McCain's Energy Drill

Wall Street Journal
Wednesday, June 18, 2008

Behold, a miracle: Public anger over $4 gas is forcing at least some of our political class to confront their energy contradictions. Last week, Republicans Jim Walsh of New York and Roscoe Bartlett of Maryland -- two longstanding opponents of offshore drilling -- asked for a mulligan. We can now add John McCain to the roll: In a speech in Houston yesterday, the Senator finally came out in favor of increasing domestic energy supplies.

This is progress, even if it did come dressed in some of Mr. McCain's familiar policy confusions. In the past, the Republican has been a chief opponent of opening up the vast U.S. offshore regions and other federal lands where oil-and-gas exploration and production are prohibited, especially the Arctic National Wildlife Refuge. But oil at $135 a barrel is a powerful political motivator.

The candidate now says we must drill for more domestic oil "as a matter of fairness to the American people." He did not back off from his sentimentality about ANWR -- leaving off-limits nearly half of the proven reserves of the entire U.S. at 10.4 billion barrels. But he did propose to open most of the Atlantic and Pacific coasts to development, so long as the nearby states were in favor. This could open up as much as 420 trillion cubic feet of natural gas and 86 billion barrels of oil on the Outer Continental Shelf to development. That's a big deal considering that we now consume nearly 10 billion barrels a year.

Mr. McCain also picked up on a good idea from the Bush years, in which states would share the royalties generated by offshore development. In 2006, Congress lifted prohibitions on leasing a narrow strip in the Gulf of Mexico, splitting 37.5% of oil-industry returns with Louisiana, Texas, Mississippi and Alabama. By filling state treasuries, this arrangement could build political constituencies for increased domestic production, and is attracting interest among the Southern seaboard states.

In 2007, at the urging of Democratic Virginia Governor Tim Kaine and the legislature, the Interior Department tried to open deepwater areas off the state to seismic testing. Yet Congress has so far refused to appropriate funds for even this preliminary step. Democratic leaders and the green lobby remain opposed to any exploration whatsoever, no matter how minimal the environmental disturbance from modern equipment.

This obstructionism may now be tested. We hear -- and hope -- that as early as this week President Bush may lift a 1990 executive order that prohibits offshore drilling. That would leave Congress as the only obstacle to drilling policies that would help alleviate record-high gas prices. Since those prices are hurting the GOP politically almost as much as they're hurting consumers economically, Mr. McCain's drilling reversal sets him up for a useful debate with Barack Obama.

For a candidate claiming the mantle of "change," Mr. Obama's energy policy might as well have been drafted in the 1970s. He supports punitive new windfall profits taxes on Big Oil, which won't do anything for supply; as well as at least $10 billion a year in new subsidies for "alternative" energy technologies, which may take years or decades to pan out, if they ever do.

Mr. Obama's hostility to new drilling relates directly to his larger hostility to all carbon energy. Last week, he told a CNBC interviewer that his only objection to higher energy prices was how fast they had risen. He said, "I think that I would have preferred a gradual adjustment." His climate-change tax-and-regulation scheme known as cap and trade is designed to raise gasoline and other energy prices, albeit in a politically stealthy fashion.

Mr. McCain would have an easier time making a contrast with Mr. Obama if he didn't also support a softer version of cap and trade himself, on top of all his other green genuflections. He also needs to get his bearings on the reason oil prices are high. It's not merely rising demand from China and India, and it certainly isn't because "some people on Wall Street" are speculating in the futures market, as Mr. McCain claimed yesterday.

Mr. McCain seems to lack a basic understanding of how markets work and so is often swayed by such populist nostrums. He would have been better off mentioning the Federal Reserve and Bush Administration's weak dollar policy, which has sent all commodity prices soaring across the board since last August. By rightly blaming inflation, he would also have put himself on the side of the middle class the way Ronald Reagan did in the 1970s. That's a wiser kind of populism.

No matter how far the country progresses in "the great turn away from carbon-emitting fuels," as Mr. McCain put it, the truth is that fossil fuels will remain indispensable for decades. The U.S. Energy Information Agency forecasts that over the next 25 years, oil, coal and natural gas will provide roughly the same 86% of the world's energy mix as they do today. Mr. McCain's new willingness to drill is at least a welcome bow to that reality.