This week, President-elect Barack Obama is being measured for his inaugural tuxedo, even as oil investors wonder what an Obama administration will mean for the oil and gas markets.

Make no mistake, Obama is no friend of big oil – heck, he made opposition to domestic oil drilling as a key plank of his platform during the 2008 election campaign. In fact, he famously declared that “we can’t drill ourselves out of this mess” as oil price rose significantly in the summer of 2008.

Since then, President-elect Obama proposed a windfall profits tax on income earned when oil exceeds the price of $80 per barrel (it’s under $40 early this week). Obama also wants to tighten trading regulations on oil speculators on Wall Street. Obama also came out against a gas-tax holiday, despite supporting one in 2000 as an Illinois state senator. He is a big supporter of wind and solar power, as well as advocating big tax breaks for developers of alternative fuels.

That is just about the polar opposite of where President Bush has staked his energy policy over the past eight years. Bush, like most conservatives, falls squarely into the “drill here, drill now” camp – especially along the U.S. coast and in the oil-rich Anwar province in Alaska. Bush was also friendly to oil investors at the tax window, giving oil companies tax breaks so they could spend more on research and drilling. But Bush came around toward the end of his presidency on alternative energy, as he supported the release of new nuclear power licenses, as well supporting wind and solar energy initiatives and also giving tax breaks to renewable energy companies.

Pro or con, oil and energy will be at the forefront of the new Obama administration. So line by line, let’s look at what he’ll do and what impact that will have on oil investors.

From President-elect Obama’s web site, the new administration will look to . . . 
   
•    Slash U.S. carbon dioxide emissions 80 percent below 1990 levels by 2050. Would accomplish this through a cap-and-trade system that would auction off 100 percent of emissions permits, making polluters pay for the CO2 they emit.

•    Funnel revenue raised from auctioning emissions permits -- between $30 billion and $50 billion a year -- toward developing and deploying clean energy technology, creating "green jobs," and helping low-income Americans afford higher energy bills.

•    Will lobby Congress to demand that 25 percent of U.S. electricity should come from renewable sources by 2025, and for 30 percent of the federal government's electricity to come from renewable energy by 2020.

•    Call for $1 billion in research and development for renewables, biofuels, efficiency, "clean coal," and other technologies.

•    Call for improving energy efficiency in the U.S. 50 percent by 2030.

•    Call for 36 billion gallons of biofuels to be used in the U.S. each year by 2022 and 60 billion gallons of biofuels to be used in the U.S. each year by 2030.

•    Call for all new buildings in the U.S. to be carbon neutral by 2030.

•    Call for reducing U.S. oil consumption by at least 35 percent, or 10 million barrels a day, by 2030.

•    Write into law the Health Care for Hybrids Act, which would have the federal government help cover health-care costs for retired U.S. autoworkers in exchange for domestic auto companies investing at least 50 percent of the savings into production of more fuel-efficient vehicles.

•    Supports raising fuel-economy standards for automobiles to 40 miles per gallon and light trucks to 32 mpg by 2020.

My take on where Obama is taking the U.S. energy policy? First, let’s be realistic – politics is a culture built on empty promises. How many times has practicality trumped political ideology in Washington? It’s one thing to promise to reduce our consumption of oil until the policy hits the streets and Americans begin to see the price of gasoline go up.
That’s when politicians begin losing elections.

The economics don’t make much sense, either, especially in a deep recession. The U.S. has been getting trounced at the Kyoto Treaty bargaining table by China and India, both of whom insist that wealthy nations like the U.S. should be the first to make deep cuts in banning carbon dioxides, a move that could pull the rug out from under an already unstable U.S. economy. So don’t look for Obama to call the Asian Tiger’s bluff.

President elect-Obama has already begun playing the “lowered expectations” game. With much of the Congressional largesse going to financial bailout of U.S. industries - $750 billion and counting, with a proposed $850 billion more this spring – there just isn’t enough political willpower – or money – to back solar energy or wind farms at the expense of oil and gas. Not happening.

Consequently, expect Obama to grin and bear it when it comes to the oil plank of his energy policy. He won’t be the friend the oil sector had in President Bush, but, hands tied by political and economic realties, he won’t be the Bogeyman some industry observers had feared.