BOOK REVIEW: Solving our long-term energy problem

OPINION:

WHY WE HATE THE OIL COMPANIES: STRAIGHT TALK FROM AN ENERGY INSIDER
By John Hofmeister
Palgrave Macmillan, $27,
256 pages

(Corrected paragraph): John Hofmeister, president of Shell Oil from 1998 to 2009, blames our unsustainable energy future on the nation’s hostile regulatory environment toward oil companies and other fossil-fuel suppliers. Adding insult to injury, the public blames oil giants for the country’s energy problems, failing to appreciate that the prices and behaviors of these companies are often the result of government and market forces beyond their control.

Yet the companies don’t stand up for themselves, says Mr. Hofmeister, who in his new book, “Why We Hate the Oil Companies,” cites the fact that in Gallup’s annual favorability rating poll of the 24 largest U.S. industries, the oil industry has ranked at the very bottom for the past seven years. It’s also reflected in the simultaneous outcry against BP for its inability to plug an oil leak under about a mile of water and the virtual ignorance of the fact that it’s because of government regulations that such pipelines are so far out to sea in the first place.

Mr. Hofmeister suggests that the oil industry is so unpopular because individual companies are intense rivals and have little interest in vouching for the entire industry. Yet perhaps the most important reason, one the author doesn’t bring up, is that the oil companies are rightly scared of what the government would do to them if they weren’t cooperative at congressional hearings.

Also, the economic explanations that companies could offer probably would not be well-received by a public with, in Mr. Hofmeister’s words, “hearts and minds that have been taught to shut down” when energy companies speak.

Yet we need fossil fuels. As Mr. Hofmeister points out, only 2 to 3 percent of energy needs are supplied by nontraditional sources such as wind, solar and biofuels despite substantial subsidies with taxpayer dollars.

“Every form of energy has an impact on the environment. Clean energy is a relative, not an absolute, term,” Mr. Hofmeister says wisely. He emphasizes that while we should consider the environment, we also have to be realistic about what it takes to provide energy to hundreds of millions of Americans.

Not surprisingly, he supports tapping into the nation’s vast fossil-fuel reserves, which should last us until other technologies become competitive. As fossil fuels do, indeed, become scarce, private companies will have increasingly greater economic incentives to invest in alternative energy sources.

Mr. Hofmeister singles out corn ethanol as being particularly unrealistic. Indeed, it’s costly to make, doesn’t contain as much usable energy as gasoline and is expensive to transport because it can’t be transmitted via pipelines due to water condensation. In addition to being economically inefficient, it’s far from clear that it’s even environmentally friendly because, as the author points out, growing vast amounts of corn means greater erosion, clearing of land and use of more chemical fertilizers.

The author correctly says the federal government is incapable of bringing about the needed deregulation of the fossil-fuel sectors. Since 1973, when President Nixon promised energy independence, eight presidents and 18 Congresses have failed to deliver. This indicates to him a systemic problem, rather than shortcomings of individual administrations.

Politicians make bad decisions because they think they know more than they do, Mr. Hofmeister says. He writes, “Some smart staffer in the House or Senate who may have never set foot on an oil rig or visited a drilling site came up with the idea that oil companies were sitting on thousands of leases that they could otherwise be producing, deliberately forcing the price of oil higher.”

Additionally, worries about re-election impel politicians to try to look good by restricting oil drilling and supporting renewable energies even if such steps are poor long-term solutions. This leads to what Mr. Hofmeister considers a profound disconnect with oil companies, which operate on much longer time spans than election cycles.

“The oil that will be in gas pumps and cars and planes and ships for the next 8 to 10 years has already been secured,” he says. Private corporations, not the government, can solve our long-term energy problems, but it may make sense to impose parameters so they don’t destroy the environment at the same time.

What is Mr. Hofmeister’s solution? He proposes the creation of a Federal Energy Resources Board to decide what technologies are most appropriate for energy and the environment. He suggests that it be modeled after the Federal Reserve and be independent from the government to exempt itself from partisan politics.

He writes, “In my mind, there is no difference between NASA deciding what technologies are used for space research and travel, relying on industry and science wherever it can be found, and the Federal Energy Resources Board deciding what technologies are most appropriate for energy and the environment, relying on all available sources.”

Mr. Hofmeister isn’t very specific about what powers this board should have, but earlier in the book, he suggests a cap-and-trade, market-based program, which he says he prefers to regulatory mandates “because it is arguably more democratic and less bureaucratic.”

Alas, quantifying environmental costs is very difficult, and Mr. Hofmeister admits that no one knows how much a cap-and-trade program would really cost. Charging too much for emissions is just as bad as charging too little, and it’s not obvious that any agency, independent or not, would have the right incentives to try to decide on the most appropriate tax rate.

Mr. Hofmeister’s hopes for creating a wise and effective board that would be truly independent of government interests are far-fetched. Yet he does his country a favor by pointing the finger of blame at the government and not at oil companies, which, every time there’s a major hurricane, are used as scapegoats so politicians don’t have to take responsibility for the fundamental causes of the nation’s daunting energy situation. We need more voices like Mr. Hofmeister’s.

Roger Lott is a writer in Pennsylvania.