The LPG Echo of the Shale Gas Boom

• Increased US production of LPG and natural gas liquids is an outgrowth of the shale gas revolution and a key ingredient for translating its benefits into industrial growth.
• The infrastructure investments, export opportunities and price relationships for these liquids represent a microcosm of the similar issues for shale gas and LNG.

An article in the Wall St. Journal last month on the impact of a Midwest propane shortage on farmers trying to dry their corn harvest caught my attention. How could propane be in short supply, when US production is soaring due to shale gas? While it turns out that the shortfall in question was localized and temporary, it prompted me to take a closer look at LPG supply and demand than I have in many years. I found yet another market that is being transformed by the shale gas revolution.

Like most Americans--except for those in the roughly 5% of US homes heated with it-- I normally think about LPG only when I have to change the tank on my barbecue grill. That wasn't always the case; early in my career I traded LPGs for Texaco's west coast refining system. I'm happy to see that some of my former colleagues from that period are still involved and frequently quoted as experts on it. Although the LPG market is obscure to many, it represents a microcosm of the issues of reindustrialization and product exports arising from the recent turnaround in US energy output trends.

In order to follow these developments, we first need to clarify some confusingly similar acronyms, starting with LPG. Although often used synonymously with propane, it actually stands for "liquefied petroleum gas" and covers mainly propane and butane, though some in the industry include ethane in this category. The term reflects the oil refinery source of much of their supply, both historically and to an important extent today.  LPG overlaps with natural gas liquid (NGL)--ethane, propane, butane, isobutane and "natural gasoline"-- that has been separated from "wet" ( liquids-rich) natural gas during processing. NGLs are entirely distinct from the anagrammatical LNG, or liquefied natural gas, which consists mainly of methane that has been chilled until it becomes a liquid. By contrast, NGLs and LPG are typically stored at or near ambient temperature but under pressure to keep them in the liquid state.

LPG and NGLs make up a distinct segment of US and global energy markets, falling between the markets for natural gas and refined petroleum products. They are also linked to these larger markets, both logistically and economically. For example, gas marketers vary the amount of liquids they leave in "dry gas" to meet pipeline natural gas specifications based on price and other factors, and oil refiners blend varying quantities of butane into gasoline, depending on seasonal requirements. Propane and butane are mainly used as fuels, while ethane and isobutane are chiefly chemical feedstocks.

The development of shale gas in the US and Canada has affected the supply of NGLs and LPG in several important ways. First, starting around 2007 increasing shale gas output helped to halt and then reverse the decline in US natural gas production from which US NGLs are sourced. Then, following the financial crisis, diverging natural gas and crude oil/liquids prices pushed shale drillers toward the liquids-rich portions of shale basins like the Eagle Ford in Texas, in order to maximize their revenue. The resulting surge of US NGL production in late 2009 reinforced the decline of US LPG imports that began with the recession. According to US Energy Information Administration data, the US became a fairly consistent net exporter of LPG in 2011.

The current US LPG surplus is around 100,000 bbl/day, out of total production of around 2.7 million bbl/day. That surplus and its expected growth provides the basis for a number of announced LPG  export projects, as well as the anticipated development of new domestic chemical facilities such as ethylene crackers that would consume substantial portions of new supply, particularly of ethane.

The success of those projects depends on significant investments in new infrastructure, including gas processing, NGL fractionators to split the raw NGL into its components, and pipelines to deliver NGL to fractionators and LPG to markets. This is particularly true for the Marcellus and Utica shale gas in the Northeast, from which little or no ethane has been extracted due to limited local demand. Not only is that a missed manufacturing opportunity, but it constitutes a potential constraint on further liquids-rich gas development, since leaving too much ethane in the marketed gas would cause it to exceed pipeline BTU specifications.

In the meantime we're left with a situation that's analogous to the growth of tight oil production from the Bakken  shale. New sources of production have come on-stream faster than the infrastructure necessary to deliver them efficiently to where they can be processed or consumed. That puts a growing US surplus of propane and other NGLs in tension with tight regional markets for these fuels in the Midwest and Northeast, where residential propane prices are running well ahead of last year's at this time.  The resolution of this apparent paradox will depend on which infrastructure and demand projects are eventually completed, and how soon.

A different version of this posting was previously published on the website of Pacific Energy Development Corporation.

Virginia's Gas Tax: Ending A "Dinosaur Tax"

I don't know if the Speaker of Virginia's House of Delegates intended a double entendre when he referred to the state gasoline tax that Governor Bob McDonnell (R) just proposed eliminating as a "dinosaur tax".  He was certainly correct that this tax is rapidly becoming outmoded as its capacity to keep pace with necessary infrastructure investment fades with every EV, hybrid, or other efficient car that's sold.   In the Governor's remarks, he referred to the gas tax as a "stagnant revenue source." In a low-tax state like the Commonwealth, shifting the tax burden for transportation away from fuel taxes and toward registration fees and a higher general sales tax represents an innovative, though also controversial answer to a challenge that has concerned me for some time. 

The scope of the underlying problem should be uncontroversial: Like most states, Virginia's $0.175 per gallon gasoline tax is a holdover from an era in which fuel sales grew in tandem with road use, and both expanded steadily year after year.  I can personally vouch for Northern Virginia's traffic congestion, cited in this morning's Washington Post story on this issue. As in most states, Virginia's gasoline sales have been flat to declining since the recession that began in 2008, while the value of the fixed fuel tax has been further eroded by inflation.  These trends seem likely to continue for years, with recent new-car fuel economy improving sharply. The gas tax simply can't cover the cost of repairing and extending Virginia's highways without a large increase now, followed by periodic increases as future fuel sales fall. 

A key aspect of Governor McDonnell's proposal that appeals to me is that it doesn't rely on high-tech monitoring or low-tech inspections of actual miles driven, like many of the other solutions I've examined.  Instead of trying to fix the fuel-tied tax, he would eliminate it entirely and shift revenue generation to a combination of higher annual fees, especially for alternative fuel vehicles that currently pay little or no road tax, and an increase in the Commonwealth's 5% sales tax to 5.8%.  0.5% of the current sales tax is already dedicated to transportation.  The proposed shift exchanges one regressive tax for another, in a manner that recognizes that all Virginians stand to benefit from improved transportation networks, whether they personally use them or not. 

The current Virginia gas tax costs an average motorist around $100 per year, based on 12,000 miles of annual driving.  The rise in the sales tax would generate comparable revenue from $12,000 of annual spending subject to the sales tax.  That likely equates to little or no tax increase for low-income drivers, and an increase of up to a few hundred dollars a year for the better-off, while still leaving Virginia's sales tax slightly lower than those in Maryland and the District of Columbia. Motorists would continue to pay the federal gasoline tax, currently set at $0.184/gal.

I can envision various objections to the Governor's proposal, including concerns that cutting the gas tax might increase gasoline demand--and emissions--and reduce the incentives for higher fuel efficiency.  That seems unlikely in the current context for at least two reasons.  First, eliminating the Virginia gas tax involves a reduction in pump prices of less than 5% of last year's average price in the region, and more importantly represents less than a quarter of the total range of gas-price volatility we experienced in 2012. Moreover, fuel economy improvements are already mandated under the new federal Corporate Average Fuel Economy regulations that will increase fleet-average miles per gallon to 54.5 mpg by 2025.  Cars will continue to become more efficient, no matter what gasoline costs.

It will be interesting to watch how this proposal fares in Richmond.  The Governor's party may control the House of Delegates and effectively the Senate, by virtue of a tie-breaking Lieutenant Governor, but 2013 is an election year, and Mr. McDonnell is barred by term limits from seeking reelection. I wish him luck with this idea, even though its enactment would probably result in a small net tax increase for my household. I'm sure other states will be watching, too.

Collecting Road Taxes After Peak Gasoline

On Monday I was interviewed on Chicago's WGN Radio on the subject of switching the collection of federal highway taxes from the current assessment on motor fuel sales to a fee on vehicle miles traveled (VMT). The gas tax is always a hot-button subject, and when it's combined with potential concerns about privacy it becomes even more controversial. However, the path we're on is a slow-motion train wreck, for multiple reasons, and I'm relieved to see that with so much attention focused on other, larger aspects of the budget deficit and taxation, this relatively small yet important corner of the tax system hasn't been forgotten. It's high time to plan for how we will pay for the upkeep of our highways as sales of gasoline begin to decline.

The interview was prompted by some comments I made on this subject to Tom Curry of MSNBC. Since my conversation with him and then with Mr. McConnell of WGN I've been doing some more thinking about the problem, which I've discussed here since 2005. For some time it's been apparent that we have a disconnect between federal energy policies explicitly aimed at reducing our consumption of petroleum products and a road tax system that depends on the stability and growth of those sales. With gas prices again near their 2008 maximum and the auto industry required to sell consumers a more efficient mix of cars each year, it appears that US gasoline demand might have peaked in July 2007 and won't reach that level again. Lower gasoline sales mean lower gas tax collections, unless the tax rate is steadily increased, encroaching on one of the third-rail issues of US politics.

This is the long-term part of the gas tax problem. It's true that it takes decades to turn over the US passenger car fleet. Nevertheless, the more highly efficient cars are sold, including this year's crop of 40 mpg non-hybrids, plus hybrids, clean diesels, and a tiny but growing number of EVs and other cars using no liquid fuels at all, the harder it will become to fund the cost of road maintenance from its traditional source at the gas pump.

The problem has a more immediate dimension, too, because gas tax collections haven't been sufficient to balance the Federal Highway Trust Fund (HTF) for some time. According to a recent study by the Congressional Budget Office the taxes on gasoline and diesel fuel brought in about $32 billion last year, but between 2008 and 2010 an additional $30 billion had to be transferred from the general fund to the HTF to keep it in the black and avoid canceling or delaying projects. Given the deficit, such transfers add directly to the national debt. Nor is the current level of expenditures adequate to address the decay of many of our roads, as assessed by the American Society of Civil Engineers. This issue received a lot of attention in the aftermath of the 2007 collapse of the I-35W bridge in Minneapolis-St.Paul, but it faded after a few news cycles.

So we need to come up with more money to keep federally-funded highways in good repair, despite the principal funding mechanism being on a gradual but inexorable downward slope. States face a similar dilemma. Solving this problem requires creativity and most likely a new funding mechanism for all or part of a gap that is expected to grow in the years ahead. Simply extending the status quo will require steadily larger transfers from the general fund, exacerbating the deficit. It would also create growing inequities by weakening the long-established link between usage and financial responsibility, compounded by EVs and other vehicles that pay no road taxes at all under the current system. Unless you think EVs will never expand beyond a tiny niche of early adopters, that's unsustainable. (Some might argue that EVs should escape this tax as a further stimulus to sales, but in my view $7,500 per car ought to be inducement enough for anyone interested in buying one.)

There are several possible remedies for shrinking gas tax revenue, with partial or total conversion to a mileage-based system topping the list. It retains the fairness of "user pays" and encompasses all cars, whatever their energy source. It might also trade off a lower tax burden for the drivers of older, less-efficient cars for a slightly steeper bill for newer, more frugal cars. However, considering that the annual federal gas tax bill for someone driving an average car 12,000 miles per year is currently only about $100, any differences between the gas tax and a replacement VMT tax--not to be confused with a VAT tax--would be unlikely to influence car choice one way or the other.

If a VMT tax is the answer, the question of how to assess and collect it looms large. As I noted in the interview I worry about a tendency to rush to a technology solution, even though other options might do the job without requiring GPS-based tracking that a significant number of Americans would consider unacceptably intrusive. If you doubt that, consider the controversy over alleged smartphone tracking by Apple and Google. I would not dismiss low-tech methods such as odometer readings at vehicle inspections, or even self-reported odometer readings where such inspections aren't required. This might introduce new opportunities for fraud, but I'm willing to be that a GPS tracker could be spoofed, and all of these potential loopholes pale compared to the current problem of fuel tax evasion by organized crime and unscrupulous distributors and dealers.

I like the idea of testing this concept in a few locations, particularly if the tests include a wide variety of approaches. The slow uptake of EVs and the gradual shift of total fleet fuel economy give us enough time to find the best solution, if we start now. But lawmakers should ensure that such tests are finite and designed for quick evaluation, so that the window of opportunity presented by the broader tax reform discussions between now and the next presidential inauguration isn't missed.

Energy in the Aftermath of the Sendai Quake

Investors and companies around the world are scrambling to assess the impact of the Sendai earthquake and tsunami on supply chains and markets, both within Japan and globally, between the direct damage from the event and the disruption to critical infrastructure in its aftermath. An item I spotted in this morning's Wall St. Journal provided an early clue concerning the potential ripple effects in global energy markets, as Chevron sold a cargo of Indonesian crude to a power customer south of Tokyo. However, it remains to be seen whether demand destruction or the impairment of supply capabilities will dominate over the short, medium and longer-term recovery periods.

The impact on the Japanese power grid extends beyond the shutdown of 9,702 MW of nuclear power capacity, including 2,812 MW at Fukushima Daiichi that will not resume operations for many years, if ever. Some fossil fuel power plants have also shut down, and more than a fourth of the country's refining capacity is down, cutting off a significant supply of power plant fuel oil, along with a wide range of other petroleum products. That helps explain the interest in light, sweet Indonesian crude that can be burned directly in power plants as a replacement for low-sulfur fuel oil. Significant quantities of Indonesian Minas crude formerly came to the US west coast for a similar purpose, when we still had a lot of oil-fired power generation, although the crude was normally processed to remove the valuable light products from the fuel oil before sale to utilities. (My first job in the industry was at a refinery that did just that as part of a contract Texaco had with a southern California utility.)

Burning crude oil for power is a practical stop-gap, and as long as so many of Japan's refineries remain shut for damage assessment and repair, it shouldn't have much impact on the global crude market, since the crude those refineries would have otherwise run is now surplus. That explains the $5 per barrel drop in crude prices this week. However, if demand recovers faster than Japanese refinery capacity returns to operation, much of that extra crude oil will need to be processed in refineries elsewhere around the Asia-Pacific region, to provide the refined product imports that Japan will need.

It's much harder to assess the medium-term situation, because it will be some time before the full extent of the damage to industry, power generation and transportation is known. If more demand was destroyed than the capacity to supply it, then Japan could actually end up with surplus energy capacity until demand recovers, and that would be a bearish factor in global energy markets. If more energy supply than demand was destroyed, as seems possible given the largely agrarian nature of the part of Japan that suffered the worst consequences of the quake and tsunami, then Japan could be importing additional supplies of energy from regional sources for a long time.

I've had several people ask me about the potential of these events to increase Japan's demand for renewable energy, and I think that's a likely outcome. As of the end of 2009 Japan already had the world's third-largest installed solar power capacity at 2,600 MW, to which another 1,000 MW or so was apparently added last year. For Japanese businesses suffering from rolling brownouts, solar power is one of their few options other than diesel generators for becoming more self-sufficient fairly quickly. However, at the scale of the grid, intermittent solar isn't a great substitute for 24/7 nuclear power. With Japan's average solar insolation, it would take about 5,000 MW of solar panels to replace the annual output of a just one of the Fukushima Daiichi reactors (#2, 3 or 4) at an installed cost in the neighborhood of more than $20 billion. That might give a welcome shot in the arm to photovoltaic manufacturers that are still expanding rapidly but have been overly-dependent on faltering European solar incentives. I don't know enough about the Japanese grid to know how easily they could adjust to such a shift from centralized, baseload power to distributed, cyclical generation.

The long-term outcome seems impossible to gauge at this point, and I hesitate to even speculate while the engineers are still working to cool down the damaged nuclear plants. (The American Nuclear Society has a useful site with updates and background on the Japanese reactors.) Much depends on how well Japan's nuclear industry will be seen to have responded to these incidents. Unless these facilities are either rebuilt or replaced with new, next-generation nuclear plants, then Japan's imports of LNG, coal and other fuels could increase significantly, until and unless renewables ramped up enough to make up the difference. Japan is already the world's largest importer of LNG, and it is perfectly situated to absorb the output of the new LNG plants planned for Australia. That could boost global LNG prices for years to come.

Disclosure: My portfolio includes investment in Chevron, which is mentioned above and owns projects and facilities that could be affected by these events.

The Bright and Dark Sides of the Smart Grid

As I was catching up on email that accumulated during my travels last week, I ran across two items highlighting the contrast between the shining potential of the emerging "smart grid" for energy and its darker, more dangerous side. In his keynote address at the first annual GridWise Global Forum, IBM's CEO Samuel J. Palmisano described the vision and opportunity of a closely interconnected, highly efficient global energy system, while the unfolding story of the Stuxnet computer worm infecting the control system of Iran's Bushehr nuclear reactor and other facilities serves as a chilling reminder of the vulnerabilities that will likely accompany this revolution. That doesn't justify clinging to our un-networked past, but it certainly strikes a cautionary note, as Mr. Palmisano himself pointed out.

Last week was a big one for energy conferences. I skipped both the GridWise session in D.C. and MIT's annual Emerging Technologies Conference to attend IHS Herold's Pacesetters Energy Conference. I'll share some of my insights and observations from the latter in the weeks ahead, but for now I recommend Mr. Palmisano's GridWise speech as a good overview of the characteristics of a truly smart energy system and the ways in which our present energy sources and distribution networks fall short of constituting a well-functioning system. Without being Pollyannish, it presents a more positive outlook than the widely-quoted comment from the same conference by GE's CEO Jeffrey Immelt, concerning US energy policy, "It's just stupid what we have here today."

Yet while most of Mr. Palmisano's remarks focused on the inevitability and benefits of knitting together and adding intelligence to regional, national and global energy infrastructure and markets (and other key systems) he also had this to say about the security concerns this would create: "And when it comes to security--the technology is robust, but as the world's infrastructure becomes networked and interconnected, the exposures multiply exponentially. How vulnerable is the world's essential infrastructure? Are our electric grids only going to be as secure as a website? If we don't come together to forge a new policy framework that protects the individual's privacy and the community's and nation's security, people may say 'stop.' And they should."

I don't know if he had intrusions like Stuxnet in mind. I also suspect it's going to take a lot more than a new policy framework to prevent governments, organized crime and random hackers from exploiting the inevitable security gaps in the smart grid and other smart infrastructure to cause mayhem. Having treated the nefarious work of spammers and hackers as more of a costly annoyance than an intolerable violation--when all that was at stake was personal and financial data--will we be as cavalier about similar risks to our physical safety and security? Or does the rise of the smart grid portend a great "hacker crackdown", to use the title of a classic book on the hacker subculture?

Much of the speculation about the sophisticated Stuxnet exploit, which apparently targets a particular kind of industrial process control hardware and software, suggests that it took the capabilities of a government to develop. However, if we've learned anything from the last couple of decades of computing advances, it's that anything a government can do today in this field a smart, motivated individual can do in the not-so-distant future, particularly once he knows it can be done; it's an irresistible challenge for some. Ubiquitous computer viruses today, endemic power plant and refinery viruses tomorrow?

I agree with Mr. Palmisano concerning both the inevitability of smart grid development and the risk that security concerns or actual events could halt this shift in its tracks. As we call on the grid--or more accurately, grids--to handle rapidly increasing numbers of distributed power sources, particularly intermittent ones like wind and solar power, and as customers demand more choices and more control over their energy usage, the old un-smart grid will soon cease to be up to the task. However, we're already seeing pushback against smart meters in some areas, without any concrete evidence of misuse of consumer data or other harm. Imagine what this would look like if the smart grid had to reboot as often as your PC or periodically became infected with malware that shut down parts of it for hours or days. I know that the companies and agencies involved in the smart grid are working hard on solutions to these challenges; however, I'm just as sure that it's going to require a completely different approach than the one we've employed for dealing with computer security, with operating system and anti-virus providers seemingly always one step behind the bad guys.

Climate-Proofing Infrastructure

Even in an election year, it's hard to make infrastructure repair sound glamorous. Perhaps that helps explain why the latest annual report card on the condition of US infrastructure from the American Society of Civil Engineers was so dismal, a "D" overall. In any given year, there are usually more exciting things to spend our money on, until we realize we haven't spent enough on these necessary props for our civilization for decades. The president's latest proposal to improve roads, rails and runways could help, though it faces skepticism from those who thought such fixes were already covered by last year's federal stimulus package. Perhaps what's missing is a green angle, and I don't mean that cynically.

If there are any aspects of infrastructure that have acquired a hint of glamour, lately, it's the ones that deal with making energy more sustainable or reducing emissions. The "smart grid" comes to mind, along with renewable power generation. As I was reading a recent New York Times op-ed concerning whether this year's bizarre weather is attributable to global warming--it's not, but it could be a taste of things to come--it occurred to me that climate-proofing our roads, power lines, train tracks, sewers, and other basic infrastructure could be at least as important as much more controversial policies addressing whether and how to reduce greenhouse gas emissions. In fact, whether climate change is caused in whole, partly, or not at all by humanity, we must still deal with its consequences. And even if all greenhouse gas emissions ended tomorrow--an impossibility--the climate is predicted to continue warming for a long time. That makes adapting our infrastructure to withstand climate change a suitably green endeavor.

However we explain this year's odd weather, including massive floods, heat waves and the fires in Russia--which incidentally contributed to a spike in US ethanol prices by driving up corn prices--scientists expect our future climate to include more such events. A few years ago, "adaptation" was taboo to some environmentalists, signaling defeatism. They bet everything on "mitigation"--reducing emissions. Since mitigation may not happen soon enough, on a large enough scale globally to make a difference, nothing we do can avert the need for adaptation to a world of less benign weather. In that respect any jobs created by a concerted effort to shore up our infrastructure to cope with more frequent weather events would be just as green as those associated with building and installing wind turbines and solar panels.

What might this entail? Well, most of the detail is outside my area of expertise, but if a bridge needs to be replaced, perhaps the new one should be designed to provide more clearance between the river and the roadway, with higher floodwaters in mind. Similarly, should highways be built (or rebuilt) with better drainage where flooding is a growing risk, or using concrete or asphalt formulated to withstand more extreme heat and cold? And having spent more than a decade living in regions subject to high winds and ice storms, putting utility lines underground makes lots of sense even without climate change, and it could become indispensable with it. In some respects this merely boils down to widening the routine assumptions that engineers make concerning the conditions that a piece of infrastructure must withstand during its lifetime, in order to cope with more uncertainty.

All of this costs money and competes with other priorities. The more resilient (and expensive) we make each project, the fewer of them we're going to do, unless we make upgrading our infrastructure--and not just the semi-glamorous parts--a much higher priority than it has been. That would require a different mindset, and not just with regard to the risks of climate change. Nor are the political rewards likely to be quick, because if anything, it involves the antithesis of the "shovel-ready" projects the stimulus targeted, since much will need to be rethought first. That wouldn't have deterred the generations of Americans that built the systems that must now be replaced; it shouldn't deter us, either, particularly if we recognize the connection to what many see as the greatest challenge of our century.

Energy Principles

My critique of a proposal for expanded tax credits to promote the electrification of transportation prompted some interesting comments. It also got me thinking again about an underlying problem that leads to the kind of scramble for government favor and largess that is exemplified by such efforts and by the badly-flawed Waxman-Markey climate bill. We have seen endless debates on energy policy, energy strategy and energy tactics, but far too little on energy principles. It would save much time, effort and money if we had a guiding principle that eschewed favoritism toward any particular technology, in favor of technology-neutral regulations and federal investments in broadly-useful energy infrastructure. Even more importantly, we would benefit from a clear principle of focusing policy and incentives on our desired ultimate outcomes, such as reducing emissions or oil imports, rather than on individual pathways for achieving them.

Take the example of electric vehicles (EVs) and their infrastructure. The US government has no business promoting a single-focus solution like this. It does, however, have a vital interest in promoting much more energy-efficient cars, based on any technologies that achieve that result. If handing out consumer tax incentives for new cars is necessary to further that goal, they should be given on the basis of total energy consumption, using a comprehensive metric like the MPGe of the Automotive X-Prize, which counts all energy in all forms delivered to the car. The higher the MPGe, the bigger the incentive. That would make a lot more sense than doling out tax credits in proportion to the size of a car's battery. Along with the proposal by the EPA and Department of Transportation to let carmakers count EVs twice towards their new corporate fuel economy and tailpipe emissions targets, that would create a perverse incentive similar to the old "SUV Loophole", possibly setting the stage for a new generation of large, inefficient battery SUVs.

Shifting transportation energy from oil to electricity makes more sense if that electricity is used efficiently, particularly since low-emission sources still account for less than 1/3 of our electricity supply, and the wind power most often mentioned in connection with powering EVs accounts for just 1.6% of US generation this year. On that basis, investments in the smart grid and long-distance transmission lines would probably be as helpful in supporting future EV deployment as underwriting specific EV recharging infrastructure, while avoiding the risk of becoming orphaned if EVs don't catch on.

On the generation side, whether intentionally or not, the stimulus bill passed early this year helped put wind, solar, and other renewable energy sources on a more technology-neutral basis by making them all eligible for the same 30% federal tax credit previously available only to solar power. Yet this provision still contains at least one glaring omission, because it was established under a very specific definition of renewable energy, rather than encompassing all energy sources meeting criteria for very low emissions that would also include nuclear power. Putting nuclear and renewables on a common footing would go a long way toward ending protracted arguments about which technology receives more (undeserved) government support and which is most commercially competitive, and it would foster a future generating mix offering similar depth and flexibility to the one we have now, without undesirable greenhouse gases.

Ultimately, whether you like my choice of principles or prefer different ones, we need a common set of criteria for making the energy decisions we face, instead of treating each as an ad hoc opportunity for one option or technology and its backers to win at the expense of the others--and often at the expense of taxpayers. While we certainly need to get on with deploying lower-emission ways of producing and using energy, it is premature to bet the ranch on any one option. We should still be creating new options and pruning them along the way, based on principles aligned with the basic problems we are trying to solve. While that might sound idealistic to some, it strikes me as intensely practical and much more useful in the long run than the prevailing plague of energy "answer-itis", in which everyone wants to push a specific answer before we even agree on the right questions to ask.

Bridges and Taxes

I'm a bit late to the party, regarding the recent proposal to increase the gas tax to help with the cost of repairing our decaying road infrastructure. Simply put, it seems like a no-brainer, and it would be an awful shame if the Congress and White House didn't deal with this, before the news cycle shifts away from the Minneapolis bridge collapse to more recent events. If we can't find a way to fund more urgent renovation of the decades-old infrastructure in this country, then we will deserve all the comparisons to spoiled rich kids burning through their inheritance from wiser parents.

I understand the arguments about the economic impact of raising taxes and the prospect that even a modest gas tax increase would be the camel's nose under the tent, setting the stage for a steeper gas tax hike to curb demand, or a carbon tax. That just doesn't wash, when you consider the current federal gasoline tax. Never mind the usual comparisons to European fuel taxes, which generally serve entirely different purposes, anyway. Look at how it stacks up against our own state gasoline taxes. They average 27 cents per gallon, after backing out the federal tax of 18.4 cents per gallon, and range from a low of 8 cents per gallon in Alaska to a high of 42.4 cents in New York. The current federal gasoline tax is less than what all but seven of our states collect on the fuel, and it has not changed materially since 1993, when President Clinton raised it by four cents and suffered serious political consequences.

Fourteen years worth of inflation have completely dissipated the value of that four cent increase, so that we are now contributing fewer real dollars to the highway trust fund than we did when Bill Clinton took office. If you consider the escalation of construction costs in just the last few years, including the cost of steel and concrete that have been affected by the enormous construction boom in Asia, the situation looks much worse. In other words, the five-cent increase proposed by members of Congress after the I-35W bridge came down would effectively only get the federal highway trust fund back to the purchasing power that it had in 1997, when it was last raised by 0.1 cents per gallon.

I don't think I'm naive about the political implications of raising the gas tax, one of this country's great sacred cows. But it's also clear that voters are willing to hold elected officials accountable for failing to address predictable disasters, or respond to them appropriately. Even if we need to call it a one-time inflation-indexing of the highway trust fund revenue, rather than a gas tax increase, we need to get on with it. This is an issue with no political agenda other than common sense. It would be a modest down-payment on reestablishing the kind of no-nonsense ethic that will be required if we are to have any hope of handling the much more complex and controversial challenges we face.