Dance of the Oil Fairies

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By Kelpie Wilson

On April Fools’ Day, the House Select Committee on Energy Independence and Global Warming invited executives from the five biggest US oil companies to answer questions about high gas prices, oil company profits and the future of oil. Executives from Exxon, Shell, BP America, Chevron and ConocoPhillips responded to a battery of questions from committee members who ranged from strongly skeptical to downright sycophantic (all the sycophants were Republicans).

Even the most hard-hitting questioners, however, failed to pin the execs down on the real issue, which is how to convince an oil industry that is running up against absolute supply limits to switch gears and invest resources in what Rep. Jay Inslee (D-Washington) called the "clean energy revolution." With practiced facility, the oil execs danced around the question and reconfirmed their commitment to the relentless pursuit of hydrocarbons in any form, no matter how dirty or expensive to extract.

Committee Chair Ed Markey opened with the observation that today the poorest 20 percent of Americans are spending 10 percent of their income on gasoline, while oil company profits have quadrupled in the past six years. Markey said that much of this profit was wasted last year and alleged that the five companies spent $50 billion on what he called "financial engineering" to prop up the price of their stock.

Markey called on the companies to consider the plight of the poorest Americans and pledge 10 percent of their profits to renewable energy investments. He also asked them to stop opposing the renewable energy legislation passed by the House (but not yet by the Senate) that would shift $18 billion in tax breaks for oil over to support renewable energy.

J. Stephen Simon, senior vice president for Exxon, responded that the oil industry needs the profits it makes in good years to carry it through the bad years. He stressed the cyclical nature of the oil business, citing the oil price spike in 1980 that reached over $100 a barrel in today’s dollars. He said the prediction at that time was for oil to go to over $250 a barrel in today’s dollars, but it never did. By the mid 1980s, prices had fallen dramatically and the industry was "in dire straights." That could happen again, he implied.

John Hofmeister, president of Shell Oil Company, seemed more connected to the reality of oil today. He called the energy supply and demand outlook "sobering," acknowledging that "demand is increasing unrelentingly." He said that he agreed with Chairman Markey that the country needs a Manhattan Project or Apollo-style project to develop new energy sources. Shell supports a cap and trade system to reduce carbon emissions, and Hofmeister said, "We must work now to address CO2 emissions as we make the transition from fossil fuels to new energy sources." But while giving lip service to climate issues, Shell is also making major investments in the most carbon-intensive energy sources: Canadian tar sands, US oil shale and coal gasification technologies.

Peter Robertson of Chevron acknowledged that "the system is straining" to provide oil for increasing consumption. He called for "urgent action" and increased efficiency to moderate demand. Between 2007 and 2008, Chevron plans to spend $2.5 billion on renewables and energy efficiency services. One example is a partnership with Weyerhauser Corporation to develop an advanced biofuels project. But Robertson cautioned on the scale of the challenge to replace fossil fuels. He said, "a large biofuels plant in the US produces in a year what one of our refineries produces in a week."

John Lowe of ConocoPhillips said renewables were not part of their core business and he would "disavow the concept that alternatives can be quickly deployed." He said the US is in a global race with other countries to increase supplies and warned that "punitive taxes" would "undermine our capabilities."

Bob Malone of BP America said, "we support renewable incentives, but taxing one form of energy to support another will mean less energy overall." BP is nearly doubling the capacity of its Maryland solar photovoltaic plant and investing in next-generation biofuels that do not use a fuel crop, he said.

During the two-and-a-half-hour hearing, the oil executives repeatedly referred to a study by the National Petroleum Council released last July called "Facing the Hard Truths about Energy." This study maintains that oil, gas and coal will continue to dominate the energy mix in 2030, with renewables playing only a small part. The execs used this conclusion to dance around the need for rapid deployment of renewables, saying their study shows you can’t get there from here.

Energy analyst Tom Whipple has disparaged the petroleum industry’s study, saying: "The NPC artfully camouflaged the enormous near-term challenges in producing sufficient oil and gas to fuel the global economy. Hard truths are hinted at but never clearly identified. Troubling trends are referenced, but their ramifications are dodged."

In the course of the hearing, only one Congressional representative actually uttered the words "peak oil." Jerry McNerney (the Democratic wind energy consultant who defeated arch anti-green California Congressman Richard Pombo in 2006) asked the oil executives if they thought opening up Alaska and offshore areas to oil development would make much difference in the timing of peak oil.

Shell Oil’s Hofmeister quickly responded that he did "not subscribe to peak oil" and that Shell believes that world oil production will rise from the current 85 million barrels a day to the 110 to 115 million barrels needed to meet future demand. He said peak oil theory is "based on very narrow assumptions" that do not include unconventional oil sources like the Canadian tar sands.

Chairman Markey continued to sharpen his sword for Exxon, the oil company that has made the most profits and invested the least in renewable energy. He extracted from J. Stephen Simon the information that Exxon’s investments in renewable energy amount to only about one-half of one percent of its revenue.

Jay Inslee of Washington pursued the matter of Exxon’s investments further. He pointed to the global warming challenge that will require reducing emissions 80 percent below present levels by 2050 and said to Simon, "If your company continues on its present course, it will fall several hundred orders of magnitude short of what we must to do to prevent cataclysmic global climate changeÉif you don’t put research dollars into it, where are these new technologies going to come from? The oil fairies?"

Inslee asked Simon to consider a study done at Stanford called "A Renewable Energy Solution to Global Warming" by Mark Jacobson. The study concluded that the US could replace all of its vehicles with battery electric vehicles powered by 71,000 to 122,000 five megawatt wind turbines. Building those turbines would be the industrial equivalent of building all the aircraft used in World War II. It could be done.

"Wouldn’t you agree," he asked Simon, "that this vision from Stanford is one the US really needs? With your pathetically small research budget, we are not going to get there."

Inslee said that Simon’s testimony had made him even more determined to act. Addressing Simon again, he said: "I don’t see things changing, and obviously we’ve got to change you by changing this tax policy."

While Big Oil fights any reduction in its subsidized tax breaks, the struggling renewable energy industry is facing a catastrophe as its small but vital production and investment tax credits expire at the end of 2008. Already the lack of certainty is constraining investment.

Renewable energy lobbyist Scott Sklar of the Stella Group said that the industry is seeing job losses and market moves into Europe and out of the US. He expects that even if Congress manages to pass a temporary one-year extension of the subsidies, the industry will still lose 20,000 jobs and utility-scale renewable projects will stop.

Jens Søby, president of Vestas Americas, a wind turbine manufacturer, said, "An extension of the federal Production Tax Credit is crucial, as it will enable investments in facilities and jobs in our industry to be fully realized and allow us to develop our long-term strategies. There is a need for market stability; for example, when the PTC expired and was not extended at the end of 2003, the wind industry saw a 77 percent drop in the annual installation of new wind generating capacity according to the American Wind Energy Association."

On March 5, 2008, Vestas opened its first North American manufacturing facility, producing turbine blades in Windsor, Colorado. The factory will employ 650 people. This kind of news could be repeated in towns all over the country, but not as long as Bush Republicans and Big Oil stand in the way.