Thursday, January 28, 2010

The SOTU and Energy

Given the central focus of this year's State of the Union Address on the economy and jobs, I wasn't surprised to hear the President highlight "clean energy jobs"--a phrase that seems to have replaced the formerly ubiquitous "green jobs"--though I was relieved that he didn't hang the whole weight of his administration's jobs focus on them. I was even more pleased at the apparent evolution and broadening of his perspective on energy, compared to his first address to a joint session of Congress last February, when oil was only brought up in the context of its imports, and nuclear power wasn't mentioned once. By contrast, last night the President spoke of the need for expanding nuclear power and "making tough decisions about opening new offshore areas for oil and gas development." If he is serious about the latter course, he must reinforce that message with the agencies involved.

It's just as well that the green jobs refrain has become more muted, since as I've noted before, the main employment impact of energy isn't from the people who are employed producing and distributing it, as I formerly was, but from its cost and availability for the other 92% or so of the economy not engaged in some aspect of the energy business. Simply put, if we want the economy to grow at a healthy pace and create lots of new jobs, then it's more important that energy be as affordable as possible, than that we employ as many Americans as possible in the energy industry. That means we must not only increase our production of new renewable energy, which while growing rapidly contributes just 5% of our total supply, but also those sources that still account for 95% of our energy use.

If President Obama is willing to make "tough decisions" on oil and gas--presumably to open up access to them--then it is unfortunate that as he was proposing this, his Department of the Interior was engaged in a hay-throwing contest with the American Petroleum Institute over the oil & gas leasing results for 2009, which brought in $6 billion less than in 2008, just for offshore. Whatever explains this anemic performance, the record of the last year strongly suggests that this administration is a much more reluctant participant in this activity than its predecessor. Although that may please some constituencies, it hardly advances the cause of delivering more domestic energy supplies from these sources. And for Interior to cite a 14% increase in oil production last year in defense of its current practices makes me wonder how well its new management really understands the processes involved, since the time required for permitting and construction makes it extremely unlikely that the increase is attributable to leases awarded since January '09.

In order to promote the affordable energy needed for growing the economy and creating jobs, the President should also rein in efforts to entangle the most important energy development of the last decade, natural gas produced from shale and other unconventional resources, in new regulations surrounding a decades-old drilling practice that in essence involves injecting water into the subsurface, along with chemicals quite similar to those that drillers are seeking to extract from there. Promoting domestic energy will also require taking a much more pragmatic approach to climate legislation than that represented by the 1400 page monstrosity of Waxman-Markey that he praised last night, and avoiding the temptation to turn the EPA loose to regulate greenhouse gas emissions from facilities consuming the equivalent of as little as 150 barrels per day of oil, or roughly one tank truck a day.

If the President has truly begun to embrace an "all of the above" energy strategy, that would be very good news for the country. We need more energy from our abundant domestic sources--including oil, natural gas, nuclear power and renewables--to get the economy growing at a pace sufficient to generate millions of new jobs. Unfortunately, I can't help recalling that only a few months ago a top official in the Treasury Department offered Congress his view that the US was overproducing oil and gas. The onus is now on the administration to demonstrate that the energy commitments President Obama made last night will be carried through.

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