COLUMN-The State of America's Energy Policy: John Kemp

Tue Jan 24, 2012 7:33am EST

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(John Kemp is a Reuters market analyst. The views expressed are his own)

By John Kemp

LONDON Jan 24 (Reuters) - President Barack Obama will use his annual State of the Union address to call for a "new era of American energy", according to advance materials being circulated in Washington.

The White House is trying to shape reactions and reclaim the initiative going into this year's presidential election campaign.

But if America is on the threshold of a new energy era, it is no thanks to this administration or Congress. For all his soaring rhetoric about a new era of American energy, the president is the accidental beneficiary of a drilling boom he has done little to encourage.

NEW, MORE INCLUSIVE LANGUAGE

Many of the themes likely to feature prominently in the president's address have already been trialled in an editorial published last week by Heather Zichal, deputy assistant to the president for energy and climate change.

"For the Obama administration, moving towards the goal of energy independence has been a clear priority since day one," Zichal wrote (here).

"The Obama administration's approach to achieving American energy independence has been a comprehensive and sustained effort, with emphasis on boosting domestic energy production, increasing efficiency, and transitioning to cleaner energy sources."

While some environmental groups continue to frame policy questions in terms of fossil fuels versus clean energy sources, the White House wants to promote a more balanced and inclusive approach that sees both clean technology and fossil fuels, especially cleaner burning natural gas, as part of a balanced energy supply portfolio.

Taking a more inclusive approach is designed to build a broader political coalition to support the president's re-election bid while reassuring core supporters in both the unions and green groups the president remains committed to climate and jobs goals.

Overt references to climate change and greenhouse gas emissions have been banished from White House vocabulary. Instead there is mixed language stressing energy independence (for national security hawks and isolationists); jobs (for the middle classes worried about employment); and increasing efficiency and cleaner energy (for environmentalists and others concerned about global warming).

For states and voters that produce fossil fuels or worry about fuel prices, the president is likely to highlight the rise in gas and oil production since the start of the administration in 2009.

Zichal noted the rise in U.S. crude production last year to its highest level since 2003 and the biggest one-year increase in natural gas output on record, taking production to an all-time high, surpassing the previous peak in 1973. She also noted falling U.S. oil imports.

The administration is keen to claim credit for these trends. Zichal highlighted the administration's decision to conduct lease sales in Alaska's National Petroleum Reserve, extend leases in the Gulf of Mexico and study (but not yet develop) oil and gas resources in the mid- and south-Atlantic areas.

For those concerned about climate change, the president is likely to emphasise tougher fuel economy standards and investments in clean technology.

"New fuel economy standards will dramatically cut our oil dependence, reducing consumption by an estimated 2.2 million barrels a day in 2025 (eventually reaching more than 4 million barrels a day as the fleet turns over), and saving 12 billion barrels in total over the lifetime of the program," Zichal wrote.

POLICY STILL LACKS COHERENCE

Few in the energy industry will recognise Zichal's description of the president's comprehensive and coherent energy strategy.

In his State of the Union, the president will imply credit for cutting the country's dependence on oil imports from unstable parts of the world as well as boosting domestic production of oil and gas. But none of these things has anything to do with administration policy.

Falling oil imports are the lingering product of the recession (which has cut fuel consumption) and ethanol blending mandates approved in 2005 and 2007 by President George W. Bush and a Republican-controlled Congress.

Rising gas and oil output is the delayed effect of the hydraulic fracturing revolution that has been gathering pace since the mid-2000s.

Almost all the increase in fossil fuel output has come from Republican-dominated "red states" that voted for Senator John McCain in the 2008 presidential election and for George W Bush in 2000 and 2004 and are dominated by Republican governors and legislators at both state and national level, who have proved more friendly to fracking than Democrats.

The administration's views on fracturing and drilling generally remain ambiguous. The president has yet to offer a clear endorsement of the technology or offer much leadership on the issue.

His party on Capitol Hill remains concerned about the environmental impacts (on local communities and global emissions). Large sections of the Democratic party and its support base continue to push for restrictions, stricter regulation or outright bans on fracking.

Zichal's observation that the Interior Department held its first oil and gas lease sale in the Gulf of Mexico since Macondo in December 2011 and that it has "extended drilling leases in the areas of the Gulf impacted by the temporary moratorium following the Deepwater Horizon oil spill", was probably not meant to be ironic.

But it is bound to raise a wry smile from those who remember that the administration's temporary moratorium was only lifted when drillers challenged it in court. The judge blasted it as "arbitrary and capricious".

"The court is unable to divine or fathom a relationship between the findings (of the technical report) and the immense scope of the moratorium ...(It) simply cannot justify the immeasurable effect on the plaintiffs, the local economy, the Gulf region, and the critical present-day aspect of the availability of domestic energy in this country," the judge wrote in overturning the ban, a decision which drew a furious response from the administration and green groups.

THE SHADOW OF KEYSTONE

The president's expected focus on gas is designed, in part, to blunt criticism from unions, business groups and conservatives about the administration not caring about jobs and energy following his decision to block the Keystone XL pipeline.

For both supporters and opponents, Keystone has become a touchstone for the administration's seriousness about clean technology and affordable fossil fuels.

It will not be far from the surface when the president speaks later. Zichal's editorial was peppered with references. "New fuel economy standards will ... save 12 billion barrels in total over the lifetime of the programme. To put that in perspective, it would take a pipeline that carried 700,000 barrels a day nearly 47 years to transport the amount of oil."

She wrote, "The truth is that just two of the administration's programs (the DOE Loan Guarantee Program and the EPA's Mercury and Air Toxics Standards) will create more than 10 times the amount of jobs generated by the Keystone XL pipeline, which will only generate a few thousand temporary jobs.

"In terms of reducing America's dependence on oil, the administration's fuel economy standards alone will save more than twice the amount of oil the Keystone pipeline would deliver."

The carrying capacity of the pipeline is not relevant to the question of fuel consumption savings. And dismissing a few thousand temporary jobs will strike a hollow chord with those who might have got them. But the most dispiriting thing about this rhetoric was that it showed how little has changed.

The White House may be talking about a balanced approach to clean technology and fossil fuels, acknowledging both will be needed to meet future energy needs. Beneath the surface, however, many policymakers still see it as an either/or decision that pits clean energy jobs versus those in "dirty" fossil fuel industries.

The erratic and inconsistent approach to energy policymaking that has historically hampered development of stable, affordable energy supplies has not changed either.

The White House has still not provided a substantive justification for its Keystone decision. It seems to have been a political decision taken for reasons of short-term expediency with little regard for consistency and long-term consequences. (editing by Jane Baird)

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