Joseph Tomain on CPRBlog {Bio}

US Chamber of Commerce: More of the Same

Recently, the U.S. Chamber of Commerce released a report entitled Energy Works for US: Solutions for America’s Energy Future.  The data and references in the report are largely accurate, as far as they go, and the report promotes energy efficiency, which is a welcome step.  Ultimately, though, the report is unreliable because it has too narrow a vision of the energy future.  It inaccurately characterizes government regulation and neglects the environmental consequences surrounding the production, use, consumption, and disposal of our energy resources.  Instead, Energy Works is more of a political polemic rather than a useful white paper.  While it may well serve the Chamber’s political agenda, Energy Works for US fails to recognize the complexities and challenges necessary to fashion our energy future.

Our energy future is as important a policy matter as any that now confronts the United States. Any discussion of our energy future, therefore, must be conducted with openness and candor and must recognize the complexities and challenges of fashioning that future. Unfortunately, Energy Works fails on each these counts.  

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The clean energy wager

In his 2013 book, The Bet, Yale historian Paul Sabin uses Paul Ehrlich and Julian Simon as foils to explain today’s dysfunctional and polarized politics surrounding energy development and environmental protection. In 1980, Ehrlich and Simon bet each other on the price of five minerals (chromium, copper, nickel, tin, and tungsten.) Ehrlich, a neo-Malthusian, and father of Zero Population Growth, believed that thoughtless and unconstrained consumption of natural resources by an ever-expanding human population would literally doom the planet.  Ehrlich posited that by 1990, world population growth would exacerbate the scarcity of natural resources and, therefore, resource prices would rise.  

Simon, by contrast, took the position that population growth was an overall benefit to society and that innovation and market pricing would cause resource prices to fall.  Simon argued further that the human creativity that population growth entailed would spur economic growth and increase human well-being.  To Simon, a no-growth policy was unwise, inefficient, and would itself doom the planet.  As it turned out, ten years later, all of the resource prices fell and Ehrlich lost the bet.  However, his defeat was more a matter of market timing than anything else. As Professor Sabin points out, if different ten-year periods were used between 1900 and 2008, Ehrlich would have won the bet 63 percent of the time.

Sabin, of course, uses “the bet” as a focal point for a larger story. Similarly, he uses Ehrlich and Simon as markers for a debate about energy development and environmental protection that has been ongoing for more than 40 years. Sabin’s thesis is that not only has the debate continued; it has become shriller and more polarizing. It is the polarization that occupies Sabin’s analysis.  Sabin also notes each personality failed to acknowledge the contributions made by the other. From his perspective, there is a widening rift between pro-environmentalism and pro-growth advocates that continues to this day as these opposing positions continue to harden.  Such hardening, however, need not be the case. Quite simply, the divide between energy and the environment can be neatly bridged by a transition to a clean energy future.

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Nuclear Power and Clean Energy Policy

As we consider designing a future clean energy policy, nuclear power cannot be ignored because of its near zero carbon emissions even when considering the entire nuclear fuel cycle.  It is also the case that public opinion of nuclear power has been increasingly positive, largely for those environmental reasons, though certainly it decreased after the accident at the Daiichi plant in Fukushima, Japan.

 Nevertheless, a strong argument can be made that nuclear power should not be considered as a clean resource in our energy portfolio for two significant reasons.  First, nuclear power cannot pass a market test.  Second, and complementarily, we can achieve greater gains in energy efficiency and in reduced carbon emissions by investing in alternative and renewable resources.  

Today, we hear the phrase that the United States is experiencing a “nuclear renaissance.” Evidence of such a renaissance can be found in the fact that approximately 30 nuclear units are in some stage of planning and that the Nuclear Regulatory Commission has granted combined construction and operating licenses permits for two reactors in Georgia and two reactors in South Carolina.

Compared to the situation of nuclear power over the last 30 years, these licenses indicate a significant change in the course of commercial nuclear power.  Indeed, until last year, no new plants were built or ordered since 1978, and all plants that had been ordered since 1974 were canceled. Consequently, these new licenses evince a notable change in direction.  It must be recognized, however, that this change has been facilitated by the financial supports, including substantial multi-billion dollar loan guarantees, authorized by the Energy Policy Act of 2005 (EPAct 2005).

Still, serious problems remain.  Most importantly, nuclear power cannot pass a market test to the point at which the electricity generated from that resource is cost competitive with coal, natural gas, or even alternative resources.

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Natural Gas in the Big Picture:

With advancements in hydraulic fracturing technology, shale gas has dramatically altered domestic energy in the United States.  Some commentators claim that shale gas can address all of our major energy problems. Some consider natural gas a bridge fuel to a clean energy future.  Bills in Congress proposing a federal “Clean Energy Standard” have included natural gas as a qualifying “clean” fuel source. President Obama’s recent State of the Union address emphasized natural gas and renewable energy as important to reshaping American energy use.   

Given the projected impacts of climate change, we have reached a point when the air and water impacts of natural gas development call on policymakers to sort through some key questions with care: How will current and future energy policy position natural gas, explicitly or by default, relative to fossil energy alternatives like renewable energy?  What role should natural gas play in the U.S. energy landscape in the coming decades?  If it is a bridge fuel, where is it leading? Are we poised to over-rely on natural gas, at the expense of rapid renewable energy development?

It is hard to overstate the significance of the energy transition that the United States is currently experiencing. Take a quick peak back: from 1949 until about 2005, U.S. energy exports were flat; imports continued to rise, particularly petroleum; and production and consumption largely grew in tandem.  In 1970, as domestic oil production peaked, consumption and production began to separate from each other.  Domestic production could not keep pace with consumption and, as a consequence, we grew more dependent on foreign energy resources, especially OPEC oil. Fossil fuels dominated our energy economy with renewable resources barely scratching 2-3% of total U.S. energy production.

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The Romney-Ryan Energy Plan: Back to States' Rights

Based on what the Romney-Ryan team has said so far on energy, I expected their energy plan today would be something like the National Energy Policy of 2001, delivered by Vice President Dick Cheney four months after George W. Bush’s inauguration.  I thought that their energy plan would simply be a retread of old thinking, much like their education policies.  But today’s plan goes to a whole new level.

The 2001 plan, famously developed behind closed doors, predicted a 30% growth in energy demand by 2020, increased dependence on foreign oil, and an increased gap between domestic production and demand, all contributing to the need for greater domestic energy production.  After reading the Romney-Ryan plan, I have (and I do not believe that I am saying this) a little nostalgia for the Cheney Plan, for two reasons.  First, even though the Cheney’s task force gave prominent seats to fossil fuel companies, most notably coal and oil, at his energy planning table, the Plan did recognize that the United States was realizing significant gains in energy efficiency; that renewable resources should play a role in our energy portfolio; that clean energy tax credits were useful; and, that clean energy R&D funding should be increased. 

Second, I was completely wrong about Romney-Ryan going back a decade.  I was off a century.  The heart of the Romney-Ryan energy plan puts the country back to the turn of the 19th into the 20th centuries, not to the turn into the 21st century.  In the late 19th and early 20th centuries, energy industries were regulated, if at all, at the local and then at the state levels.  There was a technological reason for local regulation – energy industries were located intrastate.  Interstate and national markets were just developing and federal regulation had the direct effect of creating national energy markets and supporting the fossil fuels traded in them.  Federal regulation created and sustained the energy markets that the states could not.  Federal regulation promoted fossil fuels, facilitated a national infrastructure of oil and natural gas pipelines and electricity transmission lines, and eventually the entire nuclear power industry.

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Energy Policy and the 2012 Presidential Campaign

Earlier this month, the Senate Finance Committee reported out a bill that would extend production tax credits for the wind industry, in addition to providing other tax benefits for the construction of new energy-efficient homes, energy efficient appliances, and biofuels.  These are all positive efforts that serve as investments in the necessary transition to a clean energy future.  Yet meanwhile, the Presidential campaign rhetoric on this issue, and on energy policy more broadly,  is as predictable as it is disappointing.

Governor Romney came out in “firm opposition” to extending production tax credits to the wind industry even though Republican Senators, such as Chuck Grassley, co-sponsored the tax legislation that passed the Senate committee with a 19-5 bipartisan vote.  It is equally unsurprising that conservative groups such as the Club for Growth applaud Romney for his "courage" to oppose tax credits and to stand up to claims about green job creation.

On the Obama side of the aisle, not only does the White House support the extension of tax credits, it has announced plans to fast track solar and wind projects on public lands.  It is estimated that renewable electricity form these projects will serve roughly 1.5 million homes as well as create jobs.  These efforts receive the applause from the usual suspects in the environmental and clean energy communities.  Thus, on the campaign trail, clean energy is promoted by the Democratic candidate and opposed by the Republican.

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Repealing Oil and Gas Subsidies to Fund the Jobs Bill: Good Policy Any Way You Look at It

This post was written by Member Scholars Kirsten Engel, William Funk, and Joseph Tomain, and Policy Analyst Wayland Radin.

The President’s recently announced American Jobs Act would be partially funded by repealing oil and gas subsidies, including subsidies in the forms of tax credits and exemptions. Eliminating these unnecessary and harmful subsidies would be a long overdue step toward sound climate and energy policies. Oil and gas subsidies cost American taxpayers billions of dollars every year, but have long since ceased to serve any clear policy goal. Rather, they inflate the profits of an industry that is already highly profitable.

Federal energy subsidies are criticized as wasteful government spending by politicians on both sides of the aisle.  But not all energy subsidies are wasteful. When properly targeted, federal subsidies can achieve social benefits that elude the free market, such as a clean environment. Subsidies and tax credits can even the playing field where some industries receive a free ride due to unaccounted for externalities, like environmental pollution. Subsidies can also provide a boost to fledgling markets impeded by large start-up costs. Indeed, subsidies greatly assisted the U.S. oil and gas industry in its nascent stages. The truth, however, is that the oil and gas industry no longer needs them and their continued existence hampers an industry we need much more: clean and renewable forms of energy.

The substitution of renewable forms of domestically produced energy for oil and gas would serve several socially desirable goals. First, it would strengthen our national security by making us less reliant on oil from foreign regimes that are shaky or hostile. Second, it would reduce our carbon footprint and take a step in the right direction on climate change. Third, it would position the United States as a technological leader in what is becoming an increasingly important worldwide renewables market, only temporarily stalled by world financial conditions. At the same time, the market for renewable energy still struggles, so it is appropriate for it to receive support in the form of state and federal subsidies. A study by the Environmental Law Institute found that renewable energy (wind, solar, hydro, wave, and geothermal), received a total of only $12.2 billion in federal subsidies from 2002 to 2008. During that same time period fossil fuels received $70.2 billion in direct federal subsidies, many of which took the form of tax-breaks for foreign oil production (and that number didn’t count a penny for certain indirect subsidies, like massive federal spending on roads, which facilitate oil use).

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Tomain on Obama Energy/Environment Team

CPR Member Scholar Joseph Tomain blogs on President-Elect Obama's newly announced energy/environment team. Full text