Recently The Financial Times ran a story (“Shale gas boosts US manufacturing“) discussing the fact that a number of companies, both American and non-American, were either re-opening chemical or fertilizer plants in the United States, or were building new plants. This trend has emerged as the result in the significant fall in the price of natural gas in the US as compared with other regions. As the FT noted,

Dow Chemical plans to open new US ethylene and propylene plants later this decade, and restart a Louisiana ethylene cracker closed in 2009. Royal Dutch Shell announced a chemical plant in the gas-rich Appalachian mountain region to make ethylene and petrochemicals. Sasol of South Africa last week unveiled a plan to convert gas into diesel fuel in Louisiana.

In the fertiliser industry, Potash Corporation of Saskatchewan is investing $158m to restart a Louisiana anhydrous ammonia plant shut in 2003, when gas prices were climbing. Aluminium company Ormet is dusting off a nearby plant shuttered in 2006.

This is a turnaround from activity a decade ago, as the FT notes, when companies were closing plants and moving operations elsewhere. However, as one might expect, the story is somewhat more complicated, because the technology behind the drop in US natural gas prices—Hydraulic Fracturing, or “fracking”—comes with its own set of environmental and regulatory concerns. As the FT indicated,

The investments come as the US gas market faces regulatory challenges. Extracting gas from shale rocks involves injecting water, sand and chemicals at high pressures thousands of feet underground, raising concerns it will pollute drinking water.

Some states have imposed moratoria or restrictions on the technology, while the Environmental Protection Agency is studying potential impacts. A government advisory panel last month urged disclosure of what is in fracturing fluid.

Nor are these concerns restricted to the US. Fracking is a controversial drilling technology, so much so that France has banned its use, and the states of New York and New Jersey have banned its use either in watershed areas or completely (although the New Jersey ban has been rejected by the state’s governor, who prefers a one-year moratorium). These concerns arise as Europe discovers its very own tracts of shale gas, which, as is the case in the US, offers the potential for overcoming what appeared to be declining natural gas supplies and rising natural gas prices, as well as the ability to reduce dependence on imports, a significant concern for Europe in general. The most recent shale gas discovery, in fact, has been here in the UK.

Fracking represents a technology that thus far has allowed the US to reap the benefits of significantly lower natural gas costs over the past several years, although this benefit may be temporary as other countries push to develop the use of this technology in their own regions. However, it’s not clear that other parts of the world have the infrastructure or expertise to develop shale gas reserves as broadly as has been done in the US. As a result, the US faces the prospect of potentially benefiting from lower natural gas prices for some period of time. Moody’s , for example, has opined that this benefit may last 5-10 years in the case of the chemical industry.

In addition, as intimated above, there are some interesting, and potentially significant, environmental issues associated with fracking. Not least of these is the fact that fracking technology uses very large quantities of water. Given that many recently posited shale gas reserves seem to occur in areas of water scarcity, this raises some questions as to how usefully some of these resources can be developed. In addition, concerns have been raised about possible groundwater contamination, although it’s not clear whether these objections can’t be addressed through better drilling practices.

However, should the environmental issues be resolved in a cost-effective manner (which is not at this point a certainty), there are several significant implications that follow. First, the prospects of somewhat cheaper energy costs, and a longer life for current gas reserves than envisioned just a few years ago, appear justified. This is likely to have broad macroeconomic impacts.

Second, there are clear implications for a number of industries—chemicals and fertilizers in particular—that are significant industrial users of NG, and these implications may have differential impacts on US and European chemical and fertilizer producers. These implications may be significant enough to affect business strategies, and even credit profiles, to the potential benefit of North American producers versus their European (and possibly Asian as well) counterparts. The US industries affected have been major employers in their regions, to the prospects of a resurgence in hiring has obvious appeal for policymakers.

Third, NG is attractive to industry and governments relative to other fossil fuel sources for another reason—it generates significantly lower levels of Greenhouse Gasses (particularly CO2). Thus, NG has been proffered by a number of governments and non-governmental organizations as a “transition fuel” for meeting greenhouse gas reduction and various climate targets (the latter in the EU, but not yet in the US). More readily available and less expensive NG would make it easier for governments, as well as industries and utilities, to meet such targets. It is therefore not surprising that the US government, for example, is enthusiastic about the increased utilization of shale gas as a positive development in dealing with global warming. However, given some of the medium term uncertainties associated with shale gas development, the potential promise of NG as a “transition fuel” may remain speculative for the near term.

Natural gas (NG) provides an important source of energy, be it heating, a source of electricity, or a transportation fuel. It is also a fundamental feedstock for a number of major industries. This is particularly the case in many parts of the United States, where a substantial pipeline system now exists to provide natural gas as a fuel source to most parts of the country. This was helped by the large number of areas in the US that and substantial NG deposits, considerably more so than oil resources. Even with the creation of vast pipeline systems in the US (and more recently in Europe and Asia), NG remains predominantly a regional business. Gas is a bulky material, and to ship it requires either a pipeline, or a technology to convert it into another form—usually a liquid. As a result, over the past decade there has been substantial investment in NG processing and transmission facilities, either pipelines or facilities to convert NG into Liquefied Natural Gas.

NG is therefore one of the fundamental building blocks of the modern industrial economy. It is therefore of some concern that proven and probable reserves of NG have been in decline over the past two decades in parts of the world, such as the North Sea. However, improved technologies leading to more flexible drilling systems, including hydraulic fracturing, have altered the nature of this debate—if, indeed, it turns out that there is considerably more NG than previously supposed, as a result of this technology, then the often-made claim that shale gas is a “game-changer” seems justified.

Industrial production, currently about 27% of total US gas consumption, has been declining as a percentage of total NG consumption over the past few decades, for a number of reasons. First, overall industrial and manufacturing activity has declined in general over the past several decades as a percentage of US GDP. We have hollowed out our manufacturing base. Second, a number of US industrial enterprises have shifted production offshore, often to emerging markets to take advantage of lower labour and energy costs. Third, up until recently, higher NG costs put US costs (both fixed and variable) at a level comparable to those of Europe and Asia, since prices everywhere generally correlated with oil prices. As a result, industrial NG consumption in 2010 was substantially lower than in 1997, declining from 8.510.9 BCF to 6.599.9 BCF according to US Energy Information Administration data–the only category of end use that was lower over this period.

However, the US seems, for the moment, to have broken the relation between oil prices and NG prices, and it is plausible to speculate that industrial use of NG may begin to increase. Natural gas provides an important, indeed critical, feedstock to a number of important global industries. The most important of these are the Petrochemical, Fertilizer, Refining, Pulp & Paper, Metals and Mining industries. NG is also an important source of energy for the overall economic system, and its primary consumption is for heating (at all levels) and electricity generation, although its importance varies regionally. Energy production, in fact, has been a larger consumer of NG than Industrial sues since 2007, and this trend looks likely to continue. Moreover, in some quarters it is viewed as the fuel of choice as a “transition fuel” because of its lower CO2 generation characteristics than either oil or coal as countries, particularly in Europe, seek to meet greenhouse gas reduction targets.

In contrast to the US, the largest consumer of NG on a global basis. Europe consumes smaller amounts of NG, but is still in the aggregate the second largest consumer of NG. This is true even if Russia, the second largest country consumer of NG, is excluded. Only three European countries—the UK, German and Italy— are among the top ten consumers of NG in 2009. Only one European country—Norway—is among the top ten producers of NG (although the UK ranks number 15). Interestingly, the Netherlands, which has the largest gas field in Europe, is not among major NG exporters—the Dutch government maintains a rigorous production cap. And only Norway stands in the top twenty countries in terms of proven conventional reserves—and, in fact, Norway is the second largest NG exporter after the Russian Federation. Overall, OECD Europe consumed 19.2trillion cubic feet (tcf) of conventional NG in 2009, as compared with 22.7tcf in the US.

For most of the past century, NG prices tended to move in line with oil prices, since the two are often found together. NG was often treated as a by-product, albeit an occasionally useful one, of oil extraction. Over the past eighteen months, however, US NG prices have dropped well below those found in Europe or Asia, as shown in the following table:

Source: US Energy Information Administration

The EIA notes that “The relationship between North American and northwest European spot prices appears to have changed in the last 18 months. Before that time, they often followed similar paths; differences often reflected local conditions, such as storage, and tended to be temporary. However, in 2010 and 2011, the differences have grown and appear to be more lasting.”

The most common explanation put forward most recently is that this divergence reflects more aggressive drilling for and recovery of shale gas. In fact, shale gas has been being produced for decades in regions around the US (and elsewhere), but mostly in regions not economically reachable by pipelines. Until recently it has been a cumbersome process, and has generally been uncompetitive in terms of price with more readily available NG prices. Concerns that conventional production of NG was peaking, which arose from time to time, since NG is essentially a finite resource, have miraculously disappeared.

In the past, pricing of NG tended to be correlated with oil prices, which, of course, have been rising over the past decade. As a result, NG prices also rose, to the extent that energy costs involving NG tended to become non-competitive—or at least not a marginal factor in decisions on locating plant, unlike labour costs, which were often the significant decision in plant location decisions. And if NG derived from conventional sources was uncompetitive as an energy source, the additional costs associated with shale gas extraction made it even more uncompetitive at least until recently.

In fact, natural gas prices in the US over the past decade have been hugely volatile, rising from an average of $1.92 per thousand cubic feet during the 1990s to an average of $7.33 in 2005, and driven to over $12 after Hurricane Katrina knocked out several gas production facilities in 2005. Since the newer technologies allowed for profitable extraction of NG at $7 per tcf, a “shale gas rush” ensued, which has driven the price down even further.

At present, after several years of aggressive development of shale gas, prices are currently in the $3.50-$4 region, and in all likelihood look set to decline modestly over time as more supply comes on stream. While this puts margin pressure on utilities and Independent Power Providers, it makes feedstock and energy costs for the chemical industry (not to mention other industries) very attractive. On the other hand, NBP (National Balancing Point) prices in the UK, the proxy for European pricing, have remained tied to oil prices, which, while declining over the past several months, remain high relative to historical norms, and look set to remain that way.

The American Chemistry Council, the US chemical industry’s trade organization, has noted that the cheaper ethane derived from shale gas is currently giving US chemical manufacturers a cost advantage over non-US manufacturers. Moody’s has suggested that this cost advantage may last for up to a decade, depending on whether this advantage is sustainable given environmental considerations, and how long it may take European and Chinese shale gas resources to be developed–if they are. As we’ll see, there are particular issues in both regions that suggest development, if it occurs at all, will be a lengthy process.

So just what is shale gas? All natural gas is found in sedimentary rock formations, as a result of the condition under which it (and oil and coal) were created. Some formations, however, are more troublesome to recover petroleum products from, and shale is a particular problem, for a variety of reasons. Depth isn’t necessarily the problem, although shale deposits are often deep, as much as two miles below surface. The problem is that shale itself has a potentially problematic porosity and hardness that makes normal drilling processes unsuitable—it’s too thick and hard. Shale gas is an unconventional gas, like coal bed methane and tight gas, which means, essentially, very low permeability. As a result, over the past decades shale gas has not figured prominently in recoverable reserves estimated by energy companies and government agencies.

Recent changes in drilling technologies, however, have opened up the possibility of significant recoveries of gas from shale, in quantities that alter the reserve estimates of the US and a number of other countries, particularly in Europe, and in China. Shale is the most common sedimentary rock, and on a global basis contains a possible 5.760 trillion cubic feet (tcf) of NG reserves, according to a recent EIA report, World Shale Gas Resources: An Initial Assessment of 14 Regions Outside the United States. This is a significantly larger figure than previous worldwide estimates of proved NG reserves.

Significant shale gas opportunities are known to exist in the US, as shown in the map below:
Identified shale gas deposits in the United States

What has opened up potential shale gas production has been the significant and rapid development, particularly over the past decade, of a set of technologies in two areas: (1) horizontal drilling, and (2) hydraulic fracturing, the technique of exploding shale under pressure by “blasting” it with significant amounts of water, sand and chemicals. Once “fractured”, gas seeps out from the shale and can be collected. However, the combination of heavy use of water, and the possible effects of chemical contaminants on groundwater supplies, have raised issues about the relative utility and safety of fracking.

Recent shale gas developments have been successful enough such that shale gas is bearing the weight of substantial hopes in the US government and in the US NG industry, both of which expect shale gas to take up an increasing percentage of US NG production and consumption over the next several decades. The following graph, from the Energy Information Agency of the US department of Energy, gives a flavour of the hopes now resting on Shale Gas, in a graph that would have likely been inconceivable just four years ago
A growing dependence on shale gas in the US

Nearly all the improvement in the recent growth of estimated NG reserves in the US is accounted for by shale gas, in fact.

The effective result of these recent developments has been to make the US largely self-sufficient in NG in a surprisingly short period of time, as opposed to being a net importer of NG as was expected just a few years ago. These developments have also, as mentioned previously, caused NG prices in the US to disconnect from global oil prices to a potentially significant extent. Should this disconnect become permanent, it is difficult to avoid the conclusion that companies in the US that rely on NG for feedstock or for significant energy consumption may garner a competitive advantage relative to competitors relying on NG derived from conventional sources, where pricing remains linked to oil prices.

And it turns out that shale gas deposits are found worldwide (as are, of course, oil and NG deposits), but it has only been with the development of the drilling technologies and methods described above that interest in developing these resources has recently emerged. As a result, we are already seeing some countries increase their reserve estimates. At present, 32 countries have estimable potentially recoverable reserves, according to the EIA study mentioned above. As shown in the following map, shale gas reserves occur worldwide:
Worldwide distribution of Shale Gas reserves

The US is actually the number two in terms of potential reserves, after China. Only three European countries—Poland, France and the UK—show up in the top ten. However, this is slightly misleading, since Europe as a whole does in fact have significant shale gas deposits, although not nearly to the extent of the US. The IEA has estimated that of the 6.622 trillion cubic feet of worldwide shale gas deposits, about 640 tcf are to be found in Europe, which would place “Europe” as number five in terms of potentially recoverable shale gas. Nonetheless, this offers enough of a prospect that development efforts are under way in a number of countries, especially Poland, as discussed further below.

Europe is already the world’s second largest NG market, but the supply differential between the US and Europe is significantly different—while the US generally is self-sufficient in gas, Europe is currently reliant on imports, largely from Russia and North Africa, and at current trends the import portion of Europe’s supply is expected to grow. Moreover, NG production in Europe continues to decline overall, particularly as North Sea gas fields continue to run down, reinforcing the prospects of increased imports going forward.

Europe and much of the rest of the world also gets its NG from more diverse sources than the US, which gets its NG directly from NG deposits in the ground. Europe, on the other hand, derives much of its NG from naphtha, a by-product of petroleum refining. In fact, prior to the discovery of significant gas fields in the North Sea in the 1970s (which continue to be discovered, although in smaller quantities), NG was not a major energy source within Europe, which tended to rely on coal and oil. Industrial users of ethylene, which is derived from gas, relied on gas derived initially from naphtha rather than straight natural gas, simply because there was more of the former than the latter.

However, over the past several decades this dynamic changed materially with several developments: the discovery of large NG fields in the North Sea, and the construction of various pipelines to get the gas to Europe; the expansion of export markets from NG sources such as North Africa; and the emergence of Russia as a major supplier of gas to Europe. Nonetheless, the North Sea gas fields are running down (the UK became a gas importer in 2005), and both North Africa and Russia as sources of NG carry some degree of geopolitical risk.

As a result of the above, there has been considerable interest in those areas where shale gas reserves have been estimated in Europe. Work is already under way in Poland, which has had mixed success to date, and has proved politically controversial. Austrian oil company OMV is currently drilling in an area of potential shale gas in Austria. Exploratory drilling is currently taking place in Denmark and is beginning in Sweden, beneath which runs the Alum Shale deposit. Significant shale gas deposits elsewhere in Europe have not yet been developed to any extent.

However, a number of European governments are actively reviewing the process, a necessary step given the potential environmental issues associated with shale gas. France, for example, has banned fracking, and has cancelled the exploratory drilling permits of companies who indicated they would rely on fracking technologies. However, France’s major energy company, Total, has objected that this will limit the potential for developing alternative energy supplies to supplement France’s well-known dependence on nuclear power. The UK government, following recent shale gas discoveries, has indicated it will not ban fracking, although it remains under pressure to do so. Rather, it appears as if there may be some confusion over who is directly responsible for whatever regulations may be required. There are signs that the UK government seemed to find the idea of shale gas development appealing earlier this year. However, this was before the earthquakes which forced the company developing some test wells to suspend operations (which have not yet been resumed, as of time of writing, although they may be shortly).

Unlike the US, Europe has been relatively late in developing shale gas resources. However, the fact that there are significant political benefits to reducing Europe’s dependence on gas imports has not gone unremarked among policy circles. There is currently a debate both at the country and at the EC level concerning how best to proceed with shale gas development in Europe, and we expect this debate will remain lively over the near term. However, we also expect that, pending resolution of some of the environmental concerns associated with shale gas, development will proceed in the near future. However, this is speculation on our part, admittedly, and we cannot really say how and indeed whether Europe will develop these deposits sufficiently to potentially close the widening gap between gas prices in the US and gas prices in Europe. If this gap does not close, it may disadvantage European production facilities with a high NG dependence.

It is not just Europe that is seeking to develop shale gas reserves. As the EIA study cited above suggest, Argentina has the world’s third largest shale gas reserves, followed by Mexico. We would expect development effort to accelerate in all areas where shale gas reserves are sufficiently large and potentially exploitable. However, even in areas where there appear to be large recoverable reserves of shale gas, there is often sufficient government concern about the potential risks to result in temporary slowdowns in development. Quebec, for example, instituted a year-long ban on shale gas development in March 2011 pending further study. Also in March 2011, India deferred shale gas auctions until 2012-2013 pending the development of suitable regulatory regimens.

Non-OECD countries will comprise the bulk of demand for oil and gas over the next several decades, according to the International Energy Agency’s (IEA) Medium Term Oil and Gas Markets 2011 report. While many of these countries—particularly some in Latin America like Brazil, and some in central Asia such as those surrounding the Caspian Sea—are likely to be energy self-sufficient, many are not. This latter category includes a number of significantly growing economic powers, such as India, Korea and China. China, in fact, is expected to account for about one-third of the total growth of incremental gas demand through 2016, through both pipeline gas and LNG.

We note that China has by far the largest potential shale gas reserves. China may have a particular interest in developing its own shale gas reserves. It is the world’s largest producer and consumer of energy. And it is moving from a net oil and gas exporter to a net oil and gas importer. Moreover, China is aggressively developing a number of industries, including a chemicals industry, which have a heavy reliance on NG as feedstock. China has recently embarked on a number of arrangements to ensure its oil and gas supplies, including many with former Soviet Union countries, including Russia, through various pipeline arrangements. However, the prospect of developing what may be the world’s largest shale gas reserves will undoubtedly be tempting to a government that has indicated its desire for energy independence, and whose most recent five-year plan has targeted a substantial increase in gas production in its primary energy mix by 2015—to 8.3% of total energy generated, from 3.8% in 2008 . China has taken a number of steps the past several years to encourage gas production of NG in general, and shale gas production in particular. In June 2010 the government lifted price controls on the price of gas at the wellhead in an effort to spur investment. More recently, China signed up to the US-sponsored Global Shale Gas Initiative, a forum for technology sharing among countries seeking to develop their unconventional reserves (and, one assumes, also to allow US-based oil and gas service companies to participate). As it turns out, the severe water intensity of the fracking process may raise some interesting resource allocation conflicts in China, a country where water resources are already under significant pressure from competing interests driven by agriculture and urbanization and its consequent energy demand.

There is a difference in identifying potentially recoverable reserves, however, and having the means to recover them. In contrast to the US, Europe in general has substantially fewer drillers, particularly drillers with shale gas expertise. In fact, Europe in general has far fewer gas rigs for conventional gas as well, and the oil and gas service industry is smaller than that in the US. In addition, Europe is more densely populated than the US, which in and of itself may raise concerns about extensive shale gas development. This suggests that development of European shale gas reserves may take longer than the recent learning curve in the US might suggest. For the time being, and barring significant curtailment of shale gas drilling in the US, it would appear as if the competitive NG cost advantage offered by rapid shale gas development in the US can be sustained for several years, at least.

All of the above has created a very tantalizing prospect for journalists, at least, who are now waxing eloquent about an industrial renaissance in the US, on the back of cheaper energy. This is certainly a plausible scenario should the conditions that allow cheaper NG than elsewhere in the world be sustained. There are some clear industrial beneficiaries if this is the case:

1. The chemical industry: since NG is a basic feedstock for the ethylene chain, on which so much of the industry depends, this offers the prospect of permanently cheaper feedstock costs (not to mention cheaper energy costs) going forward. Should the price differential between US NG and prices in Europe and Asia persist, this may create a competitive advantage for plants located in the US. While we would expect these to be plants largely owned by US companies, it’s worth noting that most major European chemical companies have substantial plant exposure in the US;
2. Fertilizer producers: NG is the principle feedstock for nitrogen fertilizer, which remains the major category of fertilizer products (Potassium-based fertilizer uses potash, which is mined). A number of fertilizer companies are expanding their plant capacity in the US and Canada at present;
3. US Energy and Power companies—should the cost advantage currently accruing to NG be sustained versus coal, the ongoing move by many utilities to NG from coal is likely to accelerate;
4. Oilfield Equipment and Service companies. These companies have already benefited considerably in the US, and shale gas expertise and equipment that looks set to be in increasing demand in Europe and China.

And above and beyond individual industrial sectors, there has already been a general shift away from coal towards natural gas for power generation, again particularly in the US, but also in countries with a high coal dependency such as Germany. In the US, this is not simply because of more attractive gar pricing for utilities—coal is a serious greenhouse gas generator relative to NG, as well as a generator of other substances (such as mercury) likely to subject to increased regulatory pressure over time. Gas turbine manufacturers are all seeing increased levels of inquiry demand in the US.

In general, these developments would seem to have a number of potential implications. For the US economy, and a number of US industries, these implications seem uniformly positive—cheaper energy and feedstock translate into a lower cost of business than European and/or Asian competitors, and, in the case of parts of the chemical industry, perhaps even Mideast producers as well. Moreover, the US looks set to become an exporter of LNG—several companies have received US government permission to export LNG from existing LNG terminals in the Gulf region. While it seems likely that there may be broader macroeconomic benefits as well, consideration of most of these potential benefits is beyond the scope of this report.

European competitors, on the other hand, may face higher feedstock and energy costs, which may place hem at a competitive disadvantage in some cases. This is particularly true in the chemical and fertilizer industries, where feedstock cost differentials and energy costs differentials, respectively, may be material in terms of profit margins.

This would explain why shale gas deposits in Europe have received recent attention. While such deposits are not as extensive as in the US and China, they are certainly present, and do afford European NG extractors the opportunity for bringing less expensive feedstock to the European chemical industry, and less expensive NG into the European energy mix. They also afford European governments and companies an opportunity to shift away from coal more rapidly, thus allowing the region greater opportunity to hit its self-imposed GHG reduction targets.

This all sounds great. What could possibly go wrong here? For all the potentially positive implications of shale gas development in North America (and elsewhere), there are also some concerns. Whether these concerns will become significant enough to curtail or even stall shale gas development completely remains unclear. However, they are at present significant enough for a number of municipalities and states in the US to have either imposed limited restrictions on fracking, or outright (but at present probably temporary) bans. On an international scale, similar issues have arisen at the sovereign level, such that France, (for example) has banned shale gas development, as mentioned previously. In the following discussion, we tend to concentrate on developments in the US, but this is largely because shale gas drilling has been occurring in the US for some period now, and there is a well-advanced regulatory infrastructure at both the state and federal levels which have been devoting considerable attention to some of these issues.
The main concerns to date concern the following:

1. Water use: Fracking uses significant amounts of water. Most oil and/or gas drilling involves pumping water into wells when the natural underground pressure becomes insufficient to move oil or gas up the well so that it can be recovered. However, shale oil and shale gas require significant amounts of water above and beyond normal the normal requirements of the industry. A “typical” well, for example, may involve 3-10 million gallons of water, and 1.5 million pounds of sand. Even by the standards of the water-hungry natural gas industry, these are prodigious amounts. In upstate New York, companies developing the Marcellus shale (the largest shale gas region in the US) have resorted to bringing in water by the truckload, in an area not noted for its water scarcity.

Were water in abundant supply everywhere, this would not necessarily be a problem. However, water is not in abundant supply everywhere. In fact, in many parts of the world water is in short supply, and there is already intense competition for water resources between agriculture, energy resources and urban development in areas such as parts of China. We would not expect this competition to get easier over time. Since the amount of water on the planet is finite, it’s not as if more can be discovered.

Parts of Texas, for example, have recently imposed water use restrictions on fracking drillers as a result of the severe drought the state has been experiencing. Texas is not the only area of the US with active shale gas drilling and limited water sup plies—much of the far west region, particularly the shale gas drilling areas of Wyoming, Colorado and Utah, are areas of increasingly constrained water resources.

Water Scarcity–Physical

Source: International Water Management Institute

The above map simply shows area of physical and economic water scarcity. A comparison with the global map of potential shale gas resources presented earlier suggests that there are several areas of overlap—the western US, parts of northern and southern Africa, and western China in particular. However, a more revealing picture derives from looking at potential shale gas reserves against a map of Environmental Water Requirements—the withdrawal of water from groundwater or river sources for human use—suggests a more challenging picture:

Water Scarcity—Taking environmental water requirements into account

Source: International Water Management Institute

Taking existing human water consumption patterns into consideration suggests that there will be increased competition for water resources in some areas where there is little physical scarcity—the scarcity will come from competing economic interests. Given the level of water intensity involved in fracking, it is difficult to see how such competition for water resources will not increase over time, especially in regions such as the north-eastern US and Eastern Europe, and particularly China, where there may be considerable economic weight put on the development of shale gas resources.

2. Potential chemical contamination of water supplies: As described earlier, fracking involves blasting shale material with water, sand and chemicals. However, at present few companies have actually disclosed what chemicals are involved, a number of companies indicating that the chemical compositions are proprietary. While the chemical content of a drilling operation may represent only 0.5% of the total liquids involved, as industry sources have indicated, for a typical well involving 3 million gallons of water still translates into a meaningful amount of water. This has raised concerns concerning contamination of water supplies, including deep aquifers, from leakage. These concerns aren’t fanciful—spills are common occurrences in the drilling industry, and a number of potential contaminations of local water supplies have been reported to regulatory authorities. Not only are spills not uncommon, but accidents occur as well that can result in the release of contaminated liquids and water, and increased pressure for identification of the chemicals involved. In addition, at least one study has found evidence of methane contamination of water supplies in Pennsylvania from fracking, although the broader implications of this study, if replicated, aren’t completely clear yet.

The industry has responded with greater disclosure over the past two years, and some industry trade groups such as the Marcellus Shale Coalition continue to call for greater transparency (although not mandatory disclosure) on this issue. Some jurisdictions, including the State of New York, have issued outright bans on fracking operations in watershed areas. In other areas, including Wyoming, regulatory bodies have issued requirement to divulge what chemicals are used in the fracking process. By and large, the industry continues to resist these efforts. Federal Legislation, embodied in the Fair Power Act, would require disclosure of these chemicals, but this legislation is stalled in the current Congress. A number of states, including Wyoming and Pennsylvania, both centers of active fracking activity, have passed legislation requiring the disclosure of the chemicals used in the fracking process. However, these requirements often include exemptions for “proprietary” products, allowing drillers to block disclosure, as is the case in Wyoming. Moreover, they vary significantly from state to state.

A report from the Department of Energy earlier in 2011 called for substantially greater disclosure of chemicals used in fracking. The Environmental Protection Agency in the US is considering whether to assume a federal regulatory role in this regard, which the drilling industry is opposing. We expect this issue to remain contentious. The EPA has asked drilling companies to voluntarily disclose the identity of chemicals used in the fracking process, and some companies have responded affirmatively, but not all.

3. Fracking produces significant amounts of wastewater: Given the still-uncertain composition of the chemical mixes used in fracking, this in and of itself raises some concerns for public interest groups. Coupled with the significant amount of water used, concerns have been raised about what regulations will be required to ensure the safe disposal of wastewater. Typically, anywhere from 10%-40% of water injected in wells using fracking technology gets returned, and must be disposed of in some manner. One proposal has been to pump the water into the ground. However objections have been raised over concerns of possible groundwater contamination. Another tactic has been to simply dump the wastewater into local waterways. This process also has some significant drawbacks. However, the Environmental Protection Agency determined local wastewater facilities could not process fracking wastewater, and ordered the drilling companies to develop a more systematic plan for wastewater disposal. A number of proposals for recycling fracking wastewater have emerged, but these may have their own set of problems.

The more general issue is that for decades, as pointed out in a paper from the Environmental Working Group (Free Pass for Oil and Gas: Environmental Protections Rolled Back as Western Drilling Surges), the oil and gas industry has been able to garner a significant number of exemptions from a variety of federal environmental legislation, including

(a) the Safe Water and Drinking Act of 1974;
(b) the Resource Conservation and Recove5y Act of 1976, which requires cradle-to-grave management of materials used in drilling, including disposal of hazardous materials;
(c) The Emergency Planning and Community right to Know Act of 1986;
(d) The Clean Water Act (1987 amendments)
(e) The Clean Air Act.

The Environmental Protection agency in 2004 took the position that hydraulic fracturing was exempt from the requirements of these acts, which is the main federal legislation governing water quality and use in the US, including clean-up standards and requirements. However, as discussed in the next paragraph, the EPA is now considering applying several of these acts to hydraulic fracturing. And at the state level, we may see more proposals such as that recently put forward by the Governor of Pennsylvania, which would allow counties to impose fees for drilling using fracking technology to pay for environmental remediation efforts.

All of this remains in a state of flux at present, and we would expect a vigorous debate over the treatment and disposal of wastewater to be sustained for some time. At present, both the ACC and the American Natural Gas Alliance (the US Natural gas producer trade group) are actively opposing further federal regulation of fracking activities, preferring that such regulations remain at the state level.

4. Likely increased government regulation: Regulation, by its very nature, adds costs. It is in fact likely that given the concerns mentioned above that there will be increased regulation. What remains uncertain at present is whether any increased regulation will be at the federal or state level, the potential scope of these regulations, and therefore their potential costs. While there are pressures for an outright ban on fracking, such as is the case in France, we suspect such a ban is unlikely in the US, unless the evidence for groundwater contamination becomes unequivocal, which at present it is not. The US government may issue federal guidelines for fracking within the next month, and several states, including New York and New Jersey, are currently reviewing or developing guidelines to ensure groundwater safety. Given the relative recency of much current gas shale development, however, we would expect the regulatory environment to be a shifting one over the next several years. The Natural Gas industry trade group, along with related organizations such as the American Chemical Council, have indicated the preference for continuing with the present policy of leaving most drilling regulations to States.

We note that this is a situation that is likely to only exist in the US, where there can be a variety of regulations, and regulatory oversight agencies, at both the state and federal level. Most countries, however, have only a single set of regulations governing such issues as drilling and water use, and these are generally national regulations.

5. Uncertainty surrounding the long term estimates and productivity of shale gas wells: The EIA (and others) have noted that most shale gas wells are relatively new. Not only are they new, but their drilling lives may be considerably shorter than those of conventional gas drills. The more general concern here is that, just as is the case with other NG resources, not all shale gas is equal. Some deposits are easier to get to than others; some deposits are easier to drill than others. Not all areas of the Barnet shale in Texas, which currently has about 15,000 wells in various stages of drilling life, or the Marcellus shale in West Virginia, Pennsylvania and New York, which has a number approaching that, are equally easy to recover shale gas from. The EIA, in fact, in its Annual Energy Outlook 2011, specifically cautions:

Estimates of technically recoverable shale gas are certain to change over time as new information is gained through drilling and production, and through development of shale gas recovery technology. Over the past decade, as more shale formations have been explored and used for commercial production, estimates of technically and economically recoverable shale gas resources have skyrocketed. However, the estimates embody many assumptions that might prove to be untrue in the long term.

More generally, it is also the case that estimates of reserves are often in early stages of refinement. The most dramatic example of this recently was the announcement by the U.S. Geological Survey that initial estimates of recoverable gas from the Marcellus shale area were overstated by as much as 80%. According to the USGS report, the Marcellus shale area contains about 84tcf of recoverable shale resources, as compared with previous estimates of 410tcf. While 84tcf is still a large number, this does point up the fact that in many cases the early estimates of recoverable shale resources may be significantly overstated or understated.

6. The utility of shale gas as a candidate for a “transition fuel” may be unsupported. In fact, using shale gas may run counter to meeting greenhouse gas reduction goals. A recent study has suggested, in fact, that shale gas may a very bad source for NG if the latter is to serve as a transition fuel with a lower carbon content than what it is replacing. This is because the amount of methane, itself a greenhouse gas, released during shale gas drilling may more than offset the benefits derived from using the natural gas recovered from fracking technologies, rendering the aggregate GHG contribution to one comparable to coal. According to the authors of the study,

Natural gas is composed largely of methane, and 3.6% to 7.9% of the methane from shale-gas production escapes to the atmosphere in venting and leaks over the life- time of a well. These methane emissions are at least 30% more than and perhaps more than twice as great as those from conventional gas. The higher emissions from shale gas occur at the time wells are “hydraulically fractured”as methane escapes from “flow-back return fluids”and during drill out following the fracturing. Methane is a powerful greenhouse gas, with a global warming potential that is far greater than that of carbon dioxide, particularly over the time horizon of the first few decades following emission.

Thus, the notion that using shale gas may be used as a transition fuel to reduce GHG generation may be misplaced.

There are a number of competing interests here, as there usually are, and in this case the stakes are unusually high. On the one hand, there appear to be some significant concerns about water use and quality, and even availability, that may conflict with the drive to get at all that shale gas—and this may vary by region. We have already seen at least one instance of this conflict not going the drillers way in Texas, where the recent (and record in a number of respects) drought has forced the introduction of significant water use restrictions, including on shale drilling. We would expect to see more if evidence emerges that water supplies for agriculture and drinking water are being compromised.

It is worth noting that some, indeed many, of the above concerns may be amenable to technological solutions, although in many cases it’s early days yet. A company named GasFrac is experimenting with a liquefied petroleum gas gel as a substitute for water in the drilling stage, a development that would likely deal with a number of the above issues (depending on what’s in the gel material, of course). It seems likely that at least some of the incidents of groundwater contamination, and indeed the methane contamination study referred to above, derive from poor well construction, rather than fracking technology itself—this is an issue that can be addressed in a straightforward manner by enforcing stronger well casing standards.

On the other hand, the positive economic benefits of cheap energy are clear, especially in industries in the US and Europe that have been slowly decimated by foreign competition with access to cheaper labour and, indeed, cheaper energy in some cases. In addition, the prospect of reducing gas imports will remain increasingly appealing to European policy makers and governments. Moreover, it may very well be the case that cheap energy is becoming the marginal factor in decisions on plant placement globally, rather than cheap labour—we have recently seen examples of companies moving plant from China for countries where energy supplies are less expensive and, perhaps more importantly, more dependable. More to the point, however, is the fact that regions of the US and where that have seen their industrial core hollowed out over the past several decades now seem to be in a situation where the apparent cheap energy from shale gas would allow for a general level of economic improvement. As core industries such as energy and chemicals rebuild manufacturing capacity in core product areas in the US, ancillary growth will follow.

All of this bears close watching. If the drilling industry is able to satisfy what appear to be potentially important environmental issues at a relatively modest cost, than shale gas appears likely to live up to the often-repeated claim that it is a “game-changer.” However, the hurdles here may be high. There’s also the issue of whether it’s actually a wise idea to let the US continue on its current road of energy profligacy, considering what the costs have already been.

I reject the idea that asking a hedge fund manager to pay the same tax rate as a plumber or a teacher is class warfare…

And today, over at the Great Orange Satan, msblucow has an interesting poll up aimed at gauging how likely voters are to support Obama’s reelection bid in 2012. More to the point, why they are likely to vote for him (or not)? If you click through to the poll, there’s a series of questions that asks if the president’s actions on a series of issues make you more likely to vote for him, less likely, undecided, or do his actions and policies have no effect.

For instance:

• President Obama’s recent push for job creation makes me more/less likely to vote/volunteer/donate in 2012
• President Obama’s proposal to make millionaires pay more taxes makes me more/less likely to vote/volunteer/donate in 2012
• President Obama’s handling of the mortgage crisis makes me more/less likely to vote/volunteer/donate in 2012

On most of these questions I put “no effect.” That may seem odd, given how important I feel some of these issues are. At the bottom, in the comments field, I explained why.

I said that Obama’s pronouncements on things like jobs and taxation don’t make me more likely to vote for him not because I don’t agree with those policies. I do – wholeheartedly. But I simply don’t believe he means it and I expect these proposals to come to nothing. I don’t see these as actual moves by a president, I see them as campaign messaging, and I think we learned last time that he’s great at promising and horrible at delivering. If he actually delivers progressive results by the election, I might reconsider. Otherwise I’m voting Green.

Which is sort of like the comment I left on my friend’s FB entry:

I wish I shared your enthusiasm. This isn’t Obama being president, it’s Obama campaigning for a second term. Campaigning always brings out the pretty words in him.

So yeah, I’m skeptical. Over the past four or five years Mr. Obama has proven a few things fairly conclusively:

• When campaigning, he talks a compelling progressive game.
• Once elected, he reverts to right/centrist corporatism and makes sure he doesn’t upset rich white people.
• His fetishization of bipartisanship is nearly pathological, revealing a deep-seated need not only to be loved by everyone, but specifically to be loved by those who hate him the worst, even if it means alienating those who actually support him.
• He has bargaining skills the world hasn’t seen since the last time Mr. Haney went nose-to-nose with Lisa Douglas.

Which adds up to a very simple proposition: Mr. Obama has demonstrated that the words he says mean absolutely nothing. Whether he believes them or not, we cannot count on them generating results. As such, only a rube would pay any attention to anything the man says between now and Election Day.

I always try to teach my students that, in writing, it’s important to illustrate and evidence instead of simply asserting things. My advice to them is the same as I have now for Candidate Obama: show, don’t tell.

Part two in a five-part series.

While driving North on I-90, I caught my first view of the city of Niagara Falls’ skyline. Tall spires of concrete, metal, and glass snaked toward the heavens: the miracle of man, evident in many a metropolis. To the right, in front of the city, squat patches of orange, yellow, red and green huddled together. My eyes may strayed from the road one more moment to watch a wide, rolling puff of hazy gray matter rise off the clustered trees and partially obscure the view of the city.

My first thought: “There’s some sort of forest fire! How am I going to get to the park?” However, there were no siren wails, no fire trucks rushing down the middle of the road. Nothing on the radio suggested there was anything wrong.

When I reached Niagara Falls state park, I learned that the rising cloud I watched wasn’t smoke at all. It was water—mist—rising from the falls.

Water drops over Niagara Falls at a rate of 3,160 tons per second. It hits the base of the falls with 280 tons on the American side and 2,509 tons of force at the Canadian side. The massive amount of force tumbling over the falls every second creates a constant, heavy mist visible from miles away.

In 1856, landscape architect Frederick Law Olmsted noticed that the perpetual mist provides a steady source of moisture for local wildlife. Olmsted claimed the area was so full of natural wonders that Niagara was a place where “the masses could be renewed.”

However, in the mid 19^th century, much America’s attention and energy was focused on industrialization. The country’s natural resources were power sources waiting to be tapped, and Niagara Falls offered an even bigger promise than most. Entrepreneurs saw the raw energy of the falls and recognized the opportunity to churn water into profit. By the 1850’s mills sprawled along the shores; industries re-arranged the natural rock formations and built dams along the falls.

According to the New York State Office of Parks, Recreation and Historic Preservation website, “little more than a hundred years ago, the land surrounding Niagara Falls belong(ed) to private owners who charged visitors a fee to see the mighty waterfalls. People had to pay to be allowed to look through holes in a fence in order to be able to see Niagara.”

Only Goat Island, owned by the Porter family, remained close to its natural state.  Augustus Porter built a bridge and a toll for his island, and tourists paid to visit.

The industrialization of the falls bothered Olmsted. He believed that Niagara was a unique site of natural beauty, that it should be restored to its original state and protected by the government. It would take some convincing for the state of New York to agree.

In 1869, Olmsted rallied a group of influential writers, scientists, and other politically connected people together to “Free Niagara.” The group included Thomas Vincent Welch, Charles Darwin, Thomas Carlyle, Ralph Waldo Emerson, and Henry Wadsworth Longfellow. Olmsted collected 600 signatures and sent the petition to Albany.

In 1882, journalist Baxter Harrison wrote a series of letters for New York and Boston newspapers, detailing the values of the falls which transcended economic profits. “Apart from the profound interest which belongs to the great Falls, the river scenery of Niagara has many charms peculiar to itself. As with charms of scenery elsewhere, these are hardly to be known at first sight and are the more enjoyed the more they are courted,” Harrison wrote.

Harrison urged the legislature to enact new laws to restore the falls to their natural beauty, and to protect the falls against future human interference. “In whatever is done by the State there should be not only a wise consideration of immediate public requirements, but a prudent forecast of the future,” he wrote.

In 1879, the New York state legislature commissioned Olmsted and James Gardner to conduct a survey of the area. Olmsted and Gardner presented their report in 1880, and they advocated that the state should purchase and restore the land around the falls.

Welch documented the passage of Niagara Reservation Act in his book, How Niagara was Made Free. In the first chapter, he writes, “On March 22, 1880, Hon. Horatio Seymour, President of the State Survey Board, transmitted a special report to the Legislature on the preservation of the scenery of the Falls of Niagara, recommending the extinguishment of the private titles to certain lands immediately adjacent to the falls, which the State should acquire by purchase and hold in trust for the people forever.”

On April 30^th, 1885 Governor David B. Hill signed legislation creating the Niagara Reservation, New York’s first state park.

The “Free Niagara,” movement grew out of an idea that America’s natural wonders were worth more than the money they could generate through industry. In his “Special Report on the Preservation of Niagara Falls,” Olmsted wrote that saving the area was a “sacred obligation to mankind.” Since then, New York State has set aside land for 177 other state parks.

In 2010, the park celebrates its 125^th year anniversary. Today, visitors can ride the elevator to the eighth floor of the Welcome Center, where they can catch a first glimpse of the falls. The view from the building reveals a park mostly unobstructed by buildings. The landscape of Niagara Falls state park was designed by Olmsted, who also designed Central Park in New York City.

Visitors at Niagara Falls state park can also walk across pedestrian bridge to Goat Island. As they wander through paved paths surrounded by native wilderness, they can admire the memorial Nikola Tesla, one of the fathers of commercial electricity. Not far from Tesla, they can find Luna Island, which straddles the American Falls and the Bridal Veil Falls. There, rainbows flicker in and out of view, common as the birds that rest on the rapid-surrounded rocks. Across Goat Island, visitors can stand at Terrapin Point, where they can look at the top of the Horseshoe Falls.

Niagara draws an average of 13 million people a year. They bring their families, their lovers, their pets and their cameras. The sight of the falls is one that people seek and attempt to share with those they care for most.

Harrison’s suggestion for a prudent future has proven true. For all that humans can achieve, there are some wonders that make us simply stop and stare.  People from all over the world come to Niagara Falls for the sheer beauty of the natural landscape, for experiences as powerful and elusive as the mist.

Well, more specifically, a fellow named Rob Hopkins invented it, tried it out in Ireland with mixed success, and moved to Totnes several years ago to try it again. Hopkins had this notion that the only really effective response to two apocalyptic trends—global warming and peak oil—would be at the local level. But this would only work in certain kinds of communities. It has to be a community where you can involve people at the local level. It’s really that old “Think globally, act locally” concept updated for he 21st century, when oil is $100 a barrel, solar cells and panels are cheap and getting cheaper, and people are actually willing to try now concepts if they work—planting nut trees around the town to provide free nuts to anyone who wants them.

The Guardian had an article not too long ago that lays out what Totnes has done, and is doing now, and is planning on doing in the future. Hopkins arrived in 2005, and started talking with people. It helped that he had a pretty clear idea of what he wanted to see happen, an idea—or set of ideas—that he had developed while living as a teacher in Ireland. Lucy Siegle lays it out for us:

The Transition movement works on the basis that if we wait for government to act on issues such as climate change we’ll be waiting until hell freezes over; and if we only act as individuals, that’s too little. So it’s working together as communities where the real change will happen. In offices on that steep high street, squeezed between the pet shop and a travel agency, Transition Town Totnes was formed, swiftly followed by the Transition Network, to support the growth of the movement outside Totnes.

There are now more than 350 Transition movements, 200 of them in the UK. Last month the first Australian region, Sunshine Coast, became an official Transition Town. Hundreds more communities are mulling over the idea of embracing Transition (they are known as mullers). While there has been some debate among greens as to whether Transitioners are right to put so much emphasis on peak oil, and whether climate change should really be the main driver for change, it is clear that the strategy laid out in the latest Energy Descent Action Plan is one that will protect communities in the event of both oil shocks and climate change (and possibly economic shocks, too). It certainly beats stockpiling tinned food and buying a firearm.

As I leaf through the neat action plan, it brings order to apocalyptic scenarios and creates a vision of how Transition Town Totnes could be in 2030. Some strategies are niche, but some strategies are the stuff of market-town revolution. George Heath ran a flourishing market garden in the 1920s; his son inherited the business, opening a shop on the high street to sell the local, fresh produce. Today David Heath, his grandson, shows me the site of the market garden and large urban greenhouse in the centre of town. Since 1981 it’s functioned as one of the town’s main car parks. The Transition plan is to convert it back to a market garden by 2030. How close is the town to realising its alternative narrative?

Of course, there’s always someone who is unhappy:

“We did have a German visitor who was very disappointed,” says Brangwyn, “because there were still cars in the town and there were no goats on the roof.” Totnes hosts an increasing number of Transition pilgrims who want to see what’s going on, and, says Brangwyn, “People have different expectations. We’re not going to make big visual changes overnight. Transition is ground up, it’s about people doing the work for themselves. So the culture has to change first.’

The Transition Town movement is something to behold. It seems to have galvanized action in a way that other green activist movements have not, mainly because it brings everyone in on the action and the planning. And it’s really taken off. They’re all over Britain, and spreading like crazy. Ed Miliband has got the Labour party looking at it as well. Well, Labour needs something, so it might as well go with something sensible instead of their usual claptrap.

You’re not gong to be doing it alone, and that’s the point. It will help, of course, if you live in a place that lends itself to this sort of thing. Here in Britain, there are lots—villages and small towns are pretty much to be found everywhere—it’s one of the things I love about the place. There are always some local farms nearby and these are places where you can usually walk to where you need to go. The scale is right for this. In the US, it’s a bit different of course, but somehow university and college towns come to mind here—there’s a ready stock of people who will want to lend themselves to his sort of thing. The US might be harder in general, though, simply because it’s so big, and it’s moved the production of food so far from where most people live. But you start where you can.

It’s starting to spread, too. There are Transition Town networks all over the place now—the US, New Zealand, Australia, Europe, and there’s even some interest in Japan. The wonders of the internet. I’ve never been to Australia, but I think it’s big, so it might have some of he same issues that places in the US will face. We’ll see.

And there’s even an attempt to develop a Transition Town in the Borough of Brixton right here in London, which I find intriguing. One in Tooting, too. London is a huge city, so doing something like this on a city-wide basis is probably impractical, at least at first. But the whole point of Transition Towns is that they’re small—and what is a city, a proper city, but an aggregation of neighborhoods.

I like this. I’m going to see if anyone is doing this in Camden. This has a lot of promise, I think. And if I ever get tired of London, Totnes looks like a pretty good place to end up.

In December 2007, then President Bush signed into law the Energy Independence and Security Act of 2007 (EISA). It contained a section that was added by Rep. Henry Waxman (D-CA) that prevented the federal government from contracting to buy alternative fuels with high lifecycle greenhouse gas (GHG) emissions such as coal-derived synthetic fuel, oil shale, and bitumen from tar sands. When the Canadian government realized that Section 526 could apply to bitumen extracted from Alberta tar sands and exported to the United States, energy experts within the Canadian Embassy and the government exchanged a flurry of emails between January and March of 2008. Some of the embassy emails have been obtained in a redacted format by the Pembina Institute via the Canadian equivalent of the Freedom of Information Act.

The embassy emails reveal how seriously Canada took Section 526 and its possible application to Alberta tar sands-derived bitumen. The emails show that diplomats within the Canadian Embassy were involved in a multi-prong effort to influence legislation and regulations through oil industry lobbying and by directly lobbying the Bush Administration and Congress.

On Jan. 22, 2008, Paul J. Connors, then Energy Counsellor at the Canadian Embassy in Washington DC composed an email in which he indicated that the Canadian government had already brought up its concerns regarding Section 526 with the US Department of Energy (DOE) and that the DOE planned to determine the section’s implications “in the coming weeks.” This email was sent not to another government employee, but to Susan E. Carter of ExxonMobil.

In another email sent to government colleagues two days later, Connors said that he had not only contacted ExxonMobil, but also the American Petroleum Institute (API) and other bitumen-importing oil companies. Connors specifically mentioned BP, Chevron, ConocoPhillips, Encana, and Marathon. Connors indicated that the API formed a working group to pressure Congress and an alternative fuel working group on the Section 526/bitumen issue as a result of his communication. He also wrote in the email that the oil companies themselves were not concerned because they didn’t feel that Section 526 had broad enough scope to apply to bitumen.

The emails also revealed that the Canadian Embassy had been asked by the Bush Administration to “help [the Bush Administration] to interpret Section 526 in a narrow manner” by saying the restriction on bitumen might run counter to NAFTA trade requirements. Jason Tolland, then the Canadian Embassy’s Counsellor on Energy and the Environment, wrote on Feb. 8, 2008 that “[t]he US government – read administration – is looking to us to provide support for their work to kill any interpretation of this section that would apply to Canadian oil sands.” In an email on Feb. 14, 2008, Lynda Watson of Canada’s National Contact Point trade committee, wrote

It is true that the Administration relies up on other countries to point out these actual or potential inconsistencies with trade agreements, to open the door for the Administration to press its point (“see, even Canada says this runs contrary to…”).

On Feb. 22 Michael Wilson, Canada’s Ambassador to the US, wrote a letter to Defense Secretary Gates in which Wilson said that “Canada would not want to see an expansive interpretation of Section 526, which would then include commercially-available fuel made in part from oil derived from Canadian oil sands.”

By Feb. 25, Connors wrote that the Bush Administration is “proceeding with a definition of conventional fuel which would include oil sands-derived fuel as conventional fuel, not as an alternative fuel, for purposes of Section 526.” In the same email, Connors also wrote that the Embassy was communicating with the Chair of the US Government Interagency Working Group on Alternative Fuels, then Paul Bollinger of the USAF, and that the Working Group had met the previous week “to consider the US Administration’s response to Section 526.” There is no indication in the emails what that response was.

Ambassador Wilson’s letter to Secretary Gates is only the most public of Canada’s direct lobbying efforts directed at the Bush Administration. The released embassy emails show that there was also a great deal of behind-the-scenes lobbying of Bush Administration officials.

Canada didn’t just lobby the Bush Administration – they directly lobbied Congress too. In Connors’ Jan. 24, 2008 email to Helene Viau and Peter Stokoe, Connors wrote that the Embassy “will call on key Democratic energy staffers, including the author of the provision on the House Oversight and Government Reform Committee (Chair is Rep. Henry Waxman D-CA).” In the Feb. 14 email, Watson pointed out that “the time to influence legislation is during the legislative cycle (now).”

Furthermore, Connors email of Feb. 25 mentioned a “backlash” from pro-biofuel and “security-comes-first” members of Congress who wanted “to see Section 526 neutralized.” In the last released email on March 18, 2008, Connors wrote that “Canada appears to have won this battle” but that “ongoing advocacy in the United States will be critical.” Connors also wrote that he was continuing his advocacy by speaking directly with Democratic staff members of the Senate Energy Committee, the House Government Oversight and Reform Committee, and with Bollinger of the US Interagency Alternative Fuels Committee.

The first of many legislative attempts to explicitly repeal Section 526 was submitted on March 31, 2008. In a May 2, 2008 letter from Waxman to Senators Carl Levin and John McCain, Waxman wrote that

section 526 does not bar federal agencies from purchasing generally available fuels that may contain incidental amounts of fuel from tar sands. The provision would block a federal agency from using government contracts specifically to promote or expand the use of fuel from tar sands.

On June 26, 2008, a section was added to the Saving Energy Through Public Transportation Act of 2008 that would amend Section 526 to match Waxman’s claimed intent in his letter to Levin and McCain. This amendment did not exit the Senate Armed Services committee.

The embassy emails also reveal some inconsistencies between what was being said by Bush Administration officials publicly vs. privately . For example, the emails state that the Bush Administration wanted to narrowly interpret Section 526 and they imply that the decision had been made by March 18, 2008. Yet prepared remarks by Department of Energy Acting Deputy Secretary Jeffrey Kupfer for a speech before the C.D. Howe Institute in Calgary, Alberta, contradict this. Kupfer’s prepared remarks state

I can tell you that the U.S. Government has made no decisions that would affect the use of oil sands feedstocks. Our experts continue to analyze the implementation of this provision.

In addition, an Executive Secretariat Executive Commitments System Congressional Report on the Energy Independence and Security Act of 2007 said that the Energy Efficiency and Renewable Energy office of the DOE “will issue guidance on incorporating consideration of lifecycle GHG emissions in all Federal contracts” by August 1, 2009. A detailed search of the DoE and Energy Efficiency and Renewable Energy office website in Dec. 2010 turned up no published guidance on how to comply with Section 526. If a decision had actually been made in March 2008, it was kept hidden behind closed doors even after President Obama took over.

On Aug. 19, 2009, the Defense Energy Support Center (DESC) released its Interim Implementation Plan Regarding Section 526 of the Energy Independence and Security Act of 2007 where tar sands-derived crude oil was defined as “conventional” petroleum based on the ASTM standard for refined petroleum. The interim plan also pointed out that nearly all of the petroleum in the US was partly derived from Canadian bitumen, a point made in the embassy emails and Ambassador Wilson’s letter to Secretary Gates. In response to the interim plan, the Sierra Club and the Southern Alliance for Clean Energy (SACE) filed a federal lawsuit on June 18, 2010 to overturn the plan based on allegations that the DESC didn’t follow the federal rulemaking, that the DESC should have ruled tar sands-derived petroleum as “nonconventional,” and that the DESC failed to perform an Environmental Assessment and write Environmental Impact Statement. The DESC interim plan was the only published rule on whether or not Section 526 applied to tar sands-derived bitumen since the law was signed by Bush in Dec. 2007.

The Sierra Club/SACE lawsuit may have been rendered moot on Dec. 19, 2010, when President Obama signed into law H.R. 3237, the Charles `Pete’ Conrad Astronomy Awards Act, in which Section 526 is amended. The changes to Section 526 permit federal fuel contracts so long as they a) don’t require alternative fuels, b) aren’t specifically to buy alternative fuels, and c) don’t help pay for refinery upgrades to process alternative fuels. H.R. 3237 passed the House by voice vote and the Senate by Unanimous Consent, both without amendment, resulting in no recorded votes in either Congressional body.

These changes appear to meet the goals of the two different Congressional groups identified in Connors’ March 18, 2008 email, namely to “neutralize” Section 526. As for the status of the federal lawsuit, SACE did not respond to a request for comment.

Put all together, the released embassy emails illustrate how a foreign government lobbies both the US Administration and the Congress for changes – via direct contacts, via staff members, and via proxies in friendly industries. But the emails also reveal how the US government can use third-party actors to influence its own internal politics, both foreign governments (Canada) and private parties (oil companies and a petroleum industry association).

Then there’s the environmental and climate stuff, where I had high hopes. And I’m very glad we’ve got some EPA enforcement again. But then there’s the biofuels boondoggle, suggesting that Obama is just another farm state senator. Well, that’s sort of ordinary and predictable stuff, the kind of stuff that any senator (or ex-Senator who becomes President) does—look at the otherwise generally admirable Chuck Schumer and his entanglements with the financial industry. But what do I make of this—the Obama administration has filed a complaint with the World Trade Organization against China’s renewable energy subsidies.

Now, filing a complaint against another country’s subsidy practices is a complicated endeavor in the best of circumstances, and in this case it seems a bit murky, frankly. There are many more clear-cut examples of subsidies that distort the market sufficiently to cause economic harm, on both producers and consumers. The US just won a WTO case against China over tires, for example. Now, some of the cases are stupid, and some are so politically loaded (Boeing versus Airbus) that you have to wonder why anyone even bothers. China and the US are involved in constant talks all the time about opening up China’s markets to various products and services, and these discussions are generally long and complicated–with intellectual property protection a critical issue more often than not. China, you will not be surprised to learn, is a bit casual about intellectual property rights, just as the US has become obsessive about it (check out what’s happened to copyright over the past couple of decades). But that’s why you have trade talks in the first place, and that’s why the World Trade Organization was created—to reduce the kinds of frictions that arise between countries. Too bad the WTO seems to have gone the way of the IMF and The World Bank.

Anyway, as is usually the case with a rapidly developing economy, China would like to protect a number of domestic industries in order to develop them. And one of the ways countries routinely do this is by subsidizing them until they can be competitive internationally, or at least domestically against foreign competition. There are any number of ways of doing this, actually—high tariffs on imported goods is a favorite one, and one used by both the US and Germany aggressively in the 19th and early 20th centuries. The US didn’t get free trade fever until after the Second World War, don’t forget. But it has certainly dominated the agenda since then. Or you could do it the way Korea and Japan have done it, not by tariffs, but by excessive regulations on imports. And these tactics work.

But it’s not as if we’re dealing with, oh, DVD players here. We’re dealing with essential technologies for reducing the rate of increase in carbon generation over the next several decades (to say nothing of actually trying to reduce carbon generation—there doesn’t seem to be much hope for that). But of course the kinds of trade treaties the US and the rest of the world are involved in don’t make that distinction. And here you have to wonder, yet again, about the mismatch between the at-this-point highly questionable economic models that govern how these organizations function, on the one hand, and the way the world really works, on the other. We’ve just spent two years recovering from such a mismatch, but the same models still govern.

So China, which generates a huge amount of carbon, and which is on track to generate more, has spent lots of money to develop renewable energy industries. One might suppose that this is a good thing. In fact, one might wonder why everyone isn’t doing this. The problem comes, apparently, from the fact that China may be exporting these technologies. Well, so what? Really, this is one of those times when you have to wonder how screwed up the international financial system is. Rather than criticize China for its clean energy subsidies, which will result in lower CO2 generation, both domestically and abroad (since there will certainly be exports,) why not match those subsidies? And if China objects, let them take the US to the WTO. That seems unlikely, however. Why would China object? They’ve already got the moral high ground against the US on carbon generation. China’s energy efficiency and renewable targets (which, by the way, China seems to actually be pursuing aggressively) would put the US to shame if the US cared enough. And the world would be a better place, certainly. Look at the rural poor in Africa who now have some electricity courtesy of Chinese small-scale solar energy generators—not the World Bank, it should be pointed out. Of course, there was a time when the US led in this technology, by miles, under Jimmy Carter, but we decided instead to consume more oil and give up on all this renewable stuff when Reagan came in and scrapped all the programs. As in so much else, it’s easy to blame Reagan here, and there’s a large element of truth to this. But we’ve had decades to try to restore a sane trajectory, and have failed manifestly to do so. What a bunch of putzes.

So why can’t the system come up with a better solution than having the US and China go after each other in the premier global trade organization? Well, partly the usual—subsidies are bad etc etc etc. We’re about to get a House of Representatives dominated by people who believe this. Of course, subsidies aren’t necessarily bad at all—ask any country that develops an automobile industry how it does it. (Even Malaysia has one.) Or ask Korea and now China how they developed their shipbuilding industries. Ask any country—including the US, and of course most of the rest of the world (except for poor Africa which can’t quite get it together)–that supports its farmers so that it can ensure some minimal necessary food production. Ask the US oil industry, which gets all sorts of hidden subsidies from the federal government—and will undoubtedly get more under the new regime.

Then there’s the Korea problem. Korean conglomerates have aggressively been trying to enter the renewable energy business, mostly through investments in Solar cell companies. In addition, Korea provides lots of subsidies to the solar and wind industry, subsidies that European countries are currently cutting back on, as is (or will be) the US, which is why there is virtually no US solar industry. So will the US go after Korea as well? And as the authors of the Grist piece point out, there are lots of subsidies elsewhere for the renewables industry, including Spain and the UK—most of Europe, in fact. Will the US file a WTO complaint against the UK? Somehow, I suspect not.

This represents a failure of the imagination on a very large scale. Not just by Obama, who seems curiously constrained and inside the box in dealing with global warming, but by everyone involved in a intellectually bankrupt system that doesn’t distinguish between kinds of economic goods. DVDs and tires are a lot more equivalent to each other than either is with wind turbines–and we (and governments) should be able to make that differentiation. Wind turbines at this point should be regarded as an essential survival tool—as should be every form of renewable energy. But we’re not there yet, and by the time we get there, it will likely be too late.

It’s perhaps even more absurd. The New York Times covered the same story, giving it the predictable anti-China spin that is becoming all too common in the Times these days. The story generated a raft of comments worth perusing, including commentator number 4, who points out that

There is another side to this story, of course – namely, that both the Obama and Bush Administrations have focused on subsidizing the following:

1) Coal-to-gasoline plants (billions from the DOE, often cloaked as “CO2 capture projects”)

2) Tar sand imports (billions in Congressional loan guarantees for new gas pipelines to feed the tar sand production system)

3) Liquefied natural gas imports (more billions to Exxon and Chevron for their Indonesian and Papua New Guinea LNG projects)

4) A new round of ridiculously expensive taxpayer-subsidized nuclear reactors ($8 billion in loan guarantees for Southern – Georgia nuclear plants).

There are many similar examples of the Obama-Bush focus on fossil fuels and nuclear – but solar and wind have received almost nothing in comparison.

Clearly, this could be challenged by China as unfair government support for fossil fuel & nuclear (which, despite the earnest claims of Energy Secretary Chu, are hardly “clean” and definitely not renewable) – but China is obviously more concerned with reducing its dependence on fossil fuel imports by moving state support away from fossil fuels and towards renewable energy.

This is all true, although I have to admit I’m a lot more ambivalent about nuclear these days than I used to be. If carbon is the enemy, and it is, I’m not sure how we get to where we want to be (stabilizing CO2 generation at 350 ppm, or whatever –it’s currently 388.59, and rising) without nuclear. And there’s certainly an interesting discussion to be had on whether natural gas (and LNG) are acceptable “transition” fuels. But these are separate discussions, I think. The point here is that the US has yet to make any significant moves to reduce its dependency on fossil fuels, while China is doing just that, and very aggressively too. Which does make you wonder what the WTO claim is really all about.

The US, after all, continues to subsidize highly inefficient corn-based ethanol, while imposing a substantial tariff on imports of more efficient sugar-based ethanol from Brazil—and Brazil, by the way, removed its own import tariff on ethanol earlier this year (although only through 2011). Oh, and Brazil looks set to initiate a claim against the US in the—you guessed it—WTO on this issue. The US ethanol subsidy and import tariff were set to expire at the end of 2010—but they just got extended in the tax bill that just got passed. If you were looking for an example of a subsidy policy that was both bad economics and bad climate policy, US ethanol subsidies would be near the top of the list. And Ontario is raising its domestic content requirements in certain renewable areas as well. So is there a trade war with Canada shaping up? I would guess not—we need their oil, after all.

Now, I’m fully mindful of what Obama is going to be up against in the next Congress. Here is one example of yet another fathead who thinks he knows stuff, but who obviously knows nothing, and who is going to find himself in a position of considerable power. Then there’s this guy. Oh, this one too. So I’m not sure what Obama can actually do here–the window of opportunity may be gone on this, tragically. The prospect of getting some sort of even weak climate bill through the next Congress appears remote. But that doesn’t mean the administration has to approach this all with the caution it has demonstrated up to now. Time for a little boldness, I think. And pursuing courses of action that will only serve to delay the adoption of reasonable energy goals and standards doesn’t really seem like the right strategy. What all of this sadly suggests is that the American government under the Obama administration, somewhat surprisingly, has yet to move beyond rhetoric in the global warming debate—but certainly gives the impression of being upset that China may be.

In thinking about the issue, I realized that it might help to ask the question a slightly different way: what would a progressive society look like? Maybe I can better understand what it means to be progressive in 2010 if I reverse-engineer the definition from a vision of the future where things work the way they ought to.

I have argued that the success of the progressive movement hinges on seriously long-term thinking. It’s not about the 2012 elections or the 2016 elections or even the 2020 elections – those fights are about the battle, not the war.

Instead, if we do things properly, if we concentrate on and win the war, what does America look like on our Tricentennial? The following 40 articles suggest some ideas.

The Tricentennial Manifesto, v1.0

1. In 2076, every citizen should be educated to his or her highest potential. This education should not be a function of the citizen’s ability to pay, but should be treated as the nation’s investment in its own future.
2. In 2076, no citizen should go hungry due to poverty.
3. In 2076, all citizens should take for granted access to basic, comprehensive health care.
4. In 2076, the same restrictions against government intrusion into a citizen’s life accorded by the US Constitution should safeguard us against similar abuses by private, corporate and other business entities.
5. In 2076, every business operating in America should act in accordance with “triple bottom line” principles: maximizing profit must be balanced by an equal responsibility to serving the best interests of people and the planet.
6. In 2076, bias based on race, gender, class, sexual orientation, religious affiliation or any other form of categorization by which we have historically restricted opportunity for other citizens should be nothing more than an embarrassing artifact of our past. Any right enjoyed by one citizen or group of citizens should be enjoyed by all.
7. In 2076, every citizen should face a landscape of opportunity that’s defined by a level playing field. We accept that inequities will always exist and that some people will always have a head start in whatever they pursue, but the relative advantages of one person or group should not mean a corresponding disadvantage for another. Some may be positioned to achieve more, but all should be empowered to achieve enough.
8. In 2076, all technological development should be undertaken subject to a professional ethical code that emphasizes social value instead of mere profit motive.
9. In 2076, US foreign policy will be conducted in such as way as to promote as much goodwill as possible. While international conflict is likely to be an unfortunate reality for the foreseeable future, it should be recognized that foreign policy based on military domination and the establishment of corporate consumer markets are guaranteed to breed ill will that fosters more conflict over time.
10. In 2076, Americans should view themselves as citizens first and consumers last.
11. In 2076, the world should be free of weapons of mass destruction.
12. In 2076, citizen participation in the democratic process should be ubiquitous and all votes should be informed votes.
13. In 2076, a citizen’s satisfaction with life should no longer be a function of how much money he or she spends on material distractions.
14. In 2076, our educational system will assure that our right brains are nurtured as well as our left, preparing students to be successful in life as well as their careers.
15. In 2076, America’s standards for leadership and public service should be so high that only the brightest and best even bother to seek public office.
16. In 2076, America should be governed with a unanimous respect for the separation of church and state.
17. In 2076, our media and information infrastructure should serve the public interest, not the private interest.
18. In 2076, we should assure full employment through an aggressive program of public works that allows those who might be otherwise unemployable an opportunity to make meaningful contributions to their communities.
19. In 2076, we should support a system of mandatory national service.
20. In 2076, our military service burdens should be borne equally by citizens from all socio-economic classes.
21. In 2076, citizens should have a firm grasp of the precepts underpinning the scientific method, allowing them to differentiate between belief and knowledge.
22. In 2076, a vast majority of Americans should see stewardship of the environment as a preeminent priority for all public and private decision making.
23. In 2076, the dominant mode of public religious expression and practice should center on social justice instead of moral repression.
24. In 2076, the engines of power should respond to a deep understanding of societal needs instead of the depth of its lobbyists pockets.
25. In 2076, a significant majority of all local, regional and national travel should be conducted via an integrated public transportation infrastructure.
26. In 2076, we will not have eliminated the inherent corruption that surrounds power. However, we should have evolved our political institutions and processes to a point where the locus of power is more thoroughly embedded in the social infrastructure than in individual candidates and office-holders.
27. In 2076, business institutions should have replaced their operational emphasis on growth with a comprehensive focus on sustainability.
28. In 2076, our air and water should be as clean as it was in 1776.
29. In 2076, most citizens will believe that free societies work best when people place as much emphasis on their responsibilities as on their rights.
30. In 2076, our scientific communities should devote a significant amount of their resources to pure research.
31. In 2076, public policy and programs at all levels of government will devote at least as much time to addressing the root causes of crime as they do on prosecution and punishment.
32. In 2076, America should spend more on education than it does the military.
33. In 2076, citizens, governments, businesses and civic institutions should be more concerned with needs than wants.
34. In 2076, our dependence on fossil fuels should be at an end, replaced by a variety of sustainable green technologies and, if we dedicate sufficient effort to it, a long-term energy solution based in fusion technology.
35. In 2076, the manufacturing sector of the US economy should be vibrant, driven by a focus on infrastructure and sustainable technology production.
36. In 2076, domestic violence, human trafficking, and similar crimes against persons will be aberrations.
37. In 2076, all elections will be publicly funded, reducing corruption and opening elected public service to the qualified from all walks of life.
38. In 2076, America should lead the world by example instead of force.
39. In 2076, all Americans should be fluent in both English and Spanish, as well as another language.
40. In 2076, Americans should valorize performance elitism and be generally unimpressed by privilege elitism.

Feel free to suggest additions or amendments. You will be credited if we include your ideas in future iterations of the Tricentennial Manifesto.

Cat White and Mike Sheehan contributed to this document.

We need to support ethanol. Al Gore said that. In fact, he’s always saying that.

I support ethanol and I think it is a vital, a vital alternative energy source not only because of our dependency on foreign oil but its greenhouse gas reduction effects. John McCain said that in 2006.

But in a 2000 debate with George Bush, McCain said: We don’t need the subsidies and if it wasn’t for Iowa being the first caucus state no one on this stage would support ethanol. To which Bush replied: I support ethanol, I completely support ethanol, John. And I’d support it whether or not Iowa was first. But McCain elsewhere said this: Ethanol makes a lot of sense.

These little kernels here will take us about ten years down the road. Joe Biden said that. And Rudy Giuliani? We’ve got to get serious about ethanol.

What we need to think about now is how we create energy farms. Hillary Clinton said that. And this: Ramp up the availability of ethanol.

Yep, presidential candidates will head for Iowa and probably tout ethanol as the answer to every energy crisis America will ever face. I doubt, however, that these candidates really believe that the conversion of corn to ethanol is the answer to energy independence that many ethanol supporters — and investors — blindly believe it is. More urgently, Dec. 31 looms large in Corn Belt politics.

Iowa is King Corn. Iowa is Queen Ethanol. For more than 30 years, subsidies from the federal government have flowed to Iowa to support an industry that, without subsidies, would collapse under its own weight. (VeraSun Energy opened an ethanol plant in Dyersville, Iowa, in September 2008 and closed it two months later.) In 2007, as gasoline prices began their heady climb to a 2008 midsummer high of $4.11 per gallon, Congress faced great pressure to place a huge bet on ethanol.

Congress was “on the verge of writing into law one of the most ambitious dictates ever issued to American business: to create, from scratch, a huge new industry capable of converting agricultural wastes and other plant material into automotive fuel,” reported The New York Times in December 2007. Earlier, in 2005, a new energy bill had “set off a frenzied buildup of ethanol plants across the Midwest.”

Two particular subsidies, stretching back three decades, have kept the ethanol industry alive and corn farmers in the Midwest, particularly Iowa, keenly attuned to whether politicians, especially presidential candidates, will take the “I support ethanol” pledge. Those subsidies — a 54-cent-per-gallon tariff on imported ethanol and 45-cent tax credit for every gallon blended with gasoline — expire on Dec. 31. The competition limiter and the blender credit cost taxpayers about $6 billion a year. Another estimate places the cost at nearly $9.5 billion in annual subsidies to farmers and corn producers.

Congress could extend the subsidies if it wishes. But given the incoming Republican majority in the House, a majority that has made reduction of government spending its calling card, that’s not a given. Congress can, through mere inaction, simply let the subsides die.

And that brings us back to the presidential wannabees who wish to fare well in the Iowa caucuses. Are they yea or nay on burying ethanol subsidies permanently?

The political calculus now differs greatly from 2005. Yes, ethanol industry lobbyists are hard at work to extend the subsidies. Lobbying groups such as The Renewable Fuels Association, The National Biodiesel Board, Growth Energy and POET PAC have spent at least $22 million to keep taxpayers’ money pouring into ethanol research and production.

But fluctuations in food prices, high unemployment, fears of larger deficits, and the heavily subsidized industry’s failure to produce an economically viable product make further support, in much of the public’s mind, untenable.

That’s not good news for Iowa, which produces a quarter of the nation’s corn, or the rest of the Corn Belt states — Missouri, Wisconsin, Illinois, Indiana, Nebraska, Minnesota, North Dakota, Iowa, South Dakota, Kansas, and Michigan.

So Gov. Mitch Daniels of Indiana, Sen. John Thune of South Dakota, former House speaker Newt Gingrich, and Arkansas Gov. Mike Huckabee, the most discussed GOP presidential hopefuls, ought to be thinking hard about what to do or say. Thune, a Corn Belt senator, makes his position clear on his Senate website: “As part of the solution to lowering gas prices, I support increasing the use and availability of E-85 ethanol …”

Daniels, too, is clear: He set a strategic Indiana goal of producing a billion gallons of ethanol annually.

And Newt? (Note that he’s been an adviser for a pro-ethanol lobbying group, Growth Energy.) He toured a Nebraska ethanol plant 14 months ago and urged ethanol backers to counter opposition to subsidies. In 2008 he urged “[t]he federal government should put up a monetary prize for the development of ethanol with dramatically higher energy return on investment.” But, writing in The Washington Post in April, Gingrich opposed the Obama “secular-socialist machine,” calling the GM bailout an “anti-market intervention.” How is that different from protecting the ethanol industry from what the free market would do to it without subsidies?

Let’s not leave out Mitt. Romney’s been to Iowa, toured an ethanol plant, and declared the importance of alternative energy supplies so “so we can free ourselves from the nonmarket OPEC stranglehold on energy in this country.” And, three years ago, he said this: “The economics of ethanol make more and more sense.”

No doubt more Republicans will emerge as potential presidential contenders: reality-show star Sarah Palin, Gen. David Petraeus, Giuliani again, Louisiana Gov. Bobby Jindal, former Florida Gov. Jeb Bush, and South Carolina Sen. Lindsey Graham come to mind.

Keep on eye on their travel schedules. Note any trips to the Corn Belt, particularly Iowa. Track what they say about ethanol — and whether they said it before or after Dec. 31.

President Obama won more than half of the Corn Belt states in 2008. The national impetus to subsidize ethanol with taxpayer money may be waning in the face of a $13.8 trillion national debt and a congressional freshman class with cut the fat on its mind.

What potential presidential candidates and water-testers do and say about ethanol — and when — will be of great interest to the 38 million Corn Belt residents who voted in the 2008 election.