While oil prices have come down since their recent peak a few weeks ago, they remain in the spotlight.  This weekend, President Obama used his Saturday address to call for increasing drilling.  Coming on the heels of last week's grilling by the Senate Finance committee of the nation's top oil executives a propos of a proposal to end longstanding tax breaks for drilling, his remarks capture the frustration many people feel about rising gasoline prices.

Our anger would no doubt bemuse many overseas for US gas prices are low by global standards.  Indeed, as the attached graph shows, they are still less than those registered two years ago.  What is nonetheless frustrating about gas prices is their volatility.  Gas price shocks like hurricanes and flooding are hard to predict but when they occur,devastating.  The impact of the 1970s shocks are well understood: they launched stagflation in the US and Europe and inaugurated a huge transfer of wealth to the oil states that persists to this day.  But even the milder 2008 shock, some economists now believe, may have played a role in triggering the Great Recession.  And the story that many are using to explain the collapse, not just in oil prices but in commodity prices across the board in recent weeks, is expectations of a weak economy ahead--perhaps one deflated by high commodity prices over the last year.

As frustrating as oil shocks are, the record of efforts to address them has been more frustrating still. The 1970s oil shocks were bad but the famous lines at the pump that helped Ronald Reagan defeat Jimmy Carter were due not to the oil shocks but to price controls--a policy intervention that succeded only in creating shortages.  Worse, price controls were slapped on domestic oil but not foreign oil, and traders reaped millions by illegally recertifying shipments. 

In 1980, Congress passed a windfall profits tax on oil.  Given the huge profits by oil companies at the time, it seemed like sound economic policy  However, the tax applied only to domestically produced oil and, in retrospect, was a key step in accelerating our dependence on foreign oil.  More successful was the creation of the Strategic Petroleum Reserve and the creation of gas mileage standards. But neither of these has proved a silver bullet either.  The Reserve has yet to be tapped and the CAFE standards, while they have cut fuel use, by looking at the entire fleet are correctly criticized for allowing gas guzzlers to persist.

If controlling volatility in commodities markets has never been easy, it has become more difficult in recent years.  A series of commodity index funds launched by Merril Lynch but now owned by Goldman Sachs have become established vehicles for hedge funds and others to place large quantities of money, exacerbating movements.  Indeed one theory of the commodiites runup this past year is that it reflects global liquidity created by the QE2 program of the Fed that spent about $600 billion buying securities.   Indeed, the commodities crash last week, coincided with the end of QE2.  Yet another theory for the commodities crash is that authorities raised margin requirements on commodities traders.  The commodities "bubble" as some has described it has drawn comparisons with the financial and real estate bubbles, in particularly, in light of the IPO "at the top" scheduled this week by Glencore, the company started by Marc Rich decades ago after he fled the United States.

All of this is a way of saying that reining in oil and gasoline prices is not easy.  But given the devastation, price spikes can cause, it must still be attempted.  Perhaps the single most important thing we ought to do is reign in Opec, the organization that more than any other can alter the price of oil.  Secondly, financial regulators need to study more carefully how trading in commodity indices as an asset class can drive monetary movements with serious real world consequences.  Beyond that, we should be working over the long term to wean ourselves off scarce resourcs such as oil toward renewable resources.  That cannot happen overnight but it will be the only long term resolution to the problem of oil and gasoline price volatility.

NDN's Green Project has been incredibly active since its launch earlier this year.

Most recently, we held a series of events addressing climate change, energy and the economy. On July 9, U.S. Sen. Jeff Bingaman, Chairman of the U.S. Senate Energy and Natural Resources Committee, addressed the NDN community on the case for Cap and Trade; later that month, NDN's Globilization Initiative Chair Dr. Robert Shapiro released a paper on a carbon/payroll tax shift; at the end of July, we urged Congress to support a package of renewable tax credits; and on August 1, Assistant U.S. Senate Majority Leader Dick Durbin's delivered an important policy speech on the Green Economic Opportunity.

Today we are releasing a major new report which argues that solar power must become a top U.S. economic priority. To read the full report, click here.

The paper, which is summarized in a news release below, makes a compelling case as to why solar power will help address high fuel prices, combat climate change and reduce our dependence on foreign energy. While it may seem that all anyone talks about these days is offshore drilling, read this fact-filled report to find out why looking up instead of drilling down may be just what we need to do when it comes to creating a clean energy policy that will power our economy in the 21st century.

Accelerating the rollout of solar power must become a top policy priority of the United States if our nation is to address high fuel prices, combat climate change and reduce our dependence on foreign energy. So argues a new report entitled, “Solar Energy: The Case for Action," released today by NDN's Green Project and authored by Michael Moynihan, a former Clinton Administration official who now directs the Green Project.

As a growing global population and higher standards of living increase demand for energy, the report argues that energy has entered a new phase in its history.

NDN believes that solar will play a key role in creating green jobs while building the new, low-carbon economy of the 21st century and that promoting leadership in solar technologies to take advantage of this immense new opportunity must be a major policy priority of the United States.

"As recently as last week, the inability of Congress to extend the Solar Investment Tax Credit, at a time when American families are struggling with high energy prices and industries as diverse as autos and airlines are losing billions of dollars, shows that this issue requires far more attention than it has received,” Moynihan said.

Moynihan continued, "Our political leaders have been treating solar energy and other renewables as an interesting but sideline issue. In fact, the development of renewable energy sources is a vital economic priority of the United States. We cannot afford to sit idly by as higher energy prices continue to shift wealth from American families and businesses to energy producers overseas. We have the know-how and ingenuity and are missing only the determination to build a new, clean energy economy to power American prosperity."

To unleash the power of solar energy, the report makes the following recommendations:

Congress should extend the Investment Tax Credit for eight years, remove the cap on residential installations and extend the tax credit to utilities.

Congress should pass a renewable electricity standard with a solar set-aside.

Congress should step up funding for energy R&D.

Congress, regulators and stakeholders should carry out limited power industry reform that, among other goals, requires decoupling of power profits from production.

Congress should require net metering and so-called net billing for electricity.

Congress and state and local governments should create incentives for homebuyers to more easily finance homes that have solar power or install solar power.

Because renewable power will require better switching and efficiency to move power to where it is needed, government, utilities and other stakeholders should work together to modernize the grid.

NDN’s Green Project is a program of the Globalization Initiative that seeks to develop a legislative, regulatory and advocacy framework to address climate change, enhance energy security and accelerate the development of green technologies to promote economic growth. This initiative is designed to serve as a bridge between key stakeholders in the new clean technology community and public leaders to build the low-carbon economy of tomorrow.

On July 25, I wrote about U.S. Sen. John McCain's newfound ability to raise massive amounts of money from some folks who hadn't been giving him the time of day -- or much money, for that matter -- before he found religion and reversed his long-held position against offshore drilling.

And BOOM! McCain hit a gusher, which I touched on here.

According to a report from The Washington Post:

Oil and gas industry executives and employees donated $1.1 million to McCain last month -- three-quarters of which came after his June 16 speech calling for an end to the ban -- compared with $116,000 in March, $283,000 in April and $208,000 in May.

McCain and his Republican buddies haven't let up since. They believe they've found their holy grail in convincing the American people -- frustrated and burdened by $4 a gallon gas prices -- that offshore drilling will immediately lower those skyhigh prices. There's just one little problem: it's just not true. McCain has admitted it. Even the American Petroleum Institute has admitted it. So why does McCain keep talking about offshore drilling as the solution to all of our nation's problems?

A few more follow-the-money details have emerged:

In a witty (but all-too-familiar) article in today's Los Angeles Times, reporter Dan Morain writes:

DEPARTMENT OF COINCIDENCES

Oilman greases skids for McCain campaign

Among the donors from John B. Hess' company are an office manager and her husband, who pony up $57,000.

August 5, 2008

On June 10, John B. Hess, a top executive at the oil company with his family name, summoned friends to the 21 Club, a former speakeasy in Manhattan, and delivered $285,000 to John McCain and the Republican National Committee.

A week later, McCain traveled to Texas and announced his support for offshore oil drilling.

Hess Corp. is an East Coast gasoline retailer with major refining and exploration operations, some of which happen to be offshore in the Gulf of Mexico.

Hess was one of half a dozen hosts who tapped friends for the maximum $28,500 donation to the GOP. Others included investor Henry Kravis and hedge fund mogul Paul E. Singer.

McCain spokesman Brian Rogers said there was no link between the money and McCain's stand. "Mr. Hess was fundraising before Sen. McCain made the announcement," he said.

Most Hess donors were company attorneys, vice presidents or, like John Hess, board members. But one, Alice Rocchio, listed her job as office manager, and she gave $28,500, as did her husband, Amtrak foreman Pasquale Rocchio.

The information emerged in a Campaign Money Watch report last week, followed by an item Monday on Talking Points Memo, which wondered how they could afford to give $57,000 to a political campaign. Alice Rocchio told TPM that McCain was her favorite candidate and the money was the Rocchios' to give.

The Rocchios also gave $4,600 in February, when Hess employees -- one of whom listed his occupation as "driver" -- delivered $23,000 to McCain. The couple have not given to any other federal campaign for at least the last decade, according to Federal Election Commission records.

But records suggest that the Rocchios are not without resources. The couple listed an address in Flushing, N.Y., and also have an Arizona home.

And this from the Houston Chronicle:

August 05, 2008

McCain's contributions from energy interests spike

John McCain received prolonged applause from the oil executives who gathered June 17 in Houston to hear the Republican presidential candidate's speech on energy policy.

Now it appears that McCain received something else: Lots of campaign contributions.

John McCain's contributions from energy industry interests happened to spike right around his Houston speech (and a fundraising tour of Texas).

Is it a coincidence, the result of aggressive Texas outreach -- or is it a show of gratitude? Let us know what you think.

Chronicle photo

John McCain greets well-wishers after his June 17 energy speech in Houston.

Here's the list:

CONTRIBUTIONS FROM ENERGY INTERESTS

DATE.....................AMOUNT
April......................$40,000
May.......................$96,950
June 1-15.............$219,550
June 16-17...........$303,400
June 18-30...........$313,950

For the complete text of McCain's Houston speech, click here.

To read the Houston Chronicle's story on McCain's June 17 speech, click here.

Oh, and there may be just a few more reasons why McCain supports offshore drilling. Maybe it has something to do with all the people who work on or advise his campaign and also lobby for the oil industry? Watch this new ad here: