Editor's note: Green Fuels Forecast today looks at the energy transporation plans of Arizona Sen. John McCain, who today will accept the GOP nomination. Last week, GFF analyzed the green fuels plan proposed by his Democratic rival, Illinois Sen. Barack Obama. That story can be found here.

(Sept. 4, 2008) With last week's conclusion of the Democratic convention, the Republicans have taken the stage to offer their own solutions for the future.

Gasoline and oil prices are down significantly since the start of the summer, but as Hurricane Gustav reminded: energy prices balance on the point of a sword with nature tugging on one side and the world economy pulling from the other. As the specter of costly oil lurks just around the corner, US reliance on imported crude still provides a strong argument for proponents of green energy.

As Sen. John McCain accepts his nomination as the GOP’s entry into the US presidential race, his energy and environmental planks remain somewhat vague, offering little quantification especially when compared to that of Democratic rival, Barack Obama. And although domestic drilling is high on McCain’s list of things to do if elected, the Arizona congressman has also embraced a surprising number of green energy initiatives.

Branded a maverick by his own party, McCain is known for bucking the conservative approach to many issues. A future McCain administration will not only have the opportunity to put its own ideas into practice, it could also mark a major turning point for a party that for years has been linked to Big Oil.

Reducing dependence on foreign oil
McCain has said that crude oil is a not just a commodity, but “a strategic weapon that others use to threaten our economy.” Because of this, the McCain energy plan is taking a strong stand for developing advanced transportation technologies and alternative fuels. This takes on a dual role of reducing the impact of price and supply volatility on the US economy, while working to “cut off the flow of oil wealth to repressive dictatorships like Iran.”

Reuters

McCain holds up the Arab oil embargo of the early 1970s as an example of the nation’s economic vulnerability. He has stated that at the time the embargo, the US imported roughly one-third of its oil, while today the US imports nearly two-thirds. “Since 1973,” says McCain in outlining his energy plan, “the United States has gone from importing six million barrels of oil a day to 12 million barrels per day with petroleum payments comprising 41 percent of the US trade deficit."

According to McCain, 97 percent of the energy used in the US transportation sector is petroleum-based; with cars and trucks consuming almost 60 percent of all of the oil used nationwide. While McCain proposes expansion of domestic drilling, he will combine this with a greater push to develop alternate sources of transportation energy.

McCain’s energy plan, which he refers to as the Lexington Project (named for the town where Americans originally asserted their independence from British rule), is based on the commitment that the US “will achieve strategic independence by 2025.”

Commercializing clean tech and next-gen biofuels

According to McCain, current ethanol regulations are impeding the transition to cleaner fuels.

“Isolationist tariffs and wasteful special interest subsidies are not moving us toward an energy solution,” says McCain. “We need to level the playing field and eliminate mandates, subsidies, tariffs and price supports that focus exclusively on corn-based ethanol and prevent the development of market-based solutions which would provide us with better options for our fuel needs.”

As part of the cap-and-trade program, the McCain plan calls for reforms within the federal government regarding research funding and infrastructure development, in order to shift emphasis toward the commercialization of low-carbon technologies. The McCain plan promises to streamline the process for deploying advanced energy technologies by requiring greater government accountability to meet commercialization goals and deadlines. By combining a cap-and-trade program with government-backed competitions, the McCain campaign says their plan will ensure the rapid transition of clean energy technologies from the laboratory to the marketplace.

These technologies will include advanced biofuels, which according to McCain will include alcohol-based fuels that “hold great promise as both an alternative to gasoline and as a means of expanding consumers’ choices.” McCain points to current ethanol fuels as an example of how biofuels have the potential to displace petroleum in the transportation sector, but sees greater potential in the next generation of alcohol-based fuels, such as cellulosic ethanol, that will not compete with food crops.

McCain has stated that he will not support subsidies or tariffs that restrict healthy competition from ethanol producing countries outside of the US that stifle innovation.

“I'll encourage the development of infrastructure and market growth necessary for these products to compete,” McCain told a group in South Carolina in December, “and let consumers choose the winners. I've never known an American entrepreneur worthy of the name who wouldn't rather compete for sales than subsidies.”

Establishing a carbon cap-and-trade program

From an environmental standpoint, McCain has said he believes that climate change is a serious global problem that must be addressed sooner than later. To help reduce greenhouse gases, McCain plans to fund the development of alternative transportation and biofuels technology by using proceeds from a market-based, cap-and-trade program. Similar to the Obama energy plan McCain would call for a return to 2005 emission levels by 2012, followed thereafter by a goal of reaching 1990 levels by 2020. By 2030, the McCain plan has a target of 22 percent of 1990 levels, with an ultimate goal of 60 percent of 1990 levels met by 2050.

According to McCain, a cap-and-trade system lets the market decide and encourages lowest-cost compliance options. Initially, participants would be allowed to either make their own greenhouse gas reductions or purchase offsets — financial instruments representing a reduction, avoidance or sequestration of greenhouse gas emissions practiced by other activities such as agriculture — to cover 100 percent of their required reductions. The McCain plan would provide for a program dedicated to ensure all offset emission reductions are real, measurable and verifiable. According to McCain’s plan, the fraction of emission reductions permitted via offsets would decline over time.

This cap-and-trade system would encompass electric power, transportation fuels, as well as commercial and industrial businesses, sectors that McCain says are responsible for just below 90 percent of all emissions. Small businesses would be exempt under the McCain plan.

Similar to the successful acid rain trading program of the early 1990s, “the profit motive will coordinate the efforts of venture capitalists, corporate planners, entrepreneurs and environmentalists on the common motive of reducing emissions,” McCain explains. “A cap-and-trade system harnesses human ingenuity in the pursuit of alternatives to carbon-based fuels.”

By auctioning emissions permits, the cap-and-trade program will support the development of advanced technologies. An unspecified portion of the proceeds will be used to support a diversified portfolio of research and commercialization challenges. According to the McCain campaign, these will range from carbon capture and sequestration, to nuclear power and advanced battery development. A portion of the receipts will be used to provide financial backing for a Green Innovation Financing and Transfer (GIFT) program to facilitate commercialization.

Tightening CAFE standards and penalties

Since petroleum will, in the near term, continue to be a primary fuel for both commercial and passenger vehicles, McCain’s energy plan leans heavily toward flex-fuel vehicle (FFV) technology as a transitional strategy. McCain proposes that FFVs should play a greater role in the transportation sector, but he says the pace at which the US auto industry plans to convert to FFV technology should be faster.

He points to Brazil as a prime example of the speed at which an economy can switch over to a different fuel. “In just three years, Brazil went from new cars sales that were about five percent FFVs to over 70 percent,” McCain states in his plan. “American automakers have committed to make 50 percent of their cars FFVs by 2012,” he adds and calls on automakers to make a “more rapid and complete switch to FFVs.”

Part of McCain’s energy plan also calls for tighter CAFE standards and more strict enforcement. A long-time supporter of fleet fuel economy standards, McCain says that some carmakers have ignored the standards choosing instead to pay the small financial penalty then add it to the price of their cars. A future McCain administration will increase the penalties for not meeting CAFE standards in order to compel every automaker to produce more fuel-efficient, and less oil-dependent vehicles.

“Whether it takes a meeting with automakers during my first month in office, or my signature on an act of Congress,” McCain says, “we will meet the goal of a swift conversion of American vehicles away from oil.”

Easing the financial burden of going green

The McCain plan will also attempt to mitigate the economic costs associated with meeting new emissions goals, including the trading of emission permits to find the lowest-cost source of greenhouse gas reductions, and permit the “banking” and “borrowing” of those permits. According to the McCain campaign, this would allow emission reductions to be accelerated or deferred to more “economically efficient” periods.

The plan also calls for permitting unlimited initial offsets from both domestic and international sources, plus integrating US trading with other international markets to help provide access to low-cost permit sources.

Furthermore, McCain envisions establishing a “strategic carbon reserve” as a national source of permits “during periods of economic duress.”

These steps, combined with early allocation of some emission permits based on “sound principles” will provide a significant number of auction allowances to provide funding for transition assistance for both consumers and industry, according to the McCain campaign. This facet of the plan will directly allocate sufficient permits to enable the activities of a future Climate Change Credit Corporation — a public-private agency that will oversee the cap-and-trade program — and provide credit to entities for reductions made before 2012. McCain proposes this will help to ease transition for industries with competitiveness concerns.

The plan also provides for the creation of a commission that will make recommendations regarding the percentage of allowances to be provided for free, and that which will be auctioned. This commission will develop a schedule for transition from allocated to maximum auctioned allowances. The cap-and-trade system will be designed so as to maximize the amount of allowances that are auctioned off by 2050.

Finally, McCain’s plan will put a portion of the cap-and-trade auction proceeds toward reducing the financial impact to low-income people faced with the added cost of converting to green technologies.

Initiating government-backed incentives to improve technology

The McCain energy plan will implement government incentives to spur advances in clean technologies, perhaps faster than would otherwise occur. One program will be the “Clean Car Challenge,” which will offer a single tax credit based on the reduction of carbon emissions.

Under the plan, for every zero-emissions vehicle sold, the government will commit a $5,000 tax credit “for each and every customer who buys that car.” According to the McCain campaign, even those vehicles that are not 100 percent zero-emissions will qualify for some credit — the lower the carbon emissions, the better the tax credit.

To energize the development of plug-in hybrid and all-electric vehicles, McCain has also proposed a $300 million prize toward the development of the first fully commercial automotive battery technology. The plan calls for this prize to be awarded to company or individual that develops a battery package that has the “size, capacity, cost and power to leapfrog the commercially available plug-in hybrids or electric cars.” The McCain plan specifies that the battery should deliver a “power source at 30 percent of the current costs.”

While a $300 million government award is no small sum, McCain claims it is not a significant burden on the nation as a whole. “The prize is one dollar for every man, woman and child in this country,” says McCain, “and a small price to pay for breaking our dependence on oil.”

Developing cleaner sources of electricity

With the stated goal that the US become a leader in a future international green economy, McCain says that “green jobs” and green technology will be vital to America’s economic future. “There is no reason,” McCain explains, “that the US should not be a leader in developing and deploying these new technologies.”

Part of this approach will be encouraging a market for alternative, low-carbon energy sources, such as wind, solar and hydro power. McCain refers to a Department of Energy study that estimates wind power could supply as much as one-fifth of the nation’s electricity needs by 2030. He also points to the steadily increasing growth of the solar energy industry over the past few years.

To further promote renewable energy technologies, McCain says the federal government needs to “rationalize the current patchwork of temporary tax credits that provide commercial feasibility.” A McCain administration will help the growing renewable energy sector by applying what McCain refers to as an “even-handed system of tax credits that will remain in place until the market transforms sufficiently to the point where renewable energy no longer merits the taxpayers’ dollars.”

To add more carbon-free energy sources, the McCain energy plan calls for the construction of 45 new nuclear power plants by 2030. Although nuclear power is not a renewable source of energy, McCain does see it as clean and ultimately wants 100 new plants constructed. According to his campaign, the development of new nuclear plants will re-create a US industry that has disappeared. “A rough estimate is that 45 new nuclear power plants will create roughly 700,000 jobs in construction, engineering, operation and maintenance,” McCain says.

“Nuclear power is a proven, zero-emission source of energy,” McCain continues, “and it is time we recommit to advancing our use of nuclear power.”

As part of the nation’s energy independence, McCain also wants all the parts and components for those plants to be made in the US by American companies “so that we are not dependent on foreign suppliers.”

Another facet of the McCain energy plan is clean coal technology. Although most experts believe that this technology will not be viable for at least another 15 years, McCain feels that is too long to wait. “We need to commit significant federal resources to the science, research and development that advance this critical technology,” he says. Under a McCain administration, the federal government will commit $2 billion annually until 2024 toward developing this technology.

“Once commercialized,” McCain adds, “the US can then export these technologies to countries like China that are committed to using their coal.” 

By doing so, the technology will help create additional American jobs and allow the US to play a greater role in the international green economy. McCain has stated that clean coal demonstration projects alone will employ over 30,000 Americans.

To support and promote necessary research and development, the McCain energy plan calls for the establishment of a permanent tax credit for businesses involved with green technologies. This credit would be equal to 10 percent of wages spent on green tech R&D. McCain says that this reform will simplify the tax code, reward activity within the US, and make the nation more competitive around the world.

A permanent credit, according to the McCain campaign will provide an incentive to innovate while reducing uncertainty. “At a time when our companies need to be more competitive,” says McCain, “we need to provide a permanent incentive to innovate, and remove the uncertainty now hanging over businesses as they make R&D investment decisions.”


Promoting energy efficiency

Like Obama, a McCain administration will push for energy savings at the federal level as a visible demonstration of the government’s commitment to conservation. As the largest electricity consumer on the planet, the US federal government can lead by example, according to McCain, and in the process move the construction market in the direction of green technology. The McCain energy plan calls for higher efficiency standards to be applied to new buildings leased, purchased or retrofitted by the government.

Furthermore, McCain says that he will move the US toward electricity grid and metering improvements in order to save energy. A McCain administration will work to “reduce red tape to allow a serious investment to upgrade our national grid to meet the demands of the 21st century,” according to the McCain campaign, which says it will include the capacity to charge electric cars.

McCain also supports the deployment of “SmartMeter” technologies, which allow customers to better understand their energy consumption over time and help to encourage more cost-efficient use of electric power. This would lead to a savings of both money and electrical power for individuals, families and businesses, according to McCain.

Expanding domestic oil and natural gas production

The McCain energy plan calls for a commitment to expanding domestic oil and natural gas exploration. While not in the interests of environmentalists, McCain believes it is time for the federal government to lift drilling restrictions in areas such as Outer Continental Shelf (OCS). “There is no easier or more direct way to prove to the world that we will no longer be subject to the whims of others than to expand our production capabilities,” McCain states.

“We have trillions of dollars worth of oil and gas reserves in the US at a time we are exporting hundreds of billions of dollars a year overseas to buy energy,” McCain says, “This is the largest transfer of wealth in the history of mankind.”

Based on estimates from the Minerals Management Service, the McCain campaign says that the technically recoverable natural gas resources currently off limits in the Lower 48 OCS total 77 trillion cubic feet.

Should the McCain plan be adopted, additional domestic drilling could contribute to lower oil and natural gas prices, of which the later may provide added stimulus to market vehicles powered by natural gas. McCain has already stated that he believes natural gas can be a bridge to hydrogen, which he has said “is a long-term alternative that we must continue to explore.”

Discussing his energy plan to an audience this past summer, McCain explained, “The strategy here is to produce more, use less, and invent new ways of doing both.”