instead of announcing success and rushing to market, Chevron three years ago quietly shelved the project, called Catch Light, because its return, at 5-10 percent, did not make what the company could make on monopoly fuel markets in which there was no competitor to oil. "It's hard for Chevron to make major investments in anything that would be dilutive to its return," Chevron Ventures Chief Desmond King said. "It all comes down to getting good enough returns for our shareholders."
And indeed, a competitive market will never yield the same returns as a monopoly. But now, having given up three years ago, Chevron is out with the rest of the oil industry proclaiming, "We won't be ready to reduce our reliance on oil by 2020."
How surprising. How "now you see it, now you don't."
It's not, perhaps, shocking, that the oil industry resorts to magical thinking to divert us from the need to end our addiction to their product. What is deeply disturbing is that this same kind of magical thinking has now invaded the Obama's Administration's public statements on energy. "All of the above" turns out to be a slippery slope, not just a political bromide.
The argument by the State Department that the Keystone Pipeline wouldn't actually increase production of tar sands oil because there are lots of other transportation options, an assertion now being challenged by EPA, was the first sign that, to avoid a real public conversation about energy choices, some in the administration were willing to assert the implausible. If Keystone makes no difference, why is it so strongly backed by the oil sands interests in Alberta and the Government of Canada?
But worse was to come. In its recent statements on the issue of exporting natural gas, the Administration is simultaneously asserting that:
1) It does not need to analyze the risk that exporting natural gas will force U.S. reliance on dirtier coal and oil, because these exports will neither come from increases in production.
2) It does not need to analyze the environmental impacts of increased natural gas production as a result of exports because those production increases are not "reasonably foreseeable."
Evidently, we are to pretend that the 6-18 billion cubic feet a day that the gas industry would like to export will simply be conjured up in the White House Press Office -- it will neither reduce available gas supplies for domestic use nor increase domestic drilling and production.
Obviously, the Obama Administration does not believe this. Nor does it expect anyone else to. So why is it sounding so much like the psychedelic '60s? It's hard to be sure, but my best guess is that there is some real magical thinking going on among White House staff -- if the dministration can only leave energy policy to markets, instead of setting it, then it won't have to resolve its own internal and external political contradictions.
Perhaps the administration doesn't want to resolve whether the president really wants to get rid of subsidies to fossil fuels, as he says at G20 meetings, or whether he wants to preside over the kind of ongoing $30 billion giveaways to coal industry that outgoing Interior Secretary Salazar repeatedly approved in the federally owned Wyoming coal fields. (Magical thinking example #3 from the administration: Although the Powder River Basis produces 40 percent of all U.S. coal, more than any other region, for purposes of open bidding and fair returns to the taxpayer, the PRB is not a coal producing region at all. This logic didn't begin with Obama, but he has defended it in Court against the Sierra Club and other challengers.)
Doing real impact assessment of projects like Keystone or Natural Gas Exports would reveal that markets in the energy area don't answer the important questions -- is the U.S. fundamentally an oil producer or an oil consumer, do we want high or low energy prices; what fuel strategy best accomplishes our climate goals?
This is a reality which voices as divergent as Fred Smith of Federal Express, John Hoffmeister the former CEO of Shell, and Jeffrey Immelt of GE have pointed out repeatedly. But it's apparently not welcome in Washington; we will let magical markets solve the problem for us by casting the spell, "all of the above."
Every serious nation except the U.S. has an energy policy -- we need one. Obama's economic advisers appear not to want to even discuss the idea.
This is wishful thinking, and very sad from a president who in his first Inaugural told us "the time has come to set aside childish things." It also condemns us to continuing our addiction to oil, which Chevron and Weyerhauser among others have discovered is eminently escapable.
Paul McCartney said of "Yellow Submarine", "I wrote that in bed one night, as a kid's story... I knew it would get [drug] connotations, but it really was a children's song. I just loved the idea of kids singing it... "
It's time for the U.S. to stop singing the oil industry's version of "Yellow Submarine" -- and the president to make his administration grow up about energy. "All of the above" is not the Change We Need.
A veteran leader in the environmental movement, Carl Pope spent the last 18 years of his career at the Sierra Club as CEO and chairman. He's now the principal advisor at Inside Straight Strategies, looking for the underlying economics that link sustainability and economic development. Mr. Pope is co-author -- along with Paul Rauber --of Strategic Ignorance: Why the Bush Administration Is Recklessly Destroying a Century of Environmental Progress, which the New York Review of Books called "a splendidly fierce book."