The climate change legislation on the floor of the Senate this week would be the most important piece of energy legislation ever – if it had a chance of becoming law. Instead the debate is, as Sen. Byron Dorgan (D-N.D.) put it, a “dress rehearsal.”

If it had a chance of passing, it would steer tens of billions of dollars of energy investment toward efficiency projects, renewable resources such as solar and wind, and nuclear power. More money could also end up in demonstration plants designed to capture and store carbon dioxide emissions from coal-fired power plants. The legislation would do all this in a roundabout, but theoretically politically palatable way: it would establish caps on emissions with a set of rules for companies to trade permits and offset credits needed to meet those caps. While commonly known as cap-and-trade, which sounds pithy and free-market oriented, a more accurate but less sexy-sounding name would be a system of tradable rationing coupons. In plain English, that would mean putting a price on greenhouse gas emissions, which would raise costs for anyone burning fossil fuels, whether in a gasoline tank, a coal-fired power plant, or a natural gas stove. (Columnist Robert J. Samuelson gives his views of the whole mess.)

But if all this is a dress rehearsal, why care?

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From the United States, the prospect of endlessly high prices for oil and gas looks unrelentingly grim. Just this morning, the Commerce Department announced a bigger than expected trade gap for April and it’s clear who the villain is – crude oil imports accounted for just under half of the nation’s net trade deficit.

From the other end of the international oil pipeline, however, things look pretty good. No giant sucking sound there, just the happy gurgle of oil revenues flowing into the government cup that is running over.

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The Qatari oil minister Abdullah Bin Hamad Al Attiyah was visiting the United States this week and at a dinner reception he told a story about oil prices. About two years ago, he said, a British official met him and urged him and OPEC to increase output to lower oil prices. The Qatari minister responded with an offer: If Britain would share its tax revenue on oil products 50/50 with Qatar, Qatar would give Britain the oil for free.

His point was this: Taxes on petroleum products in Europe are greater than the price of the petroleum itself. Put it another way: European governments make more money on oil product sales than the oil producing countries.

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*Correction Appended*

What sort of commitment did Saudi Arabia really make to ultimately expand oil output to 15 million barrels a day – and is that even possible?

That’s been a major subject of debate since last Sunday’s big oil consumer-producer pow-wow in Jeddah , Saudi Arabia. And thus the Saudi pronouncement has had hardly any discernable calming effect on oil markets, especially since it would take several years to reach that 15 million barrel a day level in any case. Meanwhile, the kingdom has talked of nudging production up by 200,000 barrels a day from current levels next month -- and current prices remain as high as they’ve ever been.

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A week ago newspapers reported that a handful of the big Western oil companies were close to unveiling contracts for work in Iraq, whose underexploited oil reserves are probably second only to Saudi Arabia’s. One well-read paper said the contracts would be announced next Monday.

It’s the kind of story that whips up attention because of the persistent suspicion that access to Iraqi oil for Western companies was wrapped up in the Bush administration’s decision to invade Iraq in 2003.

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Energy quote of the day:

"How many times do I have to tell you, prices have nothing to do with supply and demand."
--Saudi oil minister Ali al-Naimi according to story by Bloomberg News.

The comment was made as Naimi was reiterating his view that "speculators", not the fundamentals of supply and demand, were driving up oil prices, and that OPEC did not need to raise output to bring prices down.

The Energy Department earlier this week outlined plans to solicit proposals for $18.5 billion of loan guarantees for the construction of new nuclear plants. Nuclear foes say it's way too much, but the nuclear industry says it's not enough.

Both of them can claim to be right with some reason. The loan guarantees could certainly lead to the construction of the first completely new nuclear plants in nearly three decades since the scare at the Three Mile Island plant in Pennsylvania. That would be a setback for nuclear power's foes. But new nuclear plants are so expensive that the $18.5 billion in loan guarantees are only big enough to finance the construction of three new nuclear plants.

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On Friday, we were talking about why the nuclear industry isn’t satisfied with the $18.5 billion in loan guarantees that the Energy Department is opening up for proposals. And that reminded me of a meeting I slipped into on Capitol Hill in mid-May that was organized by the Heritage Foundation, whose nuclear energy expert, Jack Spencer, used to work for Babcock and Wilcox, a maker of nuclear plant equipment. He had invited Michael Metzner, senior vice president and treasurer for Exelon Corporation, and Caren Byrd, executive director of Morgan Stanley's investment banking division, to speak. There were two or three dozen congressional staff members there.

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We've been talking recently about nuclear power and recent U.S. government plans to fund new power plant construction. France, which gets 78 percent of its electricity from nuclear power, is often cited as a model by nuclear power advocates. But is it?

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Wrapping up our discussions in the last few posts about the nuclear industry, here are some other fun facts about nuclear finance and loan guarantees:

1. The Energy Department is also handing out about $8 billion for renewable energy and energy efficiency projects.

2. France relies on nuclear power for 78 percent of its electricity while the United States relies on nuclear power for 19 percent of its electricity. But the United States, a much bigger economy, produces nearly twice as much energy from nuclear plants as France does.

3. "Loan guarantees from the Department will enable project developers to bridge the financing gap between pilot and demonstration projects to full commercially viable projects that employ new or significantly improved energy technologies," Jeffrey F. Kupfer, the Acting Deputy Secretary of Energy, said. But many critics wonder what is so new about the design of new nuclear plants.

4. Last October, Moody's delivered a downbeat assessment of the U.S. nuclear industry's prospects. In a report, it said:

"Moody's does not believe the sector will bring more than one or two new nuclear plants on line by 2015, a date cited by a majority of the companies currently highlighting their nuclear ambitions. The complexity associated with the permitting process as well as the execution risks associated with construction projects of this nature should not be underestimated.... Moody's believes that many of the current expectations regarding new nuclear generation are overly ambitious. In fact, the timing associated with commencing construction and making the next nuclear unit commercially available could be well beyond 2015 and the costs associated with the next generation of nuclear build could be significantly higher than the approximately $3,500/kW estimates cited by many industry participants."

Don’t look now, but the model nation for peaceful nuclear power just had a spot of trouble.

Nearly 8,000 gallons of radioactive waste spilled from the Tricastin nuclear site on Wednesday, forcing the closure of two French rivers for fishing and bathing, and threatening people and the environment. The timing, right after the Energy Department said it would seek proposals for new nuclear plants worthy of federal loan guarantees, could have been better.

“This spill should knock down the myth that France ’s dependence on nuclear power is a role model for the U.S. to follow,” said Erich Pica of Friends of the Earth.

Speaking of timing, the Government Accountability Office issued a report on the $38.5 billion in federal loan guarantees lawmakers approved early this year. The GAO recommended that Congress limit the size of the program (PDF) because the Energy Department isn't ready to assess risk of defaults and protect taxpayer interests. The GAO said that “Risks inherent to the [loan guarantee program] will make it difficult for DOE to estimate subsidy costs with a reasonable degree of accuracy…” It criticized the Energy Department for considering non-cash assets, such as land, as equity if contributed to the project by developers. It also said that the Energy Department’s decision to lend as much as 100 percent of the project costs diminished the incentives project owners might have if they were on the hook for part of the project cost.

For two days this week, oil was looking like a typical bubble market. The price slid more than $10 a barrel in two days. Had supply and demand changed that much? Was this the beginning of the end of high oil prices?

Then on Thursday, the oil price bounced up at the end of the trading session. It’s hard to see what news might have triggered that. The day’s major developments – the firing of missiles by Iran and an e-mail from Nigerian insurgents calling off their self-declared ceasefire – were known at the beginning of the day. Brazilian oil workers were planning a strike, but the International Energy Agency lowered consumption forecasts. Go figure.

That led some analysts to say that the oil market is indeed a bubble.

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The price of crude oil has tumbled almost $11 a barrel in less than two days and a lot of people are (again) asking: Has it all been a bubble? Is it about to burst? Have prices fallen short of the predictions of the financial analysts who were talking up the idea of $150 or $200 a barrel?

I don't think it's quite that simple. I think that a combination of things are happening to oil prices: an influx of financial players into the market has helped drive up prices, but they wouldn’t have been able to do that in a sustained way if the gap between global production capacity and global oil consumption were not so narrow.

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If $4-plus for a gallon gasoline feels like a burden to American households, it feels like an emergency to members of Congress.

With elections looming, how Americans will factor the high price of gasoline into their voting makes both parties anxious. Democrats think it's such an emergency that they want to tap the Strategic Petroleum Reserve to lower prices. President Bush, by contrast, wants to keep the emergency reserve aside for what he might call a real emergency -- one with war and a really big disruption in world supplies.

There's a lot of rhetoric flying around on this at the moment, but neither side gives the other its due.

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You could look at yesterday’s announcement by the US Geological Survey that there may be 90 billion barrels of oil and 44 billion barrels of natural gas liquids in 25 geological areas underneath the Arctic Sea as evidence that there isn’t any oil supply crisis. Or you could look at it as evidence that we need to go to the ends of the earth to get enough oil to feed our oil addiction.

Finding all that Arctic oil will require huge expensive drilling rigs and ways of dealing with dangerous melting ice. One line in the USGS release: “For the purposes of this study, the USGS did not consider economic factors such as the effects of permanent sea ice or oceanic water depth in its assessment of undiscovered oil and gas resources.”

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Those of us who live in the United States have a tough time with high oil prices. But the Philippines doesn’t produce any of its own oil, and it’s having an even tougher time.

And that means tough times for the Philippines’ President Gloria Macapagal-Arroyo. Her popularity has fallen to a low point, lower than any president there since 1986, the year long-time leader Ferdinand Marcos was toppled from power. Moreover, while the nation’s growth rate is still good, inflation has climbed to 11.4 percent. Growth has slowed from 7 percent to 5.2 percent. Many members of Congress are demanding that Arroyo trim the 12 percent value-added tax on oil products, but she has refused. Tomorrow she is scheduled to deliver a nationwide address, and oil prices will be at the center of her talk.

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It's not every company that can register $11.68 billion in quarterly profits -- and still disappoint the analysts. Yet Exxon Mobil Corp. is a special company in many ways, and analysts have their own view on the world.

Poor Exxon. Its profit margin is a meager 8.5 percent of sales. It doesn't have enough places to drill. Costs are going up. Skilled manpower is scarce. Despite all that, it is still under attack from members of Congress, consumer groups and environmental groups. And now the analysts are disappointed too!

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I'm often asked this question: How did Big Oil conspire to get its big profits? The idea that a company like Exxon Mobil could earn $11.7 billion in a single quarter boggles the mind, even if you know what a far-flung empire it is.

Two years ago the online magazine Slate (a sister Washington Post publication) published a Michael Kinsley piece about taxing oil companies that touched on the subject. Kinsley noted that oil wells that could be profitably operated at $46 a barrel (the price a year before his column) could be even more profitably operated at $70 a barrel. Kinsley wrote:

To get this windfall, the oil companies didn't have to conspire with the Bush administration to start a war in Iraq. They didn't have to conspire among themselves to raise prices at the pump. If you own oil anywhere in the world, you didn't have to do a damned thing. Just close your eyes, make a wish, open them, and - surprise - you're getting an extra $25 a barrel.

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There are some people who would claim that President Bush's announcement about lifting a presidential ban on drilling in offshore areas currently off limits has had something to do with the recent drop in oil prices. The other night, a friend asked me if this was true.

The short answer is: no.

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It seems every candidate has his favorite energy subsidy. Or two.

Sen. Barack Obama (D-Ill.) has favored setting a minimum goal of 60 billion gallons for ethanol of all kinds, derived from corn and cellulosic materials such as grasses or wood chips. That's twice the current target for an industry which has thrived largely because of federal mandates and subsidies for refiners that blend ethanol into motor fuel.

Sen. John McCain (R-Ariz.) has opposed subsidies for ethanol. And last Tuesday he attacked Obama for voting for the 2005 energy bill (widely supported by Republicans) because, McCain said, it had subsidies for big oil and gas companies.

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Steven Mufson is on vacation this week, but Post colleague Juliet Eilperin asked us to link to her article on cars, which she wrote as a rebuttal to this Outlook piece by Terry Box last weekend.

Steve will return to blogging next week.

Commentators have been quick to point out that Russia's defeat of Georgia has pretty much killed the chances that new oil and gas pipelines will be built to increase the security of supplies to Europe. It's clear that there is little to stop Russia from rolling its forces up to the existing pipeline or knocking it out of commission if it wanted to. The Washington Post's Steve Pearlstein even suggested that demonstrating the pipeline's vulnerability may have been one of the underlying motives for the Russian incursion.

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Hoping for some insight about oil prices, I attended a meeting on Thursday at the New America Foundation where Richard Vague, who was the founder and former chief executive of credit card firm First USA, was talking about oil prices. He is also co-founder and chief executive of Energy Plus, a firm supplies electricity to homes in New York. I trust he was more astute about credit cards than he was about oil prices.

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One of the people who will parade across the platform Tuesday night for a four-minute speech will be Nancy Floyd, founder and managing director of Nth Power, a San Francisco venture capital firm specializing in energy technology and materials. The firm has $420 million under management with investments in companies involved in light-emitting diode bulbs, hydrogen-based generators, photovoltaic panels, microturbines, biodiesel, and the sale of voluntary carbon offsets, among others. She said that nationwide about $3 billion a year of venture capital, about 14 percent of total U.S. venture capital, is going into energy.

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