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January 28, 2014

Fate of the Union: Energy Policy Under Barack Obama

January 28, 2014
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Previewing this year’s State of the Union Address, White House Press Secretary Jay Carney recently said, “The president sees this as a year of action to work with Congress where he can and to bypass Congress where necessary.”

On the energy front, President Obama laid the groundwork for a unilateral “year of action” in his 2013 State of the Union Address:

But if Congress won’t act soon to protect future generations, I will. I will direct my Cabinet to come up with executive actions we can take, now and in the future, to reduce pollution, prepare our communities for the consequences of climate change, and speed the transition to more sustainable sources of energy.

Tonight marks President Obama’s fifth official State of the Union address. Looking back at the energy-related statements in past addresses, one clear theme emerges: Obama sees energy as just another area for his administration to exert influence and control for political gain, with or without help from the duly-elected Members of Congress. Just this morning, White House energy and climate adviser John Podesta said the president has “warmed up” to the idea of imposing his “energy transformation agenda” by executive fiat, echoing former top Environmental Protection Agency (EPA) official John Beale, who recently revealed EPA’s plans to “modify the DNA of the capitalist system.”

The War on Coal and Greenhouse Gas Regulations

The signature component of President Obama’s “energy transformation agenda” is the EPA’s war on coal. Under Obama, the EPA is working to kill coal-fired electricity generation in America through a series of onerous regulations imposed by administrative diktat.

As IER highlighted earlier this week, EPA is pursuing regulations that will effectively ban new coal-fired capacity by requiring new coal plants to employ carbon capture and sequestration technology that is not commercially available. This is a de facto ban on America’s largest source of electricity. President Obama has also promised to impose similar emission regulations on existing power plants, which EPA is expected to propose later this year.

In his 2010 and 2011 SOTU addresses, President Obama used the word “coal” just once in each speech, and both times he was careful to focus on “clean coal.” The problem with talking about what Obama calls clean coal (or CCS for “carbon capture and storage”), especially as a way of spurring job growth, is that it is uneconomic and unproven, as IER explains in a recent post.

Given the track record of CCS, it is no surprise that the administration did not include “clean coal” as a talking point in the 2012 and 2013 speeches. However, as the EPA’s own charts clearly show, we already have clean coal without CCS. In fact, the air is getting dramatically cleaner even as we continue to generate nearly 40 percent of our electricity using low-cost, reliable coal-fired power plants.

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In his 2011 speech, President Obama pushed for 80 percent of America’s electricity to come from “clean energy sources” by the year 2035. To illustrate how far out of touch Obama’s energy plans are, his own Energy Information Administration (EIA)recently projected that renewables would only account for 16 percent of electricity production in the year 2040. Indeed, coal is projected to provide a steady amount of power production, about 32 percent of the total electricity mix in 2040.

In short, even though the administration’s war on coal is real and Obama wants to mandate unrealistic amounts of renewables, coal’s value as an abundant source of reliable power will keep it a large part of the electricity mix for decades to come.

“Green” Jobs

Another major element of President Obama’s “energy transformation agenda” is the American Recovery and Reinvestment Act of 2009 (the federal stimulus). The President secured from Congress the authority to funnel billions of taxpayer dollars to his political cronies under the guise of creating “green” jobs.

In his 2010 State of the Union, President Obama boasted, “Because of the steps we took, there are about two million Americans working right now who would otherwise be unemployed. Two hundred thousand work in construction and clean energy.”

Unfortunately, after throwing billions of dollars at green energy projects, the Obama administration has little to show for it. The Department of Energy (DOE), for instance, committed $11.45 million per permanent job created through the stimulus, according to an IER analysis.

In his 2010 address, President Obama also claimed, “You can see the results of last year’s investments in clean energy…But to create more of these clean energy jobs, we need more production, more efficiency, more incentives.”

What have “more incentives” for green energy gotten us? As IER explains, numerous so-called “green” energy companies have filed for bankruptcy or are in financial distress after receiving federal stimulus funds. The most touted example, Solyndra, went bankrupt after receiving a $528 million loan guarantee from the DOE. President Obama has never mentioned the failed solar company in any of his four previous State of the Union Addresses.

Click here to read about more Obama “Stimulosers.”

Centrally-Planned Energy Failures

Whether imposing onerous regulations on affordable energy producers or frittering away billions of dollars on costly green energy projects, Obama’s “energy transformation agenda” is all about control. The president thinks he and he alone has the right to decide which energy sources succeed and which fail. IER has compiled some examples below.

‘Advanced’ Biofuels

In his 2010 SOTU, Obama stressed “continued investment in advanced biofuels and clean coal technologies.” Using the administrative power granted by Congress under President Bush, the Obama administration’s EPA has proposed nearly tripling the cellulosic biofuel mandate for 2014, from 6 million gallons to 17 million gallons.

The problem is that just 422,000 gallons of cellulosic biofuels were produced last year, according to EPA data. In fact, EPA has consistently provided wildly inaccurate cellulosic biofuel projections for four consecutive years, under the notion that “if you mandate it, it will come.”

Cellulosic

While chasing advanced biofuels and clean coal chimeras, the Obama administration has also exploited its executive power to force the Pentagon to adopt expensive, exotic biofuels. As President Obama proclaimed in his 2010 SOTU:

And I’m proud to announce that the Department of Defense, working with us, the world’s largest consumer of energy, will make one of the largest commitments to clean energy in history -– with the Navy purchasing enough capacity to power a quarter of a million homes a year.

As part of this plan, President Obama has directed the Defense Logistics Agency to purchase increasing volumes of expensive biofuels. As a result, the DoD has executed bulk purchases of biofuels for between$30 and $60 per gallon, on average, while conventional gasoline costsabout $3.28 per gallon. Obviously, this is well above market value. The worst deal for taxpayers on a per gallon basis was a 2012 purchase of 55 gallons of biofuels for $245,000—a cost of $4,454 per gallon.

Carbon Capture and Storage

In addition, the Obama administration’s hopes for carbon capture and storage have fallen woefully short. Despite a statutory requirement that technologies it forces companies to employ be “adequately demonstrated,” not a single coal-fired power plant is currently using carbon capture technology at the commercial level. The reality on the ground shows that CCS is not ready and not commercial technology. But EPA is not really concerned about what is truly feasible or what leads to low-cost electricity. EPA has an anti-coal agenda and claiming that CCS is ready is one step in their long-term goal of eliminating coal and coal jobs.

Solar Zones

In 2012, Obama said, “So far, [Congress hasn’t] acted. Well, tonight, I will. I’m directing my administration to allow the development of clean energy on enough public land to power 3 million homes.” Again, reality hit hard. Even with fast-tracked “solar zones” in Colorado, the Bureau of Land Management received zero bids in its auction of solar rights on public lands in October 2013, the first of its kind.

Electric Vehicles

In 2011, Obama projected that the U.S. would “become the first country to have a million electric vehicles on the road by 2015.” As IER highlighted earlier this month, the President’s prediction was a pipedream, as U.S. consumers continue to purchase pick-up trucks and SUVs instead of the electric cars that the Administration has lavished billions of dollars upon. Full electric and plug-in electric vehicles, the type of vehicle the President pushed in 2011 totaled a mere 0.6 percent of total sales, despite billions in subsidies.

CAFE Standards

In 2013, President Obama announced that “We have doubled the distance our cars will go on a gallon of gas…with tens of thousands of good American jobs to show for it.” This is another intervention that will cost jobs, and it is one more example of the Administration’s poor grasp of simple economics. Forcing people to buy more expensive or lighter cars does not make them better off, and it does not drive economic progress. One effect it will certainly have is that more people will be harmed in traffic accidents. As the Insurance Institute for Highway Safety said recently in response to small vehicles’ poor crash test results, “Small, lightweight vehicles have an inherent safety disadvantage.” In other words, President Obama’s mandates are making cars less safe.

America’s Domestic Energy Boom

President Obama has a habit of taking credit for America’s domestic shale energy revolution, even though his administration has actively opposed developing our shale oil and natural gas resources. In his 2012 SOTU, the president boasted, “American oil production is the highest that it’s been in eight years. That’s right—eight years.” He added, “Last year, we relied less on foreign oil than in any of the past 16 years.” At his 2013 SOTU, Obama reiterated, “We produce more natural gas than ever before—and nearly everyone’s energy bill is lower because of it.”

Though the president is right on the numbers, what he fails to acknowledge is that the domestic energy renaissance is happening despite the Obama administration’s policies, not because of them. Oil and natural gas production has indeed soared in recent years, but only on state and private lands, where the administration has little input. On federal lands controlled by the Obama administration’s Interior Department, fossil fuel production has fallen to a 10-year low.

America’s declining oil imports are a direct result of domestic production on state and private lands. In October 2013, crude oil production surpassed imports for the first time since 1995. This was driven almost exclusively by surging production on lands which the Obama administration has almost no control. Production on state and private lands increased 14 percent from 2010 to 2012. Over the same period, production on federal lands declined by 18 percent.

Drilling Permits: Delay and Decay

Energy development has lagged on federal lands largely because of the federal government’s burdensome permitting process. In his 2013 SOTU, President Obama patted himself on the back for allegedly expediting federal permits for oil and natural gas development:

Now, in the meantime, the natural gas boom has led to cleaner power and greater energy independence. We need to encourage that. And that’s why my administration will keep cutting red tape and speeding up new oil and gas permits. That’s got to be part of an all-of-the-above plan.

In fact, just the opposite is true. Far from “speeding up” the permitting process, the Obama administration has made it more difficult for energy producers to secure permits to drill on federal lands. In 2012, it took Interior’s Bureau of Land Management (BLM) 228 days, on average, to process a permit to drill on federal lands, up from 154 days in 2005. In contrast, it took 20-30 days for North Dakota, 14 days for Ohio, and 27 days for Colorado to process permits to drill on state lands in 2012.

President Obama has benefited from an energy boom which his administration actively opposes. If we instead relied on production from lands owned by the federal government, our net oil imports would be higher than they were before Obama took office, not lower.

Natural Gas

In previous addresses, President Obama was wise to acknowledge the game-changing surge in natural gas production in recent years. In 2012, he said “[w]e have a supply of natural gas that can last America nearly 100 years… Experts believe this will support more than 600,000 jobs by the end of the decade.” But he quickly shifted focus to piling on new federal regulations on top of current state regulations, saying, “I’m requiring all companies that drill for gas on public lands to disclose the chemicals they use.” As IER explains here, the rule the BLM proposed in 2013 following the President’s announcement is duplicative, costly, and unnecessary because the practice of hydraulic fracturing is already well-regulated at the state level, and the EPA says it has not caused contamination.

Obama also seemed to credit the federal government with inventing hydraulic fracturing. In 2012, he said “it was public research dollars, over the course of 30 years, that helped develop the technologies to extract all this natural gas out of shale rock…” As the environmentalist Breakthrough Institute has documented, the real story of hydraulic fracturing and the shale revolution is more complicated than that. If anything, it indicates that federal support is more appropriate at the research and development stages, which actually contradicts the administration’s position in favor of huge spending on the commercialization and production stages of renewable technologies.

Offshore Oil and Gas Production

President Obama, in his 2010 State of the Union, offered a milquetoast statement about offshore energy production: “It means making tough decisions about opening new offshore areas for oil and gas development.”

President Obama has a habit of turning no-brainers into so-called “tough decisions” and the president has consistently made the wrong decisions regarding offshore oil and natural gas development. The U.S. currently leases a mere 2.2 percent of America’s offshore acreage for oil and gas production, according to IER’s North American Energy Inventory.

After oil prices reached new highs in 2008, the Bush administration and Congress moved to open almost all of the Outer Continental Shelf (OCS) to oil and gas exploration. But in November 2011, the Obama administration released an offshore drilling plan that closes much of the offshore U.S. to oil and gas drilling that had been opened by President Bush and Congress.

OCSblocked

In lieu of opening up federal lands for oil and gas development, the Obama administration has instead fast-tracked permits for renewable energy projects, including extremely expensive offshore wind. Offshore wind, however, is 2.6 times more expensive than onshore wind power and is 3.4 times more expensive than power produced by a natural gas combined cycle plant, according to EIA data.

Unfortunately, The Obama administration has so far foregone the enormous benefits of opening up federal lands to oil and natural gas development. According to a study by LSU Professor Joe Mason, the U.S. would see an annual GDP increase of $127 billion for the next seven years and $450 billion annually after that; 552,000 jobs added over the next seven years and almost 2 million per year thereafter; and $10.3 billion annual state and local tax revenue over the next seven years and $35.5 billion annually after that.

Nuclear Power

President Obama claims to support nuclear energy, as part of his administration’s all-of-the-above energy strategy. Indeed, in his 2010 SOTU, Obama declared, “And that means building a new generation of safe, clean nuclear power plants in this country.”

Yet again, President Obama’s rhetoric does not match reality. Numerous nuclear generating facilities have announced retirements under this president, despite his alleged commitment to developing nuclear power. Examples include:

  • On February 5, Progress Energy, a subsidiary of Duke Energy announced plans to retire Crystal River Unit 3 in Citrus County, Florida–a unit that was licensed to operate through 2016.
  • On June 7, Southern California Edison announced that it would permanently retire units 2 and 3 of the San Onofre nuclear plant near San Diego.
  • A month earlier, on May 7, Dominion Resources retired the Kewaunee Power Station in Wisconsin, about 35 miles southeast of Green Bay on Lake Michigan. Kewaunee was licensed to operate through 2033, but Dominion Resources announced its intention to decommission it last fall.
  • On August 27, Entergy announced the pending closure of the Vermont Yankee plant, which is expected in the fourth quarter of 2014, when the plant’s current fuel cycle ends. The closure of the 41-year-old nuclear plant is expected to affect natural gas and electricity markets throughout New England.

Exelon, the nation’s largest nuclear operator, planned to invest $2.3 billion in its existing reactors (the LaSalle nuclear plant in Illinois and the Limerick nuclear plant in Pennsylvania) and raise their generating capacity by a combined 1,300 megawatts, about the size of one new reactor. But after completing about a quarter of the plan, it found the economics to no longer be favorable and dropped the plan, due in large part to federally subsidized wind power. Exelon ended up paying its suppliers $100 million in penalties for the cancellation.

Keystone XL

President Obama has adeptly avoided making a decision on the Keystone XL pipeline for more than five years. The pipeline, which would transport oil from friendly Canada to the U.S., is a clear example of the kind of “shovel-ready” project that President Obama touted with the stimulus bill. Indeed, the president would not need to bypass Congress to approve this jobs program—he would simply have to give his approval through the State Department.

In last year’s speech, the President proposed the “Partnership to Rebuild America…to upgrade what our businesses need most,” namely more infrastructure. Why, then, would he stand in the way of a project is clearly needed, one that would provide the infrastructure he claims to want (and do it at no cost to the taxpayer)?

Conclusion

On this “year of action” in which the President has made it abundantly clear that he intends to “bypass Congress where necessary,” it is important to step back and evaluate this administration’s abysmal track record, particularly on energy issues. The President has taken credit where it was not due, and he has made statements about the need to shift quickly away from abundant and affordable energy sources and to subsidize unreliable and expensive sources. In other words, President Obama would like to move the U.S. towards Europe’s energy policy just when Europe is realizing that their policies are making them less competitive with the United States because of the shale boom.

President Obama wants to exercise control over the energy sources Americans use every day. We agree with the President that energy innovation drives American progress, but innovation is not happening because of his policies—it’s happening despite them. In other words, real growth comes from individual Americans figuring out more efficient and reliable ways of doing things, not from Executive Orders written in Washington, D.C.

IER Policy Associates Travis Fisher and Alex Fitzsimmons authored this post.


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