obama

Anadarko photo. Obama’s energy legacy a lesson in constraints of activist policy making

$250 billion/year oil and gas contribution to GDP, immature clean energy tech were real obstacles to Obama energy activism

With Barack Obama headed out of the White House in a few months, the punditocracy is turning its attention to his legacy, including energy policy, which featured prominently in his second term.

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President Barack Obama

The central idea of commentators like Robert Rapier is that there is a contradiction – maybe even irony – that Obama, the great champion of climate change mitigation and clean energy technologies, oversaw the biggest and quickest expansion of American oil production of any president in history. When George W. Bush left office in 2008, production was 5 million b/d, then rose to 9.4 million b/d by 2015 (it’s fallen by 1 million b/d since because of the OPEC-driven price rout). Obama also approved the end of the 40-plus year old crude oil export ban, oversaw a rapid expansion of natural gas production and American LNG capacity, as well as the construction of 12,000 miles of pipelines since 2010.

There is no contradiction. This what the beginning of an energy transition looks like.

All the new technologies Obama has supported with subsidies and policy are at the very bottom of the diffusion S-curve, meaning they have yet to penetrate the market in any significant way. In many cases, not even in an insignificant way.

For example, according to the US Energy Information Administration, solar energy generation accounts for just 0.6 per cent and wind energy 4.7 per cent of the national power generation total. Electric vehicles make up just 0.62 per cent of the American vehicle fleet. Utility-scale battery storage had its break-out year in 2015 and adoption is in the very earliest stages.

Most Americans think renewable energy makes up 20 per cent of current electricity production and that figure will increase to 35 per cent (experts say it will be only a few percentage points higher than it is now), but policy makers know better.

Speeding up technology diffusion is like pushing a string – pushing harder doesn’t produce better results.

Compressing the timeline for clean energy technology diffusion increases risk and cost, and American consumers have made it clear to politicians for a very long time that they will not tolerate high energy costs. Ask any elected official what he or she thinks about boosting the price of gasoline 10 cents a gallon in an election year. Not happening.

Obama would probably have loved to be a more activist president on the energy and climate change files. His speeches about the danger of a warming planet leave no doubt that he takes the issue seriously. And his leadership around the Paris climate accord demonstrate that he is willing to take political risk to act.

But without viable, economic alternative technologies just yet, he was hamstrung.

On the fossil fuels side, he targeted coal with the Clean Power Plan, but cheap natural gas has pretty much accomplished his goals even as his policy has been hung up because of state and industry court challenges. And no analysts I’ve read are predicting a big swing back to coal if gas prices do rise. The replacement of coal by a combination of gas and renewable energy appears to be irreversible, as coal has fallen as low as 29 per cent of national power generation and appears to be headed to zero in the not too distant future.

The most Obama could do against oil and gas production was nip at industry’s heels: regulations to reduce fugitive methane emissions, restrictions on drilling offshore and on federal land, stricter vehicle fuel economic standards, and a proposed $10 a barrel tax that was largely symbolic and destined to die in Congress.

The true picture of just how little room Obama had to restrict oil and gas came last year with the Environmental Protection Agency’s report on hydraulic fracturing, which concluded there was no widespread systemic contamination of the nation’s drinking water.

If the champion of climate change was looking to seriously injure domestic energy production, that was his chance. Instead, he resisted calls from environmental groups to ban fracking and even sent out surrogates like Interior Secretary Sally Jewel to beat back the more extreme eco-activists, like erstwhile supporter Bill McKibben and the keep-it-in-the-ground movement.

And let’s not forget the real world economic restrictions facing Obama. He came to office in 2008 at the outset of the Great Recession and according to University of Houston energy economist Ed Hirs, needed the GDP boost that came with almost doubling American oil production. Hirs notes that the oil price rout that started in late 2014 has cost the national economy about $250 billion a year and 250,000 jobs.

“The Obama Administration was unable to put in a cap in trade or a carbon tax policy because they were in the Great Recession and you can’t increase the costs for consumers in a recession – that just doesn’t work,” Hirs said in an interview.

“And it was a huge boom to GDP to have OPEC increase the price to well over $100 a barrel. This made it economical for domestic oil producers to go into the shale plays and we went from producing 4-5 million barrels a day to producing as much as 9.5 million barrels a day with a huge amount of that – at least half of it – coming from oil shale production.”

As the United States prepares to elect Barack Obama’s successor, the conclusion from a review of his energy and climate policies is that if Democrat Hillary Clinton wins she will have to take into account the same policy constraints: the immaturity of alternative energy technologies and the economic benefits oil and gas production confer on the American economy.

Both argue for incremental instead of radical changes in energy and climate change policy.