The use of carbon dioxide in enhanced oil recovery, as illustrated above, could expand as a consequence of climate legislation. (image: llnl.gov)

The oil industry has opposed legislative efforts to impose a cap on carbon emissions, but a new study says that such a cap could actually lead to increased oil production in the US and reduce imports of crude oil by 40 percent, reports the Houston Chronicle’s NewsWatch: Energy blog.

Captured carbon dioxide is at the heart of the study’s paradoxical finding. According to Advanced Resources International (ARI), which conducted the study for the environmental group the Natural Resources Defense Council, an emissions cap would accelerate development of carbon capture and storage (CCS) technology. Oil companies are already using captured carbon dioxide to improve the recovery of oil; by pumping carbon dioxide into oil wells, oil that couldn’t be recovered through conventional drilling is pushed up where it can reach a well, a process known as carbon dioxide enhanced oil recovery. If CCS became commonplace and could be paired with oil drilling, carbon dioxide enhanced oil recovery could expand immensely, increasing total domestic production by 3 to 3.6 million barrels per day in 2030. This form of enhanced oil recovery could bring a total 85 billion barrels of previously unrecoverable oil into production.

Carbon dioxide enhanced oil recovery is already underway in 105 separate projects, including Denbury Resources’ Conroe Field. Denbury uses naturally occurring carbon dioxide at Conroe Field, piped in from Mississippi. Denbury’s president, Tracy Evans, says that “a limitation of the source of CO2” has prevented more enhanced oil recovery from taking place. This limitation highlights a pivotal assumption upon which this study is based: carbon capture and storage technology will become highly developed and widespread if climate legislation places a cap on carbon emissions.

Taking as its baseline the American Clean Energy and Security Act (ACES), the House cap and trade bill also known as Waxman-Markey, the ARI concludes that 78 to 85 million metric tons of CO2 could be captured annually by 2020, and 410 to 530 million metric tons annually by 2030. While an emissions cap would certainly create an incentive to develop the technology to capture carbon emissions, it’s not certain that it would be developed—or could be implemented on that scale—regardless of what legislation is passed.

For the purposes of its study (full text available at Scribd.com), the ARI also assumed that “all of the captured CO2 is preferentially used for EOR [enhanced oil recovery]” (emphasis in original). If italicizing that assumption wasn’t enough, the ARI follows it up with a doozy of a footnote: “This is not necessarily what is expected to take place as a result of the ACES.”

So the ARI study appears to outline a best-case scenario for the oil industry and not the most probable outcome. Perhaps it’s the Natural Resources Defense Council’s effort to win oil support for climate legislation. Nevertheless, the study underscores a recent innovation in oil drilling—which, if it became the end stage of CCS, could mean carbon-neutral oil drilling—and the unintended benefits that the oil industry could gain from a cap on emissions.

Three senators at the center of the debate over cap and trade’s place in energy legislation (left to right): Graham, Kerry, Liebeman. (image: mnn.com)

Key Senate Democrats say they will support an existing energy bill that does not include a cap and trade provision, and are trying to convince their colleagues to do the same, an article on the website MotherJones.com reported on Tuesday. Buzz about a climate change of heart on the part of the Democrats grew louder last week, when the media reported that Sens. John Kerry (D-Mass.), Joseph Lieberman (I-Conn.), and Lindsey Graham (R-S.C.), who are trying to win bipartisan support for their own compromise energy and climate legislation in the Senate, were planning to do away with cap and trade altogether. The two anti-cap and trade movements represent a larger trend in the Democratic caucus: the perception that dropping cap and trade (or any carbon dioxide emissions limits) from climate legislation is the only way to get it passed.

Possible elimination of the cap and trade provision from the American Clean Energy Leadership Act (ACELA), which was approved by the Senate Energy and Natural Resources Committee last June, raises several concerns. For starters, doing away with a carbon cap may spell doom for an international climate treaty. Other big carbon emitters, most notably China, want to see the U.S. make meaningful reductions in carbon emissions before they commit to their own reductions. In November, China agreed to curb its carbon intensity 40–45 percent from 2005 levels by 2020, although it does not want these emissions targets to be legally binding.

Another potential problem with the bill, according to environmentalists, is that it could increase, rather than decrease, carbon emissions by making too many concessions to big energy interests. The bill would lift a ban on drilling on the eastern Gulf of Mexico, just 45 miles off the Florida coast. In addition, an expansion of federal authority over the placement of power lines called for in the bill could increase emissions, said David Lashof, director of the climate center at the National Resources Defense Council. He explained that more electricity infrastructure without a corresponding cap on carbon would make it easier to bring new coal plants onto the grid and increase output at existing plants.

ACELA also contains few provisions for clean, renewable energy. Although it requires utilities to produce 15 percent of power from renewable resources within the next 11 years, solar and wind advocates say that renewable electricity standard is not ambitious enough Grist.com reported.

Although the bill would establish an agency called the Clean Energy Deployment Administration, or CEDA, it also would empower the Department of Energy to distribute an unlimited number of loan guarantees to underwrite the construction of nuclear power plants without congressional review. According to the Congressional Budget Office, the chance of default on these loans is at least 50 percent, so the bill could wind up costing taxpayers billions of dollars.

Those who support ACELA include Democrats Jim Webb (Va.), Mary Landrieu (La.), Evan Bayh (Ind.), Ben Nelson (Neb.), Kent Conrad (N.D.), Byron Dorgan (N.D.), Mark Pryor (Ark.), and Blanche Lincoln (Ark.). Republicans Lisa Murkowski (Alaska), Sam Brownback (Kan.), Bob Corker (Tenn.), and Jeff Sessions (Ala.), who voted the bill out of committee, could also come on board.
Supporters of the bill argue that getting the measure passed is more politically feasible than getting a cap and trade provision thorough the Senate. In an omission that cold signify the White House’s quiet assent to the elimination of cap and trade from climate legislation, President Obama did not refer to a cap and trade system or any plans to cut greenhouse gas emissions in last week’s State of the Union speech.

Obama did, however, praise the House of Representatives for passing the American Clean Energy and Security Act (ACES), also known as the Waxman-Markey bill, which includes a cap and trade provision. He also urged the Senate to make a bipartisan effort to do the same.

ACES calls for the reduction of greenhouse gas emissions in the US to 17 percent below 2005 levels by 2020 and 83 percent below 2005 levels by 2050. It also requires utilities to generate an increasing amount of power from renewable sources and reduce dependence on foreign oil.

The Clean Energy Jobs and American Power Act (CEJAPA), sponsored by Sens. Kerry and Barbara Boxer (D-Calif.) and a companion bill to ACELA, would begin with the same 3 percent cut in carbon emissions by 2012 as ACES, but would require a sharper cut of 20 percent by 2020. Kerry, Lieberman, and Graham have proposed cutting U.S. greenhouse gas emissions by 2020 by about 17 percent of 2005 levels, the same goal put forth in the Waxman-Markey bill.

Both ACES and CEJAPA would establish a system of carbon credits, in which regulated industries would have to acquire carbon permits. However, the Waxman-Markey bill would establish a relatively free carbon market, allowing emitters to purchase carbon credits as needed, while the Boxer-Kerry measure would try to control costs to polluting industries by capping the price of credits at $28 per unit. Kerry, Lieberman, and Graham initially pledged continued support to the concept of a cap and trade system, although the senators said that they do not support the name “cap and trade.” Take a look at this comparison of the various climate bills in Congress posted in October of last year to get a more detailed description of each piece of legislation.

As cap and trade loses favor in Congress and the chances of passing comprehensive climate and energy legislation appear as bleak as ever, the Natural Resources Defense Council has stepped up efforts to force legislative action. The NRDC’s Action Fund this week launched a web-based video in which Leonardo DiCaprio and a host of Hollywood stars, with Cornell West of Princeton University thrown in the mix, exhort Americans to urge their senators to support comprehensive clean energy and climate legislation.

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The campaign uses online tools such as social networking, blogs, and e-mail to tell the Senate that the country needs legislation that will reduce carbon pollution and create clean energy jobs. It appears that the NRDC believes that grassroots action by green-minded citizens reinforced by major star power could turn around the fate of climate legislation. However, the way the political winds are currently blowing in Washington, it would take no less than a hurricane of constituent pressure to change the minds of senators who have taken up firm positions against the enactment of any greenhouse emissions reduction laws any time soon.

A familiar signature exposes the China-based cyberattackers. (image: Patrick Chappatte via cagle.com.)

Hackers in China made headlines recently when Google was hit, but the search engine giant isn’t the only company being targeted. Mark Clayton of the Christian Science Monitor reported on cyberattacks on three US oil companies—Marathon Oil, ExxonMobil, and ConocoPhillips. Like the attack on Google, the hackers seem to be based in China. What Exxon and Conoco have that Google doesn’t is information on the size and location of potential oil fields, which would be very valuable for corporations or nations competing for oil resources.

Since the House of Representatives passed the American Clean Energy and Security Act (aka ACES, Waxman-Markey, and the cap and trade bill), climate legislation has moved forward in the Senate at a snail’s pace, if at all. But that doesn’t mean new legislation on energy and the environment isn’t on its way—in many states, it has already arrived. From Hawaii to Maine governors are touting clean energy, electric cars, and energy efficiency as the path to job creation, reports SolveClimate.

Energy Star is the government-approved label of energy efficiency, and it gives customers assurance that they’re buying an energy-efficient refrigerator, washing machine, or other appliance. Or even an energy-efficient new home. Douglas Fischer of The Daily Green tells the story of a Michigan couple that bought an Energy Star home, and they can expect to use one-fifth to one-third less energy than the average home. The higher upfront cost for such a house drives away many potential buyers, but Fischer describes specialized mortgages that might bring Energy Star homes within the reach of more consumers.

It doesn’t sound very high-tech, but the Southern California Public Power Authority expects energy savings from rooftop units that use ice to store energy, reports Matthew Wald at the New York Times’ Green Inc. blog. Rather than powering air conditioners by drawing on the grid at peak hours, energy will be used to make ice at night, and that ice will cool the buildings down during the day. The system costs more to install than a generator, but it doesn’t require the same work of finding a proper site and securing permits, and the power authority believes it will save money in the long run.

Massachusetts Senate candidates Martha Coakley and Scott Brown. (image: 3.bp.blogspot.com)

Tuesday’s special election in Massachusetts could have serious implications for climate legislation, SolveClimate.com reports. As voters go to the polls to elect a replacement for late U.S. Senator Edward Kennedy, they will be helping determine the fate of climate bills under consideration in Congress. Democrats currently enjoy a 60-vote majority in the Senate, a crucial number that can stop a Republican filibuster.

The candidates represent both sides of the climate debate, with Republican candidate Scott Brown, a state senator, clearly stating that he opposes cap and trade. If elected, he would “eagerly” side with Republican leaders against the regulation of greenhouse gas emissions. Democratic candidate Martha Coakley, on the other hand, is an attorney general with a strong record in environmental policy. It was her office’s lawsuit against the EPA that resulted in last year’s declaration by the EPA that greenhouse gases are a public health hazard. If elected, Coakley will throw her support behind the impending climate change legislation.

If Coakley loses, (she trails in the latest polls by nine points) however, the Democrats’ loss of their “supermajority” in the Senate could signal a major shift in strategy for getting climate legislation passed. Speaking to Bloomberg News on Friday, Senator Chris Van Hollen (D-MD) mentioned that Democrats could turn to a process called reconciliation to help health care legislation pass the Senate. Reconciliation was created specifically for consideration of budgets, and limits debate on the given bill to 20 hours, thereby blocking any filibuster attempts. This same process could be applied to a climate bill, but most Democrats seem opposed to the idea.

The long road towards climate legislation began with the House-sponsored American Clean Energy and Security Act, sponsored by Sens. Henry Waxman (D-CA) and William Markey (D-MA). After that passed, Sens. John Kerry (D-MA) and Barbara Boxer (D-CA) took up the climate mantle in the Senate, working to get the Boxer-Kerry bill passed with an increased emissions reduction target of 20 percent. Recently, in response to the lukewarm reception by most Republicans and even some Democrats to the bill, Kerry began work with Senators Joe Lieberman (I-CT) and Lindsey Graham (R-S.C.) on a compromise. The new bill brings the goal of emissions reductions back to the 17 percent put forth in the bill the House passed, and carries through its support of the cap-and-trade system.

In the most recent attempt to save climate legislation from the beleaguered Kerry-Boxer bill, Senators Maria Cantwell (D-WA) and Susan Collins (R-ME) have introduced a new bill known as the CLEAR Act, or the Carbon Limits and Energy for American Renewal Act. The two main differences between CLEAR and previous proposals are 1) the auction of emissions permits, with 75 percent of the revenues raised going back to energy consumers each month and 2) a limit on the involvement of investment banks and other financial institutions, including speculators, which had been a major worry for some Democrats.

Polls for today’s race show that it is a close one, with the possibility of it going either way. The future of climate legislation, and how fast we get there, will depend largely on the outcome. Regardless of who wins, it will likely still be a long road until final, binding legislation is passed, with some thinking it unlikely that anything will move forward in an election year. The result of today’s election will at the very least tell us what direction we’re heading in: moving toward the reduction of greenhouse gas emissions, or taking two steps back.

Illustration of carbon cap-and-trade. (image: granitegeek.org)

On Sunday, the Washington Post published an opinion piece by Ralph Izzo, chief executive of New Jersey’s Public Service Enterprise Group (PSEG), in which he offered his support for a cap and trade system to reduce greenhouse emissions. Although many energy corporations are hesitant to throw their support behind cap-and-trade and climate legislation, Izzo pleads for Congress to pass a strong climate bill. While admitting that current climate change legislation requires changes Izzo asserts that the most important thing to do right now is to put a price on carbon via cap-and-trade. According to Izzo, the benefits of implementing a cap-and-trade system far outweigh the estimated costs of such a program.

Aside from the environmental benefits of limiting global warming, Izzo argues that Congressional approval of climate change legislation will allow the United States to keep up with the countries of Europe and Asia that have already made great strides in developing and implementing alternative energy sources. Furthermore, Izzo asserts that placing prices on carbon is the first step to making the United States less dependent on foreign energy and will promote the creation of green industries and jobs. Perhaps most important, Izzo notes that cap-and-trade should be thought of as “cap-and-innovate” as cap-and trade “will give companies an economic foundation for investments in energy efficiency and clean energy, unleashing the innovation that only a well-functioning market can provide.”

It should be noted that PSEG could stand to gain from cap-and-trade as nearly half of their power derives from nuclear energy. As previously reported by HeatingOil.com, nuclear power does not emit carbon dioxide or contribute to global warming. Therefore, if cap-and-trade does emerge, PSEG could profit from selling the carbon credits it does not use as a result of its nuclear energy generation.

Recently Democrats have used nuclear energy in an attempt to gain Republican support for cap-and-trade as many prominent Republicans such as John McCain, Lamar Alexander, and Lindsey Graham are supportive of increased use of nuclear power. Despite such compromises however, Republicans, like Big Oil, continue to oppose any emissions-reduction legislation.

One oil corporation that is not supportive of cap-and-trade regulation is Sunoco. On November 19 HeatingOil.com reported that Sunoco CEO Lynn Elsenhan complained that the American Clean Energy and Security Act sponsored by Representatives Edward Markey and Henry Waxman “did not establish a level playing field and clearly picked US oil refiners as ‘losers.’” Speaking directly to cap-and-trade, Elsenhan asserts that “asking US refiners to be responsible for their customers’ emissions puts them at ‘great peril.’”

While it remains to be seen whether or not a cap-and-trade system will be successful (if it is ever established), the current climate of debate surrounding carbon emissions suggests that Ralph Izzo is correct to note that no one “will be completely satisfied with the final legislation.”

(image: J.C at peakoilcomics.blogspot.com)

Clean energy is a growing industry—so much so that the Mafia has gotten involved. Sicilian prosecutors are investigating possible Mafia ties to two businessmen arrested for fraudulently obtaining subsidies to build wind farms that never worked. There was a New England connection to the affair as well. Christine McConville of the Boston Herald reports that one of the arrested men was involved with the controversial Cape Wind project in Nantucket.

The recession really does affect everyone. Even oil companies are tightening their belts, reports Tom Fowler at the Houston Chronicle’s NewsWatch blog. For the first time in 45 years, Conoco doesn’t plan to drill any new exploration wells. What are they spending their money on? Developing existing offshore leases—work which costs plenty.

Keeping the thermostat down is an excellent way to reduce home heating bills. But sometimes it’s just really cold, and we have limits. Luckily for us, a company called EcoFactor just won the Cleantech Open award, which gives the company $100,000 to further its work on software that helps heating and cooling systems run more efficiently. As Candace Lombardi writes on the Green Tech blog at CNET News, EcoFactor’s software works “to better maintain stable desired temperature in homes.” You may even be able to shed one of those blankets.

The Senate talks (and talks) about the climate bill, but Sen. John McCain doesn’t like what he sees. He’s not the only opponent of cap and trade, but Politico’s Lisa Lerer explains how much of a turnaround this represents for the Republican senator, who was admired for defying his party on global warming.

What to make of the Copenhagen conference that will take place in December? Is it a chance for real progress, or has any opportunity already been lost? If you ask Eric Roston of Grist, no matter what happens all participants will hail Copenhagen as a success. Too much time and energy has already been invested to do otherwise. However, for Roston the real measure of success won’t be any treaty or agreement arrived at in Copenhagen, but how much it pushes individual nations to invest in clean-energy economies.

Sunoco CEO Elsenhan (left) objects to the cap and trade measures proposed by Rep. Markey. (image: engineering.rice.edu and upi.com)

Sunoco CEO Lynn Elsenhan and Rep. Edward Markey (D-Mass.) exchanged words during a session at this week’s Wall Street Journal CEO Council in Washington, D.C., the Journal reported on Wednesday. As shown in the video below, Elsenhan said that the American Clean Energy and Security Act, which is sponsored by Rep. Markey and Rep. Henry Waxman (D-Calif.), did not establish a level playing field and clearly picked US oil refiners as “losers.”

She went on to say that the cap and trade measures in the ACES bill, also known as the Waxman-Markey bill, did not resemble the European measure they were modeled after. “Europeans got their cap and trade allowances for nothing,” she said, “and they are not responsible for the emissions of their customers.” They are only responsible for the own stationary emissions.

Elsenhan said:

I am very willing to have all of my stationary emissions be paid for by cap and trade” and be more energy efficient, but asking US refiners to be responsible for their customers’ emissions puts them at “great peril” and makes their ability to cap and trade more important than their ability to refine crude into products and deliver those products to customers.

In response, Markey said that the bill contained $2.5 billion to “deal with” the additional costs to the refining industry, and that this provision is still subject to negotiation as the bill moves through the Senate. He mentioned that the bill also contained a protective border tariff that is triggered in 2020 to protect energy-intensive, trade-vulnerable industries from exploitation by China, India, and other countries that are not engaging in the same reductions in greenhouse gas emissions as the U.S.

Markey continued by saying that these provisions to protect the US oil industry sent a “real signal” to the world—“We are not going to stand by and watch our steel, aluminum, cement, and other energy-intensive industries be exploited by us moving along with the Europeans.”

The Waxman-Markey bill has been a lightning rod for controversy since it narrowly (219-212) passed in the House on June 26, 2009. The cap and trade provisions of the bill, and its impact on both refiners and consumers alike, are particularly controversial.

However, the debate between Elsenhan and Markey may be moot. Nuclear energy has emerged as a new focus of climate change legislation. Steven Zweig wrote on HeatingOil.com on Oct. 9 that several key Democrats in the Senate, including Sens. John Kerry (D-Mass.) and Joseph Lieberman (I-Conn.) may support nuclear power in exchange for Republican support of cap and trade. As Zwieg wrote on HeatingOil.com on Tuesday, to get climate change legislation passed in the full Senate, Democrats must bargain to gain support of a “critical mass” of Republicans. Such Congressional backroom maneuvering should ensure that any bill that does make it to the president’s desk will bear little resemblance to Waxman-Markey.

Final designs of green homes are shown to the public on the National Mall in Washington D.C. as part of the DOE's Solar Decathlon (image: Stefano Paltera/U.S. Department of Energy Solar Decathlon via grist.com)

Last week saw the end of the 2009 Solar Decathlon, an engineering competition sponsored by the Department of Energy. For three weeks in October, twenty teams of college and university students competed to design, build, and operate the most energy-efficient home. To express his gratitude to the ingenious (and, no doubt, rather exhausted) participants, Representative Edward J. Markey (D-MA) posted a brief congratulatory note on Grist.com in which he exhorted Americans to continue setting the bar for green energy innovation.

Representative Markey, who has become well known recently for pushing climate-friendly policy, is one of the co-sponsors of the House climate bill (or the Waxman-Markey American Clean Energy and Security Act), as well as chair of both the Select Committee on Energy Independence & Global Warming and the Energy & Environment Subcommittee. The congressman’s climate bill passed the House in April, ahead of the Senate bill, sponsored by senators John Kerry and Barbara Boxer.

Markey’s support of the Solar Decathlon will likely increase public awareness of the event—which is a good thing, since one of the goals of the Decathlon itself is to raise awareness of renewable energy and energy efficiency programs. The event may also help solar energy technology to enter the market place quicker, and to educate students—along with the public—about the benefits of energy efficiency. This year, the top winners of the competition were: 1) Team Germany (Technische Universität Darmstadt); 2) University of Illinois at Urbana-Champaign; and 3) Team California (Santa Clara University, California College of the Arts).

The senator’s post also features a video, put together by his Select Committee (watch the video below), featuring Markey at the competition’s award ceremony and, later, a number of the participants explaining some interesting features of the homes they developed. As one contestant explains, his team developed a special I-phone application which allows the homeowner to communicate with his home from anywhere; for instance, by punching a few commands into his phone, he can adjust the temperature on the home’s thermostat. Other features include computer software that monitors a home’s energy consumption, and a special irrigation system that helps convert rain water in useable water for gardens and home bathroom fixtures.

The Solar Decathlon is just one of many solar-power-and-energy-efficiency themed programs to receive either federal or state funding. Recently, New York Governor David Patterson announced that $10 million in federal stimulus money will be put toward solar energy projects in the state, while SUNY Ulster (also in New York) has revealed plans to construct a massive solar power plant which will help power its campus. Furthermore, many states have begun to promote energy efficiency, with initiatives like Maine’s ‘Young Mainers Program.’  Let the games begin!

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Douglas Elmendorf, director of the CBO, testified before Congress about the costs of the climate bill. (image: economistmom.com)

Adding more fuel to the fire that is the House climate bill—officially the American Clean Energy and Security Act of 2009 (ACES), but better known as the cap and trade bill or the Waxman-Markey bill—Congressional Budget Office (CBO) Director Douglas W. Elmendorf testified before Congress Wednesday that the House bill would slow the country’s economic growth and create “significant” job losses in the fossil fuel industries, reports Juliet Eilperin in the Washington Post. The estimates are in direct opposition with what the Obama administration and congressional Democrats have suggested about the economic benefits of the bill.

Yesterday’s testimony is yet another chapter of the ongoing saga of the purported costs and benefits of the Waxman-Markey bill. In June, the CBO released estimates that showed the bill would only cost American families $175 per year, while acknowledging that costs will rise over time as allowable carbon emissions go down. The CBO noted at the time that the actual cost per family will vary depending on income, with low-income consumers saving about $40 a year, while higher-income families seeing an increase for energy costs of $235 to $340 every year.

Since then, there have been nonstop reports on the real costs and who will benefit most from the bill. In contrast with the CBO’s June estimate, the conservative Heritage Foundation put the price tag at $6800 per family. Rep. Edward Markey, co-sponsor of the bill with Rep. Henry Waxman, put his two cents in, saying that it would cost families “roughly the cost of a postage stamp.” The EPA came up with the cost of $84 per household. The American Petroleum Institute warned of an impending drop in US oil companies refining production level, if the bill was passed. So while costs of the bill may be initially low for consumers, it would eventually drive up the price of refining operations, which get passed along to the public in the form of higher heating and electricity prices.

It remains to be seen how yesterday’s report on the effect of the bill on the economy will be received. Elmendorf did concede that there would be some growth in the renewable energy market, but not enough to compensate for all that will be lost. Republicans seized on the report to say that the country would be better off not curbing greenhouse gas emissions. For those interested in the environmental implications of the bill, Elmendorf made clear that the CBO’s estimates “do not include any benefits from averting climate change,” whether economic or otherwise.

Daniel J. Weiss, a senior fellow at the liberal think tank Center for American Progress, disputed the CBO’s employment forecast and pointed to a study done by the University of Massachusetts at Amherst that concluded that the House bill would add jobs to the US economy.

“We estimate this sustained expansion in clean-energy investments triggered by the economic stimulus program, and the forthcoming American Clean Energy and Security Act, can generate a net increase of about 1.7 million jobs,” Weiss said.

When supply goes up, price goes down, right? Maybe not, says API. (image: howstuffworks.com)

The debate over whether “supply and demand” governs the current oil market continues.

This time, it’s Sara Banaszak, a senior economist at the American Petroleum Institute who told the Wall Street Journal that rising crude oil inventories don’t necessarily mean falling prices. “I wouldn’t say you would expect inventories to dictate the direction of prices,” she said.

Demand is expected to rebound in 2010 as the economy continues to recover, so the massive inventories we’ve been hearing about might not mean as much for prices as we think. Before a presentation at the Philadelphia Federal Reserve Bank organized by Global Interdependence Center and Philadelphia Council for Business Economics, Banaszak said that inventories are more reflective of the “ballpark” level of where prices should be, relative to recent movements, and not where they’re headed.

But prices aren’t expected to rise dramatically any time soon. After all, we’re still in the process of recovery, and it will take between “a year or two or three” to get back to previous global demand.

The Energy Information Administration’s price forecast for crude oil at $72 a barrel in 2010 reflects an expectation for the “lower, steady state” of oil prices in the near future. Plus, the Wall Street Journal adds that surplus crude oil supply is still growing, and expected to continue.

“The cushion is back,” said Banaszak.

In her speech, Banaszak stressed the need to access domestic resources for oil and natural gas, noting that alternative sources of energy currently compose less than half of one percent of yearly energy consumption in the U.S and will not meet demand. Oil, including heating oil, will be a vital energy source for the foreseeable future, making it unlikely that the price of crude will drop precipitously. If crude stays at or above its current range, the price of heating oil will behave the same way.

Banaszak’s pessimistic tone about renewables isn’t surprising when you consider that the API led the opposition against the carbon caps proposed by the Waxman-Markey climate bill (and which are the Senate’s version of the climate bill as well, the Boxer-Kerry bill).

Despite the API’s grumblings over cap and trade, the Boxer-Kerry bill calls for cutting the nation’s greenhouse gas emissions by 20 percent by 2020, and 83 percent by 2050, which is more aggressive than the former stipulations of Waxman-Markey. Expect the tenuous tweaking of the bill to continue as our government struggles to draft a climate bill that will actually pass.