McCain on Energy

We’re back! We are restarting our blogging after a break. This election cycle, both major party candidates are talking about energy and we can expect vigorous debate about this area through the Fall.

Consequently, the primary focus of these next blogs will be on analyzing the positions of the presidential candidates through our 3 dimensions (business, technology, politics). We will ask our friends to contribute to specific topics and we will update our discussion as the campaigns release new information. First up is John McCain.

"In recent days I have set before the American people an energy plan, the Lexington Project -- named for the town where Americans asserted their independence once before. And let it begin today with this commitment: In a world of hostile and unstable suppliers of oil, this nation will achieve strategic independence by 2025." – John McCain, June 2008

Key climate change positions

1) Develop a cap and trade system on GHG emissions:

• GHG targets: for 2012, reduce emissions to 2005 levels – for 2020, reduce to 1990 levels
• All commercial businesses would have to take part, small business would be exempt
• Create a strategic carbon reserve to be used as a source of credit during times of economic distress

2) Increase federal support for research and development, focusing on: Carbon capture and sequestration, nuclear power, battery development and support for commercialization of technologies

3) Engage with the United Nations and the international community to coordinate climate change related initiatives

4) $300 million prize to inventor of battery which “leapfrogs” commercially available hybrids – Announced June 23

5) Support for offshore oil drilling – Announced late June

Analysis of positions

All of McCain’s policy proposals would help create a US energy policy that is more sustainable (i.e. reduced oil consumption, reduced foreign oil imports, reduced greenhouse gas emissions) than the present one. All policies have pros and cons and below we will analyze these through the 3 lenses.

Business

Cap and trade will require large up front investments in all industries to install carbon absorbers and cleaners in burners. Some companies and indeed some industries will choose to leave the United States and set up in countries without carbon restrictions. The policy will also lead to the creation of a new industry to reduce carbon emissions – companies that will measure carbon emissions, verify reductions levels, manufactures of cleaner burning material, energy consultants, etc.

Technology

A $300 million dollar prize, though a significant amount of money, is unlikely to significantly affect the development of new batteries. Technology developments in the energy industry have been a result of a number of independent actors working separately but in related clusters - There is no one single “inventor”. For example, A123 is a successful Boston-area company which was based on technology from MIT labs and later raised funding from VCs. Consequently, a successful policy must incentive all of the follow people: Research labs at major universities, graduate and post-graduate students in these labs, entrepreneurs to launch the company, venture capitalists to invest in them, customers to buy the product.

Federal support of research and development is key. The primary focus of federal dollars should be DoE-related labs and major research universities. Ideally, this support should be coordinated with the private sector to maximize effect. (such as BP partnering with DoE and universities to develop the Energy Biosciences Institute at Berkeley)

Politics

The cap and trade system is good politics, as it will reduce overall emissions and does not have the perception of being anti-consumer like a carbon tax (because it directly will lead to increased prices). However, a carbon tax is more fair (a fixed price per ton of carbon charged to all polluters) and easier to implement (setting the initial carbon allocation per company in a cap and trade system is tricky to not reward big polluters).

The battery prize is also good politics because it is an easy policy to explain and it brings to mind positive memories of teams of young students who create a company in their garage.

Offshore drilling is more complicated from a policy and politics perspective. Offshore drilling is more relevant in California and states that border the Gulf of Mexico. The high price of gas in the summer of 2008 has led many people to support measures which reduce or appear to reduce the price, and accept potential environmental problems. So politically, it may be a net winner. From a policy perspective, (i.e. will this result in reduced imports of oil?), this is probably negative. Allowing companies to drill doesn’t mean they actually could - today a significant percentage of oil fields that are available for drilling are not being used for this. Additionally, even if oil companies decided to drill, it will take many years (perhaps decades) to bring oil on stream.

To date, McCain has not stated a position on biofuels.