A proposal for a serious energy policy

This has been originally written for dKos, but I expect it could interest you guys here as well. Jerome

There have been various diaries outlining plans for the Democrats to recapture power (the most recent and remarkable one being georgia10’s recent effort this week-end). All these plans focus, rightly, on the Dems being the party of responsibility and competence, there hardly ever is even a mention of energy policy.

I frankly don’t understand this.This is a vital topic, at the heart of many of the failures of the Bush administration, and which will remain in the headlines all the time in the coming months and years (if only via higher gasoline, heating oil and electricity prices).

This is a subject that begs to be reclaimed by the Democrats, and is an easiy way to show what separates us from the bushistas. Remember that the current White House is chock full of people coming  from the energy business, and I think that today’s crises have something to do with that.

Let me write again why energy is fundamental, what the issues are, and what needs to be done. I thank all those that have provided some input in my thread yesterday and I will try to credit all of your good ideas below as appropriate.
Cheap energy defines our civilisation

Energy supply, and energy prices have a direct impact on most aspects of how the US economy runs, and of US diplomacy:

• cheap oil has allowed the whole US civilisation to be built around  the car. Suburbs, McMansions, exurbs have been made possible by the  ubiquity of roads and cars, and make sense ONLY with cheap individual  transport available;

• the car industry, despite the emergence of new industries and technologies, is still the biggest engine of economic growth, occupying millions of workers and shaping the needs – and prosperity  – of whole sectors (metallurgy, electronics, textile, road  construction, hospitals, police, all the services for each), and of  course the oil industry that feeds it;

• globalisation has been made possible because it is so cheap to transport goods around (by truck or boat, mostly) and to specialise factories for specific tasks in production chains that span the world  and take advantage of local resources (whether commodities, cheap or  conversely specialised labor or access to markets);

• US diplomacy nowadays is mostly concerned with pushing that globalisation that US corporates lead, and with protecting the supply of the energy that underpins it. Look at the countries in the news –  they pretty much all have to do with energy. The Middle East  obviously, China, as the biggest global factory and the second largest consumer of oil, Venezuela. Canada – all you hear about  Canada is when there is a trade dispute;

• A final point to note in that diagnosis (as pointed out by Devilstower) is that the US energy system is really two totally separate systems:  a transportation system, mostly based on oil, and an electricity network powered, in that order, by coal, natural gas and nuclear. Electricity can be produced by many different sources, and needs to play a bigger role in transport; instead, we are currently busy bringing the oil world (and problems) into the grid through a massive increase in gas-fired generation capacity).

Crunch time is coming

The timetable for peak oil is a small number of years. The timetable for peak gas, which will trigger similar spikes in electricity prices until we have found a way to produce more than a smallish fraction of it from renewables, is not much longer. In fact, I would not be surprised if the inevitable energy crisis will come from the natural gas/electricity side before, or jointly with, the oil side.. (I explain why in my first comment in the thread below as it requires too much detail this summary, but it does need to be explained – so see below for further details).

Instead of bringing the network into out transportation policy, we have brought peak oil (in the form of “peak gas”) into the electricity sector. Power prices will be set by the high natural gas prices (see why in my comment below). So the market will balance by having demand pay the higher price, or going down significantly to get to lower prices. Thus, demand destruction. It will happen. “Markets” (i.e. physical reality, here) will prevail: the poor will go without heat and without electricity, while others will see their budgets stretched. This is the INEVITABLE outcome of today’s trends, and it could come as soon as this winter on both the power side (with a pretty strong probability) and the oil side (with a more uncertain chance – but as  you know, I am betting on it).

One aspect of the need for a comprehensive energy policy is the awareness that we are going towards a wall at high speed. If you do not believe this, and think that “we’ll find ways”, I suppose that all that I will write below makes little sense to you, and may appear unduly catastrophist and counter-productive. But even the NYT does not really subscribe to this view anymore:

I wish I had the confidence to make my own forecast, but in this case, I don’t. What I do know – what we all know – is that oil is a finite resource. Surely, the peakists are right about that. What I also know is historically, the economists have generally been right about how the price of oil has wound up fixing the problem.

As Gary N. Ross, the chief executive of the PIRA Energy Group, puts it: “Price is the only thing that matters. The new threshold of price will do its magic on the supply-and-demand side.”

After all, it always has before. And it will again. Until it doesn’t.

My suggestion is that Democrats must bring this message forcefully. And what a better opportunity than the time when all energy prices are at record highs and a Republican administration drawn heavily from the ranks of the “business as usual” energy sector is in full control?

Of course, it’s not just the Bush administration, but half a century of policies to which the Dems have contributed a lot. But when will there ever be a better occasion to break ranks with the status quo?

Cheap energy is largely an illusion

The fundamental problem is that oil (and natural gas, thus power, is the same) is cheap only because we have decided that we would only consider as its cost the actual cost of digging it out of the ground, plus whatever the locals forced us to add as taxes or royalties. Other costs were not considered:

• the pollution generated when we burn it, and the corresponding healthcare costs, and the harder to quantify impact on the delicate ecosystems around us;

• the even harder to quantify cost of using up a non renewable source. The planet has provided us with this treasure, a highly concentrated and convenient form of stored chemical energy, and we’ve burnt almost half of it (and the easier to find half) to run around, without making any significant effort to find substitutes for the future; How will we keep on functioning when that amazing resource  becomes harder to find, scarcer – and a lot more expensive?

• the newer threat of global warming, and its unpredictable consequences on our weather and our ability for us to tolerate it (and Katrina shows that we seems to be poorly prepared even for predictable phenomena). The likelihood that our crops and our environment will adapt to the coming changes is unknown;

• the transformation of our agriculture into a petroleum-based industry, where crops matter less and less and where food is but a by-product of subsidies on top of strange industrial processes (involving millions of animals “living” in horrible conditions) whereby oil-calories are transformed (very inefficiently) into edible products. The additional side effects on our health (obesity,  pollution by pesticides and the like) and our landscapes (the wholesale destruction of arable land, whether by filling it with petroleum-based products or by building on it more buildings, roads and other artefacts of our oil-fuelled civilisation) are shamefully ignored by most.

Energy is not cheap, because we are already paying a very high indirect price. Some of it can be expressed indirectly in monetary terms (good chunks of the healthcare system, the military), but a lot of it cannot be “monetised” – or only when it is too late (all the oil that we waste now and which would be incredibly valuable in post- peak prices). But essentially, we are enjoying our cheap “high” now, and leaving the consequences to our children or their children. As  individuals, that may barely make sense, but as a society, it is incredibly short sighted.

The worst part of it is that we have built a world which can function ONLY with cheap oil. Who would live 50 miles form work when oil is scarce and expensive and public transport is inexistent? Who would drive 4 tone vehicles around to go to school, or grocery shopping or visit friends? Would we rely on fertiliser and pesticides to artificially boost crop yields? Would we get our food only from the nearest non-built land 30 miles away – or from even further away? Would we rely on components coming from many different places, sometimes oceans away, to manufacture the goods we need?

And yet this is the world we live in, and will have to keep on living in even when energy gets more expensive, because you cannot undo in a few years the result of 50 years of distorted incentives on our infrastructrure and living habits.

Why leadership, and a public policy is needed

Cheaper energy is not the solution to today’s energy “crisis”,  it  is its cause.

That’s the first part of the message that needs to get out. Energy is not cheap, simply we pay for it today in indirect – but very real – ways. Making these costs visible is not putting a new burden on us, it is making visible an existing burden in order to better react to it.

We do not have a lot of time to make that clear to everybody. Oh sure, market mechanisms will function. When oil becomes scarce, it will get expensive, and we will accordingly, reducing our consumption and finding alternatives. That’ll work, but the consumption “reduction” will come from death or abject poverty – and it’s the weakest members of society that will bear the brunt.

You can expect less disruption and pain if you have to find an alternative to 500$ oil in 5 years than if you have to find an alternative to 500$ oil right now. 500$ oil will come, and it should be the role of government to anticipate it and make the transition as easy as possible.

The timetable for peak oil and peak gas is a small number of years. Again, this is the INEVITABLE outcome of today’s trends.

When that crisis comes, the Democrats need to be ready with the arguments to blame the Bush administration and with serious alternative solutions. Otherwise, the outcome is likely to be, in the  worst case, another “war of choice” by America against the “profiteering” from nearby shores like Venezuela or further ones like  Iran or, in the best case, calls to relax environmental “shackles” against coal mining and coal-fired plants and against drilling in  various places within the US.

Price signals do work, and market mechanisms do work, so you have to give the markets the right signals – steadily and predictably increasing energy prices (via, yes, taxes or other regulatory constraints). That will  give everybody the incentives needed to reduce demand and find alternatives, and it will provide government with the necessary resources to encourage R&D and to make the transition easier on the weakest members of society.

So, finally, some proposals

The goals must be as follows:

• we must focus on demand reduction. any energy policy focusing only on providing new supplies (even of the renewable kind) will only lead to protecting the status quo;

• we must focus on diversity: there is no single miracle solution. We need all options and partial solutions to be used, both on the supply and the demand side of the equation. Diversity means also fewer risks of disruption and fits in the narrative of energy security;

• indeed, an energy policy is an essential part of a security policy; security from want and security from abject entanglements in unpleasant areas of the world;

• finally, a smart energy policy is an investment in the future, for a cleaner world, a safer world where our children work in local, high tech, jobs in a preserved environment.

With that in mind, here are some more concrete proposals:

• conservation must become the new mantra and must be encouraged and incentivised. This will come from regulation (tougher CAFE standards, new building codes making it compulsory to use energy saving techniques in construction) and from targeted tax policies (subsidise local power production with solar panels and the like, tax gas guzzlers). Meteor Blades has long written about this and I explicitly put it as the first point here. Conservation saves money.

• environmental rules should not be relaxed, quite the opposite, they  should be tightened. Weak environmental rules and lack of planning  for the future is what is killing us (link it to Katrina, it’s  easy enough and true enough). Carbon emission quotas should be set –  this will make  the coal industry (which would otherwise make a killing form the  higher prices) really improve its lot or pay for the renewable  investments. Ideally, the USA should join the Kyoto Treaty and push to make it tougher. This could bring Wall Street on board as the markets for carbon are now mostly based in Europe. This would be a chance to bring them back (partly) to the US, thus creating more job opportunities in a high paying sector. Another argument here is “Drill America last” whereby environmental considerations should be reinforced by long term security considerations. (as proposed by TomB);

• a massive public investment programme in renewable energy – starting with wind, which is already cheaper than gas-fired power, but focusing also on R&D for future sources like solar or  tidal. Governments should either build or tender large scale wind power plants, or guarantee income for projects meeting certain guidelines. In all likelihood, long term power purchase agreements at reasonable guaranteed prices (say 6 cents/kWh would be enough, and would actually allow the government to make money on the power markets which could be used to finance the investments in less mature technologies. I am much less keen on biofuels (the ag sector is already distorted by too many subsidies), but on a reasonable scale it should be part of the mix. But encourage research, provide grants to universities, stipends to students coming into the sector. Reestablish America’s technological and industrial leadership in a vital sector.

• Give targeted encouragements (subsidies, tax breaks, or more innocuous funding for R&D or guaranteed purchases of their output) to manufacturers in the renewable energy sector. This should be justified by two simple arguments:  security (energy independence) and jobs (renewable create  more jobs per kWh than other energy sources):

  

• The government should show the example and commit to lower its own energy consumption in measurable ways. It should also switch its complete vehicle fleet to plug in vehicles. Make it a highly public competitive bid with a deadline that makes it possible for Detroit to compete – and win.

• the poor will suffer the most from the higher energy prices. They must be helped. That means tax breaks for cheap and fuel efficient cars, and a real effort to provide public transportation to them. A massive investment programme in light rail transportation – together will an equally massive plan to rehabilitate run down city centers (but keeping them accessible to low income people by helping them gain access to decent housing). Otherwise, other programmes supporting the weaker members of society should be reinforced – and made part of the energy plan.

• Getting transportation on the grid should be a general theme. Light rail is ideal in that respect, but individual transport should move that way, via the encouragement (if necessary by regulatory fiat) to switch to plug-in hybrids (another Devilstower suggestion). Similarly, telecommuting should be encouraged and facilitated explicitly (a suggestion by George);

• throughout, the message should be that energy policy is vital and  cannot be let in the hands only of the energy lobby led by Cheney & co. They are enjoying the windfall profits; they have not planned for the future, they are the cause for today’s situation, and only a real break from the past, making them pay, can have a chance  of success.

• ideally, the plan should come as a steadily increasing gasoline tax, but I know that  this is a politically sensitive topic. As part of a “Marshall Plan”  for energy, including real help for the most affected, and asking all to sacrifice for a better future, it might be sold. Remember the argument: prices will increase – better have the money go the federal (or local) governments than to Halliburton or to the Saudis. The likely degradation of the federal budget deficit following Katrina and then the inevitable economic slowdown will make tax hikes appear more reasonable and necessary. As red clay dem posted, the “grander” the plan, the more chances it has to work and to be taken seriously.

This fits with the theme that Democrats propose RESPONSIBLE policies, and that they care for all Americans, and for the future, not just for a select few today.. The political conditions for such a message, with a discredited administration internally and externally, the coming price hikes, and the likelihood of economic and financial difficulties for many, could not be better. Fate favors the bold – and the prepared.

Further credits to mateosf, Catriana, Knut Wicksell, LondonYank, moonfall, Doolittle Sothere, ignorant bystander, and to all the regulat contributors to my energy threads who have provided materials and ideas which I have tried to absorb and bring out. If you feel forgotten, please tell me and I will correct it. This is not the work of one person, and we should certainly work together to make something ambitious out of it.