Video: To drill or not to drill?   

By Tom Curry National affairs writer
updated 8/6/2008 3:21:08 PM ET 2008-08-06T19:21:08

This election cycle, is presenting a weekly series assessing the issues and controversies that the next president will confront once he takes the oath of office.

In this Briefing Book, we look at the price and supply of energy and the presidential candidates' proposals for addressing this crisis.

Why it’s a problem
If you live in California and drive 30 miles to work, five days a week, you’re paying about $14 more now for your weekly commute than you were paying last year at this time.

And as those prices continue to rise at local gas stations, motorists across the country are being forced to reassess work routes, carpooling, and whether or not to take that summer vacation.

And driving isn't the only thing that's costing more these days.

The rising cost of fuel has also led to increased airfares, extra fees for checking bags, and a moratorium on free in-flight snacks.

And in a recent cost cutting move, U.S. Airways will no longer be providing in-flight entertainment to some of its passengers. The airline hopes to save on fuel by removing the 500-pound movie systems from its domestic routes.

Food prices are also up around the country, thanks in part to higher shipping costs.

It's a reality that's reverberating throughout the world of freight transport. Package delivery giant FedEx recently recorded its first quarterly loss in 11 years due to soaring fuel costs.

Meanwhile, American oil and gasoline consumers are discovering that they’re not the only ones in the world.

Crude oil demand in China has grown by nearly 20 percent over the past four years, even as oil demand in the United States declined by four percent.

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As China’s consumption grows, there's added pressure to the global oil market, which in turn, drives up demand and prices.

Where the candidates stand
Republican presidential candidate Sen. John McCain has proposed a $300 million government-funded prize for the inventor who could produce a car battery — one that would reduce electric vehicle costs by 70 percent.

McCain also said that he would offer a $5,000 dollar tax credit for every customer who buys a car that doesn't emit carbon dioxide.

The candidate has also pledged to eliminate mandates, subsidies, and tariffs that exclusively benefit producers of corn-based ethanol.

This would include the 54 cents-per-gallon tax on imported ethanol.

Video: Energy clash In 2006, Obama argued that the U.S. tariff on imported ethanol must be kept in place in order to protect "home-grown renewable fuels" from foreign competition.

McCain has proposed a temporary halt in the federal excise tax on gasoline during summer driving months, an idea Obama ridiculed.

Expressing concern over the environmental effect of greenhouse gas emissions, McCain is also encouraging the building of 45 new nuclear power plants — an energy alternative without greenhouse gas emissions.

McCain has also said he would persuade Congress to end the current moratorium on oil and natural gas drilling in the Outer Continental Shelf.

In 1995 and 2005, McCain voted to open part of Alaska’s Arctic National Wildlife Refuge (ANWR) to oil drilling.

But prior to the 2005 vote, McCain denounced Sen. Ted Stevens, R-Alaska, for attaching the ANWR drilling provision to a Pentagon spending bill, calling it “disgusting” and “disgraceful” for the Alaska senator to add an unrelated and contentious measure to a bill with money needed for troops overseas.

Video: Drill for U.S. black gold?

As it turned out, Stevens failed to get the 60 votes he needed and ANWR drilling was blocked.

McCain's opponent, Democratic Sen. Barack Obama, until recently opposed additional offshore drilling, arguing that it would take at least five years for the move to lower gasoline prices.

But in a significant change of position, Obama on Aug. 1 said he would be willing to support limited additional offshore drilling.

He said he would make this compromise if it were necessary to get enough votes in Congress to pass a comprehensive plan to encourage fuel-efficient vehicles and develop alternative energy sources.

"My interest is in making sure we've got the kind of comprehensive energy policy that can bring down gas prices," Obama said in an interview with The Palm Beach Post.

"If, in order to get that passed, we have to compromise in terms of a careful, well thought-out drilling strategy that was carefully circumscribed to avoid significant environmental damage — I don't want to be so rigid that we can't get something done."

Both McCain and Obama support legislation to force American companies to reduce emissions of carbon dioxide and other greenhouse gases.

Obama has said that the 2005 energy bill for which he voted "contained irresponsible tax breaks for oil companies that I consistently opposed, and that I will repeal as president."

"But the tax credits in that bill contributed to wind power growing 45 percent last year, the sharpest rise in decades," he continued.

"If John McCain had his way, those tax credits wouldn’t exist."

McCain voted against that bill.

Obama has said that he would provide $150 billion in subsidies over ten years to companies that produce wind power, solar power, and bio-fuels.

The Democrat has also said he would seek to impose a new tax on energy companies' "windfall profits" and would send $500 to individuals and $1,000 to married couples to help with gasoline and home heating costs.

In 2006, Obama introduced a bill to allow the federal government to pay part of American automakers' retiree health care costs. In exchange, the companies would invest in building more fuel-efficient cars.

Unanswered questions
If Congress enacts a law to limit emissions of carbon dioxide, as desired by both McCain and Obama, how will American energy companies and manufacturers cope with its requirements? Will additional costs be passed on to consumers?

Neither Obama nor McCain has fully addressed how such a complex bill would be administered.

A version of that greenhouse gas legislation, which the Senate debated but did not pass last month, is almost certain to be brought up for reconsideration next year.

That bill would set up a Technology Development Fund which will have more than $500 billion at its disposal over 20 years — money collected from carbon dioxide emitters.

How will that fund — perhaps the most powerful federal agency created in many decades — parcel out the money? Which "clean technology" firms will it subsidize?

Another uncertainty is technological innovation itself.

For instance, how quickly will major automobile manufacturers develop an electric car that middle-class Americans can afford?

Will innovators be able to respond to McCain's $300 million battery prize?

As for Obama's goal of helping to put one million plug-in electric vehicles on the market by 2015, questions remain. Will consumers choose to buy them? What will be the price and the dependability of such vehicles?

Evolution and shifts in position
Obama, as described above, has shifted his stance on offshore oil drilling. He once opposed it, but he now supports drilling at least in some places.

In a speech on Aug. 4, Obama also advocated another idea he had previously opposed: drawing out oil from the nation's Strategic Petroleum Reserve to help lower gasoline prices.

Obama voted in 2005 to mandate wider use of ethanol, but also supported the recently passed farm bill which pledges to decrease current subsidies for the corn-based fuel.

While serving in the Illinois legislature in 2000, Obama voted to suspend the state sales tax on gasoline for six months — but he ridiculed McCain’s call this year for a three-month suspension of the federal excise tax on gasoline.

Obama said that he later regretted his vote for the Illinois gas tax cut.

"I voted for it and then six months later we took a look and consumers had not benefited at all, but we had lost (state tax) revenue," he said.

McCain opposed offshore oil drilling in 2000, but now supports it.

He co-sponsored an increase in automobile fuel economy standards in 2002, but voted against increasing them in 2003 and 2005.

How they voted
In 1993, McCain voted against the Clinton administration budget plan that increased the excise tax on gasoline and diesel fuel by 4.3 cents a gallon.

Video: Expensive oil helps Abu Dhabi In 1995, McCain voted to permit oil drilling in Alaska’s Arctic National Wildlife Refuge. The ANWR measure passed as part of budget bill. But President Clinton vetoed the bill, so drilling was blocked.

In 2005, McCain voted for — but Obama voted against — a procedural motion that would have pushed ahead with a bill to allow drilling in ANWR. The motion needed 60 votes to pass; it fell three votes short.

That same year, Obama voted for — but McCain voted against — an energy plan, parts of which were supported by President Bush who signed it into law.

The plan included tax breaks and subsidies for oil and gas companies, as well as subsidies for renewable energy sources.

Obama voted for an amendment to the 2005 energy bill which would have required cars to achieve 40 mpg average fuel economy by 2017. McCain voted against that amendment.

Also in 2006, Obama voted against a bill to expand oil drilling in the Gulf of Mexico. McCain voted in the affirmative.

Surprises for the next president
Assessing potential crises that might further cloud the energy forecast, David Pumphrey of the Center for Strategic and International Studies in Washington said last month, "The biggest one out there is still the Iran situation. If that went badly, obviously that can have a bad impact on oil markets.”

Iran is in an increasingly tense standoff with the European nations and the United States over its nuclear development program. Oil traders have fretted for months over a possible Israeli attack on Iran’s nuclear sites.

Pumphrey also said, "A regime change in Saudi Arabia that swung to an even more conservative approach to oil development has been a worry for long time in energy security circles. Right now I don’t think there’s an expectation of that kind of regime change.”

"On the flip side of surprises which might be a potential benefit to a president,” Pumphrey said, "would be some kind of very unexpected change in demand patterns, greater than expected changes in consumer behavior, which would really bring demand down and make oil prices come back to what we would think of as a reasonable range.”

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