Bush Redux: Energy Policy and the New US Administration

With the comical, and ultimately bizarre, spectacle of the US Presidential elections finally over, attention has turned belatedly to the business of the incoming administration’s political appointments. Traditionally the appointment process provides a preview of the policy initiatives that will occupy centre stage during the first year of the new President. However, this won’t necessarily be the case with the Bush administration. With Republicans retaining control of Congress by only a hair’s breadth, the ability of the new administration to move boldly in any direction other than straight down the middle of the road is severely hampered. It is not only the Democrats that Bush will need to appease either. Fissures within his own party have been obvious for some time now, and many members – particularly those with seniority – will be reluctant to be bullied into blind support of any appointments and policies that threaten to move the party further still to the right, thereby undermining their own power base.

Bush, the former governor of the quintessential oil state, Texas, is himself an oilman, as is his vice president Dick Cheney. As one columnist recently described Bush, he is “a new president not only born and bred on oil, but who was set upon the US throne by oilmen’s money.” The Texas oil fields occupy a peculiar place in American mythology, embodying the ‘wildcat’ spirit of a much-romanticised age. The cowboy hats and oil fields drawl did much to boost Bush’s popularity during the lacklustre campaign. It remains to be seen whether popular support will follow him with the political implementation of the policies that go along with the mythology.

Although not as glamorous as appointments for Secretaries of Defense, State, and the Attorney General, the position of Secretary of Energy is certain to grow in importance given the chaos in domestic fuel prices throughout 2000. Likewise, politicians of both parties may be called upon to act in accordance with the copious anti-foreign oil rhetoric that re-surfaced in Campaign 2000. Bush’s appointee to fill the vacancy at the Department of Energy is outgoing Senator Spencer Abraham of Michigan. Abraham, a single-term senator whose bid for re-election failed in November, has the distinction of being the first Arab-American to be elected to the US Senate. His record in the Senate is mixed. In particular, it will be interesting to see how he fares at the helm of an Agency that he proposed to abolish a mere 18 months ago, as co-author of Senate bill S.896. Whatever Abraham brings to the post, it is unlikely he will play much of an activist role apart from advocating the traditional Republican doctrine of deregulation.

Bush’s choice for Environmental Protection Agency Administrator, Governor Christine Todd Whitman of New Jersey, may prove to be less controversial. As governor, Whitman adopted a mixed approach to businesses in her state, in general relaxing enforcement of environmental regulations. It is likely she will come under pressure to reverse recent regulations requiring oil companies to produce cleaner fuels for commercial vehicles.

More controversial is Bush’s choice to lead the Department of the Interior. Gale A. Norton is a protégé of former Reagan administration cabinet member James G. Watt, a man not famed for his devotion to protecting national lands. Indeed, Norton herself has spent time at the conservative Hoover Institute at Stanford. At the Interior Department under Reagan, she was one of the authors of a report advocating opening up the Arctic National Wildlife Refuge to oil exploration. It is this last position that is likely to produce the most smoke – if no fire – of all of Bush’s proposed policy initiatives. Norton has also made clear her favourable attitude towards what is euphemistically termed ‘multiple uses’ on lands outside of Alaska.

The centrepiece of the Bush energy platform revolves around the ambiguous goal of making the US energy ‘independent’ – meaning less susceptible to OPEC’s production/price targets. The logic is founded upon the assumption that there is plenty of oil available in the world and that but for OPEC interference in the marketplace, prices will stabilise at a sensible level, i.e. one where the price per gallon for gasoline in the US remains below the $1.50 threshold. As a means to this end, it is envisioned that opening up some portion of untapped oil reserves on Arctic National Wildlife Refuge lands will drive prices downward by increasing global supply. But is this credible? And in what kind of timeframe would the effect of increased Alaskan crude have any effect in the market? The simplistic nature of the argument begs the question of what factors drive crude prices and ultimately retail gasoline prices. There is no question of the perceived need on the part of Republicans, as well as some Democrats, to re-assert US hegemony over world fuel prices. The motivations of the oil and gas producers are clear as well: access to more reserves in a friendlier jurisdiction than in the OPEC member states can only enhance their balance sheets.

With a closely divided Congress, the environmental lobby is unlikely to roll over and play dead. If anything the pressure will be turned up, both by activists and Democrats, to address the issue of disproportionate US dependence upon fossil fuels. Inevitably, someone will question whether energy exploration on Federal lands really will have any impact on consumer prices. This could also turn out to be a high risk strategy for the Republicans come the Presidential elections in 2004: if prices remain high, the Democrats (and the electorate) will have an easy time pointing the finger of blame at the Bush administration that trumpeted its desire to make the US ‘independent’ again. One possible, and dangerous, escape route is the degree to which Bush may be willing to hide behind another Middle East ‘crisis’ involving sanctions placed on Iraq. How far the new administration might be willing to go in order to shift the blame for high prices, as well as an economic recession, will remain to be seen.

Much depends on the degree of Federal gridlock over the next two years. The Democrats have in recent decades exhibited much greater unity as the minority in Congress than they have when they have held majorities, or even when they held the Presidency for that matter. In the absence of a perceived fuel crisis, we could expect strong opposition to any proposal calling for the leasing of Federal lands for energy exploitation. However, events of the past year – skyrocketing gasoline, home heating oil and natural gas prices, the slow-down in the economy, and the critical electricity shortage in California – has pushed consumer sentiments in favour of any plan that claims to bring about a return to abundant, cheap energy. The environmental lobby, which normally could expect the support of the majority of Democrats in Congress, may not be able to count on this support in the coming Congressional term. With the possibility of regaining control of the House of Representatives a mere two years away, Democrats will be tempted to resort to populist politics over long-range conservation schemes.

However much Bush relies upon the ‘reduced foreign dependence’ argument in order to push through opening up of Alaskan lands to oil prospecting, the reality remains that this oil will take years to come on-line, and at uncertain costs. If new Alaskan production will produce oil at a higher than market price but the US remains determined to reduce imports, one of three outcomes are possible: a) oil companies will be forced to sustain losses; b) the US will impose a quota on oil imports, driving up domestic prices, or; c) the US will have to subsidise the loss suffered by the oil firms and pass this along to taxpayers – probably through increased fees, as bald tax increases are politically unacceptable to Republicans.

Thus given the reality that gasoline prices are high and there are no readily accessible reserves in the US, Bush will face two alternatives: left-leaning conservation solutions or dealing with OPEC. The former will prove to be as unpalatable to pro-business Republicans as raising taxes. The more likely scenario is that the US will increase pressure on OPEC to open upstream oil production to US and other foreign oil companies. Bush’s leverage will be his oft-repeated campaign pledge to reduce American military obligations overseas, particularly in regions such as the Balkans and the Middle East. Given the scale of the US security presence in the Gulf region, the Gulf states may find themselves facing a painful dilemma. Opening up OPEC oil reserves to exploitation by US and foreign firms first and foremost helps Bush repay the unquestioned debt he owes to the US oil industry for providing him with unflinching financial support throughout the campaign. Of even greater importance to Republican domestic economic ambitions, this new plurality of producers will result in increased oil production and a weakening of OPEC’s ability to impose production caps.

The factors responsible for the current state of energy policies in the US are largely of its own making. The ever-increasing American appetite for energy in all its forms, largely the result of the strong economy and lack of investment in non-fossil fuel technologies, is not susceptible to correction through stopgap measures. The continued presence of US forces in the Gulf region will keep the domestic US arms industry happy, the oil and heavy industry lobbies satisfied as no ‘green’ initiatives or strictures will be imposed, and American consumers still able to drive their gasoline-devouring sports utility vehicles to the shopping mall and back. Make no mistake; Bush’s first priority will be to stave off the recession lurking around the corner in the post-Clinton era. Unlike his father, George W. is not likely to forget the Clinton mantra of “it’s the economy, stupid.”

By: Frank De Mita

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