For McCain team, energy cures many ills

ST. PAUL (Reuters) - The McCain presidential campaign appears to have one main answer to questions about how it will address a faltering U.S. economy, foreign policy issues and national security -- energy.

On a day when Wall Street recorded its steepest decline in more than two months and with investors worried about growing job losses, the single-issue focus drew a rebuke from Sen. Barack Obama, who accused Republicans of ignoring the economy.

Chants of "Drill, baby, drill!" erupted at the Republican National Convention in St. Paul on Wednesday night as speaker after speaker espoused the benefits of expanded U.S. oil exploration.

Sen. John McCain said his vice presidential pick, Alaska Gov. Sarah Palin, was qualified to be commander in chief in part because she "understands the energy issues better than anybody I know in Washington."

His economic adviser Douglas Holtz-Eakin said energy would top McCain's policy list in his first 100 days in the White House, but there has been scant detail on how a McCain administration would ease the burden of skyrocketing energy prices or end oil imports.

That may be because accomplishing those goals will require stepping up government investment in alternative energy and cutting usage. In other words, Americans would need to spend more and consume less, not the most popular ideas on the campaign trail.

"I don't think anybody here can name four specific things that John McCain would do that would actually help your pocketbook," Obama, McCain's Democratic rival in the November 4 election, told reporters in York, Pennsylvania.

McCain was to give a speech later on Thursday that his campaign said would include policy prescriptions.

'NATIONAL SECURITY'

"There is little doubt that energy and national security are closely linked," said Michael Greenstone, an economist at the Massachusetts Institute of Technology.

"However, there is a world market in oil and even with the proposed increases in drilling, our reserves will just be a portion of the total. So as long as oil remains a key part of our energy portfolio, we will never achieve energy independence," he said.

Edward Snyder, dean of the University of Chicago's Graduate School of Business, said the emphasis on drilling sounded "jingoistic," and taxing imported oil, although politically unpopular, would do far more to curb usage.

In her comments on Wednesday, Palin linked oil imports to national security and foreign policy, listing threats from Russia, Iran and Venezuela -- all major oil producers -- and stressing the need to find sufficient U.S. supplies.

Palin has supported drilling in the Arctic National Wildlife Refuge, and pushed through a tax increase on oil and gas producers last year, doubling Alaska's energy revenues to more than $10 billion. That may not sit well with oil companies, which are big Republican contributors.

Republicans have taken in $14.7 million from employees and political action committees of firms such as Exxon Mobil Corp, Chevron Corp and Valero Energy this election cycle, the Center for Responsive Politics said. That was about three times as much as Democrats collected.

ALL-INCLUSIVE

McCain's team has pitched its energy policy as an all-inclusive approach, saying drilling would help ease the strain while nuclear plants are built and alternatives like solar, wind and geothermal power are developed.

All of those are expensive, which may be hard to swallow for a candidate who has promised low taxes and government spending restraint.

Matthew White, an economist who teaches public policy at the University of Pennsylvania's Wharton School, said neither McCain nor Obama had provided enough detail for investors to evaluate their alternative energy plans.

Goldman Sachs and other Wall Street firms have set up funds to invest billions of dollars in alternative energy, but those businesses would need taxpayer-funded subsidies to succeed, White said.

Wall Street "has capital available to invest in profitable projects," White said. "That doesn't mean there are profitable projects."

Obama proposed investing $150 billion in alternative energy over the next decade, although critics say his plans would swell an already large federal deficit.

Expanding nuclear power, another part of McCain's energy program, would help cut greenhouse emissions but at a higher cost than coal, White said, and could mean more government subsidies. Obama supports nuclear power, but has raised concerns about safe waste disposal.

Whoever wins in November, the next Congress will likely pass some form of energy reform. If McCain is elected, the emphasis would be on drilling and nuclear power, while an Obama administration would be more inclined to push for alternative energy, the University of Chicago's Snyder said.

"It's something that the country is going to want, but it will fall far short of significant progress toward energy independence," he said.

(Additional reporting by Kevin Drawbaugh in Washington, editing by Patricia Zengerle)