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The Oil Shock Of 2008



how will Washington's energy plans address the current state of affairs?



By Peter Mayberry and Jessica Franken



Published September 25, 2009
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Gasoline at $4+/gallon, declining auto sales, fewer flights, rising consumer prices—it seems everywhere you turn, the rising price of oil is making an indelible impact. Indeed, with the price per barrel climbing from $40 in 2004 to as high as $120 earlier this year, it is no surprise that some say we are experiencing "The Oil Shock of 2008."

The U.S. manufacturing sector, which consumes a third of all domestic energy as feedstock to run production plants, offices, research facilities and the like is being particularly hard hit. The nonwoven fabrics industry, of course, is no exception.Indeed, like so many others feeling the squeeze, members of INDA, Association of the Nonwoven Fabrics Industry, are wondering what Washington has in store to address the current state of affairs.

In short, we do not know. Energy policy is always a hotly debated topic in Washington, and the specter of crisis and looming elections has only increased the divisiveness. Yet there does seem to be recognition that inaction is not an option and policy makers have put forward a bevy of proposals to address today's energy crunch. This article will look at some of the key plans being floated to get a better sense of where things may be headed.

Background

While it is tempting to point the finger at a single culprit, most experts agree that the current oil crunch is the result of a number of factors such as rapid economic growth in India and China, limited domestic refining capacity and geopolitical disturbances in oil producing states including Nigeria and Iran. Washington decision makers should be mindful of this, energy expert Daniel Yergin recently told Congressional lawmakers, and craft comprehensive energy proposals that include measures to increase energy efficiency, identify new fuel sources, increase timely investment in existing resources and streamline regulatory restrictions.

As we briefly discussed last month, the 2008 presidential candidates seem to have heeded this call, with both candidates offering diversified energy proposals. To address pressures in the short term, the plan proposed by Sen. Barack Obama (D-IL) suggests using oil company windfall profits to fund individual tax credits, releasing light oil from the Strategic Petroleum Reserve (SPR) and replacing it later with heavier crude oil and cracking down on energy speculation.

!n the longer term, Sen. Obama promises to increase fuel economy standards 4% per year and to put 1 million plug-in hybrid cars on the road by 2015. To diversify domestic energy sources, Sen. Obama says he will promote clean coal technologies, will require 10% of electricity to come from renewable sources by 2012, and will extend the federal tax credit for renewable energy production for another five years. Nuclear power will have to be part of any future energy plan, Sen. Obama says, but any discussion of expanding our nuclear resources must also balance security and safety issues.

Sen. Obama's plan also includes measures to capitalize on existing domestic energy supplies and will promote construction of the Alaska natural gas pipeline, as well as enhanced oil recovery methods to ensure maximum output from existing oil fields. While he has stated his belief that offshore oil drilling cannot be expected to yield significant results, Obama says he will not rule it out if needed to pass a comprehensive energy plan.

Sen. John McCain (R-AZ), for his part, has suggested lifting the federal moratorium on drilling in the Outer Continental Shelf while also exploring and expanding use of existing natural gas supplies. Additionally, McCain says he will address the near-term energy crunch by exploring alternative fuel sources such as clean coal technologies, and dramatically increase U.S. nuclear power capabilities for the longer term. McCain also says he will provide incentives for the adoption of alternate fuels by offering generous tax credits directed toward greater use of wind, hydro and solar power, as well as purchases of low or zero carbon emission vehicles. He notes he will continue his support for existing Corporate Average Fuel Economy (CAFE) standards and see to it that penalties for violating these standards are significant enough to guarantee the production of more fuel-efficient vehicles.

Capitol Hill Efforts

The only legislation addressing the nation's energy crunch that has passed so far suspends shipments of crude oil to the Strategic Petroleum Reserve through the end of 2008 (PL No. 110-232) if barrel prices remain above $75. But another U.S. House of Representative measure that would have released oil from the SPR (H.R. 6578) failed to secure the two-thirds majority vote it needed to pass the chamber in late July.

Meanwhile, separate Democrat-backed measures curbing oil market speculation introduced in the House and Senate have not moved forward because of partisan wrangling, with Republican leaders blocking bills in both chambers because of Democrats' refusal to vote on lifting the federal moratoria on offshore drilling.

Frustrated by the lack of action and partisan brinkmanship, two bipartisan groups of lawmakers have come together to craft their own proposals that they hope will break the deadlock. In the Senate, a group of 10 Republican and Democratic lawmakers dubbed the 'Gang of 10' are working on the New Energy Reform Act (New ERA). Although not yet formally introduced, they say it would allow limited offshore drilling, would extend renewable energy and energy efficiency tax incentives through 2012 and would direct $20 billion to transition American cars to non-petroleum-based fuels within 20 years. It has met opposition from oil companies, who say that it does not go far enough in expanding offshore drilling, and repeals a number of oil industry tax breaks.

Meanwhile, the bipartisan measure in the House—National Conservation, Environment and Energy Independence Act (H.R. 6709)— would lift all moratoria on offshore drilling. It would also direct the exchange of 10% of the SPR's reserve of light grade crude oil and provide tax extensions and tax deductions of five years or greater for the production of renewable energy and energy conservation measures. It has attracted the support of groups like the National Association of Manufacturers and U.S. Chamber of Commerce.

As it stands now, Congress is out of session until September and it is unclear which, if any of these proposals will ultimately be adopted. But lawmakers from both sides of the aisle have made it clear that tackling energy legislation before they adjourn for the year is a priority and seem to understand that compromise will likely be the name of the game. Indeed, even House Speaker Nancy Pelosi (CA-8), who stated her vehement opposition to holding a vote on offshore drilling earlier this summer, said during the Democrats' August 16 weekly radio address that her party's still-in-the-works energy plan "will consider opening portions of the Outer Continental Shelf for drilling, with appropriate safeguards, and without taxpayer subsidies to Big Oil."

Peter Mayberry's column appears monthly in Nonwovens Industry.