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Politics Sucks the Energy Out

12:00 AM, Mar 31, 2012 • By IRWIN M. STELZER
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It’s been more than three years since Barack Obama was elected on a pledge to “transform” America. Two of the industries in his sights were health care and energy. Whether he will get to realize his vision of a government-managed health care system depends now on the Supreme Court, which will decide, probably in June, whether Obamacare is constitutional.

oil rig

That leaves energy on the president’s to-do list. It is no easy thing to pin down his position on energy matters, since he gathers disparate policies under the banner of “all of the above”—not exactly a slogan that reflects a willingness to make tough choices. Add to that his confession (to Russia’s current president) that he will have more “flexibility” after the election, and one must be careful in accepting his election year policy statements.

So this past week we have the president declaring that he would like to leave office with America on the road to sharply reducing its use of fossil fuels—oil, coal, natural gas—and relying more heavily on wind, solar, and other renewable sources of energy, including most recently algae. This brings roars of approval from his environmental constituency, and from companies producing—or trying to produce—green energy, companies in which Obama campaign contributors often feature and are heavily dependent on taxpayer subsidies.

But “all of the above” has something, too, for motorists upset with the rising price of petrol. The president claims that he has continued “our predecessor administration’s” policy of expanding domestic oil and gas exploration, as a result of which exploration is booming and production has risen. “And whoever succeeds me is going to have to keep it up.” So in addition to a rousing call for transferring oil company subsidies—which Republicans foolishly seek to preserve—to green technologies, the administration on the same day as the president spoke announced steps to expand drilling off the Alaska and Atlantic coasts. Or at least to begin taking the necessary steps, leaving the president the option of exercising his post-election “flexibility” to reverse course in 2013, when new seismic drilling is slated to begin.

Start with the basics. Oil is in terrible places. Under the sands and scorching sun of Arabia. In the freezing Arctic. Deep under the waters of the turbulent North Sea. More often than not, under control of despots with unlovely policies toward women, Jews, and Christians (think Saudi Arabia and Iran), or with no concept of the rule of law (think Mikhail Khodorkovsky and Yukos), or of unstable regimes (think Nigeria), many hostile to the United States (think Hugo Chávez in Venezuela).

There is one exceptional place, however, on which God smiled, depositing billions of barrels of crude oil in a nation with a relatively benign climate, a stable and democratic government, and respect for the rule of law: America. And if huge deposits of oil were not enough, He endowed us with virtually limitless supplies of coal, and natural gas so plentiful that producers are scrambling to find export markets for the gas that exceeds domestic demand, even though prices are at a 10-year low.

At that point, He rested, leaving it to the electorate and its chosen governments to decide how to—or more recently, whether to—develop the nation’s patrimony. And there’s the rub. For generations America’s politicians have been struggling to develop an energy policy that would assure the nation’s motorists, factories, and truckers a secure and affordable source of energy. Unfortunately, with energy as with other goods, there is no free lunch, only trade-offs. Fossil fuels produce pollutants, and developing them disturbs the natural environment. That’s enough to make some greens see their president as a traitor to their cause, especially when he opens new areas for development. For them, there are no trade-offs: preventing any pollution and any disturbance to the environment takes precedence over all other goals.

For the crowd in America that would “drill, baby, drill” there are also no trade-offs, no willingness, for example, to tax carbon emissions, only an overwhelming need to develop America’s resources, continuing to subsidize oil companies if necessary to speed development.

Enter $100 crude oil and $4 gasoline, superimposed on a fragile economic recovery, with consumers struggling to make ends meet after a deep recession kept real wages from rising. In an election year. The president says that America consumes 20 percent of the world’s oil but has only 2 percent of the world’s reserves, one of those misleading facts in which all candidates specialize. He sees a future dominated by smaller cars, more public transit, and greater reliance on renewables.

What makes the president’s data so misleading is that he is understating America’s oil reserves by including only those known to exist and be economically recoverable. He fails to concede that there are billions of barrels yet to be discovered, which makes a nonsense of his 2 percent figure. Consider this: at the end of 2000 it was estimated that America was sitting on 20 billion barrels of proved reserves of oil. After a decade in which some 20 billion barrels were produced, the latest estimate is that the U.S. sits on, get this, 20 billion barrels of oil. So reserve additions from sources not known in 2000 made up for the decade’s production.

Advancing technology has made new areas and new depths accessible to the drill bit; higher prices have made it economic to drill in places previously shunned by oil companies. Because of these developments, and either in spite or because of the administration’s policies, during the Obama years domestic production has risen from 4.95 million barrels per day to 7.5 million barrels, and experts are guessing that production will eventually hit the 1970 level of about 10 million barrels per day—about what the world’s largest producers, Saudi Arabia and Russia, each take out of the ground. Talk of America-as-Saudi-Arabia, and energy independence once again fills the halls of Congress and the media.

Throw in America’s massive coal and natural gas reserves, and the future for fossil fuels looks bright. Well, almost. This past week the Environmental Protection Agency issued regulations that, along with low natural gas prices, make it unlikely that any new coal-fired generating stations will be built unless economic carbon capture and storage (CCS) technology is developed, not likely very soon. Mounting opposition to water-intensive hydraulic fracturing, or fracking, to recover natural gas from shale, might stifle the development of that resource. And environmentalists’ are urging the U.S. Fish and Wildlife Service to curtail drilling in the important Permian Basin area to protect the five-inch dunes sagebrush lizard—“It’s a pathetic little lizard… but life needs to be protected,” one green told the press.

Where the balance will be struck depends on the November elections. My view is that if we cut through the internal contradictions of “all of the above,” and the campaign posturing, it is reasonable to guess that a reelected Barack Obama would, if he can control Congress, raise taxes on oil companies, double down on his (more precisely, the taxpayers’) bets on green technologies, try to save the electric car that has proved less than a sensational addition to consumers’ choice of vehicles, perhaps pushing through a $10,000-per-vehicle payment to anyone buying one of these vehicles. Continued dependence on oil is “not the future I want for America.”  

In the days of Bill Clinton, it was “the economy, stupid.” Now, when it comes to the energy sector, it’s the politics, stupid. America’s ability to compete successfully, despite high wages, once depended in part on ample and economic supplies of energy. Those happy days just might be here again. The president is betting taxpayers’ money and the nation’s future on the guess that those supplies will come from the wind, sun and what he calls “American ingenuity.” If he is wrong, America will add high-cost energy to its shaky fiscal condition as it faces the future.

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