I have held my tongue this week, but the McCain/Palin tactics are starting to really disgust me. I have been scratching my head and asking myself what has happened to this man. I once admired him. I wanted to see him beat Bush in 2000. Now I wonder if it’s just that my views have changed so much, or whether he was ever the person I thought he was. (For a real hatchet-job that says he was never the man I thought he was, see the new Rolling Stone article: John McCain, Make-Believe Maverick ).

Christopher Buckley, the son of the late William F. Buckley, says McCain has changed:

A Buckley endorses Obama

Buckley, who praised McCain in a New York Times Op-Ed earlier this year and defended the Arizona senator’s conservative credentials against wary talk-radio hosts, said McCain is no longer the “real” and “unconventional” man he once admired.

“This campaign has changed John McCain,” Buckley wrote. “It has made him inauthentic. A once-first class temperament has become irascible and snarly; his positions change, and lack coherence; he makes unrealistic promises, such as balancing the federal budget ‘by the end of my first term.’ Who, really, believes that?

“Then there was the self-dramatizing and feckless suspension of his campaign over the financial crisis,” Buckley added. “His ninth-inning attack ads are mean-spirited and pointless. And finally, not to belabor it, there was the Palin nomination. What on earth can he have been thinking?”

I would add to that the crazy mortgage scheme he proposed at the most recent debate, which has some conservatives up in arms:

McCain faces conservative backlash over mortgage plan

(CNN) – John McCain is facing a fresh round of anger from members of his own party deeply opposed to the Arizona senator’s proposal for the federal government to purchase troubled mortgage loans.

In a sharply worded editorial on its Web site Thursday, the editors of The National Review — an influential bastion of conservative thought — derided the plan as “creating a level of moral hazard that is unacceptable” and called it a “gift to lenders who abandoned any sense of prudence during the boom years.”

But he lost my vote the day he put Palin on the ticket. Any thought I had of voting for the man went out the window as soon as I heard that. As I said at the time, I don’t think she is qualified (and subsequent events have only reiterated my original opinion). I think his choice of her put politics ahead of country.

On the other hand, I don’t think Obama has a solid energy plan. Someone told me recently that his energy advisors are primarily environmentalists, but not energy experts. If true, that means his energy policy will contain a lot of unrealistic ’solutions.’ I have a hard time embracing an energy policy that consists of “Fund X, mandate Y, and tax the devil out of the oil companies.” I just haven’t figured out how that last bit is going to help secure additional energy supplies.

I have held steady in my prediction that Obama will win the presidency (although that doesn’t mean I am voting for him). I predicted it to my father-in-law following the Iowa caucus, and have repeated that prediction several times here. But I have to give credit to my wife on this one, who predicted it following his speech at the Democratic National Convention four years ago.

However, I think there is a good chance that the winner of the election will only serve one term. They are going to govern through a very difficult four years, and two years in they will be catching a lot of the blame for not fixing a set of very vexing problems. I think they will preside over escalating energy prices, which will cause the economy to continue to struggle. And if Obama is elected as I expect, I think he is likely to make some serious missteps when oil prices spiral higher, exacerbating the problem.

A number of people have written to ask why I haven’t commented on the climate bill. There are two reasons. First, the House and Senate versions are very different, so the final form may not resemble the version the House just passed. Second, I haven’t had the time to read through much of it.

There was one issue that I considered quite important, but I didn’t know whether it was in the bill. Jim Mulva was recently quoted as saying that the climate bill would impose higher taxes on domestic fuel versus imports. While we can agree that Mulva’s comments are self-serving, I also believe that most people would oppose a bill that shifts more of our fuel supply to imports.

While I know the goal here is to favor renewable energy, what happens if it can’t fill a void left if the new bill discourages domestic production? The void will be filled by imports. Prices will also rise, so some of the void will be filled by conservation. But in order to keep the playing field level, I really liked the idea proposed by Jeff Rubin: If you place a carbon tax on domestic production, you can place a carbon tariff on imports. This idea was discussed in my review of his book Why Your World Is About to Get a Whole Lot Smaller: Oil and the End of Globalization.

I hadn’t heard any discussion of this until today. From Steven Mufson of the Washington Post:

Obama Praises Climate Bill’s Progress but Opposes Its Tariffs

President Obama yesterday said that the House took an “extraordinary first step” by passing a climate bill on Friday, adding that he hoped it will “prod” action by the Senate and predicting that the legislation could make renewable energy “a driver of economic growth.”

But he said he hopes that Congress will strip out a clause that would impose a tariff in 2020 on imports from countries without systems for pricing or limiting carbon dioxide emissions.

Obama went on to suggest that there were other protections built in that will keep the playing field level. I would like to know what those are. I can understand how tariffs would do it (although enforcement raises some sticky questions). But I have heard enough double-speak on energy policy that I want to see the fine details of how the playing field will be kept level.

Make no mistake: This bill is a tax increase. That’s the basis for the political opposition. But I have long advocated a tax increase on fossil fuels to slow the rate at which we are using them up (and to make renewables more competitive). So I don’t oppose the bill on the basis that it is a tax increase. On the other hand I can’t say that I endorse it, because I haven’t read it. I certainly believe there are more efficient ways of raising carbon taxes than this. I still think – perhaps naively – that my proposal to tilt the tax code toward higher fossil fuel taxes and lower income taxes would be more attractive than this.

As I recover from a backlog of work, one of the stories I plan to write is a post covering the top energy stories of 2008. Around that theme, Platts just put up a request for reader input on the top oil industry stories of 2008. Their poll runs until Christmas:

Rank the top 10 oil industry stories of 2008

Below is the way I would rank the Top 10. I had an easy time ranking the top five, but then it was more difficult to sort them out.

My top 10 oil industry stories of 2008:

1. Crude prices soar in 1H, WTI tops $147, Brent right behind
2. Prices collapse below $50 in 2H as demand retreats
3. Ethanol’s struggles: VeraSun bankruptcy, others barely profitable, spreads collapse
4. Push begins to lift offshore drilling ban in US; Obama and McCain differ on approach
5. Capital crunch and low prices lead to deferred investment
6. Shale gas supply in US surges, a new factor in supply/demand balance
7. Credit crunch slows activity for once free-wheeling traders
8. Diesel surges, gasoline/naphtha plunge; traditional cracks skewed
9. Russian oil output to fall in 2008, first time in a decade
10. Brazil subsalt finds continue to lift nation’s upstream prospects

A couple of options that weren’t on the list (I placed them in the suggestion box) were:

Feel free to share your own input. What other stories do you consider to be Top 10 material (not limited to the oil industry)?

No time right now for editorial comment from me, just a sampling of the press on Obama’s energy plans following his speech tonight:

History echoes during Obama’s big speech

“For the sake of our economy, our security and the future of our planet,” he said, with a stern look on his face, “I will set a clear goal as president: In 10 years, we will finally end our dependence on oil from the Middle East.”

Critics slam Obama for being all rhetoric and no substance, but in a summer when Americans are paying nearly $4 a gallon for gasoline and fretting about high heating costs to come this winter, he vowed to end what he called “this addiction” to oil.

“Washington has been talking about oil addiction for the last 30 years, and John McCain has been there for 26 of them,” he said. “In that time, he’s said no to higher fuel-efficiency standards for cars, no to investments in renewable energy, no to renewable fuels. And today, we import triple the amount of oil as the day Senator McCain took office.

I don’t quite know what to make of that. Is it naivety? Pandering? Is he going to raise gasoline taxes by $5/gal (which would probably make the U.S. energy independent by crushing demand)? Or is the real meaning to be found in the phrase “dependence on oil from the Middle East” – since Canada is our #1 supplier?

US election: Obama shares a vision and plan to fulfill ‘America’s promise’

“Let me spell out exactly what that change would mean if I am president,” he promised. And he did… A pledge to make the United States energy independent of the middle east within 10 years (shades of John Kennedy’s equally improbable, but fulfilled, pledge to put a man on the moon in a decade). $150bn to be spent on renewable energy sources within the same decade. A look (but no specific pledge) on a new role for nuclear power.

Energy and tax proposals in Obama speech

Energy policy

- Ending U.S. dependence on oil from the Middle East in 10 years.

- Tapping U.S. natural gas reserves, investing in clean coal technology and finding ways to safely harness nuclear power. Further domestic drilling was just a stop-gap measure, he said.

- Helping U.S. auto companies re-tool so that fuel-efficient cars of the future would be built in America.

- Investing $150 billion over the next decade in affordable, renewable sources of energy, wind power and solar power and the next generation of biofuels. Obama said that would lead to new industries and 5 million new well-paying jobs.

Inside Obama’s green plan for energy and the economy

Obama says his “overarching goal” is to end U.S. reliance on Mideast and Venezuelan crude. Not much controversy there. Yet he’s not enamored of major U.S. oil companies either. He backs a windfall profits tax, and his aide Jason Grumet has spoken critically about the wave of mergers that gave us modern Big Oil.

Obama has several strategies to loosen oil’s vise. He has backed corn ethanol but now emphasizes cellulosic fuels made from materials no one eats, such as wood chips and switchgrass. A speculative solution, certainly, but indications of support could give a boost to big DuPont & Co., little Bluefire Ethanol Fuels Inc. and Verenium Corp., as well as private firms such as Mascoma Corp. and Range Fuels.

I don’t know how he could give much more of a boost than the current 36 billion gallon mandate. I guess he could throw a few more billion at the problem. While he’s at it, he may as well go ahead and mandate that we cure cancer. I still can’t figure out why nobody has thought of that.

I had intended for this, my 500th essay on this blog, to be about my recent trip to Choren’s new plant in Germany. But Hillary Clinton has just come out with a plan for high gasoline prices so asinine, it had to be addressed. Note that I have already picked on McCain’s plan, and Obama’s plan isn’t all that different from Hillary’s. In my opinion none of these candidates have demonstrated that they actually have a grasp of the reasons for high oil and gas prices.

So, in stark contrast to the proposals I laid out in my previous essay, here is Clinton’s plan, along with some comments from me:

Hillary Clinton’s Plan to Address Soaring Prices at the Pump

Hillary’s plan includes:

Imposing a windfall profits tax on oil companies and using the money to suspend the gas tax for the peak summer months;

Closing $7.5 billion in oil and gas loopholes and using the funds to provide assistance for lower-income families to pay their energy and grocery bills;

Cracking down on speculation by energy traders and market manipulation in oil and gas markets that are driving up the price of oil by at least $20 a barrel;

Pressuring OPEC to increase oil production, including by filing a WTO complaint against OPEC countries

Stopping new additions to the Strategic Petroleum Reserve and standing ready to release oil to counter market spikes and reduce volatility.

This plan builds on Hillary’s long-term plan to reduce our dependence on foreign oil and address global warming.

Notice the irony in that last phrase? Let’s lower gas prices and address global warming! Hey, I know what else we can do. Let’s eat more, and lose weight. It’s genius.

Let’s pick apart her proposals, and I will tell you why her positions are stupid.

Hillary will impose a windfall profits tax on oil companies and use the money to temporarily suspend the 18.4 cent per gallon federal gas tax and the 24.4 cent per gallon diesel tax during the upcoming peak summer driving months. Hillary will ensure that this relief is passed along to consumers by charging the Federal Trade Commission with conducting aggressive oversight. Unlike Senator McCain’s plan, Hillary’s plan will be fully paid for by taking away oil company profits through a windfall profits tax. This will ensure that the Highway Trust Fund is not affected at all by the gas tax suspension, and can continue to support critical repairs and maintenance for our infrastructure and highways.

Why This is Stupid

If Hillary had anyone on her staff who had a clue about energy issues, they would see that refineries are already cut back due to low margins. Historically, low margins are the very reason that underinvestment has taken place in the refining sector. I seem to recall many politicians screaming about this underinvestment last year (even as they argued to confiscate profits which happened to be good in the refining sector last year). Total oil company profits are currently a result of very high oil prices – and most of that is flowing right out of the U.S. So there are a couple of ways this could break, both contrary to Hillary’s expectations.

If the policy could actually be implemented as Hillary outlines it, it ensures that demand remains high through the summer months. It sends a message to consumers that high gas prices really aren’t a worry; the government is going to take care of you. Thinking about buying a Prius? No, don’t do that. Because you see, the government is going to do everything possible to ensure that gas prices stay low, so you can continue to contribute your carbon emissions and we can continue our dependence on oil.

But that’s not really how it is likely to pan out. What will happen is that oil companies will allocate those taxes to their already struggling refining sector (they don’t produce all that much oil in the U.S.) Then what happens? Percent refinery utilization, which is currently running in the low 80’s (normal for this time of year, when margins are usually better, is upper 80’s or lower 90’s) will fall into the 70’s. Why? Let’s say you run a business, and you are making thin profits on one of the products you sell. Now someone wants to tax it at a higher rate. What do you do? Personally, I would shift my investments into something that offered a higher return. That’s exactly what oil companies will do. There will be less incentive to focus on upgrading and maximizing refining capacity.

Next up:

Oil and gasoline markets contain loopholes for traders, and the markets are inadequately policed by regulators under current law. As a result, there is considerable concern that current market prices reflect the influence of speculators and other forces beyond supply and demand. In early April, an Exxon Mobil executive testified under oath before a House committee that the price of oil should be $50 to $55 per barrel based on supply and demand fundamentals.

Why This is Stupid

So now you trust ExxonMobil? Do you believe them all the time, or only when you are trying to make a specific point?

The reason this proposal is stupid is not because there isn’t speculation in the market: There is. The problem is trying to identify how much, how to police it, and most importantly – how to apply those policies world wide. Because haven’t you heard? The oil market isn’t specific to the U.S. We don’t pay higher prices than they pay in Asia because of speculation. If speculation was responsible for $50 of the price as Clinton implies above, shouldn’t we see gross disparities in crude pricing?

How about taking on OPEC? A stupid plan wouldn’t be complete without threatening to bring legal action against OPEC in order to force them to lower prices for us:

OPEC recently reiterated that it will not even consider increasing crude output until September 2008, even though limited supplies are contributing to record oil prices. Hillary believes we should be taking more aggressive action to address OPEC’s control over global production levels and hold OPEC accountable for its decisions. President Bush’s efforts to pressure OPEC over the past seven years have been inconsistent and unsuccessful. Hillary supports sending a strong signal to OPEC that the era of complacency has ended. Hillary will:

Use the WTO to Challenge OPEC’s Production Quotas – With nine of the thirteen OPEC member countries also being members of the WTO, Hillary believes we should use the tools available at the WTO to address OPEC’s refusal to increase production.

Allow OPEC Production Decisions to Be Challenged Under U.S. Anti-Trust Law – Currently, OPEC countries cannot be challenged under U.S. anti-trust laws, even when they are engaged in coordinated, commercial activity to control the global oil market.

Why This is Stupid

This is probably the stupidest of her proposals. Oh, the can of worms it would open up. Here’s the analogy I have used before. Let’s say Saudi Arabia loves American wood. They love it so much, that their purchases start to drive the price higher. It seems other countries love American wood as well, so supplies are tight. But Saudi feels like they have a God-given right to cheap wood. Therefore, they demand that we increase production of our wood to bring prices back down. They demand that we overproduce our resources in order to meet what they would prefer to pay, because they have grown dependent on our wood. So, they threaten to sue and take us before the world court.

Of course the big difference here is that wood is a renewable resource. When Saudi’s oil is gone, what else do they have? Yet we demand that they produce according to the price we prefer to pay – not necessarily what’s in their own best long-term interest. How self-centered is that? Can’t Hillary recall when the Mideast cut us off from their oil because they didn’t like our policies? Does she think they couldn’t do it again?

Hey, we haven’t pulled the Big Oil card since the first paragraph. You just can’t do that often enough when you are pandering for votes:

Hillary believes that in addition to imposing a windfall profits tax on large oil companies, Congress should move immediately to end the approximately $7.5 billion per in tax giveaways and subsidies that we continue to provide to oil and gas companies, despite their record profits. These subsidies are in part a result of the 2005 Energy Bill she voted against. She would use those resources this year to provide assistance to lower-income families who are not only being hit at the gas pump, but with skyrocketing energy and food bills as well.

Why This is Stupid

Similar to her first proposal, Hillary wants to send a message that it isn’t the consumer here that is the problem, it’s those big, bad oil companies and their gouging ways. That’s why you are paying higher prices: Greed. She will take that money and return it to the consumers, thus achieving her goal of lowering prices AND fighting global warming. Don’t start that car pool just yet – Hillary is going to refund the extra money you have been paying. No need to worry.

Any why not tap the SPR?

Hillary is calling on President Bush stop taking oil off the market and putting it into the Strategic Petroleum Reserve (SPR). The SPR is now 97 percent full, which analysts believe is more than adequate. Continuing to fill it at these high prices exacerbates high oil prices and costs taxpayers money. Hillary also believes that the SPR should be more actively managed to enable releases from the SPR to counter market spikes and reduce volatility.

Why This is Stupid

If the SPR is 97 percent full, why do you need a policy to stop filling it? Won’t that happen pretty quickly anyway? Also, it seems that Hillary (and many others) don’t understand the purpose of the SPR. It is for national emergencies. The fact that I am paying more for gasoline is not a national emergency. A war with Iran that could curtail our imports sharply is more along the lines of what the SPR is for. And if you drain it right now for political purposes, and then you need it for an actual emergency, it wasn’t very strategic, was it?

Using it to try to counter market spikes suggests that you can predict where the market will be in the future – when you need to buy the crude back. The fact is, politicians on both sides have been urging releases from the SPR ever since oil was at $20/bbl. Where would we be now if we had done so? With an empty SPR, and with oil prices still at very high levels.

In the long term, Clinton proposes the following:

Proposals to Reduce our Dependence on Foreign Oil Over the Long-Term

Key elements of that plan include:

Raising fuel efficiency standards (CAFE) to 55 miles per gallon by 2030;

A $150 billion investment in researching, developing, and deploying renewable and alternative energy;

Cutting our foreign oil imports by two-thirds by 2030;

Providing $1.5 billion per year for public transit, an additional $1 billion for intercity rail, and additional funds for congestion reduction, better traffic management and telecommuting;

Providing tax credits and research and development funding for plug-in-hybrid vehicles, which can get up to 100 mpg; and

Conserving fuel in the federal fleet. Hillary will call on all federal government agencies to suspend non-essential travel and other activities that use gasoline or diesel fuel, and encourage employees to carpool, telecommute, and use public transportation to reduce fuel use. And she will direct federal employees to reduce maximum speeds to conserve fuel, with exceptions for law enforcement and other emergency services. Under Hillary’s plan, the agencies will to report to the White House once a month on their energy use and the impact of conservation efforts.

That 3rd one is brilliant: Cut our oil imports by 2/3rds. Why didn’t someone already think of this?

I won’t call those proposals stupid, but they all have something in common: The painless fix. There isn’t a single proposal there that suggests consumers need to cut back (except for the last one, in which government employees are asked to do so). For the average consumer, this all sounds great. They get to continue the status quo, and Hillary is going to see to it that they are not inconvenienced.

This is the kind of shallow political rhetoric that put us where we are in the first place. Two thumbs down for Hillary’s energy plan. Now where’s that president with courage; the one I was looking for in my previous post?