Since this is my last entry in the debate, I’d like to thank Bernard Finel for what I think has been an excellent, interesting, and informative debate. I’ve accomplished what I set out to do when I was moved to propose this debate: I’ve established that complete disengagement with the Middle East (the resolution of the debate) would be imprudent and Bernard agrees with me:

Engagement and disengagement are not binary values. My call is not for zero presence, but rather for a diminished visibility of our role in the region

That’s not what I drew from Bernard’s article that prompted my suggestion nor is it what I drew from his affirmative case. I still don’t have a clear idea of what Bernard is proposing. I do see that he’s dissatisfied with things as they are, a view I share.

I also believe that he and I agree that we should de-emphasize our military commitment to the Middle East somewhat. Where we appear to differ is in what the nature of our continuing engagement with the Middle East should be.

I’ll now consider some of Bernard’s arguments seriatim.

Oil

Let’s dispense with the oil issue first since it’s the easiest. The spreadsheet of oil prices that Bernard produced is highly informative but rather than proving his case it proves mine. Policies aren’t arrived at by averages but by events. The price spike of 1979-1980 was produced by the deteriorating security situation in the Middle East I sketched in my argument. The price spike of 1986 was caused by the so-called Tanker War during the Iran-Iraq War. That each of those was followed by an increase in U. S. military involvement in the Middle cannot mean that they were caused by that involvement although that increased involvement may have had increased hostility to the United States as a secondary effect. I think the message is rather clear: if the states of the Middle East want us to reduce our military engagement

There is currently no way for us to avoid dependence on oil. Even if we produced every single drop of oil that we consumed, since oil is fungible, the Gulf states are major oil producers, and they are the lowest cost producers we would still be dependent on Gulf oil. An oil price shock would affect us under those circumstances as much as it would now. The quantified effects of closing the Straits of Hormuz are estimated to be around $200 billion per year, i.e. more than the cost of the military engagement that Bernard has cited.

There is no alternative to oil at hand and will not be for the foreseeable future. There is no production-ready electric car, there’s no reason to believe that a practical one will be producible in production quantities at a reasonable cost for the foreseeable future, and if neither of those were true we’d still remain dependent on oil for the foreseeable future for two reasons.

It rarely makes discussions of oil independence but even if a production electric car were ready it will take twenty years for us to turn over the complete oil-burning vehicle fleet. That’s a matter of mathematics and economics as well as logistics. 100 million vehicles at $40,000 a pop (on average) cost $4 trillion. If you can produce the batteries in those quantities which nobody knows how to do yet. A price shock in oil would be an economic catastrophe for us for every year of those twenty years.

And even that’s not the whole of it. Our current electrical grid doesn’t have the excess capacity to handle the additional load required to recharge all those electric vehicles, it will take us decades to update our grid, and it will cost trillions more.

But that’s a parochial view. Our investment in stability in the commerce in oil through the Gulf maintains price stability not only for us but for our European and Asian allies and, equally importantly, for every poor country in the world that is far less willing to pay for turning over its vehicle fleet or upgrading its electric grid than we are. Our investment keeps those countries stable and the world at peace.

Terrorism and security interests

There’s little reason to believe that disengagement from the Middle East will result in a reduction of the threat from terrorism. As my good friend Mark Safranski put it, that’s not merely counter-intuitive, it’s lacking in real world evidence. Terrorists have their own intrinsic motivations; they aren’t merely responding to our actions although those may be among the explanations they present for their actions.

The most dangerous, awful anti-American regimes in the world aren’t those with whom we have high levels of engagement, they’re those, like Iran and North Korea, with whom our engagement is very limited.

It isn’t disengagement that will lead to a more positive view of America and Americans but more engagement as the polling data I’ve linked to suggests. Here’s an additional example.

Recent arrests in Belgium have rounded up members of a terrorist ring who apparently were planning an attack in Brussels. Belgium hasn’t been part of the coalition in Iraq and its military involvement in Afghanistan has been nominal. Both its footprint and its fingerprint in the Middle East are quite small. Nonetheless the Belgians are a target for terrorist activities.

Israel

Israel doesn’t figure prominently in my own calculus of American interests in the Middle East and I wish that the nature of the relationship between Israel and the United States were somewhat different than it is now. Howsomever it remains that Israel is our closest ally in the Middle East, there is a substantial constituency in the United States that would render major disengagement from Israel politically impossible, and I have little reason to believe that such disengagement would produce more security for us, the Israelis, for the Middle East, or for the world. In particular I don’t see how major disengagement from the Middle East would motivate the Israelis to arrive at a settlement with the Palestinians nor do I see how relinquishing our strongest bargaining chips—our engagement with the Middle East—would strengthen our hand in achieving such a settlement.

Increased engagement

Bernard wrote:

Our embassies are massive concrete structures, set back from the road, with triple rings of security barriers. Our businesses operate behind barbed wire and are protected by private security. Americans travel in armed convoys and stay in secluded hotels that also feature fortress-like precautions.

Does that describe Egypt, Jordan, the Kingdom of Saudi Arabia, and the United Arab Emirates? Or many other countries in the Middle East and North Africa? Perhaps someone better informed than I could comment.

I think that’s a description of Iraq. We can’t undo the harm to our long term interests in the Middle East that our invasion of Iraq has caused. Nor am I prepared to argue that on net the invasion was a good thing.

Over the next several years we’ll be removing something like half of the troops we have in Iraq which I support as the security situation there has clearly improved substantially.

Bernard scoffed at the possibility of trade with the Middle East. Let’s take a single example: Jordan. Currently the European Union does something like $4 billion per year in exports to Jordan. The U. S. does something like $650 million, only about 6% of the total. It certainly looks to me as though there’s a market there and room for improvement on our part. There’s a similar pattern throughout the Middle East and North Africa.

Emphasis on trade liberalization and increased trade with the Middle East will not only improve the people who live there’s opinion of us but it will improve their way of life, making them more prosperous and happier. And that in turn will make all of us more secure.

Conclusion

The reason I proposed a debate on the subject was simply because the format of a debate calls for the burden of proof to fall on the affirmative. That’s not a trick; that’s the definition. Debating requires the affirmative to meet the burden of proof. I’m not surprised that Bernard doesn’t much care for the format because the real world evidence points the other way.

In the final analysis it actually appears to me that Bernard and I have many points of agreement: we shouldn’t disengage from the Middle East completely, our military engagement with the region is too great. I see no way to reduce our “fingerprint” on the region for the foreseeable future and think that our best interests lie in increased engagement. That’s our historical experience and that’s what the opinions of people all over the world support.

We need to engage with the world rather than withdraw from it and the Middle East is no exception to that but the engagement should not be so heavily in the form of military engagement. More butter, fewer guns.

Question 1 (Finel): You write: “I believe the evidence speaks clearly: the increased U. S. engagement in the region has overall been a stabilizing force.” What is the precise benefit to the United States of this increased stability? Are American interests in the region more or less secure today as a result? Or is this purely a altruistic argument on your part?

Schuler: I won’t deny that my motives are partly altruistic but that’s not the only reason we should want stability in the Middle East. Avoidance of oil price shocks doesn’t just benefit the United States but every country that buys oil whether they’re in South America, Africa, or Asia. Some of the governments in these places are holding on very tenuously as it is. An oil price shock could send them over the edge. We recently saw risks of that in Pakistan.

Pakistan recently applied for a World Bank loan because of the high price of oil. The significantly higher price spike caused by an interruption in Gulf oil might well have sent them over the edge. That presents a very real direct security threat to us. The Pakistani government is bad enough at preventing terrorist training camps from operating in the country as it is; a failure of that government would make matters even worse. Additionally, our supply lines for Afghanistan run through Pakistan. A collapse of the Pakistani government would be a very bad thing for our troops there.

Repeat that in Central America, South America, and Africa and you’d aggravate the poverty and misery in the countries in those areas. People in poor, chaotic places can be driven to great lengths. They resort to piracy as in Somalia or drug production and trafficking as in Afghanistan. They go where they think they might find work or relief—here, France, Italy, the United Kingdom. That places strains on our health and educational systems among others, not to mention social stresses.

And people living in prosperous countries make better customers for American goods and services than people in poor, chaotic countries do. Improving security is a fine example of doing good while doing well.

Question 2 (Finel): You quote from Sayyid Qutb. What evidence can you produce to show that Qutbism is followed by anything more than a tiny sliver of the population of the Middle East?

Schuler: A recent Pew poll suggested that roughly 8% of Muslims living in the United States expressed opinions which I’d interpret as radical Islamist ones. The number of foreign-born Muslims, particularly Arabs, who expressed such views among the whole was somewhat higher. I wouldn’t be surprised if 10% of the population of the Middle East had such views. That’s tens of millions of people.

The membership of the Muslim Brotherhood is certainly estimated to be in the millions. I don’t think there’s any doubt that his teachings are very influential.

I’m not certain whether the absolute numbers are particularly important. There weren’t a lot of Japanese who believed that Japan should attack the United States sixty years ago and only a very small number actually took part in the attack. We engaged in total war against the Japanese anyway. My point is emphatically not that we should be engaging in total war but that a relatively small number of people can create a lot of misery.

Question 3 (Finel): How would you guarantee the security of “American tourists, American products, American students, and, especially, American businessmen”? Which of the security measures undertaken after the 1998 embassy bombings would you reverse in order to encourage greater contact between these groups and the people of Middle Eastern countries?

Schuler: It’s certainly a problem and I’m open to suggestions. I don’t know that I’m advocating reversing any of the post-1998 measures. I’m not advocating a sudden flood of Americans but a gradual increase. American businesses aren’t doing as much business as they could be in the Middle East and North Africa and real as opposed to perceived security concerns probably aren’t the most important reason for that.

Clearly, some places are riskier than others. Iraq would be pretty darned risky. However, to the best of my knowledge there’s only been one murder of an American in Jordan over the period of the last 20 years. There are all sorts of places in the Middle East and North African where American tourists and businessmen aren’t in considerably more danger than British or French tourists or businessmen and the British and French are doing quite a bit of business in the Middle East.

It would also help if there weren’t exaggerated and mistaken impressions given in our own media. For example, the early reports of the attacks in Mumbai last month emphasized that the terrorists were after Americans and Britons. Later reports tended to refute that. There’s never been a definitive answer to whether that was the case and our media accounts have left us with the impression that Americans were particular targets whether that was the case or not. That makes it hard to assess the actual risks.

The most recent Pew Survey of Global Attitudes found that people in other countries who had more personal exposure to America and Americans were also more likely to have a favorable attitude towards America and Americans. We aren’t going to improve our security situation by barricading ourselves within our borders. Ignorance and isolation are our enemies not our friends.

Question 1: What evidence do you have that reducing our “footprint” and “fingerprint” will result in a reduction of radicalism in the Middle East?

BERNARD FINEL: Obviously, it is impossible to prove a hypothetical, so there is no direct evidence to support my contention that reducing our visibility will reduce radicalism. Indeed, I don’t think it is likely to reduce radicalism at all—what I believe is that it will reduce anti-American radicalism, which is a slightly different argument. I also want to point out that we need to think through carefully the evidentiary requirements of the case for a policy change. If our current policies were working well, then there would be a strong argument for the presumption against a major departure, and hence a high-standard of proof would be required. In the current case, where our Middle Eastern policy is, I think, self-evidently unsatisfactory, the standard of proof for change is lower. That said, I agree with the implicit assumption behind these questions, which is that the first principle ought to be to first do no harm to American interests.

As to the evidence. I come to my conclusion on the basis of both an analysis of public opinion data and by comparison to other countries. First, opinion data: There is deep, deep skepticism of American motives. According to a survey done by Shibley Telhami of opinion in Egypt, Jordan, Lebanon, Morocco, Saudi Arabia, and the United Arab Emirates, 83% of respondents held an unfavorable view of the United States in 2008. Of that 64% held a “very unfavorable” view. The fundamental reason for this unfavorable opinion is skepticism of American motives. When asked whether the U.S. goal was to “weaken and divide Islam” a worldpublicopinion.org poll in 2007 showed 78% of Moroccan believed that was the U.S. goal, as did 92% of Egyptians and 73% of Pakistanis. This is a common belief in the Middle East. Indeed, it is one of the few obvious sources of anti-American sentiment, along with support for Israel and the Iraq war. On the whole, the public in the Middle East responds positively to American “values”—such as democracy, freedom, and so on. And on the whole, these same publics reject terrorism. So, I think we can infer, from this, that it is the American role in the region that prompts anger and resentment.

Second, do a comparison with other countries. If the issue if “who we are” rather than “what we are (perceived as) doing,” then why are we more unpopular than our European allies who share most of our values. There is no correlate between level of democracy and unpopularity. There is no correlation between percentage of Christians and unpopularity. Muslims in the United States are, on the whole, better integrated into American society than are Muslims in Europe, and yet in the Middle East that is not reflected in a different in public opinion.

If you can explain 83% unfavorable ratings—in countries that are largely American allies—with some other data point, I’m open to reconsidering my argument. But I just think the data leads one to the conclusion that it is American involvement that is generating a backlash.

Now, as a policy matter, does that imply that reducing our footprint would ease this challenge. I really don’t know. I can’t see how it could hurt. But I am also not sure it will help. Just as anti-Semitism often exists even in the absence of Jews, it is possible that anti-Americanism has become so ingrained in modes of political analysis that even if we reduce our presence, we will still be blamed for negative developments in the bizarre conspiracy theories that seem to dominate political analysis in the Middle East. I think reducing our footprint and fingerprints is the best option, but I would not bet the mortgage on it.

Question 2: what evidence do you have that reducing our “footprint” and “fingerprint” will result in enhanced security for Israel or a greater likelihood of the Israelis and Palestinians reaching a mutually agreeable settlement of their differences?

BERNARD FINEL: Actually, I don’t think it will do either of those things, and I apologize if I gave that impression. About Israeli security — my view is that the Israelis can take care of themselves. They are a nuclear armed state with the best conventional military in the region. Deterrence should hold against state actors. In terms of non-state actors, I think the answer lies in multilateral non-proliferation initiatives — fissile material cut-offs, international nuclear fuel banks, and so on. Unilaterally whacking countries that might someday become a threat to Israel seems to me an inefficient approach, and one that will make the U.S. and Israel increasingly unpopular thus feeding the problem we seek to resolve.

About the Israeli-Palestinian dispute… actually, I don’t think there is a negotiated solution available, and I just think that it is mistake to be so involved that we get blamed when no agreement arises. I also think it is a mistake to raise false hopes. My view here is that we should acknowledge we have no power over the situation, offer our assistance if requested, but otherwise try to break the notion that the road to peace in the Middle East somehow runs through Washington.

Question 3: what evidence do you have that pursuing “alternative energy, oil exploration at home, better fuel efficiency from cars” will result in a substantial reduction in oil use in the near term in the United States let alone in the long term? How large a reduction and in what time frame?

BERNARD FINEL: My argument is a long-term one actually. I come at the issue from the reverse perspective. Is there any reason why, even given today’s technology, we “need” to use oil? No. Replacing the roughly 9% of electricity generated by oil-fired power plants is within easy reach by a combination of coal, nuclear, solar, and wind. The bigger issue is the use of oil in the transportation sector. Here there are again plenty of existing solutions — plug-in electric, hydrogen-powered, natural gas, etc. The big challenge in making a switch is primarily infrastructure. The cost of building out this infrastructure is massive… but so is the cost of fighting wars in the Middle East and maintaining power-projection capabilities for regional contingencies there.

According to Energy Independence Now, converting all of California’s gas stations to carry hydrogen would cost roughly $5 billion. Extrapolate that to the rest of the country and we are looking at maybe a $50 billion price tag. Add in investments in generation capacity—maybe twice that again, so another $100 billion. We spend roughly $150 billion in purchasing foreign oil every year (the figure varies with prices, of course). For the money we spend in a single year on foreign oil, we could make a major dent in a hydrogen infrastructure. Hydrogen is still more costly than oil if you don’t take into account the political and military costs associated with oil dependency. If you do, the gap closes. But you don’t need to replace all oil. Just reduce our use and exposure to the point that we don’t feel compelled to be a regional policeman.

Just a caveat—the numbers on energy independence are all over the map. It depends on how quickly you do it, which technologies, assumptions about economies of scale, etc. My point is, we spend $150 billion on foreign oil, we spend perhaps another $100 billion annually in supporting military capacity and political engagements to reduce risk in access to that oil, and we spend tens of billions more a year in mitigating the consequence of this dependence. There is a massive amount of resources locked up in the status quo. Oil dependence is not cheap.

On January 23, 1980 President Jimmy Carter enunciated what became known as the Carter Doctrine. He stated, “An attempt by any outside force to gain control of the Persian Gulf region will be regarded as an assault on the vital interests of the United States of America, and such an assault will be repelled by any means necessary, including military force.” To give this commitment meaning, the United States began a military buildup in the region that ultimately led to the creation of Central Command, which now has responsibility for fighting the wars in Iraq and Afghanistan.

The Carter Doctrine came about during the period of the “Big Red Arrow” Soviet threat. Readers of a certain age will remember seeing scary maps back then. A big red arrow originating in Soviet Central Asia, plunging through Afghanistan and toward Iran. A second red arrow originated in Ethiopia and shot up into South Yemen, aimed at Saudi Arabia. This was the context of the significant increase in American military presence in the Middle East.

This transformation was significant. Traditionally, the United States had been pretty hands off in the Middle East. Though the United States recognized Israel immediately after its founding, Israel received more aid from other countries for a generation. Massive financial aid to Israel and Egypt only began following the Camp David Accord during the Carter Administration. Otherwise, the United States had always been willing to remain at arm’s length from developments.

Nearly 30 years later, by a combination of inertia, mission creep, and ill-considered friendships, the United States now finds itself deeply enmeshed in politics throughout the Middle East and South Asia. It is time to reverse that trend. Fundamentally, we have made a key mistake in our relations with the Middle East — we have overstated the benefits of deep involvement and the costs of disengagement while systematically underestimating the risks associated with playing such a visible role in a politically unstable region. Challenging the Soviet threat was a credible basis for a greater role, the hodge-podge of half-considered issues we face today is not.

I have argued for a the United States to maintain a dramatically smaller “footprint” on the ground in the Middle East while actively seeking to reduce our “fingerprints” on policy developments in the region. The U.S. military is too active and too visible. American Embassies are too large. And in general, our role in region is too overwhelming. Poll after poll shows the same thing — The United States is blamed for many of the misfortunes of the region and is considered an aggressive, hostile, imperialist power. At this point, our active involvement is self-defeating.

If we were to limit our involvement, this would impact three issues directly: Radicalism, Oil, and Israel. Let me discuss each in turn.

The big issue for the United States today is the threat posed by radical and violent Islamist movements. I would argue that in this area we would reap the greatest benefits of a more detached policy. Simply put, during the Cold War we accepted a quid pro quo with “moderate” Arab rulers. In return for consistent anti-Communism we would allow them to scapegoat us for domestic repression largely aimed at Islamist groups. That policy worked all too well as over the past two decades the biggest change in the Islamist movement has been increased focus on the “far enemy” (i.e. the United States) and less on the “near enemy” (i.e. corrupt rulers at home). It was a bad bargain during the Cold War, and is an even worse one today. The United States simply can no longer allow hatred of us to serve a steam valve to reduce pressure on Middle Eastern rulers. If we are going to be closely associated with regimes in the region, we have to insist that they forthrightly and consistently defend that relationship with their own people. No more message segmenting. No more blame shifting.

On the reverse side, some argue that we cannot reduce our presence because that is what our enemies want. In short, they believe that to spite groups like al Qaeda we have to go against our own interests. As a matter of strategy, it is tremendously dangerous to allow your enemies to define your interests for you. If we allow al Qaeda to pick the time and place of our confrontations, we cede to them the initiative and choice of terrain. Just because AQ might consider Iraq or Afghanistan a central front does not mean we have to. Yes, they may indeed claim victory if we do retrench. But we cannot make American policy in response to AQ press releases. Reducing the visibility of the American role will reduce the viability of anti-American movements and do more to undermine groups like al Qaeda than anything else, even if it gives them the theme for a crowing video.

The second issue is oil. The U.S. presence in the Middle East does serve to reduce some of the risks associated with the Western world’s reliances on Middle Eastern oil. It does not lower the cost necessarily, but it may reduce some potential for volatility in supply. But the cost of this risk mitigation is tremendous. We pay for lowering the supply risk with increased risk of terrorist attacks, greater hostility from the Arab population, and the costs of men and materiel associated with military commitments. Are there other ways to reduce those risks? Of course there are. They include investments in alternative energy, oil exporation at home, better fuel efficiency from cars. Certainly those are costly measures in the short-run, but so is deep involvement in a volatile region. In the long-run, the calculus is easy. Energy independence is a strategic imperative.

The third issue is Israel. There are some in the United States who believe it is in America’s interests to play “whack-a-mole” against an ever-shifting set of potential enemies of Israel. Yesterday Iraq, today Iran, tomorrow Syria. Ultimately, though, Israel has nuclear weapons and is unlikely to be attacked by any state actor. Certainly, the United States has an interest — as does the entire international community — in preventing terrorist groups from acquiring nuclear weapons, but pursuing a non-proliferation agenda does not require unilateral commitment to the region. The other part of the Israel issue is the Israeli-Palestinian dispute. Here, I am more pessimistic than most. As long as the Israeli political system is fractured — there are 18 parties represented in the Knesset and the largest party has fewer than one quarter of the seats — and Palestinian political power is split between Fatah and Hamas and even factions within those movements — it is simply impossible to conceive of a lasting, broadly accepted peace. The more visible the American role in brokering such a broken peace, the more resentful enemies we are likely to see emerge. Israeli land-grabs will become American land-grabs in frustrated Palestinian perceptions. Palestinian corruption and violence become American corruption and violence in the minds of angry Israelis. Genuine peace is a fantasy, and before you can visualize hope, you need to recognize reality.

In short, the benefits we believe accrue from deep engagement are largely illusory, and the costs associated with retrenchment are smaller than most fear.

Image by Flickr user Stewf under Creative Commons license.

MIT chemists have developed a means to electrolyze water at room temperature with photovoltaic cells.

A new catalyst makes it feasible to split water with solar power.

MIT chemists say the catalyst, used in conjunction with cheap photovoltaic solar panels, could lead to inexpensive, simple systems that use water to store the energy from sunlight.

In the process, the scientists may have cleared the major roadblock on the long road to fossil fuel independence: Reducing the on-again, off-again nature of many renewable power sources.

The catalyst enables the electrolysis system to function efficiently at room temperature and at ordinary pressure. Like a reverse fuel cell, it splits water into oxygen and hydrogen. By recombining the molecules with a standard fuel cell, the O2 and H2 could then be used to generate energy on demand.

It’s still up in the air as to whether this would be cost-effective, given that one of the catalyst components is platinum. Still–one of the things holding back solar is the fact that it can’t generate power continuously. So if these chemists have developed a more effective means of storing solar power, that will go a long way towards making it a more viable form of energy. This is definitely something worth keeping an eye on–especially if the technique can be adapted to less expensive catalysts.

(cross posted to Heretical Ideas)

The next episode of OTB Radio, our BlogTalkRadio program, will record and air live tonight from 7-8 Eastern.

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• The New Yorker cover flap

• McCain and Obama’s evolving Iraq and Afghanistan plans

• Freddie and Fannie bailout

• Alternative energy solutions just around the corner?

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This morning, Glenn Reynolds linked to this bit of news from Popular Science regarding a discovery that could lead to greater efficiencies in solar cells:

MIT engineers have recently helped up the feasibility of widespread solar power by developing a new “solar concentrator.” The concentrator, which is a flat glass panel spread across a large area, gathers light at the edges of its surface. Expensive solar cells only need to sit on these borders – a difference that lowers costs and increases efficiency by 10 to 15 percent.

Scientists rerouted light to the panel’s edges by painting the surface with two or more organic dyes. By joining forces, these dyes absorb light from different wavelengths, thus harnessing as much power as possible. The panels can even be placed on existing solar-power systems – which could increase each cell’s power-capturing ability by 50 percent.

This is just one more bit of good news in an increasing series of good news for the future promise of solar energy. Solar cell prices are on a downward trend, Google plans on building a solar thermal plants, and companies all over the place are developing new techniques for cheaply manufacturing solar cells.

When you couple the advances in solar energy with the possibility that wind power could be providing up to 20% of power output in the U.S. over the next 20 years, there’s a lot of good news here. The best part about solar, from my perspective, is that as solar cells get cheaper, there’s a great opportunity for them to supplement the grid through sheer ubiquity. If energy from coal and natural gas keep going up while solar cells get cheaper and more efficient, you’re going to see a lot more solar cells on rooftops. That’s a good thing.

Photo: Chance Gardener’s photostream

Newt Gingrich’s American Solutions group has mounted an online petition designed to persuade Congress to open up domestic sites that are currently closed to oil and natural gas exploration. That’s certainly an understandable sentiment, given the skyrocketing increases in the price of oil over the past couple of years. But opening up for exploration is not going to do much for prices right now–oh sure, domestic exploration might drop the price of oil and provide some relief from any speculation driving up the price, but it’s not going to change the fundamentals on the ground for over a decade. In other words, oil might drop in the near term, but it won’t drop that much and it will start to go up again. Additionally, drilling for more oil won’t do anything for the price of gas without a concurrent expansion in refinery capacity.

So, even if we were to open up all of our offshore and onland sites for oil exploration today, it would be at least a decade, if not longer, before that oil started pumping. Meanwhile, over that decade, subsidized consumption in India and China would continue to rise, OPEC fields would continue to be maxed out, refineries would likely still be running at full capacity, and as a consequence, gas prices would still continue to increase at a decent clip. And the consequences of those gas prices rising–more mass transit, more fuel efficient vehicles, more investment in alternative energy sources–would also likely continue.

So after a decade of those trends, how much of a difference are new sources of oil going to make? If it turns out that alt-energy can’t keep the pace yet to make up for oil, then new supplies of oil might not be enough to cover ever-increasing demand. So at best we might just be looking at a slowdown in the pace of oil price increases. If it effects oil prices much at all. Granted, an increase of supply usually causes a decrease in prices, but given that offshore oil and shale oil cost more to extract than sources found in a lot of foreign fields, those costs have to be transmitted into the price. Not to mention the very real danger of demand exceeding supply a decade from now–even with the new oil sources. If that’s the case, our new sources of oil aren’t going to put a dent in the price. So is there really that much of a benefit, here?

On the other hand, if more alternative energy supplies become more feasible and help to decrease the overall demand for oil over the next decade, a sudden glut of new oil supply might threaten to take us one step backward by making oil cheap enough to slow down alt-energy development. Economically beneficial, sure. But even if you’re a global warming skeptic you have to admit that’s not good for the environment from other perspectives. Additionally, increased production from US oilfields would still not be enough to eliminate the necessity of the importation of foreign oil, so the problems associated with that would move back to the forefront.

On the other hand, if over the next decade alternative energy sources and ultra-fuel efficient vehicles become good enough, you might run into a situation where the higher costs of domestic oil extraction make it less profitable for oil companies to continue extraction–especially of shale oil sources. If that’s the case, then what’s the point of opening up the fields in the first place? (This is, admittedly, the least likely of these three scenarios, but it’s not that far out there.)

So what I’m left with here is a pretty high level of skepticism that, given the long time frame involved, opening up more domestic production of oil is going to have much of a benefit for the average American. So while I’m not necessarily opposed to more drilling in principle, in practice I just have to say that right now I’m not sure if there’s much point to it.

I attended a briefing today at the National Press Club featuring some board members of the American Security Project promoting what they have dubbed “A New American Arsenal.” The bipartisan group, headed by Gary Hart and featuring the likes of John Kerry, Ken Duberstein, Richard Armitage, and several retired flag officers urges a return of a bipartisan foreign policy consensus and, more concretely, a rethinking of “national security policy” to encompass more than just military issues.

It was an interesting talk and I look forward to reading the report in detail. There are, however, two basic problems that need to be overcome.

First, the panel shares an undue fondness for the past, which they mistakenly recall as a time when “politics stopped at the water’s edge” and policy could be debated in a spirit of bipartisan comity. The reality, of course, is different. As bitter as the fight over Iraq is, it pales in comparison to the split over Vietnam. Foreign policy has been a tool of political campaigns for decades; certainly, it has been key to most Republican victories over the last 30-odd years. And the idea that the past was a golden era where everyone abroad loved the United States and looked to us for guidance is simply absurd. Ronald Reagan had every bit as many problems selling missile defense, the placement of Pershing IIs in Germany, and so forth as George W. Bush is having now.

Second, a bipartisan approach to foreign policy — which I heartily support in principle — can often be platitudinous. Here is the outline of the Arsenal:

Terrorism:

• Building new alliances and international frameworks to fight extremists by coordinating military, law enforcement and intelligence agencies and creating a sustainable international legal framework to combat terrorist movements;
• Countering and undermining jihadist ideology in a more effective battle for hearts and minds in the Islamic world by expanding development assistance, trade and investment opportunities and health and education programs to raise economic prospects and increasing public diplomacy; and
• Investing in alternative energy to begin to diversify energy sources for us and our allies.

Energy:

• Strengthening the international concert of oil importing nations by encouraging the International Energy Association to admit China and India to its ranks;
• Diversifying U.S. energy supplies by encouraging investment in environmentally responsible development of new oil and gas fields and renewable energy and expanding domestic refining capacity; and
• Doubling annual U.S. investment in research and development of alternative energy, including hydrogen, clean coal and renewables.

Climate Change:

• Actively leading the negotiation of an enforceable international framework to reverse global warming that is compatible with continued economic development;
• Leading by example by adopting rigorous climate policies and investing in clean energy; and
• Preparing now for the global consequences associated with predicted climate change, such as climate refugees and tropical disease migration.

Nuclear Proliferation:

• Taking the lead in creating a new international consensus opposed to nuclear proliferation that can mount meaningful economic, political, and even military sanctions to deter and dissuade would-be proliferators;
• Strengthening existing international frameworks, such as the Nuclear Non-Proliferation Treaty;
• Changing the calculation states make of the cost and benefit in the pursuit of nuclear arms; and
• Preventing terrorist organizations from acquiring and using nuclear weapons.

With the possible exception of IEA expansion, a topic that’s sufficiently obscure as to be off my radar screen, this is all incredibly uncontroversial. There’s some genuine debate on how to deal with terrorism and whether change is something that requires substantial government action but there’s plenty of consensus at the level of these bullet points.

The problem, as Kerry himself admits, is actually building the political consensus to formulate and enact public policy surrounding these things. That’s much, much harder than agreeing on an outline. The hope, I suppose, is that having people of such high profile reaching across the aisle to speak on these issues will help forge consensus for action. I hope that’s the case.

Mike Huckabee and Bill Richardson get their turn at having essays, ostensibly written by them, outlining their foreign policy vision in the pages of Foreign Affairs. I’ve addressed Bill Richardson’s vision, which he’s already outlined in similar essays elsewhere, extensively here and here.

Huckabee’s piece, entitled “America’s Priorities in the War on Terror — Islamists, Iraq, Iran, and Pakistan,” is published under his serious scholarly byline of “Michael D. Huckabee” rather than the aw shucks “Mike.” Its thesis statement:

The Bush administration’s arrogant bunker mentality has been counterproductive at home and abroad. American foreign policy needs to change its tone and attitude, open up, and reach out. In particular, it should focus on eliminating Islamist terrorists, stabilizing Iraq, containing Iran, and toughening its stance with Pakistan.

From that, it sounds like he’s running for the Democratic nomination. It turns out, though, that his agenda is much more complicated than that. Some excerpts and reactions follow.

The United States, as the world’s only superpower, is less vulnerable to military defeat. But it is more vulnerable to the animosity of other countries. Much like a top high school student, if it is modest about its abilities and achievements, if it is generous in helping others, it is loved. But if it attempts to dominate others, it is despised.

Apparently, Huckabee hasn’t read Machiavelli. While these platitudes sound nice and are befitting a Baptist preacher, they’re almost certainly wrong. Not so much that we ought to be modest and generous, which are worthwhile attributes for their own sake, but that the world’s only superpower is ever going to be loved. The world just doesn’t work that way.

As an aside, one is reminded of George W. Bush’s similar pledges in 2000: “If we’re an arrogant nation, they’ll resent us; if we’re a humble nation, but strong, they’ll welcome us. And our nation stands alone right now in the world in terms of power, and that’s why we’ve got to be humble, and yet project strength in a way that promotes freedom.”

My administration will recognize that the United States’ main fight today does not pit us against the world but pits the world against the terrorists. At the same time, my administration will never surrender any of our sovereignty, which is why I was the first presidential candidate to oppose ratification of the Law of the Sea Treaty, which would endanger both our national security and our economic interests.

As Dan Drezner points out, “Really, you just have to stand back and marvel at the contradiction of sentiments contained in that paragraph.” One either joins the world to find common agreement on issues or one asserts the unilateral right to make rules outside ones borders.

A more successful U.S. foreign policy needs to better explain Islamic jihadism to the American people. Given how Americans have thrived on diversity — religious, ethnic, racial — it takes an enormous leap of imagination to understand what Islamic terrorists are about, that they really do want to kill every last one of us and destroy civilization as we know it. If they are willing to kill their own children by letting them detonate suicide bombs, then they will also be willing to kill our children for their misguided cause. The Bush administration has never adequately explained the theology and ideology behind Islamic terrorism or convinced us of its ruthless fanaticism.

Gee whiz, they’ve been doing this for more than six years now. Does Huckabee really think that Americans need to be convinced that the terrorists want to kill us?

The United States’ biggest challenge in the Arab and Muslim worlds is the lack of a viable moderate alternative to radicalism. [...] Although we cannot export democracy as if it were Coca-Cola or KFC, we can nurture moderate forces in places where al Qaeda is seeking to replace modern evil with medieval evil.

No, we can’t.

As president, my goal in the Arab and Muslim worlds will be to calibrate a course between maintaining stability and promoting democracy. It is self-defeating to attempt too much too soon: doing so could mean holding elections that the extremists would win. But it is also self-defeating to do nothing. We must first destroy existing terrorist groups and then attack the underlying conditions that breed them: the lack of basic sanitation, health care, education, jobs, a free press, fair courts — which all translates into a lack of opportunity and hope.

And how do we do this, exactly? Especially as a country “modest about its abilities and achievements”?

I want to treat Saudi Arabia the way we treat Sweden, and that will require the United States to be energy independent.

I’m pretty sure our energy independence would not transform Saudi Arabia into Sweden. Burkino Faso, perhaps, but not Sweden.

The first thing I will do as president is send Congress my comprehensive plan for achieving energy independence within ten years of my inauguration. We will explore, we will conserve, and we will pursue all types of alternative energy: nuclear, wind, solar, ethanol, hydrogen, clean coal, biomass, and biodiesel.

Why doesn’t he go ahead and share the plan now, so we can get started? Of course, we’re already exploring and pursuing all those types of alternative energy. Conserving? Not so much.

Supporting Islamic moderates and moving toward energy independence will not protect us from the terrorists who already exist. These enemies, who plot and train in small, scattered cells, can be tracked down and eliminated by the CIA, U.S. Special Forces, and the military forces of the coalition countries united to rid the world of this scourge. We can achieve a tremendous amount with swift and surgical air strikes and commando raids by our elite units. But these operations demand first-rate intelligence. When the Cold War ended, we cut back our human intelligence, just as we cut back our armed forces, and these reductions have come back to haunt us. I will strengthen both.

We’ve been talking about this for years. Building strong HUMINT in the terrorist arena is a lot more complicated than establishing budget priorities. That said, it’s certainly a worthy goal.

I’m less confident than I once was of our ability to kill terrorists faster than new ones are created. I’m willing to keep trying, though.

Our current active armed forces simply are not large enough. We have relied far too heavily on the National Guard and the Reserves and worn them out.

The Bush administration plans to increase the size of the U.S. Army and the Marine Corps by about 92,000 troops over the next five years. We can and must do this in two to three years. I recognize the challenges of increasing our enlistments without lowering standards and of expanding training facilities and personnel, and that is one of the reasons why we must increase our military budget. Right now, we spend about 3.9 percent of our GDP on defense, compared with about six percent in 1986, under President Ronald Reagan. We need to return to that six percent level. And we must stop using active-duty forces for nation building and return to our policy of using other government agencies to build schools, hospitals, roads, sewage treatment plants, water filtration systems, electrical facilities, and legal and banking systems. We must marshal the goodwill, ingenuity, and power of our governmental and nongovernmental organizations in coordinating and implementing these essential nonmilitary functions.

We already spend more than all the nations on the planet, combined, on national defense and we need to up it by a third? Or, actually, much more sense current military functions will be pawned off to other agencies?

If I ever have to undertake a large invasion, I will follow the Powell Doctrine and use overwhelming force. The notion of an occupation with a “light footprint,” which was our model for Iraq, is a contradiction in terms.

Presumably, not occupying would solve this problem. The Powell Doctrine, though, isn’t about stabilization operations but about major conventional war.

As president, I will not withdraw U.S. troops from Iraq any faster than General David Petraeus, the top U.S. commander there, recommends.

So, you’d delegate your responsibilities as commander-in-chief to your generals? Why do we need you, then?

I support providing the Turks with actionable intelligence to go after the PKK with limited air strikes and commando raids but would prefer to train and equip Iraqi Kurds to fight the PKK and rid themselves of this menace.

Not exactly a rapid solution, given how long it’s taken to train up the Iraqi forces.

The Bush administration has properly said that it will not take the military option for dealing with Iran off the table. Neither will I. But if we do not put other options on the table, eventually a military strike will become the only viable one.

Agreed. What options?

Another way to contain Iran is through diplomacy. We must be as aggressive diplomatically as we have been militarily since 9/11. We must intensify our diplomatic efforts with China, India, Russia, South Korea, and European states and persuade them to put more economic pressure on Iran.

Haven’t we been doing that? And, as you detail in the next several paragraphs, there’s not much hope in the case of Russia.

Sun-tzu’s ancient wisdom is relevant today: “Keep your friends close and your enemies closer.” Yet we have not had diplomatic relations with Iran in almost 30 years; the U.S. government usually communicates with the Iranian government through the Swiss embassy in Tehran. When one stops talking to a parent or a friend, differences cannot be resolved and relationships cannot move forward. The same is true for countries. The reestablishment of diplomatic ties will not occur automatically or without the Iranians’ making concessions that serve to create a less hostile relationship.

This is commonsensical, I think.

Rather than wait for the next strike, I prefer to cut to the chase by going after al Qaeda’s safe havens in Pakistan. As commander in chief, the U.S. president must balance threats and risks in calculating how best to protect the American people. We are living on borrowed time. The threat of an attack on us is far graver than the risk that a quick and limited strike against al Qaeda would bring extremists to power in Pakistan.

Huckabee shares this view with Barack Obama and it’s not indefensible. Given how central he thinks winning the war in Iraq is to our long term security, however, he seems to dramatically underplay the potential fallout of this action. The several paragraphs that follow, detailing the costs of the failed bet on Musharraf, though, are well taken.

Drezner’s objections about the writing style of the essay are spot on. The phrasing is more appropriate for a Sunday school class than a presidential campaign. Overall, though, his policies are not unreasonable.

There’s a lot of wishful thinking here, of course, but when isn’t there? But Huckabee at least dispenses with most of the bluster that characterizes the essays signed by Rudy Giuliani (see here and here) and Mitt Romney. He seems genuinely committed to dialog with allies, regional actors, and adversaries and seems to understand that there are limits to our ability to reshape the world through the use of military force. Those are welcome.

On the down side, though, I’m not sure that a Huckabee foreign policy would be substantially different from an Obama, Richardson, or Edwards administration’s. There’s a bit too much moralizing about good guys and bad guys, as if something other than rational interest were at work, combined with more than a bit too much faith in the power of love in international relations.

Other Reactions:

• HuffPo’s Libby Quaid calls the plan “long on optimism but short on details.” That, of course, is the ideal campaign platform if one’s goal is winning.

• PowerLine’s Paul Mirengoff and John Hinderacker, reacting to stump speech rhetoric along similar lines rather than the essay itself, pronounce it “the kind [of foreign policy rhetoric] you’d expect from DailyKos bloggers” and conclude that “Huckabee simply is not a conservative.”

• Retired FSO John Burgess “[W]hat Huckabee proposes is not a policy, but a collection of wishes.”

There’s also this delightful observation of NYT’s Zev Chafets (via Andrew Sullivan):

At lunch, when I asked [Huckabee] who influences his thinking on foreign affairs, he mentioned Thomas Friedman, the New York Times columnist, and Frank Gaffney, a neoconservative and the founder of a research group called the Center for Security Policy. This is like taking travel advice from Little Red Riding Hood and the Wolf, but the governor seemed unaware of the incongruity.

Previous Assessments of Candidate Foreign Affairs Essays:

• Rudy Giuliani’s Dangerously Stupid Foreign Policy Vision

• Bill Richardson’s New Realism

• Bill Richardson’s New Realism II

• Obama and Clinton Foreign Policies

• John Edwards Wants to Reengage the World

Photo credit: AP via CNN

The Brakeman Edition OTB Caption Contest^TM is now over.

(AFP/Tengku Bahar)

The Winners:

First: yetanotherjohn – Your carbon offset dollars at work.

Second: Paul Barnes – Chris “Mindfreak” Angel thought he could be run over by a train. He was.

Third: Anderson – Finally, General Petraeus saw the light at the end of the tunnel.

Honorable Mention:

Hoosier Daddy – Raja ensured himself a date for the night by pulling the train the last six feet with just his tongue.

yetanotherjohn – Before congress would receive the generals report, they required him to perform twelve special tasks.

Michael – Soylent Green, the new alternative energy!

elliot – ….So that’s why they call it a ‘pullman.’

Bithead – The morning train… brought to you by Bite Bond Denture adhesive

Rodney’s Bottom of The Barrel

“THTUCK! THTUCK!”

TrackSkiing was the next logical progression after hood surfing.

The Thursday Contest already has 57 varieties

For those of you who don’t know Prof. William Gray is one of the top scientists when it comes to hurricanes and tropical weather. Now he has offered what will undoubtedly be a controversial view of global warming/climate change.

Global warming is happening, but humans are not the cause, one of the nation’s top experts on hurricanes said Monday morning.
Bill Gray, who has studied tropical meteorology for more than 40 years, spoke at the Larimer County Republican Club Breakfast about global warming and whether humans are to blame. About 50 people were at the talk.

Gray, who is a professor at Colorado State University, said human-induced global warming is a fear perpetuated by the media and scientists who are trying to get federal grants.

“I think we’re coming out of the little ice age, and warming is due to changes to ocean circulation patterns due to salinity variations,” Gray said. “I’m sure that’s it.”

Gray’s view has been challenged, however.

The consensus view is just the opposite, that there was no little ice age and that the cause for the increase in global temperatures is human activities.

Roger Pielke Jr., director of the Center for Science and Technology Policy Research at the University of Colorado, said in an interview later Monday that climate scientists involved with the Intergovernmental Panel on Climate Change concluded that most of the warming is due to human activity.

“Bill Gray is a widely respected senior scientist who has a view that is out of step with a lot of his colleagues’,” Pielke said. But challenging widely held views is “good for science because it forces people to make their case and advances understanding.”

“We should always listen to the minority,” said Pielke, who spoke from his office in Boulder. “But it’s prudent to take actions that both minimize human effect on the climate and also make ourselves much more resilient.”

This does raise an interesting point, at least for discussion. If the warming is not related to human activities then how much mitigation can we get by curtailing human activities. The intuitive answer seems to be little or no mitigation. Of course, the intuitive answer isn’t necessarily right.

But even if humans cause global warming, there’s not much people can do, Gray said. China and India will continue to pump out greenhouse gases, and alternative energy sources are expensive.

This is indeed a potentially serious flaw to any plan to mitigate global warming that isn’t both global and binding. If the say the U.S. reduces greenhouse gas emissions, but India and China take up the slack and then some, then there will be little to no mitigation save that things wont be heating up quite so fast. Further, it is also possible that mitigation in one country induces increased emissions in another as firms try to minimize costs and look at relocating their operations. I would expect that the increase would be less than the decrease, but the point is that mitigation needs to be global in nature and well thought out.

But Pielke said it makes sense to reduce humans’ impact on the climate.

“There are uncertainties. It’s not like you

change your light bulbs today, you’re going to have better weather tomorrow,” he said. “It’s even better if those actions you’re taking make sense for other reasons, like getting off Middle Eastern oil or saving money.”

This also makes sense. I’ve switched over to compact fluorescent bulbs in most cases in my house. It was motivated by primarily by two factors.

• Saving money.¹
• Changing light bulbs less frequently.

Encouraging policies that make economic sense, but that people might be unaware of makes sense on economic grounds alone, if there is a possible environmental benefit then that is merely icing on the cake.

Via Debunkers.
_____
¹Keep in mind that I live in S. California, where the top tier for residential electricity rates is very high. So switching to compact fluorescent bulbs can have a large enough impact on one’s bill to more than pay for themselves.

Probably not as that is the lower end of the estimate, but a well-respected oil industry analyst says expect gas prices to plunge. Oil prices are more than the basic supply and demand curves, including future expectations such as unrest in oil producing regions and hurricanes in the Gulf of Mexico.

The recent sharp drop in the global price of crude oil could mark the start of a massive sell-off that returns gasoline prices to lows not seen since the late 1990s — perhaps as low as $1.15 a gallon.

“All the hurricane flags are flying” in oil markets, said Philip Verleger, a noted energy consultant who was a lone voice several years ago in warning that oil prices would soar. Now, he says, they appear to be poised for a dramatic plunge.

Crude-oil prices have fallen about $14, or roughly 17 percent, from their July 14 peak of $78.40. After falling seven straight days, they rose slightly Wednesday in trading on the New York Mercantile Exchange, to $63.97, partly in reaction to a government report showing fuel inventories a bit lower than expected. But the overall price drop is expected to continue, and prices could fall much more in the weeks and months ahead.

The rationale:

For most of the past two years, oil prices have risen because the world’s oil producers have struggled to keep pace with growing demand, particularly from China and India. Spare oil-production capacity grew so tight that market players feared that any disruption to oil production could create shortages.

Fear of disruption focused on fighting in Nigeria, escalating tensions over Iran’s nuclear program, violence between Israel and Lebanon that might spread to oil-producing neighbors, and the prospect that hurricanes might topple oil facilities in the Gulf of Mexico.

Oil traders bet that such worrisome developments would drive up the future price of oil. Oil is traded in contracts for future delivery, and companies that take physical delivery of oil are just a small part of total trading. Large pension and commodities funds are the big traders and they’re seeking profits. They’ve sunk $105 billion or more into oil futures in recent years, according to Verleger. Their bets that oil prices would rise in the future bid up the price of oil.

That, in turn, led users of oil to create stockpiles as cushions against supply disruptions and even higher future prices. Now inventories of oil are approaching 1990 levels.

But many of the conditions that drove investors to bid up oil prices are ebbing. Tensions over Israel, Lebanon and Nigeria are easing. The hurricane season has presented no threat so far to the Gulf of Mexico. The U.S. peak summer driving season is over, so gasoline demand is falling.

How far can it go?

Should oil traders fear that this downward price spiral will get worse and run for the exits by selling off their futures contracts, Verleger said, it’s not unthinkable that oil prices could return to $15 or less a barrel, at least temporarily. That could mean gasoline prices as low as $1.15 per gallon. Other experts won’t guess at a floor price, but they agree that a race to the bottom could break out.

I doubt gasoline prices will go that low, but prices look to go significantly lower. I do wonder what will happen to all the recently (over-?) hyped alternative energy sources such as ethanol. As I write this oil is at $63.30/barrel (-0.75), and natural gas is down ~10% today ($4.89, down 0.56, a 2-year low). I’m waiting for the cries that this is all some Rovian/Bush conspiracy just before the elections.

In an a new attempt to show that he really isn’t a Republican, Gov. Arnold Schwarzenegger endorses a bill that will “combat global warming”,

Republican Gov. Arnold Schwarzenegger and Democratic leaders endorsed landmark legislation Wednesday that could serve as a national model for combating global warming and, according to Silicon Valley business leaders, spur a wave of cleaner-burning energy technologies.

“This is groundbreaking legislation,” said Rafael Aguilera, a climate change expert for Oakland-based Environmental Defense. “It sends a clear message to Washington and the rest of the world that California is serious about a low-carbon future.”

And along with it even higher energy prices than the state already has (some of the most expensive in the nation). Some were clearly aware of this,

The bill, AB 32, mandates that California reduce greenhouse gas emissions by 25 percent — to 1990 levels — by the year 2020. Major carbon-emitting industries will be forced to report their emissions to the state Air Resources Board, which will craft regulations to reach those goals. Those regulations would take effect in 2012.

Opinion within the business community was divided. Some business groups argued the measure could dramatically increase energy costs for companies, hurting the state’s business climate and potentially causing some companies to leave California.

Potentially? There is no potentially about it when it comes to larger business such as refining large scale manufacturing.

But business interests in Silicon Valley, including prominent venture capitalist John Doerr and alternative energy company executives, lobbied heavily for the bill. They said it would spur investments in energy technologies such as solar, wind, coal gasification and fuel cells, which can produce energy with low or no emissions of greenhouse gases and other pollutants.

Ahhh rent seeking in action. And misleading as well. Putting in a bunch of solar panels might reduce green house gases (GHGs), but it might very well increase other types of pollution. For example, a large solar array out in the desert could adversely impact the environment.

PG&E, the major California utility, also issued a statement Wednesday backing the legislation.

Sure why not. After all, they will likely be one of the main entities to implement much of the legislation via their power purchases. And who cares if their costs go up, they’ll just go to the State Public Utilities Commission (PUC), point to the law, point to their costs, argue reasonableness–which they’ll likely win–and then pass on the costs to their customers.

One of the main sticking points in negotiations over the legislation was the role of a so-called “cap-and-trade” program, which would create a marketplace for trading carbon emissions. It would work like this: If a company reduced its carbon emissions to levels below the mandated cap, it could sell its remaining “credits” to another business that was unable to reach the cap.

Gov. Arnold Schwarzenegger insisted that such a system be a mandatory part of the state’s regulations. Democrats, concerned that a “cap-and-trade” system could cause disproportionately more pollution in low-income communities, pushed for such a system to be optional. Schwarzenegger ultimately relented on that and other negotiating points, although both sides said a cap-and-trade system will likely be adopted.

What a load of baloney. We are talking GHGs here for the most part and these things do not respect community boundaries. I know for a fact that very, very well to do neighborhoods have really poor air quality while less well-to-do neighborhoods have very good air quality. For example, if you are in a less well-to-do neighborhood and are somewhat close to the beach and not up against the mountains around L.A. you wont have same crappy air that one would find in San Marino–a very well-to-do neighborhood.

A cap-and-trade program actually makes sense because in has an added incentive to reduce GHG emissions over-and-above reducing the costs of doing business.

One thing that was not addressed in the article, and I’d be cursious to see if it is in the legislation, is what to do with low income consumers of things like electricity. After the 2000/2001 electricity crisis the PUC protected such customers from the rate hikes. Not only that, but periodically the criterion for becoming one of these low income customers has been periodically increased. The result is that a very large segment of the residential consumers of electricity are protected from the high rates. These people have less incentive to consume than those not on the “low income” rates. If a similar policy is put in place with regards to the GHGs then this bill will likely fail in curbing GHGs and increase electricity prices futher for businesses and non-”low income” residential customers.

Personally, I expect this to be one big gigantor fiasco. That is what we had with deregulation, and why should we expect the politicians to have learned anything from that? In fact, we should expect the politicians to have learned nothing. California has term limits and many of the politicians that were in office that brought us the 2000/2001 crisis are now out of office for that reason. Those now in office have to come up to speed on the issues and it is a very steep learning curve. California…the land of fruits and nuts.

Fed Chairman Ben Bernanke testified before Congress that the higher oil prices could make inflation worse. This in turn could lead to higher interest rates.

Federal Reserve Chairman Ben Bernanke told Congress Wednesday that although economic activity is moderating, record-high oil prices have the potential to make inflation worse.

It’s a development that bears close watching, he said.

Delivering his second economic report to Capitol Hill, Bernanke also stressed that these are difficult and uncertain times for Fed policy- makers, saying the climate of slowing growth and rising inflation puts the Fed in a tricky spot in terms of setting interest rates.

No kidding. Bernanke is a new Fed Chairman and if he wants to be seen as a hawk on inflation he may be willing to send the economy into a recession to build up that reputation. Higher interest rates coupled with higher oil prices could push the economy into a recession.

OPEC President Edmund Daukoru has stated that the run up in oil prices is “very uncomfortable” and that there are worries it could have a negative impact on the world economy.

Daukoru, who is also Nigeria’s top oil official, told Reuters the Israel-Hizbollah conflict was responsible for the latest spike, which saw U.S. crude oil futures hit $78.40 a barrel last week, and that OPEC had plenty of spare production capacity should it be needed.

“If it would have stabilized around the mid-60s, I don’t think people would complain too much. We are getting used to that, but the latest shootup to the mid-70s and above is very uncomfortable,” Daukoru said on the sidelines of a conference in the Nigerian capital.

“Clearly the latest flare-up between Israel and Hizbollah that is really the reason for the latest spike,” he said. “It is always unfortunate if we have to address issues outside the power of OPEC.”

High prices bring more revenue to OPEC in the short term, but exporters worry that sustained increases hurt the global economy and encourage consumers to invest in alternative energy.

From an economic theory perspective this contains some interesting issues. Note there is the short term/long term trade offs facing OPEC. Higher oil prices today mean higher oil revenues today, but down the road consumers will cut back, look for alternatives/substitutes and future revenues could be lower at all prices. Similarly, consumers have a trade off, wait and see if the high prices are transitory or take the plunge and invest in more expensive alternatives such as a hybrid car, or something else.

On top of this there is the consumption from growing economies like the Chinese economy as well. The CBO is estimating that under their slower demand growth scenario the impact on U.S. gasoline prices could be $0.19/gallon, and under the higher growth scenario as much as $0.38/gallon.