Whither Cap & Trade?

Just a year ago it seemed a near-certainty that the US would eventually adopt some form of cap & trade mechanism for greenhouse gases (GHGs). After repeated failed attempts to pass cap & trade legislation in the Senate, the House of Representatives narrowly passed the Waxman-Markey bill, HR-2454, and the Senate was expected to follow, bolstered by a filibuster-proof Democratic majority and urged on by a popular new President. Then came the divisive debate over healthcare legislation, the off-year election of Republican Scott Brown in Massachusetts, Climategate, and an oil spill that among other things derailed the latest bi-partisan (tri-partisan?) Senate climate bill. Today, the prospects for climate legislation remain highly uncertain, while the clock runs out on the current Congressional session. And if all that weren't enough, the EPA has just issued new regulations covering interstate emissions of conventional air pollutants that could effectively terminate the highly-successful sulfur-dioxide market upon which cap & trade for GHGs was based. Can cap & trade survive these travails, and should it?

Time will tell whether Waxman-Markey represented the high-water mark of cap & trade in the US, or if the hiatus since then has merely been a pause in a long process of refining and ultimately adopting this approach. Heaven knows W-M was a highly-imperfect vehicle for cap & trade, with its allocation of emissions allowances skewed to the highest-emitting sector and with hundreds of pages of extraneous provisions that could set up all sorts of unintended or undesirable consequences. The last year has also seen a proliferation of variations on cap & trade that call into question the original formulation of an economy-wide cap on emissions implemented by means of requiring emitters to purchase allowances from a gradually-shrinking national pool of emissions credits, with the proceeds doled out by Congress for purposes including clean energy R&D and deployment, deficit reduction, and mitigation of the impact on consumers and selected businesses. The Cantwell-Collins bill, for example, proposes returning most of the allowance revenue directly to consumers, while the Kerry-Lieberman bill would exclude the transportation fuels sector from cap & trade, but impose on it a sort of carbon tax based on the price of traded allowances. Both of these approaches have complex pros and cons, and as with original cap & trade their effectiveness at reducing emissions without imposing crippling costs on the overall economy depends critically on their detailed provisions, negotiated exceptions, and how they would actually be implemented.

Cap & trade has also come under fire on more fundamental grounds. Some critics have questioned the desirability of creating a vast new financial market for emissions when the shortcomings of other financial markets have caused so much harm, while others have suggested that investing in innovation to make low-carbon energy and efficiency much more cost-effective has greater potential to reduce emissions in a world in which developed-country emissions are being eclipsed by those in developing Asia.

Against this backdrop EPA Administrator Jackson's repeated assurances that she prefers legislated cap & trade to enforcement under the Clean Air Act have become increasingly divorced from reality. Her agency's determination to proceed with enforcement next year if no bill is passed, coupled with its newly-issued rules for power-plant pollution, serve mainly to remind the market that emissions allowances are not a new form of fiat currency, with intrinsic value backed by fractional reserves and the full faith and credit of the US government, but a fragile construct, the value of which can be eroded or erased at the whim of this and other regulators or the courts. Today's Wall St. Journal describes the impact of the new air pollution rules on the SOx market. Any potential participant who imagines that something similar couldn't happen to a future greenhouse gas allowance market is not paying attention.

So despite the apparent enthusiasm of the majority party's Senate caucus for enacting some kind of comprehensive climate and energy bill this year, presumably including elements of cap & trade, we're left with serious questions about whether this is an idea whose time has come and gone. From my perspective, putting a price on GHG emissions is still an essential step if we're serious about reducing them by more than the amounts that have resulted from the inadvertent combination of the recession, cheap natural gas, and existing incentives for renewable energy and efficiency. Cap & trade still has significant theoretical advantages over an arbitrary carbon tax as a means of imposing such a price, but as we've seen the likelihood of cap & trade being enacted in such a pure form seems low in the messy world of US politics--perhaps as low as the chances of a pure and simple carbon tax.

The odds against cap & trade look long at this point. Realistically, the time left for bringing a full-blown climate bill to a vote in the Senate is measured in weeks, rather than months, before the dynamics of the mid-term election campaign take over. Notions of passing an energy-only bill and then grafting on Waxman-Markey's climate provisions via a House-Senate conference committee seem even less likely to produce a mechanism that could survive the political upheaval that the mid-terms appear likely to produce. Nor should anyone be considering the last-gasp option of trying to pass climate legislation in a lame-duck session after the November election. As the Congressional Budget Office recently determined, any sort of controls on emissions are likely to reduce overall US employment--"green jobs" notwithstanding--so getting this right must be treated as more important than just getting something through before the current window closes. I will be watching developments in the weeks ahead with great interest.

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Rejecting Reactive Energy Policy

I see that BP now thinks it might be able to cap its leaking Macondo well this month, rather than sometime in August, barring a major hurricane or other disruption. That can't come a moment too soon, and not just for the obvious reasons. Every day that the well continues to spew oil into the Gulf of Mexico contributes to the mounting appearance of panic among policy makers, who have allowed--willingly or otherwise--the oil leak to hijack our progress towards a sensible energy policy that addresses both energy security and greenhouse gas emissions, based on a rational assessment of the tools available now and the timing of future options. The sooner the oil spill is off the front page, the sooner work can resume on that effort.

One of my old commodity-trading mentors liked to remind his more junior colleagues to "sell the news and buy the facts." By this he meant that those who get carried away by the emotion of current events are liable to be whipsawed when reason returns with a little time and perspective. More than a few members of Congress and the administration could benefit from that insight right now, as the understandable reaction to the oil spill whips up exaggerated rhetoric concerning our addiction to oil and the prospect of ending it sometime soon. Funny that we don't hear much about Europe's addiction to oil, which at least in terms of its relative reliance on oil imports looks even more serious than ours, despite astronomical motor fuel taxes and an emphasis on biodiesel that nearly matches our focus on ethanol. Since Europeans have consistently focused on this problem for years, perhaps it's just not as easy to solve as some Representatives and pundits imagine. If that's true, does it make sense to divert our focus away from a comprehensive approach to both emissions and broadly-defined energy security, in order to zero in on the most daunting element of both concerns?

First consider the oil-security portion of the problem, which in many ways was clearer in 2008, when oil prices zoomed past $100/bbl and headed for $150, until both they and the economy broke later that year. Americans got the message that conservation and efficiency were the top priorities for dealing with the cost of our oil addiction. The oil spill doesn't alter that. Although prices have come down considerably since mid-2008, they remain well above the pre-2004 level of $20-30/bbl or so, when gasoline was consistently under $1.75/gallon. As a result of those pressures, motorists cut back on their driving, and the Congress enacted--and this administration implemented--the most significant increase in Corporate Average Fuel Economy requirements in a generation, taking the new-car average CAFE standard to 34 mpg by 2016, including both passenger cars and light trucks/SUVs. Based on forecasts by the Energy Information Agency of the DOE, these rules, along with prudent conservation, should reduce US gasoline consumption by 2.6 million barrels per day by 2030, compared to pre-CAFE forecasts. And although I've disagreed with some of the specifics of these regulations, particularly for failing to correct outdated assumptions and allowing carmakers to double-count the benefit of electric vehicles, these new standards will eventually transform the US vehicle fleet and the energy it consumes.

We also shouldn't allow our revulsion at the oil spill to blind us to the emissions implications of our energy choices. In 2008 oil accounted for over 37% of US primary energy consumption and 35% of our greenhouse gas emissions, while coal contributed 22.5% of primary energy but 30.5% of emissions, including a whopping 91% of the CO2 emissions from the electric power sector. That distinction is crucial, because while we still have limited and only partially-effective substitutes for oil in transportation, where most of it is used, we possess a wide array of options for reducing the emissions from electricity generation, which consumed just 1.3% of total US oil demand last year. Several of these are economically viable today, though most require some level of subsidies or incentives. Nuclear power and geothermal energy are effective low-emission alternatives for baseload generation, while natural gas and renewables are already making significant inroads into coal's market share of overall power demand. And if implemented on a large-scale, integrated basis, carbon capture and sequestration could enable coal to continue to compete in a low-carbon electricity marketplace.

None of this suggests a return to the pre-spill status quo. The impact of the spill on the oil industry and the regulations that govern it will be significant and long-lasting, as it should be. At the same time, it would be hard to assess all of the public evidence assembled so far and not conclude that the accident that destroyed the Deepwater Horizon rig and led to the uncontrolled leak of many thousands of barrels per day of oil into the Gulf was entirely preventable--not by a ban on drilling in deep water, but by prudent adherence to sound operating principles and practices and the consistent enforcement of regulations to ensure that adherence by even the least-cautious operators. Yet as necessary as creating a universal culture of safety and caution in offshore drilling is, we can't let this urgent task divert our attention from the important long-term drivers of US energy policy and the actions--many already underway--necessary to address them. Good energy policy can handle all of this, while overly-reactive policies focused on the Macondo spill and the political opportunity it presents risk misallocating our priorities and creating a legacy that would make our long-term energy situation even more challenging than it already is.

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Putting Energy Security At Risk

In catching up on a week's worth of news after my vacation, several stories caught my eye. The US Congress is apparently renewing its effort to cut tax breaks for the domestic oil & gas industry, while the administration intends to reinstate the offshore drilling moratorium that had been set aside by a federal judge in Louisiana. At the same time, 50 members of Congress have written to Secretary of State Clinton asking her to block a new pipeline to carry crude produced from Canadian oilsands to US refineries. However, even when you factor in the energy contribution of new initiatives such as the $2 billion in loan guarantees for solar power projects announced last week, the net result of all of this would be to undermine two of the central pillars of US energy security for the last several decades: producing more energy here at home and importing energy preferentially from stable and friendly neighbors like Canada and Mexico. For all the lip service about energy independence prompted by the Gulf Coast oil spill, these actions would ultimately make us more reliant on OPEC and unfriendly regimes.

Start with the industry subsidies, which Representative Blumenauer (D-OR) indicates are worth $6 billion per year. Setting aside the important context that these represent reductions in industry tax rates that even after these benefits are still higher than those most other US industries pay, this works out to an average of just $0.18 per million BTUs worth of domestic petroleum and natural gas production, or about $1.05/bbl. Compare that to $18.90/bbl in subsidies for corn ethanol and the equivalent of $2.60 per million BTU for electricity from wind and other renewable sources. As I've noted many times, oil & gas subsidies amount to a lot of money--though ethanol subsidies will come close to exceeding them in aggregate this year--not because they're overly generous, but because the scale of oil & gas still dwarfs all renewables combined.

I'm not a big fan of any of these subsidies, and I think it's high time that the ethanol subsidy, in particular, be brought more in line with its net energy contribution. At the same time, if we want a domestic energy industry that can make a meaningful contribution to covering our needs, then some level of tax breaks and other benefits appears necessary. And while the oil & gas industry is certainly mature and profitable, relative to biofuels and renewable electricity, it is also a global industry that competes with producers around the world, many of which are owned by the same OPEC members that have set the current oil price through effective constraints on their own production. And when drilling eventually resumes off the Gulf Coast, it is guaranteed to be much more costly. Adding higher taxes to these higher costs and tighter regulations must inevitably result in fewer wells being drilled and more oil imported--and from where?

Not from Canada, if the signers of the oilsands letter get their way. Oilsands production raises legitimate environmental concerns, both locally and globally. Producing oil from these deposits results in higher greenhouse gas emissions, though environmentalists usually fail to mention that tripling the emissions from production, compared to conventional oil, raises the total lifecycle emissions of the oil by just 17% compared to the average barrel refined in the US, because the vast majority of those emissions occur when the resulting petroleum products are burned, not when the oil is produced or processed. Now, a 17% increase in emissions is not nothing, but it must be weighed against two other factors. First, if oil prices are high enough, this oil will likely be produced anyway, even if we don't take it. Canadian companies have already signed deals to send oilsands crude to China, and they would do more of this if we turned up our noses at the stuff. Secondly, there's no guarantee that the oil we'd import from elsewhere would result in substantially lower emissions. That's particularly true for crude produced from heavy oil deposits in Venezuela and elsewhere, which average 14% higher lifecycle emissions.

Canada has been our largest foreign oil supplier for years, but with oilsands making up a steadily-growing share of Canadian output, restrictions on our oilsands intake would torpedo that relationship. With Mexican production going into steep decline, we would have to import more from Russia and the Middle East to make up the difference. That doesn't sound like a recipe for energy security to me.

Nor can greener sources close this gap any time soon. If you doubt that, take a look at Abengoa's Solana concentrated solar power project, which the Department of Energy just awarded a $1.45 billion loan guarantee. This technology uses the sun's energy to generate steam for electricity production, and its thermal storage allows it to do so more reliably, and over a longer portion of the day than photovoltaic cells. This is one of the most promising renewable energy technologies available, though at an effective cost of over $5,000 per kW of capacity it's hardly cheap. Yet when you convert its annual power output into equivalent barrels of oil (via the quantity of natural gas it would likely back out) it works out to less than 3,000 barrels per day. Replacing the energy contribution of Gulf Coast drilling or Canadian oilsands imports would require hundreds of such facilities, along with tens of millions of electric cars to enable their output to substitute for oil, very little of which is used to generate electricity in the US.

While renewable energy sources must inevitably meet a growing proportion of our energy needs in the years ahead, for the present US energy security still hinges on oil, which accounts for 92% of our net energy imports. If the Congress is serious about enhancing US energy security, then it should focus its efforts on reining in consumption, rather than erecting further barriers to oil produced here in the US or by our most reliable foreign supplier.

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The Energy Transition Is Already Underway

Lately I've been struck by the number of new groups and proposals calling for America to begin the transition to cleaner energy. We even heard this call from the Oval Office several weeks ago. Yet while there's clearly much more to be done to wean ourselves from our reliance on oil and other high-carbon fuels, I'm baffled by the suggestion that this process didn't actually begin long ago--not just in the last year and a half--with policies and R&D initiatives put in place by at least the previous two administrations. Perhaps it's fashionable to ignore our progress to date, because acknowledging it serves as a reminder that the process will require decades to complete, and that the end-point might not resemble the one we imagined when we began.

Let's start by recognizing that a massive energy transition is already well under way on many fronts, including the development of advanced biofuels, nearly-mature wind power, highly fuel-efficient vehicles, electric vehicles, solar power that's not just a science fair project, and a range of other technologies and policies for reducing oil consumption and greenhouse gas emissions. These didn't just appear spontaneously; most required literally decades of effort to get to this point. So if we're already headed down this path, rather than arguing about starting out should we rather be asking how much we can do now to accelerate this shift?

Take fuel economy, which seems simple, because we all understand miles per gallon, or think we do. But how many people realize that the incremental fuel savings from higher mpg shrink as mpg increases? The chart below shows the annual fuel consumption for a car driving 12,000 miles per year, about the national average, versus fuel economy in mpg. The improvement in Corporate Average Fuel Economy of new cars between 1978 and 2008, from about 20 mpg to 27 mpg, has already saved a very substantial 160 gal/yr per car, while the increase to 34 mpg by 2016, the new CAFE target, will save another 90 gal/yr. However, advancing from there to 44 mpg, roughly equivalent to the 2012 EU target of 130 grams of CO2 per kilometer, would save only an extra 80 gal/yr. That's no reason not to move ahead with more efficient cars, but we must recognize that we've already captured the steep part of a curve that is now flattening out, as the cost/benefit of each successively-harder increment diminishes, unless they burn no oil at all. That's where biofuels and EVs come in.
The Renewable Fuels Standard established by Congress in 2007 calls for a quantity of advanced and cellulosic biofuels by 2022 that exceeds what we currently get from corn ethanol. The problem is that at this point, after many years of hard work developing these technologies, there is not a single commercial-scale cellulosic biofuel facility design that has been built, tested and certified for profitable replication on the scale required, despite a special production tax credit of $1.01/gal. Nor do I conclude that's for lack of the government, private investors and big companies like ExxonMobil, Chevron, Shell, and BP throwing plenty of R&D dollars at the challenge. Within a few years we might be at the point at which billions of extra dollars for advanced biofuels would result in hundreds of such facilities actually being built, but then plenty of experts thought we would already be at that point by now, including the EPA, which had to ratchet back its cellulosic ethanol quota for this year from a level equal to the annual output of one corn ethanol plant to the quantity that a corn ethanol plant produces every three weeks or so.

The prospect for EVs looks more immediate--though still on a relatively small scale--with GM and Nissan launching flagship models later this year. However, as I noted in a recent webinar, every million EVs running entirely on electricity would save 31,000 barrels per day of gasoline, or about 0.3% of our current usage, and that's assuming they would replace cars getting today's average mpg, rather than Prius-type non-plug-in hybrids, as seems likelier to me. It's going to take a whale of a lot of EVs to make a real difference, and it's not yet obvious that offering more than the current $7,500 in consumer tax credits to buy them, or handing out more than the billions that have already been given to car companies--including some that have never built a mass-produced car--is going to put a lot more of these vehicles on the road in the next few years than would happen under existing policies that are still playing out.

However attractive energy visions such as the President's might be, even to me, there are practical limits to additional activism at a point when so many wheels have already been set in motion. I do understand that the nation is riveted by the oil spill, and that transforming this interest into support for a broader energy agenda could be a once-in-a-generation opportunity. At the same time, I worry about an approach that relies on expanding already-unsustainable financial incentives for clean energy deployment at a time when the deficit has taken on the aspect of a black hole threatening to devour our future, energy and otherwise. To see the energy transition really take off, we must reach the point at which the alternatives are unambiguously better/faster/cheaper than oil, or can at least match its cost and convenience in its primary transportation energy uses, and are not merely better for the environment--as important as that is. We're not there yet, but we've clearly already begun the journey.

Energy Outlook will be on holiday the rest of this week and through the July 4th weekend.

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Where's the Peak?

I've been going through the International Energy Agency's new forecast for medium-term oil and natural gas markets, issued yesterday. In contrast to the IEA's warnings of last summer concerning an imminent oil supply crunch, the agency now sees ample supplies to accommodate the level of demand growth it anticipates for the next five years. Yet while this scenario does not envision a peak in global oil supplies before 2015, its components offer ample cause for concern about the growing market power of OPEC and the risk of geopolitical disruptions. It also signals the growing importance of non-traditional sources of liquid fuels, including natural gas liquids (NGLs) and biofuels, which are included in the IEA's oil supply & demand balance.

The headline features of the IEA's oil forecast include continued growth in global oil capacity from 91 million barrels per day (MBD) in 2009 to 96.5 MBD in 2015. This is driven by the growth of OPEC's capacity, the NGL output of a global natural gas expansion that the US shale gas boom has accelerated, and increased production of ethanol and other biofuels. IEA sees this combination as more than sufficient to counteract a roughly 3.5% annual decline in the output of existing oil fields, including a peak and net decline in non-OPEC production within the next year or two. The latter won't surprise anyone who's been following the Peak Oil issue, but it's all the more worrying when you consider that it doesn't include the impact of project delays owing to the on-again, off-again US deepwater drilling moratorium, which the administration seems determined to switch back on.

This picture is fraught with risks and vulnerabilities, including the prominent role of Iraqi oil revitalization projects, which appear to account for half of the growth in OPEC crude oil capacity in the period. Although there's ample scope to stimulate more output from Iraq's mature fields, and the potential of its undeveloped fields represents the largest conventional oil opportunity in the world, none of it will come to fruition if the county doesn't remain quasi-stable. This might be one area in which the reassignment of General Petraeus to Afghanistan from his CentCom post, where he retained oversight of the Iraq security situation, might not look so positive.

Then there's that shift toward NGLs and biofuels, including the IEA's somewhat surprising prediction that while biofuels will continue to grow globally, the rate of growth will slow, with US output reaching a plateau long before it has attained the targets of the Renewable Fuels Standard. They also appear to be even more skeptical than I am that cellulosic ethanol is on the verge of scaling up rapidly. The larger problem is that both of these sources constitute what I would call "hamburger helper" for oil. Neither ethanol nor first-generation biodiesel (FAME) constitutes an effective gallon-for-gallon substitute for petroleum products, except in blends limited by both infrastructure and legacy vehicle fleets not equipped to handle more than small percentages of these fuels. NGLs provide propane and butane essentially indistinguishable from crude-sourced LPG and just as useful for petrochemicals and heating fuel, but they yield much less in the way of gasoline components, and the ones they do require significant processing to boost their octane, now that tetra-ethyl lead is out of the picture.

On the demand side, things look pretty much as we'd expect in the aftermath of a global recession that hit the developed world harder than the big developing countries--BICs, if not BRICs. As was true before the financial crisis, however, the Middle East contributes the second-biggest source of new demand, after Asia. That means continued growth in domestic demand within some of today's largest oil exporters. Even if that doesn't lead to "peak exports", it buttresses the fundamental shift in global market power underpinning a forecast that might otherwise appear calming to markets.

Anyone looking to the IEA for signs of an imminent peak in global oil supplies won't find it in their Medium Term Oil and Gas Markets 2010 report. What I see instead is a continuation of the world we are already in, with OPEC holding the trump cards. Traders tend to focus on the weekly fluctuations of oil market inventories and indications that supply or demand may grow or shrink in the months and years ahead. Yet while the release of this report, together with another build in US crude inventories this week, reportedly contributed to the $2/bbl drop in oil prices in the last two days, these reactions seem oblivious to a larger reality. With more than 5 million barrels per day of OPEC production capacity shut in, the main reason that oil is trading in the mid-to-high $70s, rather than the mid-to-high $40s, is that OPEC is functioning as a truly effective cartel that is much happier with higher prices. Politicians looking for another economic stimulus might consider the anti-stimulus that oil prices are currently providing, and the consequences of policies that could hand even more power to OPEC in the short-to-midterm.

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Revulsion vs. Hard Choices

I don't know anyone who could gaze at the images of oil-slimed pelicans, gulls, and sea turtles and not feel revulsion and regret. Yet beyond the urgent need to plug the gushing well, protect the coastline and fisheries, and restore the Gulf Coast environment as rapidly as possible, we cannot allow our entirely appropriate emotional response to this tragedy to overwhelm our judgment. As bad as this spill is, our long-term challenges of energy security and climate change remain worse. We would only compound the damage if we allowed our reaction to this spill and its ripples beyond oil to further confuse our energy policies.

In his column in yesterday's Washington Post, Robert Samuelson sharply criticized the President's effort to harness the public's frustration and outrage against the spill into support for his energy and climate change agenda. Mr. Samuelson raised some very salient points concerning the difficulties of attempting to reduce our consumption of fossil fuels at the same time we must meet the expanding energy needs of a growing economy and population. However, I think he missed the deeper contradiction that has been created by the "strange bedfellows" coalitions that have formed since the middle of the last decade, marrying concerns about climate change to the urgent necessity of improving our energy security. As long as the shared enemy was foreign oil--from "countries that don't like us"--these groups could emphasize the overlaps in their positions and mostly ignore the resulting inconsistencies. But with the reaction to the spill turning the political tide against domestic oil as well as the imported kind--and perhaps, by extension, against natural gas derived from the hydraulic fracturing of shale reservoirs--the convenient overlap between climate policy and energy security could vanish.

If that sounds counter-intuitive, perhaps it's because so much of what we've been told by our leaders concerning our energy options has ignored the fundamental mismatch of scale between fossil fuels and our rapidly-growing renewable energy sources. Consider that while US ethanol production has grown by an astonishing 660% since 2000--an average of 23% per year--it still equates to just 2.4% of our annual oil consumption. Non-hydropower renewables, including wind power, which has grown by an even more remarkable 34% per year since 2000, made up just 3.6% of US electricity supply last year. These facts are crucial to the debate, not because these energy sources should be regarded as inconsequential, but because at their current and anticipated near-future output renewables provide a form of energy currency that can only be spent once. If we want to expand wind, solar, geothermal and biomass power to reduce the greenhouse gas emissions from coal-fired power generation, we cannot spend them again on powering electric vehicles to displace petroleum-based transportation fuels. If we want to leverage biofuels to back out imported oil, we can't spend the same biofuels to take the place of oil we won't be getting from offshore wells we aren't drilling. Someday, biofuels and renewable electricity sources may have grown enough to take on all comers, but that day remains over the horizon. And while nuclear power is already contributing on a much larger scale, its expansion will take many years, particularly if we begin retiring older nuclear power plants like Vermont Yankee in the interim.

Natural gas operates in a similar realm of hard choices, though on a larger scale. It currently accounts for nearly one-fourth of our total energy consumption. Last year, with electricity demand down and gas prices at less than half their level of just a few years ago, natural gas-fired power generation made significant inroads into the market share of coal-fired power. That was good for consumers and good for the environment, but it was only possible as a result of the dramatic resurgence of US gas production from the development of shale gas supplies. Together with coal bed methane and gas from tight sands, these unconventional sources now make up half our domestic natural gas output. Yet as with renewables, if we want to use this additional gas to reduce the 40% of US CO2 emissions coming from the power sector, we can't employ the same gas to displace gasoline in cars or diesel in trucks. And without the contribution of shale gas made possible by "fracking", gas would likely be too expensive to substitute for either oil or coal.

We have a wealth of new and old options for addressing both our greenhouse gas emissions and our reliance on imported oil. However, at this point that bounty of choices does not extend to backing out all oil while still reducing emissions. With biofuels and renewable electricity already fully committed to our established energy priorities, our only large-scale option for foregoing the enormous energy resources embodied in the deepwater oil reservoirs of the Gulf Coast--other than simply ramping up oil imports--would require converting coal into liquid fuels. We have off-the-shelf technology to do this, but unfortunately not yet to contain the large increase in CO2 emissions that would accompany such a strategy. Perhaps before we commit ourselves to anything beyond the shortest suspension of deepwater drilling necessary to ensure that it can proceed safely, we should clarify what our national energy priorities really are. A change in the implicit direction in which we've been heading could have far-reaching and enormously expensive consequences, including for the environment.

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Expand the Presidential Commission on Deepwater Horizon

Amid the other news this week, including the President's address to the nation on the Gulf Coast oil disaster and his meeting with BP officials yesterday, the announcement on Monday of the five remaining members of the Presidential Commission to assess the "environmental and safety precautions...to ensure an accident like this never happens again" seems to have sunk without a trace. I don't recall seeing it mentioned in either the Washington Post or Wall St. Journal. I ran across it in the New Orleans Times-Picayune online last night. Yet it's clear that the staffing of such a commission has an enormous influence on its approach and ultimate findings, and on both counts I am seriously concerned. From my review of their published bios, I cannot discern that any named member possesses any direct training or experience with the technology and practices of offshore drilling, a field that in its own way is every bit as complex as aviation, terrorism, or other past subjects of similar commissions.

The gold standard for Presidential commissions investigating accidents of national importance was set by the Rogers Commission on the explosion of the Space Shuttle Challenger shortly after its launch on January 28, 1986. The commission--not just its technical staff--was packed to the rafters with figures of national prominence and deep expertise in aviation and space technology and operations. Headed by former Secretary of State William P. Rogers, it included Neil Armstrong, the first astronaut on the moon, Dr. Sally Ride, first American woman in space, Gen. Chuck Yeager, first pilot to fly faster than the speed of sound, Gen. Donald Kutyna, an expert on spacecraft launches and accidents, and Joseph Sutter, the "father" of the Boeing 747, along with an aeronautical engineering professor, an aircraft designer, a solar physicist, and several other leading experts on aerospace matters. Last but never least was Richard P. Feynman, Nobel Prize-winning physicist, quintessential iconoclast, and perhaps the smartest and most inquisitive human being ever to walk the earth, with the possible exception of Albert Einstein. It was, of course, Dr. Feynman whose famous ice-water experiment with the solid rocket boosters' O-ring material uncovered the root cause of the disaster.

Each of the fine individuals President Obama has named to the Deepwater Horizon Commission brings valuable experience and an important perspective, including that of a professional environmentalist, biological oceanographer, an accomplished physicist and manager of science, and a pair of lawyers with past experience in various aspects of the Exxon Valdez spill and cleanup. I have no objection to any of them individually. However, collectively they are not a patch on the Rogers Commission.

The obvious solution to this problem is that the President should immediately expand the commission to include at least two additional members, and preferably four, with deep expertise and experience in oil & gas drilling, geoscience, and offshore industry operations. It is absolutely essential that the commission includes people who understand not just the ocean environment, but also subsea geology, drilling technology, and relevant oil & gas industry practices, first-hand. They should of course have no connections to BP or to any other company that stands to lose or gain from the commission's findings. While that might narrow the field somewhat, it would not rule out the faculties of the leading petroleum engineering and geosciences university departments, or a wide swath of recently-retired experts in these fields. The US is blessed with abundant expertise in this area, and it would be a crime to exclude it from this vital study.

Despite a nearly universal desire to accelerate our shift away from petroleum in the wake of this disaster, we are nowhere near being able to turn our backs on either the energy or convenience we get from oil. As I've shown in a series of postings since the accident occurred, offshore drilling is a crucial component of US domestic energy supplies, and no current alternative energy source operates at either the scale necessary to replace it, or in sufficiently direct substitution for the transportation energy of which oil is our principal provider. The less oil we produce domestically, the more we will have to import.

In this context it is of the highest importance that the commission be given the best chance possible to interpret the findings of the technical investigations of what went wrong on the Deepwater Horizon rig, and to determine how to structure an approach to offshore drilling that reduces the risks posed by human error and technical failures to the maximum degree possible. Every member of the commission has important contributions to make in this regard, but without the match between relevant experience and the nature of the problem exemplified by the Rogers Commission, the Deepwater Horizon Commission will be operating at least partly in the dark.

I don't often urge my readers to take action on the subject of one of my blogs, but in this case, if you share my concerns about the omission of critical experience from the staffing of this commission, you should contact the White House and your Representatives in Congress to express that view.

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