Folks,

In this week’s article for Energy and Capital, I review some very stupid recent actions by Congress and the automotive industry in response to the public outcry over “high” gasoline prices. Don’t be fooled–none of this is going to help one bit. Check it.

Gump Rules

2007-06-01

By Chris Nelder

Congress is overwhelmingly staffed by lawyers. I have met some of these notables, and with the exception of Rep. Bartlett, most of them are energy illiterates, if not energy cretins.

–ASPO-USA co-founder Randy Udall

My, my, my. High gasoline prices sure do have a way of bringing out the stupid in people.

I nearly lost track of it all this past week.

First, we had a Democratic-sponsored bill in the U.S. Congress that would allow the government to sue OPEC for price manipulation.

I just about fell off my chair when I heard that one.

Let’s see . . . that makes sense . . . how?

We give ourselves a legal right to sue a group of other sovereign nations, where there isn’t even a legal framework between us and those nations to make that possible?

Not to mention biting the hand that feeds us, undoubtedly making our imported oil less available and more expensive.

Whew-ee, that was king-sized Stupid.

Fortunately, President Bush appears set to veto it, once the House and Senate committees are done congratulating themselves on their cleverness in the "No Oil Producing and Exporting Cartels Act of 2007," or "NOPEC."

Then, on Memorial Day, we were treated to the announcement that both houses and both parties have submitted legislation to subsidize coal, in a massive push to develop liquid fuels from it.

The inducements potentially include $30 billion in loan guarantees for coal-to-liquid (CTL) plants; a $0.51/gallon tax credit bounty for CTL fuels through 2020; automatic subsidies if oil prices drop below $40 a barrel; and permission for the Air Force to sign 25-year contracts for almost a billion gallons a year of coal-based jet fuel.

Yes, a huge pile of money for King Coal, which is also the king of greenhouse gas emissions. Even as other lawmakers are doing all they can to find ways to reduce those same emissions. I wonder if the latter group set their sights high enough to allow for the ambitions of the former?

Now, readers of these pages know full well that we’re headed into a chronic shortage scenario for liquid fuels, which is why we’re seeing a boom in ethanol and biodiesel–both of which, if done properly, can be nearly carbon-neutral.

But coal-to-liquids? It’s a greenhouse gas nightmare, emitting twice the volume of greenhouse gases as ordinary diesel per unit of volume when you burn it. Plus the very process of producing CTL fuels emits another ton of carbon dioxide for every barrel of liquid fuel!

And "clean coal" is strictly a sound bite–as far as the real-life coal industry goes, it doesn’t exist. Don’t be thrown by that one.

Administration officials admit that’s why they have been careful to refer to the need for "alternative" fuels, not "renewable" fuels, to meet the president’s call for a 20% cut in projected gasoline consumption by 2017.

So now coal is an "alternative" fuel. I suppose if it were politically expedient, one could find a justification to call oil "alternative" too.

It’s just unbelievably silly. Or perhaps "desperate" is a better term.

Maybe that’s also why the Bush administration has been in a tense standoff this last week with other G-8 leaders over their attempt to forge an agreement on limiting greenhouse gas emissions at the upcoming summit. The G-8 wants to put real teeth into an agreement among the world’s industrialized nations, but the U.S., attempting to gut its key provisions, will only sign on if it’s toothless.

And all in a vain campaign for "energy independence," which, as I have written previously, is a doomed ambition for the U.S. We simply cannot, given all the constraints, replace our need for liquid fuels domestically, not even with CTL. I won’t repeat all the reasons here. But realistically, we will need foreign oil for a long, long time to come, and there’s a long line of CIA and State Department types who will tell you the same.

But, wrong-headed and silly as giving billions to the coal industry may be, there is always a profitable investment angle, and in this case I have followed it closely for several years.

So it was no surprise at all when I saw that king of coal producers Peabody Energy (BTU:NYSE) pledged a $10 million cash investment toward a CTL plant run by Rentech (RTK:AMEX), making it the first commercial U.S. facility of its kind. Coal producers, natch, have been lobbying hard and spending millions to get to this point, and they have had their ducks in a row, ready to announce the deal as soon as Congress threw its weight behind it.

Rentech, being a miniscule company compared to Peabody, gained the most on the announcement, gapping up 10% at the market open and ending the day up 6%.

(Dang, wish I still had some RTK, but I sold it a while back. I’ve been a long-term holder of BTU though, simply because it’s obvious that coal has a great future as oil declines, be that smart, stupid, or indifferent from a greenhouse gas standpoint. And there are other plays . . . )

But–moving right along–there was still more in last week’s cretinous cavalcade.

In an epic, world-class, ironic twist, this past Memorial Day weekend wasn’t just the kickoff of the "summer driving season" with gasoline prices at an all-time high and gasoline inventories at a record low for this time of year.

No–it was also the weekend in which the U.S. auto industry rolled out a big new P.R. campaign to convince Americans that they don’t want higher fuel economy standards.

If you’re not laughing out loud right now, you should read that last sentence again.

The Alliance of Automobile Manufacturers (representing BMW, DaimlerChrysler, General Motors, Mazda, Mitsubishi, Porsche, Toyota and Volkswagen), DaimlerChrysler, and General Motors have all rolled out dedicated web sites in the propaganda campaign, and are buying at least a million dollars worth of radio ads.

All to goad consumers to write their elected officials and make pre-packaged statements such as "I value fuel economy, but I also want many other attributes in my automobile like safety, passenger and cargo room, performance, towing, hauling capacity and more."

For those who have followed the history of the auto industry’s 50-year campaign of opposition to all air quality protection measures (check out Taken for a Ride: Detroit’s Big Three and the Politics of Air Pollution, "a riveting tale of colossal negligence and corporate skullduggery"), this is nothing new. Ads and propaganda campaigns, along with threats, intimidation, subterfuge, bribes, and other dirty tricks are their well-documented calling cards.

Apparently, the Big Three would still rather fight than switch. Meanwhile, Volkswagen has rolled out its Bluemotion retooling of some of its models, offering fuel economy of 60+ mpg now, 94 mpg next year, and a flagship model that could deliver over 282 mpg.

Carlos Mencia, how about a "Big Three–Dee Dee Dee" song?

But of all last week’s insults to reason, a package of bills aimed at the wind industry was the most galling.

Legislation was introduced in the U.S. House of Representatives that would bring new wind energy development in the U.S. to a grinding halt, according to the American Wind Energy Association.

Nick Rahall (D. WV), chair of the House Resources Committee (and significant recipient of coal industry lobbying money), sponsored H.R. 2337, which would burden wind power with regulatory requirements that have never applied to any other energy sector.

Such as–get this!–requiring the Fish & Wildlife Service (USFWS) to review every existing and planned wind project, and criminalize operation of wind energy facilities not formally certified by them!

Oh, that’s a knee-slapper, that one. I’ll bet there are more than a few forest rangers out there right now scratching their heads and going, "Huh?" Not exactly their field of expertise.

Not only that, the bill would subject landowners and farmers (which is to say, all non-utility generators of wind power) to invasive inspection requirements, and the prospect of jail time or a $50,000 penalty for putting up a wind turbine without certification by the USFWS director.

Yep, all those farmers out there with wind turbines that have been running their farms for decades are gonna love that bill, if it ever makes it into law.

On many of these counts, I’d like to be able to say "nice try, better luck next time." But I can’t. These are just plain dumb.

Until reality sinks in for our energy cretins in Washington, we’re playing by Forrest Gump’s rules:

"Stupid is as stupid does."

Until next time,

–Chris