The Obama Solar and Oil Shale Legacies

$9 billion in Obama economic stimulus to create 910 jobs . . . $9.89 million per job?

The Obama administration has closed 75 percent of previously available oil shale resources.

The Interior Department announced last week that it will set aside 285,000 acres in Arizona, California, Colorado, Nevada, New Mexico and Utah for solar projects as part of its “solar energy road map.” Firms can also apply for waivers to develop projects on an additional 19 million acres.[i] This is in sharp contrast to the Obama Administration’s canceling lease sales for oil shale deposits in Colorado, Wyoming and Utah early in the President’s term and significantly downsizing development plans for those resources since then. The United States has the largest shale oil deposits in the world, totaling 2.6 trillion barrels, but access to our natural resources is being deliberately restricted by the administration policy.

The Obama Solar Legacy

Since taking office in 2009, the Obama administration has approved 17 major solar projects on public lands that could produce about 6,000 megawatts of power when operating at full capacity — and assuming the sun is shining. According to the Department of Interior (DOI), the current plan will expedite solar project approval and cut some up-front costs for developers. The Interior Department has already performed National Environmental Policy Act assessments, is planning to work with regional personnel to link the solar projects to transmission lines that will carry the electricity to substations, and has included financial incentives in the competitive leasing process. If developed, DOI estimates that the areas in the solar road map will potentially supply 23,700 megawatts of power by 2030.

Besides making public lands available for solar power development, the Obama Administration has provided the solar industry with generous subsidies and taxpayer-funded loan guarantees. The Section 1603 Treasury grant program allows the solar industry to get 30 percent of its investment cost returned as an immediate rebate — read up front cash payout — from the Treasury, rather than as a tax subsidy. That program expired at the end of 2011. But, the solar power industry can still receive an investment tax credit that can be applied to its tax returns.

Besides subsidies, the solar industry has received loan guarantees that have cost the American public millions – if not billions — of dollars. Of course the most famous is Solyndra, the now bankrupt firm that received $528 million in loans before going belly up. Solyndra was not the only solar panel manufacturer that went under after receiving government funds. Abound Solar Inc. received $400 million in U.S. loan guarantees to build two solar panel manufacturing facilities and has collected about $70 million of its taxpayer-funded loan guarantee.[ii] Other solar-related companies filing for bankruptcy are SpectraWatt, Evergreen Solar, Energy Conversion Devices, Beacon Power, and Amonix; the list goes on.

Solar companies are having problems because prices and demand for solar panels have declined, and it is difficult to compete against China’s low labor costs and subsidies. According to GTM Research, solar panel manufacturers are expected to supply 59 gigawatts worldwide this year, but demand is only expected to be 30 gigawatts. The study expects that about 21 gigawatts of existing factories will need to close to re-establish a healthy balance of supply and demand. This oversupply problem that began to surface in early 2011 led to an almost 50 percent decline in wholesale solar panel prices last year.[iii]

The Obama administration touted that funding renewable energy will generate so-called “green jobs.” Its National Renewable Energy Laboratory tracked the 1603 grant program from its inception in 2009 through 10 Nov 2011, in a report entitled, Preliminary Analysis of the Jobs and Economic Impacts of Renewable Energy Projects Supported by the 1603 Treasury Grant Program.[iv] The study found that $9 billion in economic “stimulus” funds to solar and wind projects were distributed between 2009 and 2011 that created 910 “direct” jobs. That means that it cost about $9.89 million to establish each of those long-term jobs, covering the technologies’ 20 to 30 year life. However, adding in the 4,200 to 4,600 “indirect” jobs that NREL indicated were created, the cost is about $1.6 million per job. According to NREL’s report, the $9 billion covered 23,692 photovoltaic and 197 large wind projects.[v]

Obama’s Oil Shale Legacy

The Bush Administration issued rules for oil shale development seven weeks after a congressional moratorium expired, unlocking an estimated 800 billion barrels of recoverable oil in Wyoming, Utah and Colorado.  In the 2005 Energy Policy Act, Congress directed the rules be issued so that oil shale leasing could begin, but due to an appropriations rider that imposed a moratorium on issuing the regulations, they were released more than one year late.  Interestingly, the author of the rider banning the release of the oil shale rules was then-Senator Ken Salazar.  When the rules were finally released, they established a framework for how energy companies would lease federal land for oil shale mining that went into effect on January 17, 2009, three days before President Obama took office.[vi]

In sharp contrast to the Obama administration’s fast-tracking and providing help to solar production, the administration has worked to stall any possible production of America’s vast oil shale resources. Now-Interior Secretary Salazar indicated in February 2009 that the Bush administration 2008 rules on oil shale were “misplaced” and that he was  looking at what the Interior Department’s “legal options are,” with regard to those decisions. Salazar wanted to make his own decisions on the approach to developing this energy source within the first six months of President Barack Obama’s term, despite his obvious earlier opposition to oil shale leasing that prohibited their timely release. And make a decision he did, but not in the first 6 months.[vii]

Our Western oil shale deposits are estimated to contain up to 5 times the amount of Saudi Arabia’s oil reserves and about 70 percent of known oil shale is on lands owned by the federal government that considered to contain the richest deposits. But, the administration has closed off 75 percent of  the federal land containing oil shale resources that were to be offered for lease under the Bush rules on the premise that industry has not yet proven that oil shale is economically and technically viable. In this case, the industry did not decide not to explore for oil shale—rather, the decision was made by Interior Secretary Ken Salazar, who has long opposed attempts to pursue oil shale development.

In order to develop the technology to make oil shale development economic, firms need to know what the terms will be for obtaining and keeping a federal lease so that they can assess the economic viability of their technologies. Without the certainty of future lease sales, firms may decide to spend their research dollars elsewhere, instead of developing this vast U.S. natural resource.[viii]

Oil development has created many jobs in our history. One only has to look at North Dakota, who has a 2.9 percent unemployment rate due to producing shale oil in the Bakken basin, making it now the second largest state oil producer in the country. If oil shale development were to become a viable option again, the potential economic benefit and job creation boom cannot be fully estimated.

Conclusion

Currently, the federal government leases less than 2.2 percent of federal offshore areas and less than 6 percent of federal onshore lands for oil and natural gas production. When oil and gasoline prices peaked in 2008, President Bush and Congress allowed access to additional federal lands for oil and gas exploration, including access to oil shale areas. Before leaving office, President Bush offered a new 2010 to 2015 lease plan that included areas for leasing that had been off limits for almost 3 decades. The Obama Administration rejected that plan and since then has delayed opening public lands to leasing until recently, but has cut back vastly on the location and amount of areas to be leased. The delays have meant that the time that lapses until oil exploration and development begins takes longer for those federal areas that are leased.

In contrast, renewable projects have been expedited, streamlined and subsidized by the Administration, including “Smart from the Start” and other programs to develop them regardless of their declining market, the insolvency of the companies producing renewable technologies, or the amount of taxpayers’ dollars lost to firms that cannot succeed.

People often say that the government has no place picking winners and losers in the energy business, but it is clear from the  Obama administration’s disparate treatment of different energy producers that the President and his policy advisors prefer to pick expensive energy over the types of energy that have fueled our economy and given us a quality of life envied by the rest of the world.