President Barack Obama, in his State of the Union speech, called for an “all-of-the-above” strategy to develop energy that’s “cleaner, cheaper and full of new jobs.”
He’ll be lucky to get one out of three.
It’s likely that our energy sources will become cleaner. Stricter pollution and carbon standards are inevitable, and the abundance of natural gas from hydraulic fracturing in the U.S. means it’s likely to become a viable alternative fuel – both for electricity generation and powering fleet vehicles. To drive home the point, Obama was in Nevada on Thursday touting the prospects for natural gas.
By 2040, natural gas will surpass coal as the world’s second-biggest fuel source behind oil, according to a recent study by Exxon Mobil Corp.
Obama wasn’t just referring to natural gas, though. He wants to improve the reliability of other sources – wind, solar, biofuels. For that, he wants to shift tax incentives from the oil industry to renewables programs.
Given that much of new fuel development is moving toward cleaner sources, it makes sense to offer tax benefits, but it shouldn’t be an either-or shift from conventional energy.
As we’ve seen with the collapse of natural gas prices, companies will simply shut in production if it isn’t economical, and the shift to cleaner fuels will stall. So it makes sense to maintain some tax incentives for “unconventional” plays such as shale drilling at least at lower prices, and marginal producing “stripper” wells.
The jobs pitch
If it’s jobs the president is worried about, we can’t afford to discourage fossil fuel production. While “green jobs” are increasing, they alone can’t solve our economic problems any more than renewables by themselves can resolve our energy issues.
Unfortunately, the administration always pitches its energy initiatives in terms of jobs. That may have political value in a struggling economy, but it undermines the purpose of government-funded research.
Innovation can’t be measured by short-term hiring. The Solyndra debacle should have made that clear. In his speech, Obama touted – and probably overstated – the government’s role in developing hydraulic fracturing, but he seemed to miss the lesson.
Houston’s Mitchell Energy benefited from some early government-funded research and maybe even some cost-sharing on early projects, said Bill Whitsitt, a spokesman for Devon Energy, which acquired Mitchell. But it took decades of private-sector financing, development and risk-taking to turn that government research into the current job boom.
Don’t expect cheap
The big stumbling block in the president’s plan, though, is the “cheaper” part. We have been spoiled by decades of cheap energy, and it is coming to an end, no matter what source we use.
The president started off his comments on energy by stressing the highest U.S. oil production in eight years and the lowest foreign oil dependency in 16 years.
What he didn’t explain was why. Four years of rising oil prices have made economical expensive drilling techniques such as hydraulic fracturing, which in turn had led to production gains.
Rising prices encourage development, but they don’t make energy cheaper.
As I’ve said before, an effective national energy policy will focus more on supply than price.
The more we can do to secure supplies, especially in our own hemisphere, the more chance we have of shielding our economy from supply shocks in less stable parts of the world.
Skip the feel-good stuff
Obama’s strategy does better on the theoretical than the practical. His earlier State of the Union speeches are littered with ideas that didn’t materialize or died in Congress. He falters on energy issues when he tries to turn long-term planning into short-term gains, to tout jobs and feel-good promises over the difficult message of higher costs, tightening supply and the need to prepare.
If we’re going to have an energy plan, we have to do better than one out of three.
Loren Steffy, firstname.lastname@example.org, is the Chronicle’s business columnist. His commentary appears Sundays, Wednesdays and Fridays. His blog is at http://blogs.chron.com/lorensteffy. Follow him on his Facebook fan page and at twitter.com/lsteffy.