America’s Self-Defeating Energy Policy

Play to your strengths.  It’s the foundation of any successful business model. Unfortunately, it doesn’t accurately describe our country’s approach to energy. On the contrary, our national energy policy is a textbook example of how to snatch defeat from the jaws of victory.

The United States has the largest combined oil, natural gas and coal reserves of any country. We could literally lead the world in production of abundant and affordable energy – but we don’t.

Instead of utilizing these bountiful resources to our nation’s competitive advantage, we have largely placed them off limits, and unnecessarily driven up their cost with misguided policies and regulations.

Worse yet, we continue to senselessly prop-up more expensive and less reliable energy sources with government mandates and massive subsidies – at considerable cost to taxpayers.

Consider the facts. We have enough recoverable oil to meet our nation’s petroleum consumption for 200 years. We also have enough recoverable natural gas to meet demand for at least 100 years. However, federal policies restrict exploration of onshore energy potential to less than six percent of land resources, and only two percent of offshore resources. As a result, much of this energy has been placed off-limits.

We are on the cusp of a potential energy renaissance by unlocking billions of barrels of oil trapped in shale rock formations through hydraulic fracturing or “fracking” technology. We also have roughly 2.6 trillion barrels of recoverable oil shale resources located in three western states.

To place this potential into perspective, our oil shale deposits are five-times larger than Saudi Arabia’s proven oil reserves. Yet one of the Obama Administration’s first acts after assuming office was taking these promising resources off the map by withdrawing oil shale leases for research and development.

Our energy playbook continues to get worse when you consider the treatment of coal. Our country has the largest coal reserves in the world – 261 billion tons. It’s enough mineable coal to last 485 years at current rates of consumption. This abundant and affordable fuel provides about 65 percent of Wisconsin’s electricity, and powers production for thousands of manufacturing jobs in our state.

Despite our vast coal resources, the Obama Administration appears intent upon regulating coal out of existence. Making good on his 2008 campaign promise to “bankrupt” coal, President Obama’s EPA has written a slew of new rules that make using coal economically infeasible.

For example, the EPA has recently targeted coal with costly global warming regulations, new air quality standards, and untenable mercury rules. Many of these rules are on a list released by the White House last year with projected costs expected to exceed $1 billion each.

The fact that a federal agency can proceed with rules costing consumers and businesses many billions of dollars without the consent of Congress bespeaks the need for immediate regulatory reform.

Moreover, the EPA’s latest rule establishing global warming emission standards for power plants essentially bans the use of coal as a source of electric generation in the future.

Do we really want unelected bureaucrats at the EPA making policy decisions about our country’s energy profile, or should those decisions be left to the officials we elect to Congress?

The biggest problem with handing energy policy over to EPA regulators is that they take their cues from the environmental lobby – and neither of them understands how markets operate.

They advocate replacing affordable, reliable and market-tested energy sources like coal with expensive and less reliable alternatives. Disrupting the market by mandating or subsidizing less efficient and costlier “alternative” energies is a losing proposition for consumers and taxpayers.

For example, federal subsidies for solar and wind power in 2010 were $775.64 and $56.29 per megawatt hour respectively.  By contrast, federal subsidies for coal and natural gas were orders of magnitude lower at 64 cents per megawatt hour. The highly publicized failure of Solyndra, despite $535 million in taxpayer-funded loans, underscores the folly of investing in uncompetitive technology.

Compounding the poor economics is the practical question of how to replace coal as our primary source for electricity – a question heretofore left unanswered by the EPA. Last year, wind and solar accounted for only 2.94 percent of our electric generation – we simply cannot expect to replace fossil fuel generation with niche energy sources.

Our country is in desperate need of an energy policy overhaul, and unfortunately, it’s a self-inflicted problem. We are blessed with plentiful energy resources, but have failed to leverage them to our strategic advantage by adopting restrictive policies and punitive regulations.

If we want to revitalize our economy and grow jobs in the future, businesses and consumers must have access to affordable and reliable energy. The resources are there – will policymakers and regulators continue to stand in the way, or allow us to unleash their potential?

By Scott Manley, WMC Director of Environmental & Energy Policy