Energy Policy After 2012

Editor’s Note: EarthTechling is proud to repost this article courtesy of Third Way. Author credit goes to Josh Freed and Ryan Fitzpatrick.

Summary points

  • Thanks to continued partisan gridlock, major congressional action on energy is unlikely after the 2012 elections. However, this could change if there is a deal to address the budget deficit or if one party makes significant gains in seats.
  • Domestic oil and natural gas production will continue to grow under either Barack Obama or Mitt Romney.
  • A second Obama administration would be likely to seek to accelerate the commercialization and deployment of clean energy through a mix of tax incentives, encouraging private financing, and regulation of conventional and climate pollutants.
  • A Romney administration would be likely to focus on increasing domestic conventional energy production by reducing environmental regulation, particularly on coal-burning power plants, and opening more public land to oil and natural gas development. Excluding basic research, government incentives for clean energy would most likely be eliminated.

Introduction

In 2008, the price of natural gas in the United States was roughly $8 per thousand cubic feet (tcf), coal was used to generate more than 47 per cent of all electricity, and there was a consensus among Democrats and Republicans that climate change was real, caused by humans, and needed to be addressed immediately. It seemed only a matter of time before the country adopted a cap-and-trade system similar to one backed by both parties’ presidential nominees.

Four years later, the energy landscape has changed dramatically. Cap-and-trade is on the ash heap of history, and climate change and clean energy have become enormously politicized. The price of natural gas has dropped as low as $2.25 per tcf thanks to the hydraulic fracturing drilling process (fracking) that has given the United States access to more than 500 trillion cubic feet of natural gas and sent domestic coal use into a precipitous decline. That same fracking technology has led to a domestic oil boom, with imports dropping to 42 per cent of use, the lowest level in two decades. Clean energy, particularly wind and solar, also saw a boom in the early years of the Obama administration thanks to the American Recovery and Reinvestment Act of 2009 (ARRA).

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The growth in domestic shale oil and gas production seems inevitable. But the broader future of US energy faces much more uncertainty. There are enormous differences in how the two candidates would approach regulation of energy production and generation, climate change and America’s competition in the global clean energy race. Polling shows that these issues will have little impact on the decisions voters make. But they will have enormous implications for the price and source of the energy Americans consume, the success of America’s energy industries and the fate of international efforts to stem climate change.

Background

Over the past four years, energy issues have been hotly debated in Congress. But with the economy struggling to recover from the recession, few voters placed much importance on such issues as addressing climate change or developing renewable energy. Despite the lack of attention from the general public, however, an energy transformation has taken place within the country.

In 2008, both major parties’ presidential nominees supported the concept of an economy-wide cap-and-trade system to reduce carbon emissions. In 2009, as cap-and-trade passed the Democratic-controlled House, an economy-wide plan seemed likely to get enacted into law and transform the energy sector. Cap-and-trade, however, died in the Senate under the weight of its own complexity and Republican attacks claiming that it was little more than a massive energy tax that would hurt voters already struggling from the recession.

The failure of cap-and-trade left climate advocates with few other arrows in their quiver. Climate change and energy policy became deeply politicized, with belief in man-made climate changefar lower among Republicans (28 per cent) than Democrats (57 per cent). Many Republican elected officials and voters staunchly opposed any government assistance for greenhouse gas reduction efforts, whether through loan guarantees, grants or tax incentives for renewables.

The politicization of clean energy comes at the end of a period of massive growth in the sector. In his first term, Obama provided more than $67 billion dollars in funding through ARRA to develop and deploy clean energy technologies. This, coupled with state-level requirements for the use of renewable energy, led to a 110 per cent increase in solar generation and a 116 per cent growth in wind generation in the United States between 2008 and 2011. The end of ARRA funding and Republican opposition to the continuation of tax incentives for renewables are likely to result in a significant drop in clean energy growth in 2013, particularly for the wind industry.

Domestic oil and natural gas production also saw a boom over the last four years, thanks to deepwater drilling for oil and hydraulic fracturing. Even the 2010 Macondo well disaster, which killed eleven people and leaked 4.9 million barrels of oil into the Gulf of Mexico, has had little impact on oil production. Despite a temporary moratorium on deepwater drilling after the disaster,2011 crude oil production levels in the United States exceeded those of the previous eight years. This growth in production, along with decreased demand owing to economic conditions and improvements in the fuel efficiency of cars and trucks, has helped the United States come much closer to the elusive, but politically popular, goal of eliminating reliance on foreign oil.Imports fell from 57 per cent of total oil needs in 2008 to only 42 per cent in 2012. If the trends of increased production and improved vehicle efficiency continue, imports are projected to drop to as little as 36 per cent of total US oil consumption (Energy Information Administration).

Production of natural gas has also soared, sending the price tumbling from $10.36 per tcf in June 2008 to $2.54 in June 2012 (Department of Energy). The low price has driven a massive switch in the electricity sector from coal to natural gas and a revival of domestic manufacturing, particularly in the chemical industry. But natural gas fracking is not without controversy. Some of the local communities where natural gas deposits are being developed have raised concerns about the environmental and public health impact of fracking, leading New York and other states to slow development and even consider banning the process.

The politicization of energy and the rapid changes in the domestic energy landscape alone mean major changes in national energy policy are unlikely over the next four years. This could be made even more challenging by the federal government’s need to get the mounting debt crisis under control. Any grand bargain to reduce the budget deficit would be likely to eliminate many of the tax incentives that allies of either fossil fuels or renewable and clean energy have used to try to expand their market share through government policy. This leaves regulatory policy issued by the next president as the strongest agent of change at the federal level. The result of the election could mean more environmental regulation to move America further away from coal and towards cleaner forms of energy, or it could mean a lightening of the regulatory load imposed over the last four years in an attempt to increase domestic oil and gas production even further and slow coal’s decline.

Third Way represents Americans in the “vital center” — those who believe in pragmatic solutions and principled compromise, but who too often are ignored in Washington. Our mission is to advance moderate policy and political ideas. Our agenda includes: a series of grand economic bargains, a new approach to the climate crisis, progress on social issues like immigration reform, marriage for gay couples, tighter gun safety laws, and a credible alternative to neoconservative security policy.

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