Opinion: Energy and the Presidential Election
By Joe Petrowski on Sep. 19, 2016FRAMINGHAM, Mass. -- While our presidential candidates have not discussed energy policy nearly as much as it deserves because it is less interesting than “pay for play,” pneumonia, the size of someone’s hands, who is a “deplorable,” and other nuggets from the basket of nonsense that is our politics, it is a critical component of a nation’s prosperity and security.
In both world wars, energy was a key driver. Japan bombed Pearl Harbor one month after the United States embargoed oil to that country, and Germany’s move into Poland and Romania was driven by the need for coal and oil, respectively. Ultimately, the German war machine ground to a halt because of a lack of energy.
Petroleum receipts have funded ISIS, and the rise of Osama bin Laden was fueled (pun intended) by objection to the U.S. presence in the Middle East and the house of Saud’s power from petroleum. China is importing and storing record amounts of petroleum, which may be an indicator of a foreign-policy initiative that is, if not against Taiwan, a pre-emptive move to assert control over the South China Sea, which holds vast deposits of petroleum and shale gas.
Energy is 17% of gross domestic product (GDP) and a prime determinant of export competitiveness, along with labor costs and trade regulations. Energy prices and taxes are the most regressive form of taxation, because the ability to heat, cool, light, transform, cook and move have no income distinction. High energy prices destroy consumer spending as they did in the Great Recession, and consumer spending is currently the only positive driver of anemic U.S. growth. We have never failed to have a recession or worse when energy prices exceed 17% of GDP, and we have always grown 5% or higher when energy costs are less than 15% of GDP.
So what are the key energy policy initiatives?
Carbon tax
In 2015, Bernie Sanders introduced “The Climate Protection and Justice Act,” which called for an immediate $3-per-ton tax on carbon, escalating to $73 per ton in 2035. This translates in cost of gasoline to 3 cents per gallon (CPG), rising to 73 CPG in 2035. This policy aim is in the Democratic platform; however, to be fair, Donald Trump has not addressed the carbon taxation issue directly.
Production
Large parts of the Democratic Party are calling for a ban on fracking. When the threat to groundwater was shown to be false, suddenly earthquakes were the reason cited. The United States’ goal must be to continue to produce more BTUs (British thermal units) than we consume and to do so cheaper per unit than other countries. Only natural gas can do that (solar and wind are too unreliable and expensive), and do so in an environmentally friendly way.
Infrastructure
The United States has 2.5 million miles of energy pipelines with an exceptional record of safety and environmentally sound operation. It needs another 2.5 million miles, costing $2 trillion in the next seven years. Put aside the always-political argument of jobs; ditch digging does not particularly excite me and is permanent employment only in the Soviet Gulag. The pipelines are needed to connect the United States and Canada for regional security; bring commodities from surplus regions to deficit regions; eliminate the need for more expensive and dangerous rail, barge and trucks; and supply the 500 new power plants we will need in the next seven years as we shut almost all of our coal plants and decommission 30 of our 103 nuclear plants. We will need new distribution lines as natural gas replaces heating oil and propane for heat, and as it supplies a growing microgeneration business for residences and small businesses. Replace the rest of obsolete cast-iron and steel pipes we need to for safety and environmental reasons.
Power
The latest economic data confirms that while transport prices are down, power prices are rising and costs are running higher year over year. Without new power plants and with growth in electricity usage steep, we could be on the verge of a power crisis on par with the odd-even days of gasoline rationing. We could see two-tier pricing and increased brownouts, if not significantly higher prices. The national average price of power is 12 cents per kilowatt-hour (kWh), with the average household using 1200 kWh per month, adding up to $1,700 per year. Blending in more solar at 15 cents per kWh and wind at 25 cents per kWh will not lower the price.
The priorities for the next president and our scorecard for success should be:
- Do we produce more BTUs than we consume?
- Can we therefore export BTUs and earn foreign exchange as well as have influence in foreign relations? (This means less power for Putin and the other kleptocrats whether in Sudan, Nigeria or the Mideast.)
- Can we have power prices cheaper than China, Europe and Mexico to guarantee we sustain an export economy?
- Do we have diversity in fuel resources, with no one component among hydrocarbons, wind, solar, nuclear and hydrogen providing more than 20% of our BTU production?
- Will we nurture market-based economic efficiency programs that drop our per-capita energy consumption in the United States to less than 300 million BTUs per person?
We must await the election to know who the new president will be. While this election seems like a repeat of 1876, when Democrat Samuel Tilden won the popular vote and Republican Rutherford B. Hayes the electoral vote, as citizens we must understand the implications this election will have for the very serious business of energy policy.