The State of the Union’s Two Energy Revolutions

By Geoffrey Styles

Ed. note: This piece was first published on Wednesday, February 13, 2013 in Energy Outlook, Geoffrey Styles’ blog.

It was no surprise that energy and climate change featured prominently in last night’s State of the Union speech, giving me plenty to discuss in my on-camera interview with Reuters this morning. The President devoted an entire section of his address to these topics, leading into it in a very upbeat way: “Now is the time to reach a level of research and development not seen since the height of the Space Race.  And today, no area holds more promise than our investments in American energy.”  You’d never guess from that introduction that this president faces a strikingly different energy challenge than his seven most recent predecessors. There are two energy revolutions underway in the US, and the unplanned one is racing ahead of the one to which he devoted most of his remarks–and most of his efforts on energy for the last four years.

Let’s start with the positives.  Even more than in last year’s speech, President Obama presented energy as a bigger opportunity than a problem. He described our impressive recent progress in oil and natural gas production, renewable energy generation, and the reduction of greenhouse gas emissions.  As fact-checkers have pointed out, he stepped into aspiration when he claimed credit for doubling automobile fuel economy–a goal that might or might not be attained by 2025–but even this fits within a broad set of energy trends that are all finally moving in the right direction.

The President also endorsed a very good idea that has been floating around for a long time, but has never been seized upon.  He suggested funding R&D for electric and natural gas vehicles and biofuels with the revenue from federal oil and gas lease bid premiums and royalties.  This “Energy Security Trust” would yoke the success of future energy technology to the enormous cash cow represented by the vast oil and gas resources beneath public lands and waters.  He’ll have to sort out the allocation of revenues with the states, who surely won’t want the new set-aside to come from their share.  If he can work that out, the government will have an even bigger vested interest in ensuring that responsible oil and gas development on these lands proceeds, in order to advance energy innovation.

Yet as pleased as I was with those aspects of his remarks, I couldn’t help noticing that he still speaks about renewable energy in much the same way he did four years ago, as though we’ve learned nothing in the meantime.  He wants us to out-China China in investing in solar energy, despite the fact that many of China’s leading solar manufacturers are struggling with the same low margins that have led to a string of solar bankruptcies in Europe and the US, as rampant global over-capacity fuels cutthroat competition.  He also apparently wants to make the wind Production Tax Credit permanent, rather than reforming and phasing it out, as even the leading US wind energy trade association has suggested.  The fact remains that no government on earth can afford to subsidize renewables at the current generous rates all the way up to full-scale deployment.  They need to be encouraged to become fully competitive with conventional energy as soon as possible and then set free.

Nor has the President lost his enthusiasm for citing statistics like the doubling of the energy that “we generate from sources like wind and solar.”  Yet increasing wind power from 1.3% of US electricity generation to 3%, and solar from 0.02% to 0.1%, are not what has set the stage for the US to become a significant net exporter of various forms of energy, and possibly even energy independent.  He spoke strongly in favor of natural gas last night and briefly noted oil’s gains, but it’s not clear that he sees them as the engines of economic growth that they could be for the next decade and beyond.

Perhaps that’s because after a long stretch in which US efforts on climate change and energy security seemed perfectly aligned, they are now moving out of sync. The 12% reduction in energy-related CO2 emissions since 2007 is largely attributable to fuel switching from coal to gas in the power sector, along with reduced oil demand in a lethargic economy.  There’s additional scope for both; however, if all the present trends continue it will become harder to fit the reality of surging oil production and looming natural gas exports into a constrained emissions box.

In that context, the President’s call for a new, “bipartisan, market-based solution to climate change,” and his threat to act via executive order if Congress fails, left enormous gaps of necessary detail.  Does President Obama really want another bitter contest over cap-and-trade, as one might conclude from his reference to the McCain-Lieberman efforts of 2003-5, or is “market-based” to be interpreted as a carbon tax, which is coming back into favor in some circles?  What was entirely missing was the necessary admonition to Congress to avoid larding any future climate bill with the kind of distortions and pork-barrel spending that turned its most recent effort, the bill by Reps. Waxman and Markey–both of whom were presumably in the room last night and deserve to feel slighted–into a 1427 page monstrosity.

Judging by my inbox this morning, many people liked what they heard last night concerning energy and climate.  Groups as diverse as the Blue-Green Alliance and the American Petroleum Institute cited portions of the address in support of their agendas.  And at least in the Energy Security Trust idea there were hints of the revitalized energy vision I was hoping for, in which the US rides the wave of shale-driven energy transformation while innovating the technologies of renewable energy, transportation and energy efficiency to the levels necessary to take over from oil and gas by mid-century.  There’s always next year.

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