Policy & Law
The year is 2020. The United States is on the cusp of a golden age, there's peace in the Middle East, and the Texas oil tycoon is suddenly back in the saddle.
For many, this was the takeaway from the International Energy Agency's World Energy Outlook, released last month. In its annual report, the Paris-based IEA predicted that the US will lead the world in both oil and natural gas production by the end of the decade, overtaking Saudi Arabia and Russia, respectively. By 2035, the report says, the US should be "all but self-sufficient" in meeting its energy needs.
The news sent shockwaves across some corners of the media, prompting the Wall Street Journal to run an enthusiastic editorial titled "Saudi America." Using the IEA's projections as a springboard, the paper boldly declared that the world's next energy revolution will be powered not by solar, wind, or other renewables, but by fossil fuels.
"Historians will one day marvel that so much political and financial capital was invested in a green-energy revolution at the very moment a fossil fuel revolution was aborning," the article reads.
But in extolling the virtues of big oil and gas, the Journal appears to have overlooked the report's larger narrative. Because beneath the catchy headlines and snappy sound bites lies a more nuanced vision of America's long-term energy future — one that doesn't equate self-sufficiency with energy independence, and one that raises important questions about President Obama's agenda going forward. And at a time when economic competitors like China are surging ahead with renewable energy initiatives, some worry that a suddenly rejuvenated fossil fuel industry may quash the clean energy movement in the US.
According to the IEA's projections, the US should overtake Saudi Arabia sometime around the year 2017, transforming North America into a net oil exporter by 2030. The Energy Information Administration (EIA), a data-gathering arm of the Department of Energy, painted a similarly rosy picture this week with the release of its Annual Energy Outlook. In its report, the EIA said US energy production will outpace consumption through 2040, with oil output growing at a faster rate than previously expected.
Oil's reign, however, will be short-lived.
The IEA's forecasts show that US oil production will peak at about 11 million barrels per day (mb/d) sometime before 2020, before declining gradually to around 9 mb/d by 2035. The EIA pinpoints 2019 as oil's high point, and expects production to diminish through 2040. Saudi Arabia, according to the IEA, is projected to reclaim its position as the world's leading producer sometime around the mid-2020s.
In fact, production from the Organization of the Petroleum Exporting Countries (OPEC) is expected to only increase over time, accounting for 48 percent of global output by 2035, according to IEA projections. And because oil remains a global commodity, with prices determined by myriad externalities, the US will still be vulnerable to international market fluctuations.
In other words, increased domestic production does not imply lower gas prices.
"No matter where the oil comes from — from certain exporters or from domestic production — its price and availability are still intricately tied with global events and oil availability elsewhere," IEA Executive Director Maria van der Hoeven said during a speech at Columbia University last week. "It is a fungible, traded product with a deep, liquid, and global market."
The outlook for natural gas is somewhat rosier. Since the mid-2000s, the US has seen a boom in natural gas production, resulting in abundant supply and record-low prices. Both the IEA and EIA expect these trends to continue, with the former projecting that the US will become the world's largest producer of natural gas by 2015. By 2030, natural gas will overtake oil as the dominant fuel among America's energy mix, according to IEA figures.
"As long as we are a superpower, it’s going to be our problem."
Encouraging as these statistics may be for big oil and gas, the hard truth is that a surge in fossil fuel production won't bring the US any closer to energy independence. Although the country is projected to be self-sufficient in meeting its total energy needs, it will still be reliant upon imports to meet some fuel-specific demands.
"For the US, this means any talk about prospects for energy independence leaving room for global disengagement from global markets or certain regions — that talk must be laid bare for the fallacy that it is," van der Hoeven said. "Even though the US may be approaching self-sufficiency in total energy, it will still need to import over a quarter of its oil needs in 2035."
Bruce McKenzie Everett, a professor of international business at the Fletcher School at Tufts University and former Government Relations Manager at Exxon Mobil, says the very concept of energy independence simply "isn't meaningful," because the US will always have broader economic and geopolitical interests in the oil market.
"Whether or not the US imports oil, we have a powerful geopolitical interest in the stability of the global oil market, because the whole global economy depends on it," Everett told The Verge. "So our geopolitical and national security posture doesn't change very much if we start importing less oil, or if we import from Canada rather than Saudi Arabia — it just doesn't matter.
Expanded fossil fuel production would almost certainly have an impact on global trade flows, redirecting exports toward emerging economies like India and China, and it would likely spur domestic job growth, as well. But according to the IEA, continued reliance upon oil and gas will only increase carbon emissions, raise global temperatures, and distract policymakers from pursuing more sustainable agendas.
On this point, the agency's report struck a particularly sober note: "Taking all new developments and policies into account, the world is still failing to put the global energy system onto a more sustainable path."
For decades, renewable energy was seen as the catalyst behind any sustainable future — a clean and limitless alternative to the petrol-laced tightrope the world was walking. In the US, the movement first gained real momentum with the 1978 National Energy Act, which was passed in direct response to the devastating Arab oil embargo of 1973. The legislation helped spur research in wind and solar technologies, though it made little short-term impact on America's energy mix.
Recent years have seen clean energy take on a new sense of urgency, rising in parallel with both climate change awareness and discontent over US involvement in the oil-rich Middle East.
In his 2011 State of the Union speech, Obama famously described the clean energy movement as America's next "Sputnik moment."
Half a century ago, when the Soviets beat us into space with the launch of a satellite called Sputnik¸ we had no idea how we'd beat them to the moon. The science wasn't there yet. NASA didn't even exist. But after investing in better research and education, we didn't just surpass the Soviets; we unleashed a wave of innovation that created new industries and millions of new jobs.
The US, he argued, would need a similar burst of innovation in order to balance growing energy demands with sustainable stewardship. Left unspoken, however, was an obvious corollary to Obama's analogy: if clean energy is this generation's space race, then China's renewable industry is its Soviet Space Program.
If clean energy is this generation’s space race, then China’s renewable industry is its Soviet Space Program
According to a UN report released in June, China invested $52 billion in renewable energy last year, comprising one-fifth of global expenditures. American investment was only slightly lower, at $51 billion, though this marked an impressive 57 percent year-on-year increase, compared with the 17 percent growth China saw.
This spending has already begun to pay dividends in the US, where by 2035, renewables are expected to comprise 23 percent of all electricity generation, according to the IEA. The EIA's outlook is slightly less optimistic — by 2040, renewables are projected to provide 16 percent of all US electricity — though the report notes that consumption is expected to increase at a faster rate than either gas or oil.
While ostensibly promising, these recent developments mask more systemic, long-term uncertainties within the US. The American renewable sector owes much of its recent growth to Obama's 2009 stimulus package — by definition, a temporary measure — which allocated $90 billion to various clean energy initiatives. Burgeoning industries like wind and solar, meanwhile, have long benefited from production and investment tax credits, though recent budget negotiations have now put the future of these programs in jeopardy.
If lawmakers fail to reach a deal during this month's "fiscal cliff" talks, the U.S. Energy Efficiency and Renewable Energy program would lose $148 million in funding, according to a recent White House report. These cuts, the report notes, "would be equivalent to cutting the solar energy program at the Department of Energy in half, or equal to eliminating the entire wind and geothermal energy programs." And with the staunchly anti-renewable Rep. Lamar Smith now overseeing the Department of Energy, there's growing concern that clean energy may see its momentum halted.
Chinese manufacturers are already planning for the next decade
China's approach is notably less equivocal. Much of the country's renewables spending can be traced to its most recent Five-Year Plan — an ambitious, government-fueled initiative that devoted more than $470 billion to clean energy investments between 2011 and 2015.
The plan also calls for wind and solar capacity to reach 200 gigawatts and 50 gigawatts, respectively, by the end of the decade, and outlines additional tax incentives for ethanol and biodiesel. The overarching goal, according to Chinese leaders, is for renewable energy to comprise 20 percent of the country's power consumption by 2020.
While Chinese manufacturers are already planning for the next decade, many American companies are still wondering what their balance sheets will look like come January.
"We are very much living in the present," says Ellen Carey, spokeswoman for the American Wind Energy Association (AWEA). The wind industry's production tax credit (PTC) is due to expire at the end of this year, and although its extension has some bipartisan support, the aggressive political tenor surrounding the fiscal cliff has undoubtedly bred anxiety.
"We are losing jobs on a weekly or bi-weekly basis, simply because there's no certainty about the future of the PTC," Carey explains. "And it's an urgent matter, because 37,000 American jobs are on the line."
The solar industry's short-term outlook is relatively less dire — its investment tax credit won't expire until 2016 — though it too has come under political scrutiny, especially after government-backed Solyndra went up in highly-politicized flames last year.
American solar companies are also starting to feel acute economic pressure from China. Chinese manufacturers commanded approximately two-thirds of the solar panel market last year, due in large part to economies of scale that allowed them to halve production costs within months. This strategy certainly helped drive down renewable prices across the globe, though it did so at the expense of US manufacturing.
In October, the US Commerce Department implemented a set of tariffs against some Chinese manufacturers accused of using generous government subsidies to undercut American industries — a practice known as "trade dumping." The tariffs, ranging from 24 to 36 percent, were designed to help level the playing field for American companies, though critics fear they may only raise prices for domestic consumers, potentially stunting industry growth.
In a broader sense, the dispute speaks to more global concerns over government involvement with renewables, as slow adoption rates and voracious Chinese growth have forced policymakers to take a closer look at cost-benefit analyses.
According to the IEA's Outlook, the world's renewable industries received approximately $88 billion in government subsidies last year, marking a 24 percent increase over the previous year.
But that pales in comparison to fossil fuels, which received $523 billion in subsidies last year. Recent analysis from the Oil Change International campaign group shows that developed countries last year spent five times more on fossil fuel subsidies than they did on foreign aid to combat climate change.
These trends, according to IEA Chief Economist Fatih Birol, imply that "the appetite for reform is waning."
"After a period of very strong growth, renewable energy resources have reached a crossroads as some governments look at the undoubted benefits, yes, but also look critically at how renewables are being supported and how much that is costing," van der Hoeven said during an address to the Australian Institute of Energy in November.
And with oil and gas on the ascendance, the risk of US renewables sliding to the political backburner — and ceding ground to China — may only grow in coming years.
CAN OBAMA MAINTAIN THIS BALANCING ACT?
As the renewable agenda nears its crossroads, much of America's long-term energy future may hinge on Obama's approach to his second term in office. During the 2012 presidential campaign, the Democratic incumbent ran on an "all of the above" energy plan that called for the "responsible" development of oil and gas in the short-term, concurrent with long-term investments in clean energy and a 50 percent reduction in oil imports by the year 2020.
Obama's "big tent" approach is clearly tailored to appease both renewable and fossil fuel interests, and it's largely reflective of his first term in office. Since 2008, electricity generated from both wind and solar has doubled, even as domestic production reached an eight-year high. And although the administration's tighter fuel standards outline tax incentives for cars running on clean energy, they offer the exact same incentives for cars powered by natural gas.
The question going forward, then, is whether Obama can maintain this balancing act as the US enters an oil and gas renaissance.
The president's final act has yet to begin in earnest, but there are already some signs of optimism for renewable advocates. After stalling in the Senate three years ago, Obama's proposed carbon tax has suddenly gained new momentum, while the aftermath of Hurricane Sandy appears to have revived concerns over climate change.
But clean energy groups will likely have to contend with a resurgent gas and oil industry for government support. Fossil fuel interest groups have already seized upon the IEA's projections, using them to supplement calls for further deregulation and lower taxes. Oil and gas enjoy a substantial financial advantage, as well. According to analysis from the New York Times, spending on pro-fossil fuel or anti-clean energy political ads totaled more than $153 million during the 2012 election, nearly four times the $41 million spent on pro-renewable ads. With a windfall now on the horizon, this gap may only widen.
"We have to support the industry beyond the toddler and adolescent phase, which is where it is now."
The response from renewable advocates has been similarly optimistic, if less vociferous. Tom Kimbis, VP of Strategy and External Affairs at the Solar Energy Industries Association, says solar and other renewables can still thrive amid a surging fossil fuel industry, dispelling the "either-or" philosophies that dictated energy debates in the past.
Kimbis says his industry's top policy priority is guaranteeing a "level playing field" for all energy interests. "We want to make sure that solar energy and other renewables are treated in a similar fashion to all other energy sources," Kimbis explained, "and that they're recognized as a critical part of our energy mix both for today, and for the future."
Perhaps most critical to the renewable agenda is public support. If the fossil fuel boom results in significant job growth, it may be difficult to persuade voters to spend tax dollars on alternative sources — especially if Chinese manufacturing continues to undercut American industries.
"If the rationale behind renewables is hung on the precept of developing US manufacturing, and then those US manufacturers end up failing as a result of global competitive pressures or other global dynamics, then in the public's mind, support of renewables may be deemed a failure," says Galen Barbose, Principle Scientific Engineering Associate in the Electricity Markets and Policy Group at Lawrence Berkeley National Laboratory.
Others, however, see global competition as a potentially galvanizing force for the renewable platform, something akin to what the space race did for the American science industry. It's this distinctly American, "we're number one!" ethos that Obama tapped into during his 2011 State of the Union address, just a few paragraphs after making his Sputnik analogy.
"We need to get behind [green] innovation," the President said. "So instead of subsidizing yesterday's energy, let's invest in tomorrow's."
On that front, the jury is still out.
"We have a tremendous opportunity to create a vibrant domestic clean energy industry that develops, manufactures, and exports to other countries," says Daniel Weiss, Senior Fellow and Director of Climate Strategy at the Center for American Progress. "But we have to support the industry beyond the toddler and adolescent phase, which is where it is now."
Garnering such support for the space program wasn't difficult during the Cold War. Americans had a clear enemy (the USSR), a clear goal (the moon), and a clear path to victory (investment in technology).
Today’s clean energy race is predicated upon a less marketable narrative. In the renewable sector, achievements are measured not with moon landings or rocket launches, but with more subtle, incremental steps toward a still opaque goal. Whereas the space race spurred massive education initiatives across both the US and USSR, the green tech race has only inspired similar developments in China, where investment in math and science education has become a national priority.
Climate change and dwindling resources may be enough of an impetus to earn tax credits and government loans, but neither resonates with the same urgency as the Soviet-era arms race once did. And until they do, the US runs the risk of resting on its oil-soaked laurels — even as the next solar-powered Sputnik inches into orbit.
America may choose to simply rest on its oil-soaked laurels