CH 23: The Challenge of Politics by Frank Verrastro and Kevin

Book

Energy and Security: Strategies for a World in Transition

Capt Ellen Canup

About the Authors

Frank Verrastro

• Senior VP at the Center for Strategic and International Studies

• Over 35 years experience in energy policy positions in the government and private sector

• Staff for White House and the Departments of Interior and Energy

Kevin Book

• Heads the research team at Washington, D.C.-based ClearView Energy Partners, LLC

• Testified before committees of the U.S. House of Representatives and Senate

• In 2012, he was appointed by the U.S. Secretary of Energy to the National Petroleum Council

Thesis

Old assumption

• Resource scarcity

• Growing demand, for oil and, to a lesser extent, natural gas

New Reality

• Enormous availability of fossil fuel resources

• Flat-to-declining domestic oil demand and a range of options for using natural gas

Against the backdrop of a changing global energy landscape, the advancement of technology, higher prices, and limitations on federal spending, this new reality deepens traditional policy dilemmas for decision-makers and creates some new ones.

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What Policy Makers Optimize

Three main goals

• Supply security

• Environmental protection

• Economic growth

Additional policy goals

• Promote resiliency

• Enhance competitiveness

• Protect food and water

• Produce outcomes that appeal to a wide range of constituencies

• Take into account regional resource differences

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Two Party System

• Democrats tend to be “greener,” favoring incentives for alternative and renewable fuels, conservation, and efficiency.

• Republicans generally support increased resource access, fewer regulations, greater states’ rights, expanded production of traditional fuels, and portfolio choices dictated by free markets.

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The Convergence of Energy and Environmental Goals

Pre-2000 time period

• Balanced Economic / Energy Security / Environmental considerations• Lots of low hanging fruit

• Progressive Environmental Legislation• National Environmental Policy (1969), Clean Air (1970), Clean Water

(1972), Endangered Species (1973), and Safe Drinking Water Act (1974)

• Energy Security Legislation• Energy Policy and Conservation Act (1975); Energy Tax Act, the

Powerplant and Industrial Fuel Use Act, and the Public Utilities Regulatory Policy Act (all in 1978); and the Energy Security Act and amendments to the Outer Continental Shelf Lands Act (both in 1980).

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2001: Energy Security

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• Environmental lobby is more actively engaged.• President Bush does not support they Kyoto Protocol,

liberalizes coal production, reinterprets power plant air emissions rules, and lobbied congress to open ANWAR for drilling.

• Oil prices escalated sharply, reflecting geopolitical tensions and rapid demand growth overseas.

• At home, electric power shortages highlighted the vulnerability of a congested, undersupplied grid.

Energy Security becomes the primary driver of energy policy in

the United States.

2004 - 2008• The energy trilemma converges once again

• Primarily an effect of problems on the supply side of the equation

• Supply appeared to be irretrievably declining

• Demand appeared to be intractably growing• Bipartisan legislation

• Energy Policy Act (2005) included an ethanol mandate

• Climate Summit (2006)

• CAFE standards are raised (2007)• Russia ratifies the Kyoto protocol (2004)

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CAFE Timeline

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President Obama’s New Energy Policy Objectives (2008)

• Reduce and reverse the trend of rising oil imports and improve the balance of payments outflow

• Use higher prices to promote efficiency and alternative fuels research and use

• Promote new technologies, and in the process, green jobs• Advance a global climate accord and the need for a cap-

and-trade regime to stem the growth of greenhouse gasses

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New Era of Resource Abundance

• Rising oil prices have incentivized supply side investment• 2008-2009 Financial crisis

• Destabilized the energy side of the supply convergence by suppressing demand and by eliminating the notion of resource scarcity

• Oil prices drop by >$100 per barrel between July – December 2008• 2010 Natural Gas

• The United States discovers that it has between 50-100 years of supply

• 2011 Horizontal Drilling and Hydraulic Fracturing

• Improving technology

• Potential environmental impact: groundwater safety, methane emissions, seismic activity

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U.S. Energy Over Time

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Too Many Cooks: The Challenge of Fragmented Policy-Making

• Policy apparatus is highly fragmented and largely reactive and, in many cases, treats energy policy separately from environmental, industrial, and social policy despite intrinsic links.

• Executive Branch (President)

• Office of Management and Budget, National Economic Council, National Security Council, Domestic Policy Council, White House Council on Environmental Quality

• Congress

• House – Energy and Commerce Committee, Natural Resources Committee, Ways and Means Committee

• Senate – Energy and Natural Resources committee, Public Works Committee, Finance Committee

• ~ 6% of legislation proposed in either chamber is passed13

Outside Influences

• Local Economics

• Farm State / Coal State / Coastal State / Tourism ?

• Population Density• Advocacy Groups

• Stakeholders have become more aware of the implications of policies for their particular interests

• Studies can be skewed or sponsored with particular goals

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Results

• Major energy legislation is rare and reactive

• 1973 Arab Oil Embargo

= 1975 Energy Policy and Conservation Act

• 1979 Iranian Revolution + Removal of price controls on domestic oil = 1980 Energy Security Act

• 1990 Kuwait Invasion + 1991 Gulf War

= 1992 Energy Policy Act

• 2000-01 California Power Crisis + 2003 East Coast Blackout

= 2005 Energy Policy Act

• Hurricanes Katrina + Rita (Flooded refineries and closed pipelines)

= 2007 Energy Independence and Security Act

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President Obama’s Policy

• 2011: “Blueprint for a Secure Energy Future”

• More oil and gas development

• Efficiency, renewables, and clean alternatives

• Renewed focus on safety, environmental protection, and interaction with affected communities

• 2012 State of the Union address

• Continued to emphasize the transformation

• Underscored a need for cleaner forms of energy

• “all of the above” approach

Three Potential Policy Choices

• Comprehensive narrative and follow-through: pro-development, but to a point

• Establish a broader strategy which defines tradeoffs

• Gives investors clarity and some certainty

• Would possibly optimize or accelerate buildout in infrastructure• Push the green button

• Continue to regulate to achieve objectives

• Some outcomes would be decided by the courts

• Could become a flashpoint for future congressional races• Give a little, take a little

• Allow the market to work

• Strive for balance (some strict and some lenient guidelines)17

Conclusion

• Although calls for a coherent national energy policy abound, various stakeholders have very different views of what that policy should be.

• A realistic policy should be:

• Responsive to economic, security, and environmental needs

• Flexible

• Adaptive

• Collaborative

• Anchored in longer-term goals and aspirations

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Questions?