But that’s history, and the annual two-week negotiations over addressing global climate change did end on Sunday with what the WaPo called “a last-minute deal.”  The deal?  An agreement to potentially reach an agreement that would apply something called “an agreed outcome with legal force” to developing nations.  This is arguably an advance on the Kyoto Protocol, which did not require developing nations to commit to reduce their greenhouse gas emissions.   And that’s important because some “developing nations” — namely China and India — are leading the globe in aggregate emissions.  To be fair, their per capita emissions are far lower than developed nations, but that shouldn’t give them a free pass.  The key negotiating issue since the US pointed out the fundamental unworkability of the Kyoto Protocol has been  how to account for developing nations’ exploding emissions without unfairly impeding their economic growth — after all, the developed nations built their economies on cheap fossil fuels and only subsequently has the world (well, most of it) realized that there will be highly negative consequences because of it.

It remains to be seen whether this year’s climate confab really moved the ball on this point.  Host South African foreign Minister Maite Nkoana-Mashabane certainly thinks so, as the WaPo quotes him saying, “We have indeed saved tomorrow today.“  Veteran climate watcher Alden Meyer, of the Union of Concerned Scientists, had a different view, noting failure to achieve agreement on reducing the gap between expected emissions and those most scientists believe are the maximum that the climate can endure without expensive and life-threatening damage:  “There’s nothing [in the agreement] that’s going to get the world to lift its game and close that gap.”

Maybe more important news this weekend came from the Nuclear Regulatory Commission, where dysfunction apparently reigns.  Both the WaPo and the WSJ reported Saturday on four NRC Commissioners, two Democrats and two Republicans, writing to the White House accusing Chairman Greg Jaczko of  ”actions and behaviors [that] are causing serious damage to this institution.”  That quote is from the WSJ, which runs an unfortunate lead sentence (“Four of the five members . . .”) — if you didn’t already know that there are only four commissioners and a chairman, you don’t find that out until the end of the piece, so casual readers may have thought there was a hold-out.  The fact is that all four of these highly respected professionals, Democrat and Republican alike, took the trouble of airing their concerns about the NRC’s leadership to the White House.  House Oversight and Government Reform Committee Chairman Darrell Issa, not the fuming four, released the letter to the media.

The bipartisan nature of the criticism made Senator Harry Reid’s (D-NV) otherwise laudable defense of his former staffer ring a bit hollow.  As reported in the WaPo on Sunday, he called the complaints “a politically motivated witch hunt.”  We’re guessing Senator Reid meant that Chairman Issa was hunting witches, not labelling the letter such.  But since loyalty in Washington is often in short supply, we’ll give him a pass either way.  Not so the NRC as a whole, an organization too critical to our energy future to have it’s oversight confined to the weekend papers.  Oversight hearings, anyone?

• Oil production on the Outer Continental Shelf has increased from 446 million barrels in 2008 to over 600 million barrels in 2010 (an increase of over one third)
• Oil production onshore increased by 5% from 2009 to 2010, from 109 million barrels to 114 million barrels
• Oil imports have fallen 9% since 2008
• U.S. crude oil production was higher in 2010 than any year since 2003
• Lease protests have declined to 36% from 47% in 2009 (yet remain far higher than the 1% observed in 1998)

Secretary Salazar concluded his piece, “we are moving ahead with a comprehensive energy plan for the country that is enhancing our energy security, creating jobs and improving protections for the environment.”  It is refreshing to see the federal government taking these steps in the direction our country needs to ensure its energy supply, but is progress moving fast enough?  SAFE President and CEO Robbie Diamond argues more must be done to ensure our energy security.  Onshore oil production increased 5%, which is surely a positive step, but we are hoping to see that number increase dramatically in the coming years, as technology is enabling the United States to locate and extract resources previously considered unreachable.

Source: Financial Times

The evidence for this surge grows by the day.  Today, the Wall Street Journal reported that Anadarko Petroleum, which controls Colorado’s Watterberg oil field, has stated that the territory may hold over a billion barrels of recoverable oil and gas.  The company’s chairman and CEO, James Hackett, is bullish that North American production could double over the next 25 years.

He is not alone.  An analysis from consulting firm PFC energy predicts that by 2020, the United States will be the world’s top producer of well-drawn fossil fuels (Saudi Arabia would remain the number one extractor of crude, but the United States would exceed it in combined oil, natural gas, and liquid natural gas), and surpass its peak domestic production of 22 million barrels of oil equivalent, reached in the early 1970s.  In September of this year, Bentek Energy predicted that Canadian and U.S. oil production combined would reach a historical high by 2016.  As we reported earlier this month, the Financial Times is observing a pendulum swing on U.S. oil dependence, and other major news outlets have noticed the trend, as production continues to increase in Texas’s Eagle Ford and North Dakota’s Bakken Shale.

Through enhanced extraction mechanisms, and more drilling, supply and production are both increasing.  Of equal importance, so is demand.   In 2009, the flailing economy resulting in the United States reaching a 12-year low on energy consumption, but usage increased 4% in 2010 as the economy began to recover.  If economic growth is to continue, the country will need the energy resources to fuel it, and competition for global oil will increase as demand continues to surge from emerging markets.  The United States is currently the global leader in oil consumption.  It has the resources and technology to be the leader in production as well.

A political war is waging about which energy strategy will solve the nation’s unemployment blight: green energy, or fossil fuels.  There are three problems with the way this debate is framed.  First, these energy sources are not mutually exclusive.  Second, the number, type, or longevity of jobs of any given energy project can be difficult to quantify, and often change.  Third, prioritizing job creation as part of an energy strategy could come at the expense of other priorities, such as optimal utilization of fuel resources.

First is the issue of mutual exclusivity.  Increased domestic production of oil and natural gas does not preclude development of renewable energies.  True energy security comes through diversity, and the world’s largest petroleum producers—Chevron, BP and others—have been repositioning themselves as full-portfolio energy companies.  Politically, it is possible to use revenues from one energy source to fuel investment in others, as Senator Lisa Murkowski proposed in September.  “If we’re smart enough to dedicate a significant portion of those revenues for clean energy, that will finally provide the makings of a legitimate long-term energy policy — a policy where the substantial government revenues from fossil fuels are used to speed up the development of their replacements,” the Senators said. “Our best energy policy will not rely on new mandates or higher taxes — it will instead help fossil fuels work themselves out of a job.”

While the energy industry is an undeniably vital aspect of the United States economy, and it employs a significant number of people, evaluating an energy strategy entirely on its merits as a jobs program is inefficient and potentially counterproductive.    As described in The Economist,

“We want energy that is plentiful, cheap, sustainable (if not renewable), clean (relatively), safe (again, relatively), predictable, and broadly or equitably accessible. The exact balance of those concerns will be informed by contextual preferences and capabilities, but in all cases it is a balancing act and almost invariably a tricky and controversial one. So the idea of pinning our hopes for job creation on the energy sector, and goosing policy accordingly, strikes me as fundamentally misguided.”

Politicians, pundits, and strategists should maintain sight of what an energy strategy is truly designed to accomplish: it is the fuel of all sectors of the economy, but it is not an economy in and of itself.

Ms. Solomon’s lead:

“The White House has put itself squarely in the middle of a fight over a planned pipeline that promises much-needed jobs in a weak economy but upsets President Barack Obama’s environmental base.

White House Press Secretary Jay Carney said Wednesday about the Keystone XL pipeline, “You can expect that the decision that is reached will reflect [Mr. Obama's] views.

The comments signal a shift by the White House, which in the past has said the decision to approve or deny construction of the Canada-U.S. pipeline rested with the State Department.”

On one level, this shouldn’t really be news.  It is highly unlikely that any President would let his Secretary of State make an essentially domestic policy decision of this magnitude — construction of a pipeline crossing several states to transport a vital commodity  — without significant consultation throughout the Administration and ultimate sign-off by the Whtie House.

State’s Enviromental Impact Statement can — and should —  be read at http://www.keystonepipeline-xl.state.gov/clientsite/keystonexl.nsf?Open, It well describes the extent of the project:

The proposed Keystone XL Project (click here for map) consists of a 1,700-mile crude oil pipeline and related facilities that would primarily be used to transport Western Canadian Sedimentary Basin crude oil from an oil supply hub in Alberta, Canada to delivery points in Oklahoma and Texas. The proposed Project would also be capable of transporting U.S. crude oil to those delivery points. The proposed project could transport up to 830,000 barrels per day and is estimated to cost $7 billion.

Keystone is a very big deal.  And passions run high in what is becoming the poster child for the “jobs versus environment” debate.  As Ms. Solomon writes:

A decision in favor of the pipeline would risk alienating environmentalists, a core Obama constituency, ahead of the 2012 election. But the political risks on the other side might be higher: Rejection of the pipeline would likely hand a 2012 issue to Republicans, who already argue the president’s policies are hindering job creation and hurting economic growth.

It would be great if, as folks enter into this debate, they actually take a look at the EIS as prepared by the State Department.  At the end of the day, regardless of the President’s decision, it needs to be grounded in facts and not just rhetoric.

Today’s installment in the Solyndra saga is courtesy of the National Journal’s Amy Harder.  Headline:  Solyndra Was Banking on Energy Bill, E-mails Show.

Oops. 

As Ms. Harder writes: 

Solyndra could still be in business had Congress passed a comprehensive energy bill last year, recently released e-mails indicate.

A May 2010 e-mail exchange between senior Energy Department advisers . . . show Solyndra’s executives were “counting on” Congress passing an energy bill that would have included major policies promoting renewable energy nationwide.

In September 2009, when the Energy Department awarded a $535 million loan guarantee to the solar-power start-up, the administration and Democratic leaders in Congress were confident they could deliver on President Obama’s campaign promise to put a price on greenhouse gas emissions that causes climate change.

Now maybe folks are spinning this story to reporters, but this is revisionist history and has an additional problem beyond that.  First, if anybody anywhere was “counting on” Congress passing comprehensive energy legislation in either September 2009 or, worse yet, May 2010, they were in total denial about what was — or better put wasn’t — happening in Congress at the time.  The Waxman-Markey bill passed the House on a partisan vote and landed with a thud in the Senate during the summer of 2009.  A similarly uni-partisan Boxer bill was to squeek out of the Senate Enviroment and Public Works Committee in the fall — only to be quickly sunk by Senator Kerry’s announcement that he, South Carolina Republican Lindsey Graham, and Connecticut Independent Joe Lieberman were going to negotiate a new bill.  Those talks sputtered along until Senator Graham publicly walked out in February, dooming all chances for even a long-shot moderate Senate bill.

No member of the Democratic leadership was truly “confident” that they were going to pass energy and climate legislation in fall 2009.  In fact, thanks to the backlash against both the partisan health care bill and the House energy and climate bill, the main speculation was whether Democrats would lose both the House and the Senate in the 2010 elections, or just the House.  Making coal state Senate Democrats vote on a climate bill wasn’t part of the strategy for avoiding that outcome.

But let’s pretend that there was optimism about the prospects for climate legislation.  Even the most aggressive possible outcome — Senate approval of a Waxman-Markey like bill — would not have provided a new market for solar for years.  All of the modeling showed that, after a several year implementation period, some wind would have benefited from the renewable portfolio standard in the bill — but not solar.

So there’s just no way that the DOE and OMB reviewers who signed off on the Solyndra guarantee would have accepted a business plan where success was contingent on passage of some imaginary legislative solar power driver.  Maybe the email leakers think that the public image of Congress is so bad that blaming congressional inaction for the Loan Guarantee Program’s bad bet is a winner.  They should think again.

And it is a struggle to create jobs using innovative energy projects as a driver.  For good reason.  Innovative energy technologies are designed to accrue long-term benefits by enhancing our energy security and meeting environmental challenges like climate change.  Thus, it is no doubt true that, as the WaPo puts it:

A $38.6 billion loan guarantee program that the Obama administration promised would create or save 65,000 jobs has created just a few thousand jobs two years after it began, government records show.

The program — designed to jump-start the nation’s clean technology industry by giving energy companies access to low-cost, government-backed loans — has directly created 3,545 new, permanent jobs after giving out almost half the allocated amount, according to Energy Department tallies.

The Brookings Institution’s Mark Muro hits the mark with this characterization of the conflict between investing in energy innovation and pushing a jobs program, noting that various individual projects  “may have been honorable investments in technology . . . sold as short-term job creators for political reasons. . . .  Exaggerated expectations about jobs were set.”

So there are two sets of issues here.  First, lawmakers are right to raise questions about a loan guarantee that was remanded in the previous Administration and, according to OMB emails released at yesterday’s hearing, rushed in this one.  Another question is how an innovative, pre-commercial project (the criteria for the 2005-enacted loan guarantee program to which Solyndra originally applied) morphed into a shovel-ready commercial project that was just facing a recessionary credit crunch (the criteria for the 2009 stimulus-enacted amendment to the loan guarantee program throuigh which the company ultimately received funding).

While that’s the set of issues that partisan politics loves to dig its teeth into, the second set of issues is actually more important.  That is, should the government intervene in energy markets?  And if so, how? 

Many believe that government should intervene in the market because their are externalities not currently reflected by prices in that market.  These include the huge costs on the American economy of our dependence on foreign sources of petroleum and the health-related costs of our dependence on combusting fossil fuels for electricity.  (Many also add future costs of climate change, but there the consensus begins to unravel a bit.)

If one accepts those arguments, and one should if one has much facility for critical thinking, then the question is how to intervene?  The best way, according to economists, is to internalize the externalities.  We could do that through the dreaded “t-word” — by taxing fossil fuels to raise their costs to reflect true costs, and then return that money to consumers to do as they will with it.

The next best way is to subsidize innovative energy technologies, or remove barriers to their use, until their costs are lowered sufficiently so they can compete with conventional sources.  And loan guarantees, properly applied, are one of the best tools for that subsidization.

The right lesson of Solyndra is to use the tool correctly.  The wrong lesson?  Trying to do the job without the proper tool.

What the President did outline was a more traditional job growth plan, focusing heavily on infrastructure developments. Compared to transportation sector developments from emerging markets such as China, the once cutting-edge US system is woefully antiquated. Outdated infrastructure and worsening congestion problems are constraining the open mobility which is desperately required to move the American economy forward, as freight volumes and vehicle miles traveled continue to grow and play an essential role in economic productivity. Furthermore, our outdated system causes massive waste of transportation’s primary fuel—oil. In 2009, US drivers experienced 4.8 billion hours of delay and wasted 3.9 billion gallons of fuel on a highway system which is increasingly unable to accommodate traffic volumes. The President should have used his speech as an opportunity to press for incorporating a specific strategy for reducing U.S. addiction to foreign oil into the broader transportation policy, as well as link economic growth to reducing the amounts of money our country spends to purchase oil from foreign countries, many of which do not share our values or interests.

Unfortunately, despite Obama’s assurances that most of his proposals were bipartisan, Republican leaders are stating otherwise. The GOP doesn’t like this plan, and they won’t. They want jobs, but not if it means spending money. The number one message President Obama strove to emphasize in his speech was “pass this bill immediately.” It’s hard to tell from his speech alone if it offers the kinds of innovative transportation solutions the country needs, but there is a clear connection between the nation’s ongoing unemployment struggles and the growing gap between transportation capabilities and needs.

 The rather unsurprising finding is that investors looking for strong returns placed big bets on crude prices, and that Goldman Sachs, Morgan Stanley and other banks “dominate the list.”  Dugan and Pleven tease us a bit with the assertion that the list of investors “could fuel calls for a crackdown on oil speculators, a label critics apply to those who trade in oil but don’t use or produce it.”

Yet one searches the article in vain for any explanation of why that might be the case.

In addition to the big banks, the article lists “Yale University, Singapore’s government, hedge funds Brevan Howard and D.E. Shaw & Co., as well as pension funds for Texas teachers and Danish workers” along with “a handful of individuals, including Aubrey McClendon, chief executive of Chesapeake Energy Corp., one of the nation’s largest producers of natural gas. Cascade Investment LLC, the investment arm for Microsoft Corp. co-founder Bill Gates, appeared.”

And far from explicitly lending fuel, so to speak, to fire directed at “speculators,” the reporters note that the list “doesn’t imply that any person or company on it has done anything improper.”

Exactly.  Trading in commodities like oil is one way rich people and institutions get richer.  It’s the American, indeed global, way.  Given oil’s centrality to our economy, of course, groups like the U.S. Commodity Futures Trading Commission and the Justice Department need to be vigilant about potential market manipulation.  But no one appears to be alleging that here.  Indeed, the greater the plethora of players in a market, the lower the risk of manipulation.

More market participants also means more money flowing around the commodity.  This market liquidity is generally considered to be a good thing.  Just as the term implies, less liquidity means a more sticky price signal that doesn’t move as well in response to the law of supply and demand.

Yet at the same time, can there be too much liquidity?  When capital hungry for returns chases a finite set of potential investment targets, can prices spike and bubbles form?  Does the amplitude of the price volatility swing magnify?Those are the questions thoughtful people ask — particularly in the wake of our 21st century tech stock and housing bubble bursts.

And while those questions are hinted at, they aren’t answered in today’s WSJ piece.  The closest it comes is to note that:  

‪”When oil was rising in 2008, the growing role of investors frustrated oil users, especially airlines, who were trying to use the oil market to protect against price swings.”

And that’s the trade-off.  You need a market liquid enough so that transactions can fairly reflect robust price discovery and are as little susceptible to manipulation as possible.  At the same time, if end users of a commodity can’t hedge at reasonable prices, then macroeconomic oil price volatility is going to translate into microeconomic pain.  So here’s hoping for some calm reflection at the CFTC combined with thoughtful congressional oversight.