Clinton Shills For Bad Energy Policy
INVESTOR’S BUSINESS DAILY
Energy: Bill Clinton’s back, now touting tax hikes for ethanol to California voters. “If Brazil can do it, so can we,” he said, claiming an ethanol switch ended Brazil’s need for foreign oil. Once again, he’s telling whoppers.
Brazil did achieve independence from foreign oil all right. It happened this past April. But Clinton, true to form, doesn’t quite recall the critical point showing how it was done.
Here’s a clue for the semi-retired former president and policy wonk: Brazilian President Luiz Inacio “Lula” da Silva didn’t celebrate the oil independence milestone out in an Amazon sugar field.
No, he smashed a champagne bottle on the spaceship-like deck of Brazil’s vast P-50 oil rig in the Albacora Leste field in the deep blue Atlantic. Why? Brazil’s oil independence had virtually nothing to do with its ethanol development. It came from drilling oil.
Which is the very thing Clinton, in his Proposition 87 television ads, seeks to pile taxes on.
Clinton is hawking the idea that taxing offshore oil drilling companies, from 1% to 6% — a 600% hike for some — and then turning the spoils into a new government bureaucracy for ethanol development is the way to end California’s dependence on imported oil.
“Imagine if we stop being dependent on foreign oil. Brazil did it. They made a simple switch to their cars. Switched to ethanol, grown from their own crops. And it’s 33% cheaper than gas,” Clinton said, neglecting one key detail: cars must use three times as much ethanol as gas.
“With Proposition 87, we can switch to cleaner fuels, wind and solar power,” he says in a political ad, “and free ourselves from foreign oil. If Brazil can do it, so can California.”
But as a matter of fact, that’s not what Brazil did.
It launched a crash program of offshore oil drilling in the late 1990s, working with a Manhattan Project-like determination to develop its own natural resources.
In 1997, Brazil opened its oil sector to foreign competition, encouraging companies like Royal Dutch Shell to explore and drill for oil in its offshore waters for the first time. It offered incentives — like tax cuts. It also turned its inefficient state oil company, Petrobras, into a for-profit company run like a real business instead of a government cash cow, forcing it to compete on an international-standard level. In short, it got out of the way.
Net result, lots more oil for Brazil — enough to enable the once-oil-dependent country to actually export some, all from fewer energy reserves than the U.S.
Brazil’s new P-50 rig has boosted output to an average 1.9 million barrels of oil a day, a bit more than the 1.85 million Brazil consumes.
By contrast, ethanol output in Brazil, the world’s biggest producer, is only a small share of its energy consumption.
Last year, the country squeezed out just 282,000 barrels a day mostly using sugar, a more efficient and clean-burning energy source than the corn-based stuff produced in the U.S. But sugar-based ethanol still isn’t as efficient as gasoline.
Not surprisingly, Brazil’s ethanol production began as a big government project in 1975, curiously similar to what Clinton is touting. It was run by the military junta, and was costly — the junta pumped in about $16 billion in loans and price supports to sugar companies over two decades. The output still was meager.
Ethanol output didn’t take off until government fetters were lifted in 1989 and the market was free to develop it without government involvement. It became a far more viable energy source after that.
Clinton has had a long history of raising political funds from agri-biz giants — like Archer Daniels Midland — interested in government contracts. As Brazil’s example shows, taxing oil to subsidize ag firms is exactly the wrong way to produce ethanol — or oil. If Clinton were really sincere about ethanol itself, he’d be lobbying for an end to tariffs on cheap ethanol from Brazil.
But it looks like he’d rather repeat Brazil’s decades of energy mistakes instead of cutting to the real reason for Brazil’s success: its decision to drill offshore for oil.