Energy nominee is no fan of fossil fuel-based energy
Houston Chronicle | With the announcement of his new energy-environmental team last week, President-elect Barack Obama has signaled a clear intention of pursuing policies that differ sharply from those of his predecessor.
While some questions remain unresolved, one thing appears certain:
His choice for secretary of energy, the highly respected Nobel laureate Steven Chu, is no fan of fossil fuels. Chu’s statements and policy positions suggest that he favors a shift away from one of the nation’s — and Houston’s — most important and strategic industries. If that is the case, it might be wise to consider how realistic such a shift would actually be.
In speeches, Chu has called fossil fuels the “culprit” in climate change. He says there is a “very pressing need” to find alternatives to gasoline and advocates converting solar energy into automobile fuel. According to the Wall Street Journal, he has called for “gradually ramping up gasoline taxes” (a position Obama has rejected because of the “additional burden” it would place on families). Once, famously, he termed coal “my worst nightmare.”
Of course, Chu’s positions underscore his larger goal of embracing renewable energy as a strategy for reducing global warming. Make no mistake: Climate change is a major issue that commands close attention and a thoughtful response. At the same time, it would be shortsighted to shape a strategy that ignores the essential role oil and gas must play in the nation’s energy future.
Calling for a wholesale shift from a fossil fuel-based energy economy may be well-intentioned. But it is just not realistic, at least in the near term. Renewable energy contributed only 6.7 percent of the total U.S. energy demand in 2007, the Journal has reported, which is actually down from the 7 percent figure of 1981. This decline has occurred despite the fact that renewables received more federal subsidies in 2007 than any other source, almost $4.9 billion, which was about one-third of all U.S. assistance. This is in stark contrast to the data for oil and natural gas. The U.S. Energy Information Administration (EIA) reports that petroleum and natural gas made up 63 percent of energy consumption in 2007, with the balance made up primarily by coal and nuclear. What’s more, EIA said just last week, in its Annual Energy Outlook 2009, that use of oil and natural gas can be expected to grow through 2030, and that fossil fuels will still provide 79 percent of total energy use. On the other hand, the Department of Energy projects that renewable energy’s contribution to overall U.S. energy production will likely remain at or near the 2007 levels.
This suggests that even with more research funds — which Chu supports, and rightfully so— the impact of renewable energy is likely to be marginal at best over the next two decades. Oil and gas, by comparison, can be expected to maintain their standing as the predominant U.S. energy source.
But there’s another consequence of shifting away from fossil fuels: reduced employment.
A study by the University of California at Berkeley details some of the economic costs of restructuring the energy industry toward renewables: 61,400 lost jobs in oil and gas drilling; 6,300 in oil refining; 35,100 at electric utilities; and 26,200 at natural gas utilities. In a region like Houston, where 48 percent of base employment is tied to the oil and gas industry, this is a reality that cannot be ignored.
The economic fallout from a potential “at-any-cost” pursuit of alternative energy policies doesn’t stop there. Take cap-and-trade proposals, for example. Under this system, carbon dioxide emissions allowed under the cap are divided into individual permits; companies that reduce emissions can then sell pollution “credits” to companies that exceed the cap. But consider this:
• According to the EIA, overall economic growth could decline by as much as 4.2 percent if a cap-and-trade system was put into place to reach the emissions targets set by the Kyoto Protocol.
• The Environmental Protection Agency has said the cap-and-trade provisions of the proposed Warner-Lieberman bill, which requires a 40 percent reduction in greenhouse gas emissions, would have caused a loss of $3 trillion in Gross Domestic Product in a $14 trillion economy.
• A study by the National Association of Manufacturers and the American Council for Capital Formation said Warner-Lieberman would cost the average American household $6,752 per year by 2030, raise gas prices by up to 145 percent, increase electricity prices by up to 129 percent and cause as many as 4 million job losses. Imposing a policy that could reduce economic growth, eliminate jobs and take a toll on family income is unthinkable in light of the current recession.
It is also interesting to note that the economic benefits of California’s climate change strategy, which Chu has supported and Obama has praised, have been called into question. In November, a new report by the state’s Legislative Analyst’s Office said that portions of the impact assessment were “inconsistent and incomplete.”
None of this is to say that clean and renewable energy sources don’t have a role to play in the nation’s overall energy plan. They do, whether wind, solar or cellulose-based ethanol. Nor does it suggest that we as consumers have no role in confronting the challenges of climate change. We do, and Chu’s high-profile support for energy conservation and efficiency is laudable.
At the same time, policymakers have an obligation to temper their enthusiasm with reality. As appealing as the concept of a carbon-neutral economy may be at the moment, it would be a mistake to minimize or underestimate the contributions of oil and gas in meeting future demand. Given the comparatively small projected growth of renewables in the future, it would appear that the market would not support widespread adoption of necessary technologies. Does that mean government should invest in, manage and create a renewable energy industry at taxpayer expense?
Chu apparently thinks so. In a speech at the 2007 Nobel Conference, he said, “Government has to play a role in this (developing new clean sources of energy). You cannot allow the free market to find a solution. Regulation is really needed.” Given a less-than-stellar history of intervention — President Carter’s Synthetic Fuels Corp. spent over $3 billion without producing any significant amount of coal-based liquid fuel — asking government to assume the role of energy market maker should give everyone pause.
While no one disputes the need to diversify our energy sources, we will not find solutions to our problems by forcing an either/or decision — renewables versus fossil fuels.
On the contrary, we need what some have called an “all of the above” strategy that recognizes the value of traditional and non-traditional sources.
As renewable technologies become more economically viable — and with Chu’s commitment to innovation and research, that will no doubt happen — the mix of sources may change, with some becoming more important and others less so. But that mix can never exclude oil and gas.
Burleson is managing partner of Burleson Cooke L.L.P., a Houston-based law firm that focuses on the energy industry.