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Ever since his State of the Union address, we've been thinking about the proposals that the President unveiled that night, such as transitioning the country’s electricity generation to 80 percent clean energy by 2035. That is certainly a laudable goal, but achieving even half of it will require some fundamental changes in energy policy, including the recognition that traditional energy sources will remain a large part of the power mix for decades to come.
Renewable energy, including hydropower, currently provides less than eight percent of our national demand. Yet despite decades of government subsidies in excess of $120 billion, these sources have failed to develop into competitive alternatives to traditional fuels. Instead, misallocated government funds have been used to prop up uncompetitive technologies--especially wind, solar and biofuels.
Ethanol is perhaps the most egregious example of resource misallocation. This high-cost fuel source relies on millions in government subsidies annually to artificially reduce the price paid by gasoline refiners. Since private investors have not hopped on the ethanol bandwagon, production likely would dry up in the absence of government funding.
Unlike ethanol, clean burning natural gas doesn’t require governmental largesse to stay competitive. What’s more, it’s a fuel we possess in great abundance. In fact, the Energy Information Agency recently doubled its estimates of recoverable gas in the U.S. to 827 trillion cubic feet—equivalent to a 150-year supply at current usage levels.
America is the second largest natural gas producer in the world, and can quickly and affordably transition to this low-carbon fuel source, while maintaining our standard of living--while competitive new green energy technologies evolve. Unfortunately, several roadblocks threaten expansion of domestic natural gas production.
Some concerns have arisen with regard to the technology used to extract natural gas from shale formations. Hydraulic fracturing pumps water and a small amount of chemicals thousands of feet below the surface to create cracks in the bedrock, resulting in the release of trapped gas. Environmental groups claim, from a relatively small amount of unsubstantiated evidence, that this “fracking” process taints local water supplies. In response, the Environmental Protection Agency has agreed to conduct a new examination of hydraulic fracturing, following up on a previous study several years ago that verified the practice was safe.
At the same time, the Department of the Interior and a number of local governments are considering new regulations that could impede natural gas exploration and production. Should hydraulic fracturing be banned, or the industry be subjected to overregulation, the natural gas boom will be over and the transition to a cleaner energy mix will be postponed indefinitely.
We must also acknowledge that petroleum will continue to be a major component of the nation’s energy supply for the foreseeable future, especially in its use as a transportation fuel. Unfortunately, the President’s policy agenda includes tax increases that would handcuff domestic energy companies, leaving the U.S. even more reliant on foreign oil. Specifically, President Obama has targeted oil ”subsidies” for elimination in 2011, demonstrating the casual regard with which the administration tosses around the term "subsidy." On the chopping block are a manufacturer’s tax credit, shared across all sectors to create jobs, and a credit against taxes paid overseas to ensure that multinational companies based in the U.S. can compete globally.
By eliminating these important credits only for only the oil and natural gas sector, the President is punishing the 9.2 million Americans whose jobs are supported by this industry, and discriminating against the energy industry. If enacted, these two proposals would send billions of additional American dollars and thousands of jobs to foreign competitors who do not face similar taxes.
Our country needs a steady and reliable supply of affordable, domestic energy to keep the nascent economic recovery on track. Policies that jeopardize this growth—be they inefficient renewable subsidies, regulations that discourage domestic production, or harmful tax increases—will endanger not only our economic future but our national security as well.
