Energy and the Obama Re-election: Good for Energy Independence but Clean Tech Path Needs Revamp

The reelection of President Barack Obama is good news for the U.S. pursuit of energy independence. That’s because the President is unlikely to take any major steps to ban shale drilling operations in the United States but is more likely than contender Mitt Romney to stay the course on accelerated time lines for higher efficiency standards (CAFE) to 54.5 miles per gallon by 2025. Neither drilling alone nor CAFÉ alone would be sufficient to eliminate the need for foreign imports of oil and gas. A combined approach is necessary for the United States to really leverage the potential to eliminate the roughly 8.5 million b/d of crude oil imported into the U.S. The new car efficiency standard should over time shed between 4 to 6 million barrels a day of oil in the next decade or two. Analysts project shale oil production could hit between 3 million b/d to 5 million b/d by the 2020s. Governor Romney was on the record opposing CAFÉ standards which he characterizes as overzealous regulation of “the government telling the companies what they must make.”

Last spring, the Obama administration passed new rules to bolster oversight on public lands for oil and gas drilling using fracking technology. The hope was that states would be able to use the federal standards as a guide to constructive regulation. Increased oversight is unlikely to stop the shale boom. Rather, it may, in fact, reduce the backlash against environmental risks from drilling in shale. Industry specialists estimate that tighter regulations on water disposal, methane emissions and well completions would be limited, in the range of 25 to 50 cents, a level unlikely to derail momentum for investment in low cost, Tier 1 resources.

But the President needs to give pause to his administration’s penchant to back Clean Tech investors with taxpayer money. The energy business lacks the boundary conditions where venture capital can be effective in opening new economic spaces. Rather, steep incumbent competition and the daunting realities of large scale infrastructures already in place need to be taken into account, according to scholars Andrew Hargadon and Martin Kenney of UC Davis. The authors argue that enormous loan guarantees may actually hinder the process of technological change by dwarfing potentially successful efforts the private sector may innovate on its own. Instead, they recommend a shift to the Small Business Innovation Research Program model (SBIR) as a potentially less expensive and more productive way to engage Clean Tech successes. They also suggest the U.S. government use “the enormous purchasing power of the federal government, and particularly the Defense Department, not to develop technologies, but to procure them and, in the process, to drive the maturation of emerging industries.”

Finally, a more comprehensive approach that creates incentives for incumbent players in the energy space to invest in alternative fuels and efficiency innovation should be a focus for Clean Tech for the new administration. In light of heightened public awareness of growing turmoil in the Middle East and soaring costs of severe storms following the aftermath of Hurricane Sandy, rallying the public to a renewed focus on energy and climate policy could be a win-win.