4 Reasons Why Environmentalists Are Wrong About Energy
America’s oil and gas boom has the potential to jump-start the economy by lowering consumers’ energy costs and attracting energy-intensive manufacturing in search of low-cost energy. The oil boom has come about despite, not because of, government policies.
Here are four energy wishes for 2014, and four rebuttals to those who want America to focus on green energy.
1. Give states greater control over energy policies
Granting more authority to the states will speed up development, increase GDP growth, and lower consumer costs. Over the past five years, the 30% increase in domestic oil production has occurred overwhelmingly on private and state lands. The amount of federal land leased for mineral rights decreased 20% since 2008. Only 38 million acres of federal land are now leased, compared to 131 million in 1984.
Obtaining federal permits for energy production is difficult. Between fiscal years 2005 and 2012 the number of new permits fell over 50%, from 3,514 to 1,729. Between 2005 and 2012, the time it took to acquire such a permit rose from 154 days to 228 days. In contrast, it takes only 10 days to secure a state drilling permit in North Dakota.
2. Wind production tax credit should not be renewed
The wind production tax credit has expired and should not be renewed retroactively. The credit was worth 2.3 cents per kilowatt hour and generally applies for 10 years. The credit should be ended because energy produced by windmills is more expensive than energy generated by natural gas, and so using wind energy raises people’s utility bills. The Energy Department calculates that energy produced by wind is 30% more expensive than energy produced by a natural gas plant.
Due to the intermittent nature of wind power, traditional power plants have to adjust production in an extremely short time frame to balance the power grid. This “cycling” is inefficient and bad for the environment. Emissions offset by the installation of wind turbines appear to be surpassed by emissions from the need to cycle.
3. End biofuels mandates
In November the Environmental Protection Agency announced a reduction in 2014 biofuel mandates to 15 billion gallons from 18 billion. This decision was made because gasoline consumption has fallen and fuel mixes made with over 10% biofuels can damage car engines.
Even some environmental groups are now opposed to biofuels. “Corn ethanol is extremely dirty,” says Michal Rosenoer, biofuels manager for Friends of the Earth. “It leads to more climate pollution than conventional gasoline, and it causes deforestation as well as agricultural runoff that pollutes our water.”
At the end of 2011, federal ethanol subsidies worth 45 cents a gallon expired, in place since the 1980s, along with protective tariffs. But, the recently reduced mandate remained and it continues to provide farmers with benefits at the expense of American consumers.
About 40% of U.S. grown corn is used for ethanol, not food or livestock feed. When the Congressional Budget Office (CBO) examined the effect of ethanol subsidies on food prices, it found that 10% to 15% of price increases could be attributed to ethanol subsidies. Food accounts for 16% of all expenditures for those in the lowest fifth of income-earners, so the ethanol mandate is highly regressive.
4. Build a new generation of pipelines
Approval of the Keystone XL pipeline, bringing oil from Canada to U.S. refineries near the Gulf of Mexico, would create jobs, both for constructing the pipeline and for refining the oil. America would be able to import more oil from friendly Canada, rather than unfriendly Venezuela. In addition, states need to approve more pipelines, a safer method of transporting energy than road or rail. It is imperative that we streamline the project approval process, which now can stretch to over four years.
Pipelines have been used to transport natural gas and oil, including from Canada to the U.S., for three-quarters of a century. Two-and-a-half million miles of pipelines crisscross America, carrying crude oil, petroleum products, and natural gas to businesses and consumers.
Why ‘going green’ is misguided
Despite the benefits of inexpensive energy, many otherwise reasonable people say that we should continue to invest in expensive green energy in order to become more self-sufficient, clean the air, and stave off global warming.
These arguments are made with the best of intentions from sincere, well-meaning individuals. They have inspired a generation to “go green.” And their concerns deserve a response.
U.S. emissions Are declining: U.S. greenhouse gas emissions are declining both in absolute terms and as a percent of total global emissions. The major sources of new greenhouse gas emissions are from emerging markets including China, India and Brazil. These countries show no inclination to reduce their emissions, because they want to reach the wealth levels of the West. It will not help global temperatures if America cuts back and other countries do not. When alternative energy incentives were put in place, it was thought that other countries would join us in cutting back.
Rather than raise our cost of energy to lower our emissions, it would make more sense to subsidize natural gas plants in developing countries to lower their reliance on coal and wood.
Geopolitical reasons: When the wind tax credit was put into place in 1992, it was thought that the U.S. needed to be self-sufficient in energy so that the country was not at the economic or geopolitical mercy of the Organization of Petroleum Exporting Countries.
But North America will soon be the leading oil producer in the world, and new hydrofracturing technology has made it possible to access 200 years’ worth of natural gas. Developing our inexpensive energy sources allows us to offset the power of Russia and Venezuela by selling oil and gas to our friends. This will make it more difficult for Russia to cut off supplies of gas to its eastern European customers in order to gain political favors, as it has done in the past.
High energy prices disproportionately hurt the poor: Policies that make energy more expensive have regressive effects. According to the government’s 2012 Consumer Expenditure Survey, those in the lowest earnings quintile spent 28% of their incomes on energy —electricity, natural gas, gasoline, and motor oil. This is far more than the U.S. average of 9%, and the 4% spent by the top quintile. Increases in energy costs affect the prices of other consumer goods as well.
Inexpensive energy attracts manufacturing: Energy-intensive companies are expanding in order to take advantage of low-cost natural gas, which boosts GDP and creates employment. Since 2009, the German chemical company BASF has invested more than $5.7 billion into North America, including a formic acid plant under construction in Louisiana. BASF officials say that energy prices in America are lower than in Europe, where fracking is discouraged.
Other European countries planning to invest in America due to low energy prices include Austrian steelmaker Voestalpine VLPNY -0.41% (an iron-ore processing plant in Texas), South Africa-bases Sasol SSL -1.09% (a natural gas to diesel conversion plant in Louisiana) and France’s Vallourec VLOWY -0.56% (steel production in Ohio).
“Energy policy” is a term of interest primarily to politicians, not to ordinary Americans. Ordinary Americans want lots of energy at low prices. They don’t want to foot the tab through taxes to subsidize one form of energy over another. They don’t want to block pipelines bringing jobs and energy to America. Energy in America today is plentiful at lower prices not because of the wisdom of politicians to implement a clever “energy policy,” but despite the repeated stupidities of our government — which has implemented polices at war with oil, gas and ordinary Americans.
It is long past the time to have a real energy policy, one that works for America, not against it.
This piece originally appeared in WSJ's Marketwatch
This piece originally appeared in WSJ's MarketWatch