Understanding Obama’s Energy Policy: Definitions for the armchair economist, Part II

by Tanya Bodell, Energyzt

Four years ago, this column addressed President Barack Obama’s anticipated energy policy and summarized selected economic concepts embedded in the stimulus package and energy plans (EL&P Volume 87, Issue 2). Most of the definitions relevant to the first term have been replaced to reflect a new energy emphasis. The sector has experienced an incredible transformation, albeit different than what was anticipated.

Climate Change

Many pundits noted the prominence of the president’s second-term inaugural vow to address climate change. Less understood is what those eight lines focused on climate change mean. Richard W. Stevenson and John M. Broder of The New York Times opine that the Obama administration intends to exercise its executive powers to address climate change, effectively “side-stepping” Congress by regulating coal plants into retirement. If true, expect more regulations that target coal power plants and ongoing litigation by industry participants that challenge those regulations. The contentious climate on this issue is not likely to change in Congress.

Fracking

Short for hydraulic fracturing, “fracking” would have been known by few in 2009. Today, most people have an opinion of what this “new” technology means. Hydraulic fracturing is not new. Originally introduced in 1947, modern fracturing techniques that allow for economic extraction of shale gas began 15 years ago. The most significant growth in gas production using these technologies occurred after the Energy Policy Act of 2005, which exempted regulation of hydraulic fracturing used for extraction of oil and gas. With technological advances unfettered by regulation under the Safe Drinking Water Act, shale gas and oil production experienced a boom and increased marketed natural gas production by an estimated 3 billion cubic feet per day (bcf/d) between 2011 and 2012 and more than 10 bcf/d during the past decade. Obama has declared that we are “the Saudi Arabia of natural gas.”

Moratorium

In response to growing environmental concerns about hydraulic fracturing, state and federal agencies have been drafting regulations. Vermont symbolically banned the technique in 2012 to ensure drillers cannot extract the shale gas that is not there. Many more states have placed moratoriums on drilling to buy time to examine the environmental consequences. The Bureau of Land Management and Environmental Protection Agency have proposed regulations and are reviewing public comments. Expect some form of regulation on hydraulic fracturing during Obama’s second term.

Picking Winners and Losers

The economics of spending government money to support new technologies and green-collar jobs has been questioned after investment and job loss from bankrupt renewable generation equipment manufacturers. In contrast, an estimated 1.7 million jobs have been created by shale energy, according to (IHS Global Insight. Despite recent claims that the government should not pick winners and losers in the renewable energy industry, legislators might push to continue job creation through tax breaks and subsidies for natural gas industries while the executive office moves to impose regulations on shale extraction methods.

Sustainable Energy Sources

In Obama’s first inaugural address, renewable resources received a visionary callout.

“We will harness the sun and the winds and the soil to fuel our cars and run our factories,” Obama said.

This time, the president hedged his vision.

“The path towards sustainable energy sources will be long and sometimes difficult,” Obama said.

Use of the term “sustainable” instead of “renewable” broadens the options and allows for the nation’s significant reserves of shale gas and oil to be included in the solution toward energy independence. Not all agree; environmental organizations such as the Sierra Club have withdrawn their support from natural gas to focus on renewable resource generation.

Swing Demand

Although federal regulators continue attempts to push demand response into wholesale electricity markets, continued competition between natural gas and coal-fired power production generates a different form of swing demand. Continued coal displacement through economic dispatch and retirements will adjust natural gas and power prices to levels required to balance supply and demand, changing basis differentials in the process.

Clean coal is out; close coal is in. A federal renewable portfolio standard has been replaced with sustainable energy sources. Although emphasis on new jobs remains, they do not have to be green–the country will take them and make them where we can get them. As federal funding winds down, smart grid has gone off the (federal) grid. It promises to be an interesting second term.

Author
Tanya Bodell is executive director of Energyzt, a collaboration of energy experts intent on understanding the impacts of energy integration. Reach her at 617-416-0651 or tanya.bodell@energyzt.com.

“He who defines the terms wins the debate.”
–Jerry Zucker, 2013 Electric Light & Power Executive Conference

More Electric Light & Power Current Issue Articles
More Electric Light & Power Archives Issue Articles

Previous articlePJM transmission cost allocation–solution-based DFAX
Next articleSuspect, counterfeit and fraudulent electrical–targeting authenticity

No posts to display