Friday, June 20, 2008

Striking a Bargain

For several years I have been intrigued by the possibility of a "grand compromise" on energy and the environment, so I was pleased to see this idea resurface in Steven Pearlstein's column in today's Washington Post. Starting with the proposition that Democrats and Republicans each hold only half the recipe for a serious response to our vulnerability to high oil prices and the risks of climate change, he frames our political choice as one "between compromise or stalemate." The evidence for this has been in the headlines throughout the past month. The recent failure of the Lieberman-Warner-Boxer cap & trade bill and the current debate on opening up more areas for oil and gas drilling demonstrate the inseparability of our energy and environmental challenges. It is time to recognize this as an opportunity, rather than an obstacle.

Wednesday's posting looked at how expanded drilling fits into our larger energy and environmental challenges and concluded that it can make positive contributions on both fronts, though it is hardly the entire solution. The feedback I received suggests that many people would be receptive to more drilling, if it weren't seen as a means for enabling a return to cheap oil and wasteful behavior. Expanding supply without addressing demand merely postpones tough choices, while ambitious planning for "energy independence" that constrains demand and boosts alternatives but leaves US oil production on a glide path to oblivion is doomed to failure. And as Mr. Pearlstein notes, a package combining "well-regulated drilling" with reductions in greenhouse gas emissions could benefit everyone.

The formula for a winning compromise isn't obvious. It could involve expanded drilling with royalties dedicated to funding alternative energy R&D, or it could go as far as linking economy-wide emissions cap & trade with carefully-monitored access to the Arctic National Wildlife Refuge and all federal waters beyond the 3-mile state limits. The best place to define it would be in a bi-partisan conference of the House and Senate. An election year might not seem well-suited for pursuing such sweeping legislation, but as I learned in my years of trading oil commodities, you can't always wait for the timing to be ideal. When conditions provide the right combination of motivated parties and market drivers, that's the time to strike. This could be just such a moment for sweeping energy/environmental legislation.

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