Energy Independence

The price of what are called “credit default swaps” for U.S. Treasury debt is rising sharply. Credit default swaps are financial instruments by which one investor holding debt pays another investor to guarantee that if that debt defaults, he will make the first investor whole. 

This week, the Treasury assumed responsibility for $5.2 trillion in outstanding debts held by Fannie Mae and Freddie Mac. A modest but significant share of that is headed for default, and the Treasury will have to absorb the losses. And the result is a rising price for credit default swaps on the U.S. Government: It now costs $18,000 to insure $10 million of U.S. Treasury debt. The market sees a very small - but not negligible - prospect that the U.S. Government would actually default on its debt, which would be, well, the end of the American and global economies as we know them. That’s how bad it is.

Credit default swaps for subprime mortgage based securities, of course, have played a significant role in the current unraveling in the financial markets. But conservative/Republican disdain for normal regulation of those markets has played the larger, underlying role.  Such regulation isn’t intended to “manage” those markets, but to ensure that the rest of us are protected from serious repercussions when problematic choices by financial market players (for example, to double down on subprime mortgages or their derivatives) collide with adverse conditions that make those problematic choices very reckless.

That’s the essential meaning of the Fannie Mae and Freddie Mac regulatory bailouts. Setting aside the many years of astonishingly reckless and self-interested management at Fannie Mae and Freddie Mac, the mortgage market would freeze up if these two institutions suddenly couldn’t operate. Here’s a brief course in why that’s so: there’s always plenty of credit for new mortgages, because those creating the mortgages promptly sell them, in bundles, to investors, so that the credit can cycle back to finance more mortgages. 

Fannie Mae and Freddie Mac both create and buy trillions of dollars in these mortgage-backed securities, and there’s no financial institution that could step in if they were taken out of the picture. That’s why we need to keep them operating, even if it requires a bailout. By the way, the other major holders of these securities include U.S. banks – expect a line of them to go belly-up in the next six months – and foreign central banks. 

The potential unpleasant fallout for our relations with other countries if their holdings went bust is the other reason that the Bush Administration has taken the largest interventionist step in U.S. financial markets since the Great Depression. Once again, the Bush Administration is moved to act not by what’s happening to Americans, but by the implications for our relations with other countries

New York City - The issue of energy was hardly absent from the Republican convention this week or from the McCain campaign this summer.  If anything, it has been a centerpiece, from the chants of Drill Baby Drill during Rudy Giuliani's keynote speech to images of windmills fluttering in and out of slides and television commercials to the mantra of energy independence to renewed calls for nuclear power.  What has been missing, however, is consistency or internal logic to this message.  In fact, a fundamental complication has bedeviled almost all the discussion of energy this year, namely the conflation of the issue of high energy prices with those of energy independence and climate change.  They are not the same issues nor are their policy implications the same.

Consider the following question which in many ways is a Rorschach test of one's true policy priorities.  Is the collapse of gas prices, now down by almost a third in the last month, good or bad?

Since lower prices mean more money for families, and support for a shaky economy, from an economic standpoint, lower prices ought to be good. On the other hand, since lower prices also mean more gas consumption and therefore more consumption of foreign oil as well as more carbon in the atmosphere, one must conclude that from an energy independence and environmental standpoint, lower prices are bad.

Most people--including the Republicans in Minneapolis--would like to have it both ways: lower energy prices as well as energy independence and a better environment.  But to hope to achieve that, it is first necessary to be intellectually honest about what policy choices are likely to have what consequences.

From a purely economic point of view, more energy is better. Drilling offshore and in Alaska, investing in solar energy and building nuclear plants all have the potential to reduce the cost of energy by increasing supply. 

On the other hand, from an energy indpendence and environmental point of view, the source of energy is what matters. Drilling offshore and in Alaska might marginally reduce dependence on foreign oil but it will also clearly increase carbon emissions.  And to the extent it lowers prices, it might actually hook America even more on foreign oil!  More nuclear plants will reduce emissions and increase energy independence but only by creating huge environmental risks.  Only renewable energy such as wind, solar and biofuel technologies has the ability to lower prices, help the environment and create energy independence.  Unfortunately, while the Republicans have been showing windmills in their ads, they made clear in Minneapolis that renewables come third behind drilling and nuclear power.

The fact is that lower energy prices combined with energy independence and help for our ailing planet can only come about through a conversion of our entire energy infrastructure from one based on dirty fuel sources such as oil to one based on clean, renewable technologies.  Building out what Thomas Friedman is calling the ET or Environmental Technology infrastructure is a massive economic opportunity that can accomplish the three goals of lowering prices, achieiving energy independence and fighting climate change.  But subsidizing oil exploration through friendly government leasing and tax credits will only slow down this conversion while subsidizing nuclear energy would divert scarce investment capital.

It should not be surprising that there are many who still cling nostalgically to oil and gasoline, the fuels that powered America through the 20th Century.  After all, America has had a long love affair with gas.  Our entire self identity is bound up in images of fast cars, filling stations and the roar of gasoline engines.  We began by pumping it ourselves.  Then we pumped it in other countries when America was the dominant industrial power and the people inhabiting the desert sands where we drilled rode on camels and horses.  Those days are over.  The overseas wells have been nationalized by governments less and less friendly to ours.  And the oil that remains in America and off our shores is increasingly hard and expensive to find.  No matter how much we may harken back to the past, we have to wake up and smell the coffee. 

Nuclear energy is no panacaea either.  Besides the obvious safety risks, the lack of an acceptable place to store spent fuel rods and the lack of trained engineers that will take ten years to remedy, the cost of building a nuclear plant has soared so that nuclear is no longer financible as a private venture.  Only huge government loan guarantees and subsidies could revive nuclear power.  And if we are going to spend billions on a technology fraught with so many environmental issues, why wouldn't we spend a fraction of that to renew the solar Investment Tax Credit and wind Production Tax Credits to drive renewable prices below that of fossil fuels.  

In short, the Republicans did the causes of lower gas prices, energy independence and a healthier planet few favors at the convention.  However, the good news is that while renewables are not at the top of their list, they are at least, on the list. 

That means there is the potential for common action.  In the weeks ahead, both parties should reach across the aisle to pass bi-partisan legislation to extend the renewable tax credits, pass a national renewable electricity standard and accelerate the rollout of the environmental technologies that in contrast to either oil or nuclear power, can power American prosperity in the 21st Century if only we have the sense to pursue them.

Always fact-check - I appreciate the AP's efforts in correcting the "errors" in several RNC speeches:

Attacks, praise stretch truth at GOP convention

By JIM KUHNHENN, Associated Press WriterWed Sep 3, 11:48 PM ET

Alaska Gov. Sarah Palin and her Republican supporters held back little Wednesday as they issued dismissive attacks on Barack Obama and flattering praise on her credentials to be vice president. In some cases, the reproach and the praise stretched the truth.

Some examples:

PALIN: "I have protected the taxpayers by vetoing wasteful spending ... and championed reform to end the abuses of earmark spending by Congress. I told the Congress 'thanks but no thanks' for that Bridge to Nowhere."

THE FACTS: As mayor of Wasilla, Palin hired a lobbyist and traveled to Washington annually to support earmarks for the town totaling $27 million. In her two years as governor, Alaska has requested nearly $750 million in special federal spending, by far the largest per-capita request in the nation. While Palin notes she rejected plans to build a $398 million bridge from Ketchikan to an island with 50 residents and an airport, that opposition came only after the plan was ridiculed nationally as a "bridge to nowhere."

PALIN: "There is much to like and admire about our opponent. But listening to him speak, it's easy to forget that this is a man who has authored two memoirs but not a single major law or reform — not even in the state senate."

THE FACTS: Compared to McCain and his two decades in the Senate, Obama does have a more meager record. But he has worked with Republicans to pass legislation that expanded efforts to intercept illegal shipments of weapons of mass destruction and to help destroy conventional weapons stockpiles. The legislation became law last year. To demean that accomplishment would be to also demean the work of Republican Sen. Richard Lugar of Indiana, a respected foreign policy voice in the Senate. In Illinois, he was the leader on two big, contentious measures in Illinois: studying racial profiling by police and requiring recordings of interrogations in potential death penalty cases. He also successfully co-sponsored major ethics reform legislation.

PALIN: "The Democratic nominee for president supports plans to raise income taxes, raise payroll taxes, raise investment income taxes, raise the death tax, raise business taxes, and increase the tax burden on the American people by hundreds of billions of dollars."

THE FACTS: The Tax Policy Center, a think tank run jointly by the Brookings Institution and the Urban Institute, concluded that Obama's plan would increase after-tax income for middle-income taxpayers by about 5 percent by 2012, or nearly $2,200 annually. McCain's plan, which cuts taxes across all income levels, would raise after tax-income for middle-income taxpayers by 3 percent, the center concluded.

Obama would provide $80 billion in tax breaks, mainly for poor workers and the elderly, including tripling the Earned Income Tax Credit for minimum-wage workers and higher credits for larger families. He also would raise income taxes, capital gains and dividend taxes on the wealthiest. He would raise payroll taxes on taxpayers with incomes above $250,000, and he would raise corporate taxes. Small businesses that make more than $250,000 a year would see taxes rise.

MCCAIN: "She's been governor of our largest state, in charge of 20 percent of America's energy supply ... She's responsible for 20 percent of the nation's energy supply. I'm entertained by the comparison and I hope we can keep making that comparison that running a political campaign is somehow comparable to being the executive of the largest state in America," he said in an interview with ABC News' Charles Gibson.

THE FACTS: McCain's phrasing exaggerates both claims. Palin is governor of a state that ranks second nationally in crude oil production, but she's no more "responsible" for that resource than President Bush was when he was governor of Texas, another oil-producing state. In fact, her primary power is the ability to tax oil, which she did in concert with the Alaska Legislature. And where Alaska is the largest state in America, McCain could as easily have called it the 47th largest state — by population.

MCCAIN: "She's the commander of the Alaska National Guard. ... She has been in charge, and she has had national security as one of her primary responsibilities," he said on ABC.

THE FACTS: While governors are in charge of their state guard units, that authority ends whenever those units are called to actual military service. When guard units are deployed to Iraq or Afghanistan, for example, they assume those duties under "federal status," which means they report to the Defense Department, not their governors. Alaska's national guard units have a total of about 4,200 personnel, among the smallest of state guard organizations.

FORMER ARKANSAS GOV. MIKE HUCKABEE: Palin "got more votes running for mayor of Wasilla, Alaska than Joe Biden got running for president of the United States."

THE FACTS: A whopper. Palin got 616 votes in the 1996 mayor's election, and got 909 in her 1999 re-election race, for a total of 1,525. Biden dropped out of the race after the Iowa caucuses, but he still got 76,165 votes in 23 states and the District of Columbia where he was on the ballot during the 2008 Presidential primaries.

FORMER MASSACHUSETTS GOV. MITT ROMNEY: "We need change, all right — change from a liberal Washington to a conservative Washington! We have a prescription for every American who wants change in Washington — throw out the big-government liberals, and elect John McCain and Sarah Palin."

THE FACTS: A Back-to-the-Future moment. George W. Bush, a conservative Republican, has been president for nearly eight years. And until last year, Republicans controlled Congress. Only since January 2007 have Democrats have been in charge of the House and Senate.

Following on Simon's post, it's clear that the RNC not only has a flare for drama, but will straight up lie if necessary. Throughout the RNC Convention we have heard eloquent stories, partisan attacks, but no real solutions. The RNC is doing exactly what they criticized Barack Obama for doing: giving nice speeches with no substance. While during the DNC Convention, not a single speaker focused on the RNC - they might have made differences known on issues, but at no time were speakers condescending or snide about Senator McCain.  Instead, they focused on presenting their candidate and on Barack Obama's specific proposals in the areas of Energy Reform, Immigration, the Economy, and Health Care. Stories can be entertaining for awhile, but in the end, voters will ask for substance. As Gov. Sebelius stated in the Huffington Post, hockey moms may be moved by speeches, but in the end they want to know exactly how the next President will make health care affordable, increase their wages, or improve schools. As Barack Obama pointed out at Mile-High Stadium, "it's not about me" - this election should be about the American people, but the GOP strategy is precisely to make it about stories and characters. Rep. Wasserman-Shultz put it best: "Where is the beef? Where is the evidence? Sarah Palin is not a reformer...If her best example of being a reformer was trying to sell a plane on E-Bay, that is not my definition of reform." Reform is not found in the usual stretching of the truth in politics. To be successful tonight, John McCain will have to shift from this strategy of making it about Barack Obama and instead focus on how he proposes to pay for the pipelines, nuclear power, solar, and expensive alternative energy sources that Gov. Palin spoke about. He will have to explain the incentives to businesses to conserve energy, to have acessible health care for employees, and how he will make the U.S. competitive in a global, 21st century, marketplace.

Electric car pioneer Shai Agassi is on the cover of this month's Wired, with a story on "The Future of the Electric Car." Shai's innovative and impressive solution is already underway in Israel, and the story is worth a read. Click on the picture for more.

For the last month, the McCain campaign has drilled away at energy as the decisive "separate from Bush and make Obama look bad in the process issue" in the election. McCain’s ads first trumpeted his commitment to cap and trade and later whacked Obama on drilling. His ads pointed to a mythical "electricity tax," and, despite obvious errors, hypocrisies, contradictions, and outright lies, conventional wisdom decided that McCain had won the debate on drilling.

With McCain’s four word key position of "drill here, drill now" exhausted, Obama, as the New York Times covered today, pivoted his message to the economic well being of everyday people. His second Olympic ad focused completely on his economic plan (the first focused on building an energy economy).

In case you haven’t caught Olympic fever and seen it, "Three Bedroom Ranch:"

Then today, John McCain had a moment that played right into Obama’s hands. McCain forgot – in the midst of a housing crisis – how many houses he owned. As I briefly mentioned earlier today, the Obama campaign quickly turned an ad around, noting how out of touch McCain was with everyday people.

McCain will have two, already begun, responses: he will continue to go negative on Obama, moving from a celebrity attack to a politics of association line of attack, and he will try to move the debate back to the issues he feels good about: national security and energy. This strategy has two small problems and one big problem for McCain. First, king oilman Dick Cheney is speaking at the Republican National Convention a week and a half from now – not exactly the backdrop McCain wants on energy. Second, timetable is now an agreed upon word for the end of America’s engagement in Iraq, the proposed Democratic solution.

The really big problem for McCain is that, while some think offshore drilling is nice, and others may care about foreign policy, Americans, in large part, see the economy as the overwhelmingly dominant issue. The McCain responses to his housing uber-gaffe – all personal attacks – do not get away from the fact that their candidate, a man who has spent 26 years in Washington, thinks the level of being rich is having five million dollars, and is extraordinarily wealthy, is no doubt out of touch with the lives of everyday Americans.

If this narrative sticks, if Obama can convince everyday Americans that he is focused on them, and if Obama can close on this message, it is hard to see Obama losing, because, despite all this supposedly bad polling and this supposedly bad month, Obama is still ahead.

In today's New York Times Week in Review, Bill Keller has a thoughtful look at recent events in China and Russia, and what might be called the end of the end of history. I thought Fareed Zakaria captured this sentiment best in his recent book when he described this new era of geopolitics with a simple powerful phrase - Americans are witnessing what he calls "the rise of the rest."

Perhaps after eight years of talk of Basra, Kabul and tax cuts, we will look back at this month as the month that Rip Van Winkle-like Americans woke from their conservative-induced slumber and began to see the 21st century as it is, not as portrayed by the Rovian/Chenesian fantasy of the last eight years.

Perhaps in no area is this new pragmatism more important than on what it means for our people here at home. The next President faces one domestic challenge more important than all the others - how to get wages and incomes rising again.

For most of the Bush era, the American economy performed well by traditional metrics. GDP, productivity, corporate profits and the stock market were strong. But despite this period of growth and strong productivity gains, the typical American family saw its annual income drop by about a $1,000 a year and the rate at which new jobs were created has been slower than any other recovery since the Depression. According to the laws of economics, it was not supposed to be possible to see robust growth in GDP and productivity and see incomes drop. In fact. it has never happened before in the modern economic history of the United States.

Every day Americans figured all this out long before coastal elites did. Our 2007 analysis of public opinion and the 2006 exit polls shows that it was the economy that drove the GOP from office much more than the war. As has been reported in many places, the American people are more unhappy with the state of the nation than anytime since the 1930s. The American people have understood for years that the people running their government has not turned their attention to the most important challenge they face in their own lives - making ends meet in a much more competitive globalized world. And small-bore solutions to this enormous challenge - off shore drilling, children's health insurance, raising the minimum wage, middle class tax cuts - will be treated as they have been treated by the American people these last few years - "that's nice, but where is the long-term, sustained, comprehensive plan big enough to actually improve our lives and the lives of our families?"

Led by Dr. Rob Shapiro, figuring all this out has been the primary focus of NDN's Globalization Initiative these last four years. I won't repeat the major recommendations from our project now, but offer three general observations:

1) It is critical that our political leaders explain to the American people that if we want to maintain our place in the world, and our standard of living, that we will have to "try harder." The rest of the world is rising, catching up, learning our game - as was the goal of foreign policy these last 60 years - and no longer can be seen as characters from an Indiana Jones movie. To compete in this world, this emerging world of the 21st century, we will have do more; invest more; modernize our infrastructure; lessen our dependence on expensive and dirty energy sources; make pensions and health care more portable and accessible; do more to equip our workers and kids with the modern skills they need to compete; accelerate innovation and the formation of "new businesses;" make our global economic liberalization strategies smarter and more modern...this new era must be seen as one of "investment" in a better future, and calls for an anachronistic politics of austerity must be rejected....

2) This economic and public opinion dynamic developed before the recent slowdown, credit crunch, housing crisis and energy/commodity price surge, and thus will not be solved by focusing on these recent developments in the economy. Because incomes went down during a period of sustained growth, the solutions offered by our leaders in the next few years must recognize that the traditional way we help Americans get ahead - by creating macroeconomic growth - is no longer guarenteed to improve the lives of every day people BECAUSE IT DID NOT WORK SO FAR IN THIS DECADE.

3) Given the enormity of this challenge, we here at NDN hope that helping Americans get ahead in this much more competitive world becomes the central focus of the elections this year. In several recent interviews, Senator Obama has said that his three priorities are Iraq, health care and climate change. Not so sure this is the best answer. He needs to be able say that he wants to be judged on whether he can raise Americans' standard of living, and then make doing so the central organizing principle of his campaign and Administration. I think a better response would be "I want to improve the lives of every day Americans who have worked so hard and gotten so little these last few years, and bring the troops home from Iraq." Or something like that.

A risky strategy some might say. For what happens if incomes don't rise? I think we already know the answer to that, as the GOP has shown us in recent years. If the standard of living of Americans don't improve in the next few years, the Democrats should expect to suffer the same fate as the GOP in this decade, and find themselves out of power. Unlike China and Russia, we still are a democracy, and as such, must make the fate of the people of the United States the central focus of our politics...

Keith Johnson, of the Wall Street Journal’s Environmental Capital blog, has a solid summary of where the media narrative on drilling sits: Republicans are winning the battle. This narrative is backed by a new Rasmussen poll that has 64 percent of Americans supporting offshore drilling, and 42 percent seeing it as the "best way to reduce oil prices." Rasmussen also tells us that Americans believe McCain wants to find more sources of energy, while they believe that Obama cares more for limiting energy use. Unsurprisingly then, Americans two-thirds of Americans side with McCain’s approach.

The New Republic’s editors make some interesting but debatable points today about how the narrative has gotten to this point, arguing that blaming speculators and going after oil companies may not have been the best plan of attack. TNR also argues that the Obama and Pelosi shift toward allowing more offshore drilling in a compromise bill that would also include support for renewables and efficiency was the second losing move in this argument, and that Democrats’ inability to debunk the drilling idea in the minds of voters was troubling.

As I argued yesterday, the shift on drilling will not be a big deal, and will likely remove drilling as a wedge issue into the fall. The more important voter perception is that Americans believe that Obama cares about energy austerity while McCain wants to do everything he can to increase production. (His actions don’t bear this out, but perception is what matters.)

Whether drilling specifically will be a voting issue is unknown, and this is likely a case where Republicans are winning the battle on drilling but setting themselves up to lose the war on energy as a whole. However, being portrayed as promoting austere energy use is extremely dangerous for Democrats. Obama has already begun to recast the debate on energy about investing in a clean energy economy, which is forward looking, as opposed to the McCain Republican petro-economy of the past, one that, as Michael Moynihan notes, continues to have dangerous ramifications in foreign policy.

At the end of the day, the most important argument to make and win is that energy policy is central to the economy: energy to power the economy, energy impacting American households and families through gas, home heating, and overall prices, and energy jobs and investment allowing average Americans to enjoy the broad-based prosperity they knew in the 1990’s, but that disappeared in the Bush administration. Transitioning to a clean energy economy will not be simple or easy, but, done responsibly, it is a key to future prosperity. Americans already feel austerity in their pocketbooks; being perceived as asking them to feel it in their energy use is not in Democrats' interests, especially when the better option of investing in a clean energy economy exists.

New York City - The reappearance of a belligerent Russia on the world stage, buoyed by high oil prices and newfound wealth, would appear to signal a new era in global politics. For anyone still clinging to the idea of the unipolar moment, the spectacle of Nicholas Sarkozy brokering a deal between Russia and Georgia, shows that the moment of a single superpower is probably over, and something like a return to the era of the Great Powers, at best, or the Cold War, at worst may be in store--absent real U.S. leadership to the contrary.

Nor is it an accident that high oil prices have ushered in the return of authoritarianism to the global stage. Securing and maintaining oil wealth has never been pretty or conducive to democracy. The huge payoff from controlling the wealth has always encouraged factions to vie for its control and, once they obtain it, quash opposition. So it was throughout Central Asia during the years of the Great Game and remains today, not only in Russia, but also in Saudi Arabia, Iran and even Venezuela. From Putin to Ahmadinejad to Chavez, oil-emboldened strongmen are again asserting their power.

However, as glamorous as unbounded oil wealth inevitably seems, it equally comes at a tremendous cost that in a modern economy, can entirely cancel out its benefits. That is because through the phenomenon of Dutch Disease--the phenomenon noted in Holland after the discovery of North Sea oil, it has an incontrovertible tendency to undermine the rest of a nation's economy. The high profits obtainable through oil, gas, or indeed any valuable commodity, tend to make other industries non-competitive by driving up costs. This is the dark cloud that threatens Russia's future.

Indeed, as Philip Stepens notes in today's Financial Times, Russia faces a raft of deep-seated economic problems that belie her new found swagger. Russia is losing population at an alarming rate due to low birth rates. Infrastructure is crumbling. And the corruption problems that have plagued her for decades have only grown worse as she has become more dependent on oil and gas revenues. Indeed, Russia's decision yesterday to suspend Robert Dudley, the British head of its TNK-BP oil venture, for trumped up reasons, testifies to the absence of the rule of law, likely continued capital flight, and corruption that still characterizes commercial dealings in the country.

Oil wealth always tends to contain the seeds of its own destruction. Were it not so, countries like Iran, Venezuela and Mexico would dominate the global economy. Thus, Russia is riding high for now. However, with her econmomy increasingly dependent on oil and gas, a drop in prices would have strong and swift effects. Russia, herself, would benefit in the long term from diversification away from oil but this is a goal that has always eluded those who worship at the altar of oil.

From a U.S. strategic point of view, shifting energy consumption away from oil and gas toward renewable energy that is not tied to any one geographic locations can, thus have important strategic as well as economic benefits.

In the surprise of the 110th Congress, it turns out that the pro-drilling position taken by many Congressional Republicans and their presumptive nominee for President may actually have been – gasp – election year politics. The 'Gang of 10,' a group of five Democrat and five Republican Senators, has offered a compromise proposal that would contain both incentives for energy efficiency provisions and a limited expansion of offshore drilling. Barack Obama has said that he would support such an expansion as part of a broader energy bill, and Speaker Nancy Pelosi has said she may allow a vote as long as a bill includes renewable energy and environmental safeguard provisions, but many Congressional Republicans, including Senate Minority Leader Mitch McConnell, are opposed to the bill.

According to the Wall Street Journal:

Republicans have used the offshore-drilling issue to paint Democrats as out of touch with ordinary Americans and beholden to environmental groups that oppose any relaxation of the current drilling ban. Arizona Sen. John McCain, the Republican's likely presidential nominee, has made Sen. Obama's opposition to offshore drilling a feature in recent ads critical of his Democratic rival.

But the drilling issue could lose its power as an electoral wedge if both parties agree to the concept put forward by a group of Republicans and Democrats. Their proposal would open additional acreage in the Gulf of Mexico off Florida's western coast to drilling, and also allow Virginia, North Carolina, South Carolina and Georgia to "opt in" to drilling off their shores if their legislatures approve.

The plan would also raise billions of dollars for conservation and energy-efficiency programs partly by making oil companies no longer eligible for a manufacturing tax credit and repealing other tax breaks. Some estimates have put the potential savings from such a move at $13 billion over 10 years.

Some conservatives worry that a deal would remove party differences on what they otherwise see as one of the Republicans' best issues for winning over voters in the November election. Conservative radio-show host Rush Limbaugh has accused the Republicans who favor the compromise of giving a "gift" to Sen. Obama and other Democrats seeking election this fall.

Among many Republicans, "there's a desire to not solve this problem" of gridlock over energy policy, said one of the Republicans supporting the compromise, Sen. Bob Corker of Tennessee. Sen. Corker added that "many people in the Republican Party are missing the point that this is a strong pro-[oil] production bill" and that Republican leaders "made a mistake" by not immediately endorsing it.

This proposal epitomizes the 'all of the above' solution that John McCain and his Republican allies in the Senate claim they support – expanding drilling and investing in energy efficiency and renewable energy. Sadly, only five have actually acted.

McConnell’s line about "objections to the proposal to eliminate the oil companies' eligibility for a tax credit" is part of his growing charade of election year intransigence. The oil industry receives tremendous direct and indirect subsidies from the federal government; meanwhile McConnell refuses to allow for a straight up or down vote for much smaller tax credits on renewables.

McCain, too, has said that he could not support the bill because it "would raise taxes;" he has since changed to a more 'wait and see' approach. For someone running for president on a supposed record of bucking his party on energy policy, this is certainly not the type of proactive leadership one would expect. (Thomas Freidman calls out McCain today for his lack of action on energy and quotes Suntech America President Roger Efird, one of NDN's panelists from our August 1 event on "Energy and the American Way of Life.")

There is only one conclusion to draw: McCain and Republican opposition to this proposal – which should serve as an important bipartisan step toward some sort of action on energy policy – is nothing more than an attempt to maintain a loosening grasp on drilling as a wedge issue in an election year. By refusing to lend his support to this compromise, McCain and his Republican Party owe America an explanation of what energy reform they are actually for, because behind the pretty windmills in McCain’s ads, there’s no substance.

New York City -- Perhaps at no point in his failed presidency, probably the worst in American history, did President Bush look more out of touch than sitting at the Olympics in Communist China as did fellow guest, Vladimir Putin, also watching the festivities was presiding over the invasion of democratic Georgia. Having not so recently invaded a country himself, Bush's moral authority was at a low. But contributing to the aura of self-interested incompetence suffused with a dose of cnyicism was his acquiescence to a vastly diminished American presence in the world.

Although it appears that the immediate Russian strike was triggered by a Georgian action against South Ossetia, the Olympic timing that placed Bush in the Chinese stands as Russian tanks rolled was tailor-made for Vladimir Putin. Pumped up with new oil and gas wealth extracted directly from Europe and the United States, Putin could not have found a better stage to announce his reassertion of Soviet imperial ambitions.

Now as President Bush and his team prepare to leave office, it is left to the rest of us to figure out how to resurrect an America that has been unnecessarily and artificially weakened--economically, militarily and strategically by this oil friendly Administration.

Indeed, oil and natural gas wealth is responsible for virtually all of the hubris on display from Putin like the other petro-strongmen who currently threaten the world's security. And oil and gas revenues are fueling the rebirth of authoritarianism--a point discussed trenchantly by Chrystia Freeland in today's Financial Times.

There should be no mistaking, at this point, that oil and gas wealth is a direct threat to the future security of the West. Thus it should be equally clear that a national commitment to developing alternative fuels must be a central element of American economic and security policy. To be sure, this transfer cannot take place overnight. But neither economically nor strategically, can the United States--or Europe--or other free countries allow themselves to remain dependent on the oil states.

As I have written before, a national program to change how we get our energy should include the following:

• Immediate passage of tax credits for renwable fuels such as the solar investment tax credit and production tas credit which benefits wind power;
• Acclerated development of new and impore energy storage and other advanced energy technologies;
• A renewable electricity standard;
• Legislation and tax credits to take older gas-guzzling vehicles off the road (as suggested by Jack Hidary and recently, Alan Blinder);
• Tax credits to encourage energy savings; and
• Investments in mass transportation and smart growth to lower energy demand across our society.

As major changes in energy consumption in the last few months --sparked by high gas prices--have shown, Americans can adjust. But we cannot leave this transition up to the whims of the market.

Most important of all is that these measures not be viewed independently as elective items but rather as part of a vital national commitment to free ourselves from what has become an unacceptable dependence on fossil fuels.

The alternative--acquiescence to a world run by oil-emboldened strongmen--is simply unacceptable.