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The Five Main Obstacles to Energy Policy

by | published April 16th, 2012

Marina and I got to come home to Pittsburgh for a few days. But by the time you read this, we'll be in the Bahamas.

Upon returning from our stay in Germany, some developments in the U.S. struck me.

President Obama said he aims to create advisory groups to explore regulations for natural gas drilling and usage. Republican candidate Mitt Romney outlined his energy policies in Pennsylvania just last week.

These moves signify one thing: This presidential campaign is in full swing, despite the conventions being months away.

Now I have talked about the need for a national energy policy for some time.

As with the problems confronted in Europe and highlighted last Monday, such a policy has significant barriers… there and here.

And while the incumbent and his expected challenger are both beginning to lay down how each sees the energy sector, it's not going to be a simple task.

Quite the contrary.

Weaning the country from an almost exclusive reliance on traditional energy is not simply a “drill, baby, drill” approach to more shale gas and oil.

Nor is it as simple as passing the magic wand of government subsidies over otherwise cost-prohibitive alternatives.

It most definitely is not going to be business as usual.

With each step, infrastructure challenges will emerge. In addition, lifestyle changes will accompany the transitions to come, with concerns over higher costs and their impact on a still-precarious economic recovery.

America may wait a little longer – especially as we move into the election cycle-requirement that all complicated questions be “resolved” in a 30-second commercial or campaign sound bite.

The democratic process, whereby citizens choose their leaders, may well be the best political system ever devised. But it creates a terrible environment in which to make genuine policy. It seems we cannot satisfy more than one important objective at a time.

The longer we wait, of course, the more difficult this is going to be.

In fact, revising the U.S. energy base is going to be the most expensive, painful, gut wrenching and divisive exercise in recent history. Having always based our economy on cheap energy (first timber, then coal and, until recently, crude oil), we are now going to face a different mix where price will be an ongoing concern with broad-market implications.

But with all the changes that are going to come in energy sourcing, distribution and balance, and processing and trading, something else will be fundamentally changed.

Ourselves.

We delay at our own peril.

Two developments will happen this summer that will finally start the energy change in motion.

First, the price of oil will be rising – and fast.

Second, the two guys who want to be the “leader of the free world” will be obliged to set an agenda in response.

Therefore, let me present up front what I see as the five major impediments to a national energy approach. What we need will have to be structured over time, incrementally at first, and then more aggressively as the problems develop.

But the negatives will be unfolding right along with the policy commitments.

These are also five of the reasons why political leaders who need to be re-elected shy away from the truly difficult decisions.

  1. There can be no energy policy of consequence without some people, regions, industries, or special interests getting hurt. This cannot be a win-win scenario. Usually, the political solution has been to divide the pie. That will still happen, but some slices will be bigger than others will, and some will not get any “pie” at all.
  2. Costs will be rising across the board. It makes no difference which energy sources we choose. It will feature rising extraction/processing/delivery costs, require taxpayer support, or sacrifice some employment and business prospects for others. All of these results take money from just about everybody's wallet. The second problem leads directly to the next consequence.
  3. It is impossible to introduce the revisions needed in a national network without experiencing protracted periods of dislocation. This will hardly be a seamless process.
  4. We are going to run the risk of undermining our traditions of personal worth, dignity, purpose, and importance. The idea of self-reliance, so immortalized in the paintings of Normal Rockwell and so admired by others throughout the world, will come under intense pressure.

    The major threats from the entire exercise may be human in consequence.

  5. I have saved the most contentious for last.

It makes no difference where you are on the political spectrum. You can be a liberal, conservative, libertarian, middle-of-the-roader, libertine, or for that matter a vegetarian. After the smoke clears, there will be one guaranteed result. A national energy policy that is worth the time, money, frustration, and sweat required will end up permitting more government authority. It is impossible to forge a new national approach without centralizing the functions.

I have repeatedly made the point that we need a broader mix of energy than is currently available. The single biggest mistake is searching for the silver bullet to replace crude oil.

We are not in a zero-sum game here.

What we need is more guaranteed sources from genuinely different energies with one important ingredient – the ability to exchange alternative types of energy for the same end need, like vehicle fuel, for example.

There will be some regional variations that could be encouraged to exploit local availabilities, preferences, and needs.

Oil, coal, and nuclear will remain in the mix, along with a widening reliance on gas and a range of renewables, from solar and wind, through geothermal, biofuels, kinetic and tidal power, algae, and biomass.

That could leave some room for local and state variations.

But make no mistake.

There will have to be standardized regulations and an attention to the truly national picture generated from thousands of local requirements.

And that is government, warts and all.

So take a deep breath.

This is going to be a very long swim.

Sincerely,

Kent

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  1. Dave
    April 16th, 2012 at 11:43 | #1

    Bravo for your honesty. It is refreshing as well to see the facts without the political spin that is too common among your brethren in the investment publishing industry.
    Rome wasn’t built (or destroyed) in a day. The solutions will take time and require a public/private effort.

  2. Chuck S
    April 16th, 2012 at 12:08 | #2

    WRONG – WRONG – WRONG. Our problem is too much government – subsidizing and mandating inefficient energy, like wind and solar – while over-regulating, even banning efficient energy – coal, oil, nuclear. We need less subsidy of inefficient and less bad regulation of good energy. America’s greatness came from no government policy on most things, so private individuals could invent and produce what works. The electronics industry has very little subsidy or regulation and has had tremendous success.

  3. Mark
    April 16th, 2012 at 12:40 | #3

    I think private companies need to wright the new energy plan on their own. Keep government out of the plan. Nat. Gas is the future. How can I get it into my car. If I spend 1,000 to convert my car, will there be a place to fill it up? Electric cars run on coal, That’s bad. Cheap nat. gas, good!!! I agree there needs to be a plan, however who does the plan should be done in the private sector. A very minor tax on LNG exports might be focused to pay down our debt over the next 30 years. Thus making it cheaper on a local level. Government involvment makes losers out of all of us.

  4. Gary
    April 16th, 2012 at 12:41 | #4

    What in the world makes you state that the democratic process creates the best political system ever devised ??????
    Even Thomas Jefferson knew better, over 200 hundred years a go

  5. Dave
    April 16th, 2012 at 12:55 | #5

    This is the mindset that destroys any hope of compromise. Just as there is not a single solution to the energy crisis, there is no Public or private solution.
    I never suggested that more or less regulation was an answer. Your bias is obvious and your mind seems closed. Open it a little and understand the reality of our predicament.
    The Internet and the Interstate highway system weren’t made by the Government, but that’s how they were funded. Of course, one is an efficient system and one isn’t. The point is how they got here. Neither Public or private effort alone made them viable.

  6. Harold P Boushell
    April 16th, 2012 at 13:48 | #6

    http://www.whitehouse.gov/the-press-office/2012/04/13/executive-order-supporting-safe-and-responsible-development-unconvention

    Executive Order — Supporting Safe and Responsible Development of Unconventional Domestic Natural Ga
    http://www.whitehouse.gov

  7. Mark P
    April 16th, 2012 at 14:15 | #7

    So should we get rid of the govt oil subsidies…how many billions has that added up to? Our military is the largest user of fuel in the country, so they are interested in alternatives as well. Lets save the oil for chemical manufacturing etc instead of burning it!

  8. Todd J. Smith
    April 16th, 2012 at 16:44 | #8

    There is legislation in congress now that could become our national energy policy.
    1. It requires little extra government. The pieces needed are already in place
    2. It slowly transitions us off of the most harmful forms of energy to more sustainable forms but does it gradually over time so it doesn’t harm our recovery and it gives the nation time to replace existing infustructure.
    3. It sends a clear price signal so investors, businesses and individuals will begin making different choices in efficiency and alternative forms of energy.
    4. It does not require additional government funding and is tax neutral.
    5. It increases our national security by diversifying our energy mix and helping us become more independent of foreign sources of oil, coal, natural gas etc.
    6. It reduces our medical cost by reducing pollution from burning fossil fuels. Mercury, particulate, ozone ground water etc.
    7. It encourages investment in research and developement and would create new many new jobs here in America. It will not replace oil in the near of distant future but will simple start us on the path to other forms of energy which will be better for America’s future.

    The legislation places a small but annually increasing fee or tax on the carbon in fossil fuels. It starts out small, $15/ton (which equates to about 15cents per gallon of fuel) and goes up $10 per year so that in 10 years greens sources of energy will be competitive with fossil fuels. The best part is that 100% of the fee is refunded back to all citizens each year (tax neutral). In this way we all have the money needed to pay the increased costs of fuel and goods associated with the carbon fee as we transition to more energy efficient technology and sustainable sources of energy. It is fair to businesses because they can pass along their increased cost to the consumer who has the money from the carbon fee. Everyone is encouraged to increase their efficiency of fossil fuel use or replace them with sustainable sources of energy in order to save money, become more efficient or stay competitive. Their is also a boarder adjustment to protect our business. It puts the fee on imports from countries that do not adopt a similiar carbon fee legislation. This way even countries like China are encouraged to adopt the same legislation. It makes America, with the worlds best Universities and research labs, the leader in green technology and in the transition to a green economy. The fee on carbon is a simple way to place the true external cost of burning fossil fuels on the fuel itself. This makes green forms of energy competitive and investment flows to the most effecient technology and sustainable energy without government intervention. (free market). This legislation is designed to reduce our CO2 emmissions to fight severe climate change but has all these benefits for our economy and country.

    This legislation is called “The Save our Climate Act” and is gaining support in congress. Just thought everone in the Energy Advantage new letter group should know. It’s a great bill once you think about the implications. And it would make a great national energy policy. To learn more google “Carbon Fee and Dividend” and look at the Frequently asked questions.

    4.

  9. Wojtek
    April 16th, 2012 at 17:54 | #9

    Kent, are you sure that this article was not intended for the April 1st?

  10. RAP77
    April 16th, 2012 at 18:23 | #10

    @Chuck S

    You are the one who is WRONG-WRONG-WRONG.

    Coal is not an efficient form of energy, neither thermodynamically, environmentally or for national health issues. Nuclear is totally inefficient if the cost of building plants is taken into account – not to mention possible hazards and dealing with its waste.

    Energy production cannot be handled on a state level because pollution moves across state lines in air and ground water – it has been a big problem for decades.

    This has all been gone through for years and there’s is not space here to go through it again, you are way behind the times and duped by special interests.

  11. April 16th, 2012 at 19:11 | #11

    Hi!, Oil & Energy Patrons Et Al:

    What else have Americans been left with sense when President Nixon closed our National Gold Window on August 15, 1971 except sacrifice of all our values, the value of our currency which effects our worth across the board, loss of jobs to outsourcing followed with a housing crash that took away trillions of our equity investments leaving millions jobless and homeless; while all the while another entire generation of our youth are locked out from full employment and then we have been offered Socialism as our way out which further undermines/dissapates everything we’ve ever stood for as a capitalist country on the heals of social revolutions around our world denouncing socialism and attempting to create their own version of Capitalism such as is begining to happen in Russia and China which now spurs most of the economic growth in this world. To secure our new socialistic norms we now plan a centralized energy policy designed to control our masses by far away regulators outside even our own respective state boundaries where we can’t get to them except if we want to hire expensive lobyists of our own on the backs of people living in a broken, bankrupt economy and still not knowing if we will from those efforts have a positive impact on an admired outcome we can trust to provide true, long range economic securities we need in order to be a capitalist country operating with government as our servants instead of being our masters which is always a sign that a country has turned socialistic instead of capitalistic. We can not maintain a Capitalistic country unless entrepeneurs are able to accumulate their required capital resources upon which to build and construct their designs for profitable business and that means the elimination of our present inflatonary, deficit & bailout policies that can only be demonstrated when inflation is allowed to rule the policy makers we’ve supposedly hired to represent and not repress/supress we the people at large through currency controls including currency devaluation etc., in order to take part in costly, currency pruchasing power destruction, via national disparity international based trade wars etc. These are some of the losses to OUR nation, due to the multiple losses encounteed when the accords at Breeton Woods in 1944 were breached by the United States which delinked our US $ from gold. Enough said!

    RUSS SMITH, CALIFORNIA
    resmith@wcisc.com

  12. Robert Berke
    April 16th, 2012 at 20:27 | #12

    To Todd Smith:

    I think your optimism about Congressional passage of a escalating carbon tax is inspiring but not very convincing. In the early days of the Obama Administration, when the Democrats held a majority in both houses of Congress, Obama failed to pass a carbon credit plan that was supposed to be less painful that an outright carbon tax. The US (and Canada) also failed to sign on to a plan to replace the expiring Kyoto treaty. Given the current deadlocked Congress on nearly every issue, I fail to understand your confidence.

  13. Robert Berke
    April 16th, 2012 at 20:33 | #13

    Kent:

    Am I reading you right or do I detect a certain tone of skepticism about the so called fracking revolution?

  14. eric taylor
    April 16th, 2012 at 21:44 | #14

    A managed energy policy seems to be working for Europe, but we are
    far from embodying the good statesmanship of the Europeans. We have
    a fragmented energy policy at best, and with all the invisible hands
    commenting against government doing anything, I wonder what is best
    to invest for in our headless horseman economy? Most people simply
    want to invest in old line energy company ideals, as they have all
    the economic power, concurrently, to maintain. You don’t really think
    we can just abandon the old power structure? We have to slow down to
    wait for them to come up to speed in our oligarchy!

  15. jonas gumaelius
    April 18th, 2012 at 08:07 | #15

    Kent,
    Regarding the future energy mix would You include methane hydrate?

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