Refined thinking on oil

Thanks to the recent crisis in the Gulf of Mexico, there’s a receptive market for an anti-oil book in the US. Readers hoping for a cathartic exposé of incompetence and immorality in the oil industry will however be disappointed by this thoughtful, balanced and nuanced book by the former president of Shell US. A more accurate (though less marketable) title for this book would be ‘Why we need a rational debate about energy and environmental governance’.

Certainly there is some excoriation of the ‘unloveable’ oil industry. Hofmeister uses several eyebrow-raising anecdotes to illustrate the industry’s ‘poor political skill and… abysmal public relations’, exemplified by the tendency to ‘live under a rock’. Several times throughout the book Hofmeister quotes a Gallup trust poll which consistently ranks the oil industry 24th out of 24, below real estate and the federal government (there is not room here to ponder the presence of the federal government in an industry trust poll).

One suggested cause of the poor relationship between oil company and oil consumer is the fact that the gasoline sold on forecourts is broadly viewed by the industry, according to Hofmeister, as an unprofitable waste product at the end of the value chain, to be disposed of as quickly as possible. Whatever the industry’s failings, however, the author reserves his greatest approbation for (and reveals the broader target of his book to be) the ‘dysfunctional’ state of energy and environmental governance in the US.

A paralysed debate

A political scientist by training, Hofmeister locates one source of the ‘paralysis’ surrounding energy and environmental issues as a fundamental disconnect between ‘political time’, which tends to focus on two or four year electoral cycles, and ‘energy time’, which can cover several decades. The problem, apparently, can be located in the stomach: ‘A politician who can’t rely on his or her gut serves a short tenure. An energy executive who relies on his or her gut is a short-lived executive.’

Hofmeister uses statistics convincingly to illustrate his arguments. He tells us that 93% of US energy currently still comes from oil, gas, coal and nuclear sources. 2% comes from hydropower, and the remaining 5% from renewables and biofuels. He argues that it will be necessary to rely on the 93% for some time to come while renewables and biofuels are scaled up. In order to continue relying on fossil fuels, however, major investment is needed in the energy supply infrastructure, which was built between the 1940s and 1970s and is now ‘creaking’.

While Hofmeister fully accepts the need for sound carbon management, he suggests that a sudden shift away from fossil fuels towards renewables and biofuels – the solution proposed by the ‘ludicrous left’ – is likely to result in social chaos. This is because the price of energy, he reasons, will start to lurch up and out of the reach of ordinary citizens. Meanwhile the solution of the ‘reckless right’, to continue focusing on fossil fuels indefinitely, will lead to runaway climate change.

Hofmeister’s commonsense solution is an ordered, environmentally responsible transition away from fossil fuels during the next few decades, with a focus on affordability and availability of energy. It is also an approach that is currently politically unacceptable from either the right or the left of the political spectrum. The result of this paralysis, for Hofmeister, is that the US is heading for an ‘energy abyss’ during the next decade.

Spot the wind turbines

While there is much to praise about this book, one potential hole in the argument is his proposed solution to climate change, or in Hofmeister’s memorable phrase, the ‘gaseous waste management problem’. He suggests that the scientific and process knowledge developed in the field of liquid and solid waste management can be drawn upon in order to systematically manage, clean and, if necessary, capture and sequester gaseous waste such as CO2 and methane. All sounds reasonable so far – except that, as Hofmeister himself points out, if one country implemented this approach unilaterally it would inflate cost pressures and rapidly make that country uncompetitive. A global approach would be required, implying international leadership and cooperation, which in turn leads back to the same stalemate as the current climate change debate. This flawed solution to climate change calls into question the viability of his proposed continued reliance on fossil fuels in the medium term.

The impossible dream?

Leaving aside the ‘gaseous waste management problem’, Hofmeister’s proposed overarching solution for the US is the establishment of an independent body to oversee energy in a similar way that the Federal Reserve Bank oversees the nation’s public finances. He credits the Fed – ‘a bridge to the future, a shock absorber for the nation’ – with helping to create the conditions that led to the country’s economic dominance during the twentieth century.

Just as the Fed is funded ultimately by banking customers (via ‘amounts so miniscule at the individual level that no one notices’), Hofmeister’s proposed Federal Energy Resources Board (FERB) would be funded via a tiny percentage of energy bills. Also, like the Fed, it would be overseen by chairmen with 14-year tenures. This independence from politics and long-term focus – combined with an explicit remit to plan ahead up to 50 years – would be much more in keeping with ‘energy time’.

Hofmeister admits that when he shared his plans for a FERB in Washington he was told that it would never see the light of day. In response he has set up a broader campaign – ‘Citizens for Affordable Energy’ – in order to persuade grassroots America to support the idea. If anyone is going to get the US’s energy and environmental policy on the right track, it seems appropriate for a Texan oilman to be that person, given that his peers and predecessors have held such disproportionate sway over the debate for so long. Moreover the time is absolutely right for some far-reaching and visionary reform in this area.

However, in the current climate, Hofmeister is going to have a tough job energising public opinion around something as sensible as the establishment of a new independent regulatory agency.

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* Dave Prescott is an independent consultant who works with Critical Resource dave.prescott@c-resource.com

Photos: © istockphoto/RollingEarth; © istockphoto/Drbouz