Drilling Down to the Details

WHAT THE EXPERTS SAY

Drilling offshore and a summer gas tax holiday aren't likely to lower gas prices, especially not in the near-term. According to the Department of Energy, drilling in areas that are currently off-limits "would not have a significant impact on domestic crude oil and natural gas production or prices before 2030." The summer gas tax holiday has been widely derided by economists, who believe it would "generate major profits for oil companies rather than significantly lowering prices for consumers." On the other hand, if these measures did succeed in lowering prices, they would also likely increase consumption and global warming.

Nor, however, are economists thrilled with Obama's windfall profits tax. A 1980s version of the tax didn't raise much money and appeared to depress domestic production. And the "use-it-or-lose-it" proposal for federal oil leases isn't taken seriously by industry analysts. Most federal leases already require activity within five or ten years, according to the American Petroleum Institute. A lease doesn't guarantee an oil deposit, and technical or logistic hurdles often make extraction impossible. "The last thing you want to do is sit on potential oil production or natural gas production," API spokeswoman Karen Matusic told CBS News.

Scientists appear to be arriving at a consensus that the world must reduce carbon emissions by 80 percent in 2050 to ward off a serious change in the climate, a goal Obama meets but McCain misses. Economists are divided, though, about whether a cap-and-trade system is more efficient than a straight-up tax on carbon emissions -- cap-and-trade systems are difficult to administer and produce uncertain results, often rewarding middlemen and brokers. On the other hand, as the Union of Concerned Scientists points out, "a carbon tax by itself cannot guarantee any particular level of emissions reductions."

Despite McCain's insistence that government not "pick winners and losers," McCain's clean fuels agenda does just that: ethanol (including next-generation cellulosic ethanol) would get no government support; wind, solar, and hydro power would get production tax credits; nuclear power would get construction guaranties; and clean coal would get $30 billion over 15 years. As Jerry Taylor of the libertarian Cato Institute told Bloomberg News: "It's just a different set of handouts for a different set of industries." Environmental advocates are, in any case, skeptical that coal cr be truly clean, particularly when it comes to turning it into liquid fuels.

Obama's plan to dole out $15 billion a year in investment and subsidies for new energy technologies -- and billions more in transition assistance -- is bound to create a new, enormous federal bureaucracy. But the Union of Concerned Scientists argues that merely setting up an emissions trading program and them stepping back will fall short of delivering the technological advances required to reduce carbon usage. "The government must implement parallel policies alongside a cap-and-trade regime to ensure development and deployment of the full range of clean technologies," writes UCS economist Rachel Cleetus. "Studies have shown that a comprehensive approach including these parallel policies would lower the price for allowances, cut emissions, and save consumers money by lowering their electric and gasoline bills."

Finally, the Congressional Budget Office concludes (right-click to save file) that consumers will pay higher energy prices under a cap-and-trade system regardless of whether the government auctions the permits to polluters, as in Obama's plan, or grants them outright, as in McCain's version. "Giving away allowances could yield windfall profits for the producers that received them by effectively transferring income from consumers to firms' owners and shareholders," according to the CBO. Shareholders would lose some value in a carbon-constrained world, but the CBO finds they would be fully compensated with just 15 percent of the permits.

Still, in the big scheme of things, these distinctions may be smaller than they appear in the campaign. As economist Joseph Aldy, from the nonpartisan organization Resources For The Future, explained to National Public Radio, "One can quibble with some of the details, but at end of the day, the difference between them will get washed out by negotiations between the next president and the Congress."

THE MCCAIN AGENDA, IN DETAIL

Responding to the high price of both oil and gasoline in the spring, John McCain proposed a summertime holiday on federal gas taxes and new rules to regulate energy trading and discourage speculation. He has also proposed lifting a moratorium on drilling for oil and natural gas offshore, in the outer continental shelf. (McCain continues to oppose drilling in the Artic National Wildlife Refuge.) Over this longer term, McCain's energy agenda means both to make the country energy independent by 2025 and to reduce global warming. Increasing domestic oil and gas production serves the first goal, but not the second.

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