Wednesday, February 13, 2013

The State of the Union's Two Energy Revolutions

It was no surprise that energy and climate change featured prominently in last night's State of the Union speech, giving me plenty to discuss in my on-camera interview with Reuters this morning. The President devoted an entire section of his address to these topics, leading into it in a very upbeat way: "Now is the time to reach a level of research and development not seen since the height of the Space Race.  And today, no area holds more promise than our investments in American energy."  You'd never guess from that introduction that this president faces a strikingly different energy challenge than his seven most recent predecessors. There are two energy revolutions underway in the US, and the unplanned one is racing ahead of the one to which he devoted most of his remarks--and most of his efforts on energy for the last four years.

Let's start with the positives.  Even more than in last year's speech, President Obama presented energy as a bigger opportunity than a problem. He described our impressive recent progress in oil and natural gas production, renewable energy generation, and the reduction of greenhouse gas emissions.  As fact-checkers have pointed out, he stepped into aspiration when he claimed credit for doubling automobile fuel economy--a goal that might or might not be attained by 2025--but even this fits within a broad set of energy trends that are all finally moving in the right direction.

The President also endorsed a very good idea that has been floating around for a long time, but has never been seized upon.  He suggested funding R&D for electric and natural gas vehicles and biofuels with the revenue from federal oil and gas lease bid premiums and royalties.  This "Energy Security Trust" would yoke the success of future energy technology to the enormous cash cow represented by the vast oil and gas resources beneath public lands and waters.  He'll have to sort out the allocation of revenues with the states, who surely won't want the new set-aside to come from their share.  If he can work that out, the government will have an even bigger vested interest in ensuring that responsible oil and gas development on these lands proceeds, in order to advance energy innovation.

Yet as pleased as I was with those aspects of his remarks, I couldn't help noticing that he still speaks about renewable energy in much the same way he did four years ago, as though we've learned nothing in the meantime.  He wants us to out-China China in investing in solar energy, despite the fact that many of China's leading solar manufacturers are struggling with the same low margins that have led to a string of solar bankruptcies in Europe and the US, as rampant global over-capacity fuels cutthroat competition.  He also apparently wants to make the wind Production Tax Credit permanent, rather than reforming and phasing it out, as even the leading US wind energy trade association has suggested.  The fact remains that no government on earth can afford to subsidize renewables at the current generous rates all the way up to full-scale deployment.  They need to be encouraged to become fully competitive with conventional energy as soon as possible and then set free. 

Nor has the President lost his enthusiasm for citing statistics like the doubling of the energy that "we generate from sources like wind and solar."  Yet increasing wind power from 1.3% of US electricity generation to 3%, and solar from 0.02% to 0.1%, are not what has set the stage for the US to become a significant net exporter of various forms of energy, and possibly even energy independent.  He spoke strongly in favor of natural gas last night and briefly noted oil's gains, but it's not clear that he sees them as the engines of economic growth that they could be for the next decade and beyond. 

Perhaps that's because after a long stretch in which US efforts on climate change and energy security seemed perfectly aligned, they are now moving out of sync. The 12% reduction in energy-related CO2 emissions since 2007 is largely attributable to fuel switching from coal to gas in the power sector, along with reduced oil demand in a lethargic economy.  There's additional scope for both; however, if all the present trends continue it will become harder to fit the reality of surging oil production and looming natural gas exports into a constrained emissions box. 

In that context, the President's call for a new, "bipartisan, market-based solution to climate change," and his threat to act via executive order if Congress fails, left enormous gaps of necessary detail.  Does President Obama really want another bitter contest over cap-and-trade, as one might conclude from his reference to the McCain-Lieberman efforts of 2003-5, or is "market-based" to be interpreted as a carbon tax, which is coming back into favor in some circles?  What was entirely missing was the necessary admonition to Congress to avoid larding any future climate bill with the kind of distortions and pork-barrel spending that turned its most recent effort, the bill by Reps. Waxman and Markey--both of whom were presumably in the room last night and deserve to feel slighted--into a 1427 page monstrosity.

Judging by my inbox this morning, many people liked what they heard last night concerning energy and climate.  Groups as diverse as the Blue-Green Alliance and the American Petroleum Institute cited portions of the address in support of their agendas.  And at least in the Energy Security Trust idea there were hints of the revitalized energy vision I was hoping for, in which the US rides the wave of shale-driven energy transformation while innovating the technologies of renewable energy, transportation and energy efficiency to the levels necessary to take over from oil and gas by mid-century.  There's always next year.


john bailo said...

A petition to the White House encouraging the development of Hydrogen. Please sign and share:

Jim Melendy said...

I won't be signing any petitions for the development of hydrogen. The White House did not lead the transition from horses to hydrocarbons, nor from tallow to stearin to parrafin to electric lighting. Congress played some part in pushing electrification out to rural areas. It isn't clear whether that program was good, bad, or neutral. I don't think there is anyone in the White House who is knowledgeable enough to make a good decision for US energy policy. This kind of petition constitutes grasping at dreams, hoping to force them to come true by decree. If hydrogen is of significant value to our energy system, market economics will make it successful.

Ed Reid said...

The shale-driven energy transformation could be and might well be "aborted" by regulation by the US Energy Punishment Agency.

Geoffrey Styles said...

The administration certainly has the capacity to smother the shale revolution, and to prevent it from spreading to public lands. That's one reason I see an advantage in the Energy Security Trust idea: Depending on how it's structured--devil & details--it would make it harder for this administration or future ones of similar orientation to choke drilling. Their favorite projects would then suffer as much as hydrocarbon interests. The benefit could flows both ways, too, by expanding the constituency for exploration and production.

Ed Reid said...


Are you seriously suggesting the possibility of enlightened self interest functioning within the US fe(de)ral government? :-)

Geoffrey Styles said...

It's worth a try, provided the R&D support is linked to new leases and royalties.

Anonymous said...

Don't expect the president to learn anything from year to year. He parrots whatever his speechwriters put down, all the while resenting the time away from the golf course, exotic vacation, or a Hollywood fundraiser.

The last president to actually know what he was doing was possibly Dwight Eisenhower, and there are some questions about him.

Geoffrey Styles said...

It's not realistic to expect our presidents to have a deep understanding of every subject with which they must deal. Energy is no exception. However, that makes it essential that presidents surround themselves with the best, most experienced team of advisers they can find. This administration has been notably short on business experience in general, and energy is no exception to that, either. When we look at the top energy team from the first term, we find a college professor and administrator at Energy, a lawyer and career politician at Interior, and a career bureaucrat at EPA. The President has an opportunity to infuse some actual energy industry experience into his second term team, but there's no indication this will happen.

By the way, I don't care much for anonymous comments, unless you would put your job at risk using your real name.

donb said...

This time around in the State of the Union speech, the President did not mention the 'N' word (nuclear). This source is certainly a major player in the overall energy market. If energy research and development were being done like our race to the moon (which I personally witnessed), we would probably have three or four nuclear reactors using new technology being built right now.

Geoffrey Styles said...

Nuclear is a real challenge, now, because both gas and renewables are driving down wholesale power prices in many markets. (Doesn't make renewables competitive on a full-cost basis, but their incremental costs for "dispatch" are very low.) And Vogtle is attracting all kinds of negative attention over its loan guarantees.

SMRs look like a possible answer, but to your point, are we pursuing enough differernt paths quickly enough?

Geoffrey Styles said...

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