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Radnor Geopolitical Report


Houston, May 2008

 

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Strategic geopolitical intelligence for decision-makers

 

 

 

 

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Radnor is a legislative relations and political consulting firm based in Washington, D.C. Radnor has affiliations across the world that allow us to accomplish our clients' objectives. We work with some of the largest businesses in the world as well as some of the smallest entrepreneurial firms and groups.

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Ken Feltman is Chairman of Radnor Inc. He is past-president of the International Association of Political Consultants and the American League of Lobbyists.

 

 

 

 

 

 

Ethanol's roadkill

by Ken Feltman

So we in Congress have a very clear choice. We can take largely symbolic action and sit back and fiddle while Americans burn more gasoline. Or we can pass concrete, effective legislation that will save consumers money while significantly reducing U.S. oil consumption.

- Rep. Sherwood Boehlert (R-New York, 1983-2007)

The corn-ethanol lobby is well organized, aggressive and nasty. Last year, I wrote three articles saying that corn-ethanol production takes farmland out of food production, uses huge amounts of increasingly scarce water, and leaves poor people in countries such as Mexico hungry because their cost of food increases beyond their means as corn and other grains are diverted to fuel.

After the second article, a biofuels executive threatened that I might become "roadkill" if I did not change the subject. Another corn-ethanol advocate accused me of siding with "an enemy of America" when I wrote that Venezuela's Hugo Chávez accused the U.S. of starving the poor to "feed automobiles." Even enemies can be correct sometimes. Beside, India's finance minister called ethanol "a crime against humanity." So it was not just Chávez who linked higher Mexican tortilla prices with American corn that was diverted to fuel.

Corn-ethanol is a wasteful way to power internal combustion engines. Sadly, corn-ethanol has been portrayed as an "answer" to energy needs. So other possible answers - answers that may not be as "clean" or farmer-friendly - have been neglected. But can anyone doubt that the United States needs to take another look at policies and subsidies for the ethanol industry?

Unfortunately, all the publicity about the wastefulness cannot change things without Congressional action. U.S. public policy - as enacted by Congress - is part of the problem. And Congress has seemed unwilling or unable to change previous misguided decisions. Now, as Congress finally reconsiders, the corn-ethanol promoters are battling to keep the subsidies for corn producers and the corn-ethanol industry.

Decisions create change

Decisions are instruments of change. Leadership involves decision-making. Nothing happens until a decision is made. But if conditions change, the initial decision may need to be changed. Sticking with an obsolete decision is a sign of weakness.

The ethanol industry is trying to prevent change at a difficult time. Armed troops are now protecting crops in the fields and in storage facilities in Thailand and other countries. Egypt, Haiti and several other countries have suffered bloody food riots as food prices have risen. A cyclone has threatened the food supply of more than a million people.

A perfect storm of rising oil prices, food prices and a falling dollar have made millions miserable with gnawing hunger all across the globe. Children are starving. The poorer the country, the more likely hunger is a major problem. The reason may not be just a shortage of food - not yet, anyway. That will come as the population increases and more grain-producing areas are taken out of food production. We are learning that the shortages today are caused partly by stockpiling by speculators who are waiting for grain prices to spike upward even further. This means that major retailers in New York, in areas of New England and on the West Coast are limiting purchases of flour, rice and cooking oil as demand outstrips supply. There are reports that consumers are joining speculators in hoarding grain stocks.

Look at American subsidies of ethanol as a Mexican, a Haitian or a Sri Lankan might: The U.S. looks shortsighted, self-indulgent, even arrogant. Look at the subsidies as the leader of Iran, Russia or China might: The U.S. looks foolish, decadent, even corrupt. Just when the world could use a little U.S. leadership, where is the U.S., usually the compulsive leader? Busy with a politicized boondoggle.

The link between food and fuel

The connection between fuel prices and food prices cannot be doubted by serious people, despite the uncoupling efforts of the ethanol lobby. Major publications are running articles about the food crisis and ethanol's dubious value. Still, the pro-ethanol lobby fights on and attempts to keep the misguided and counterproductive subsidies in place. Because most of the lobbyists are retained by corn producers, they resist redirecting the subsidies from corn to cellulose and other non-food grasses and by-products. That is why the ethanol lobby strikes out with such fury: They are in a tough battle.

Perhaps we need to agree on just what problems we are trying to fight because, depending on whom you talk with in Washington, the current U.S. ethanol production program is designed to combat global warming, create jobs in the farm belt, provide fuel for thirsty vehicles, and on and on. As ethanol has come under recent scrutiny, the ethanol lobby has stressed that ethanol subsidies are just a small part of the overall jump in food prices. True, but that does not mean we should not correct that "small" part. The whole point of ethanol is to replace petroleum. But if ethanol is not an economical or humanitarian solution, what about oil?

Currently, the U.S. is the world's third-largest oil producer after Saudi Arabia and Russia. The U.S. could produce significantly more. Instead of ramping up domestic production, however, the U.S. imports about 60 percent of the oil the country consumes, about a 50 percent increase in imported oil in the last two decades. Remember, these were decades during which the U.S. was supposedly striving for energy independence.

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Increasing domestic production will be difficult. Congress has taken huge tracts and billions of barrels of oil out of production. The tracts include the areas along the two coasts and parts of Alaska and the Gulf of Mexico. According to federal estimates, these areas may contain 30 billion barrels of oil. The petroleum industry has even higher estimates. That compares with the approximately 30 billion barrels of proven reserves that the U.S. has today. But we cannot drill.

Another problem: Operators have a hard time getting permits to expand existing refineries, much less to build new ones. The last new refinery was opened in 1976. A proposal to build a refinery in North Dakota has languished as local groups, including three Indian tribes, have protested. Environmental concerns and "not-in-my-back-yard" opposition are the primary culprits.

Not good-neighbor policies

Imported oil accounts for about half the total annual increase in U.S. demand. Expanded refining capacity makes up the difference but refining capacity in the U.S. is at or near maximum for existing refineries. How much more capacity can the U.S. wring out of aging refineries? Surging demand, especially in developing countries, has nearly exhausted the world's surplus supply. Any unexpected rise in demand or threat to supplies will trigger higher prices, as we have seen. What should Americans and the U.S. government do?

Americans want energy independence. Americans demand cheap fuel. Americans say they want to cut down on oil imports. Americans want alternative energy sources. But Americans also oppose increasing production and refining in the U.S. Many Americans oppose expansion of nuclear energy. Environmental concerns keep many fields and refineries closed or working below capacity or inefficiently. These conflicting attitudes are a recipe for disaster. As we have seen with the cost of tortillas in Mexico, the disaster will hit people in other countries before it will hit U.S. consumers. Americans need to face a harsh fact: U.S. energy policies are not good-neighbor policies.

The flag pin

Not just ethanol brings criticism. Take my comments earlier this month about voter reaction to the lack of a flag pin in Barack Obama's lapel ("Obama doesn't like me," May 2008). Readers defended Obama's explanation that the pin had become a substitute for real patriotism following 9-11. They complained that a flag pin is "meaningless" and "has nothing to do with being a patriot."

Here is what I wrote: "Seemingly 'little things' like flag pins matter because they can put a candidate on the defensive more quickly than issues. If 'little things' cause voters to reconsider their support, then the reconsideration will include big things as well. With Obama, one 'big thing' is the fact that many thousands of voters have supported him despite their disagreement with him on key issues. Successful candidates do everything possible to eliminate the little things."

Like Obama's explanation for not wearing a flag pin, the readers' criticisms were literate, accurate, reasoned, rational - and missed the point. What we have here is a failure to communicate. In this case, Obama is speaking one language - that of the cool intellectual, dispassionately marshalling the facts and making his argument. The middle-ground voters are listening in another language - that of the folks who believe that it is not too much to ask their president to demonstrate a little overt patriotism.

Obama failed to connect with the great mass of voters but was persuasive in communicating with well educated and more liberal voters. The persuaded intellectuals are satisfied. The folks in the middle wonder why Obama did not just get a flag pin and avoid the whole problem.

- Ken Feltman

Increased production is one part of a multi-part answer. Output from established fields, including Alaska's North Slope, is declining. Clearly, however, opening all areas now closed to production will not make the U.S. self-sufficient. But it could reduce reliance on imports. Alternatives energy sources are needed. Wind, solar and other technologies are promising but we may not have the time to perfect them.

Congress and consumer groups complain about high oil company profits but do not let those companies use those profits to explore and produce in the U.S. As it becomes harder and more expensive to assure foreign supplies, the U.S. needs to think domestically. As prices rise, other oil producing countries have less incentive to expand their capacity because they are meeting revenue targets without expanding.

Alchemy to the rescue?

Another answer seems so obvious but the opposition is so relentless.

Last month, a co-founder of Greenpeace came out in favor of expanding nuclear power in the U.S. He did so because he recognizes that coal-fired power plants in the U.S. produce about 10 percent of all the world's greenhouse emissions. Going nuclear would reduce that percentage. True, many people oppose nuclear power and the "not-in-my-backyard" argument is always there. Nuclear energy is not trouble-free energy. Still, attitudes may be changing.

Contrasted with that is the amazingly short-sighted attitude of a key Bush Administration official who claimed to be unconcerned about the U.S. running short of oil without a ready alternative. He said, in essence, that Yankee ingenuity would come along just in time with a new, unlimited and cheap or free source of energy. I suggested that perhaps his approach could be equated to "just-in-time alchemy." He responded that I did not trust the technical genius of the American people.

Oh, I trust the technical genius of the American people. It is the tragic lack of common sense shown by American policymakers that worries me.



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