Candidates’ Fuel Plans Could Tank – Hobart and William Smith Colleges \
The HWS Update

Candidates’ Fuel Plans Could Tank

Congressional candidates U.S. Rep. Randy Kuhl, and Eric Massa have each proposed strategies for lowering gas prices. This past Sunday, the Daily Messenger covered their plans and got reactions from local economists including Tom Drennen, associate professor of economics and chair of the environmental studies department at HWS. Specifically, the Messenger asked about the feasibility of a key component of Kuhl’s plan — to save consumers about $1 per gallon by drilling in ANWR and in shale beds alone. According to the article, Drennen called the idea of drilling for more oil “a Band-Aid, a false hope. We need to be smarter about using our remaining oil,” he said. Drennen has analyzed the viability of hydrogen fuel as a senior economist for Sandia National Laboratories since before gas was expected to reach $4 a gallon and, four years ago, predicted that it would have to reach that price in order to inspire change. In the Messenger, he explains that speculation is a significant contributing factor to the rising prices and that a change in consumer behavior could be the start to reducing fuel prices. He is the author of a new book, “Pathways to a Hydrogen Future,” which seeks to untangle competing visions of a hydrogen economy, explain the trade-offs and obstacles, and offer recommendations for a path forward. The results are based on “The Hydrogen Futures Simulation Model,” developed at Sandia National Laboratories, where he is senior economist. A member of the HWS faculty since 1995, Drennen earned a B.S. in nuclear engineering from the Massachusetts Institute of Technology, an M.A. in Public Affairs from the University of Minnesota, and a Ph.D. in resource economics from Cornell University. In 2006, he received the Hobart and William Smith Excellence in Teaching Award. The complete Messenger article follows.

Daily Messenger “Race for Congress: Who’s got the answer to gas prices?” Julie Sherwood • staff writer • July 13, 2008 U.S. Rep. Randy Kuhl has a plan he claims will lower gasoline prices by $1.98 per gallon. Democrat Eric Massa, who wants to unseat him in the November election, charges Kuhl’s plan is flawed and offers one of his own. Meanwhile, three economists put in their two cents — one of whom laughed when the Messenger sought comment on figures politicians are using. In a visit to the Messenger last week, Kuhl said gas prices top the list of concerns he is hearing from his constituents in the sprawling 29th Congressional District that sweeps the Southern Tier and includes Yates County, parts of Monroe and all of Ontario County except Geneva. “We haven’t seen the worst of this issue,” said Kuhl, who supports a 14-point package of bills aimed at lowering gas prices with projects that include more drilling in Alaska and offshore coasts, building more nuclear power plants and oil refineries and promoting alternative fuels. A “gas chart” put out by the Office of the House Republican Whip shows just what a hot-button political issue gas prices have become. It attributes “at least” $1.98 worth of consumer savings per gallon to the GOP plan, due largely to increased drilling and new refineries. It labels the Democrats’ plan to levy new taxes on oil producers as a “debit” and savings from halting oil shipments to the Strategic Petroleum Reserve as a mere 5 cents. Calling drilling in the Arctic National Wildlife Refuge part of a “short-term” tact to drive down prices, Kuhl said it is nonetheless necessary to bring relief while alternative-energy sources such as wind, solar and hydrogen-fuel options are put on the fast track. “The majority in Congress doesn’t want to drill,” said Kuhl, but “you’ve got to drill” as part of a solution, he said. Massa, meanwhile, has proposed a five-step plan that involves taxing oil producers on their profits and using that money to offer incentives to U.S. auto makers to produce fuel-efficient hybrids. “A massive national program should be designed to manufacture low-cost, high-quality hybrid vehicles within three years,” he said. The plan also calls for using switchgrass, a plant grown in the 29th District, as a more efficient biofuel alternative to corn-based methods. As for drilling in ANWR, “we simply cannot drill our way out of the oil crisis,” said Massa, a retired Navy commander. The Messenger asked three economists how a key component of Kuhl’s plan — to save consumers about $1 per gallon by drilling in ANWR and in shale beds alone — might play out. Kuhl said he came up with his figures by taking a statement House Speaker Nancy Pelosi of California made May 13 when she cited that if the government suspends filling of the Strategic Petroleum Reserve until December, Americans would save between 5 cents and 24 cents a gallon. Using her lowest calculation of a 5-cent savings, Kuhl said his staff calculated how much would be saved based on there being 10.4 billion barrels of oil in ANWR, which could produce 1 million barrels a day. According to three experts, two from the University of Rochester and one from Hobart and William Smith Colleges, the calculations miss the mark because they don’t look at the big picture. In fact, Mark Bils, a University of Rochester professor of economics, laughed when he heard the calculations. Pelosi made an absurd statement and Kuhl ran with it to come up with an equally absurd conclusion, he said. After you suspend filling the strategic reserve, it has only a temporary effect on supply and demand, he said, and “it’s world demand and world supply that matters.” Currently, the U.S. produces 8 million barrels of oil a day. Worldwide, the average crude oil produced per day is 80-plus million barrels, said Bils, so the U.S. produces just 10 percent of the world’s production. So, as far as driving down cost, even if you use the calculation that there are 10.4 billion barrels of oil in ANWAR, which could produce 1 million barrels a day, that would only decrease the price of oil about 2 percent or 3 percent. So, instead of decreasing the price by close to a buck a gallon, the decrease would be more like 10 cents per gallon, he said. At the same time, you have to balance the potential harm with the potential benefits of drilling, he said. You have to ask “is the value of the oil worth the negative consequences” to environment, he said. As for economic benefit, however, no matter how small the decrease in price to consumers, it would benefit our economy, said Bils. At the current price of $140 a barrel for oil, the market value of that oil to the U.S. as a whole would be more than $50 billion a year, he said. That benefit would be shared, said Bils, and not go only into the pockets of the oil companies. In fact, because the oil companies would have to buy the rights to the new drilling locations, “it would be worse for the oil companies,” he said, because by increasing supply, “you drive down the price of oil.” And how long would it take to see even a few cents decrease in price? Bils said though it could take 10 years to bring the oil to market, the slight dip in price would happen “even before the oil starts flowing” because of the anticipated increased supply. Actually, Kuhl said when he interviewed people in the oil industry, he was assured some of the now off-limits oil could be in pipelines in months if not weeks. Ben Ebenhack, senior lecturer in chemical engineering at the University of Rochester, is a former petroleum engineer who worked for Union Oil, now Chevron. Ebenhack said if people continue to use gasoline at the current pace, he wouldn’t be surprised to see prices here rise to $20 a gallon within the next two decades. “We’ve got quite a challenge with our consumption patterns,” said Ebenhack. The answer is not drilling for more oil, he said, since that will encourage people to continue their habits. In addition, drilling in ANWR is uncertain, he said, as “we don’t know if ANWR has 10 billion barrels of oil.” As for the drilling itself and its effect on the environment, said Ebenhack, the drilling could be done pretty cleanly, but getting the oil to market is a risk. Shipping is when oil spills occur, he said, citing the Exxon Valdez disaster. The Exxon Valdez was an oil tanker that in 1989 spilled some 10.8 million gallons of oil when it hit a reef in Prince William Sound, en route from Alaska to the U.S. mainland. As for tapping into shale beds for more oil, “that is one of the worst ideas,” said Ebenhack. When he worked for Union Oil, the company tried producing oil from the shale in the 1980s and abandoned the idea in 1992, he said. The shale “is rock with solid organics,” he said. “To mine it, crush it,” is intense and takes a lot of energy, he said. “It leaves a footprint,” he added. The answer to gasoline prices is to turn away from liquid-fueled vehicles, said Ebenhack. The electric and fuel-cell cars are the way to go, he said. Ebenhack said he thinks “there is nothing better for the world than high gas prices,” as that is the only way to steer people to change their ways. Tom Drennen is associate professor of economics at Hobart and William Smith Colleges. Drennen agreed that the plan for more drilling would have “limited impact” on prices. “Nothing we do with the domestic supply will significantly affect the global supply,” he said. Drennen said one reason the price continues to skyrocket is “speculation.” “There is hysteria about where prices are headed,” he said. Drennen predicted oil prices will be like the housing or technology bubble. He said “there is a small possibility we’ll get to $5” per gallon. But he said he sees people beginning to make changes, in using less gas, and “they are changing their habits.” The idea of drilling for more oil “is a Band-Aid, a false hope,” he said. “We need to be smarter about using our remaining oil,” he said. Drive slower and pursue alternatives, said Drennen. Hydrogen-powered vehicles are beginning to hit the road, he said, and that technology should be encouraged to make them affordable for common use. “It’s a start,” he said. Massa, Kuhl trade barbs over cars Last week, like a teenage hot-rodder, Eric Massa dissed Randy Kuhl’s choice of wheels. It began when Massa criticized Kuhl for driving a “gas-guzzling SUV” at taxpayer expense. “Randy cruises from New York to Washington and across the campaign trail while you pay to fill his tank. Working families sacrifice while Randy guzzles gas,” stated Massa in an e-mail to supporters. Kuhl responded in an e-mail that he leases his SUV, which is designed to run on gas blended with ethanol, or E85. Massa, who drives a van for campaigning and also drives a Ford Focus, countered that the closest station to buy E85 is in Rochester, some 90 miles from Kuhl’s Hammondsport home. To top it off, Massa reported that Kuhl received $15,257 in “gas reimbursements” in nine months of 2007. Kuhl spokeswoman Meghan Tisinger responded that Kuhl “does not get gas reimbursement, he gets mile reimbursement, which is the same for every car, no matter their size, shape, model or color.” Kuhl’s reimbursement only applies to his trips to and from the district and Washington and for congressional trips, she added, and does not cover driving while campaigning.