Obama's Energy Policy - The War on Carbon

The Administration pays lip service to developing our own oil and natural gas resources.  As always, actions speak louder than words.  The Administration has: 

• Placed a de facto ban on leasing of offshore federal lands off the west coast, east coast and Alaska
• Substantially slowed the permitting of shallow and deep water drilling in the Gulf of Mexico
• Killed construction of the Keystone XL pipeline
• Subsidized failed green energy projects
• Through EPA action in early 2009, began the process that will ultimately lead to massive regulations for almost anything that emits carbon dioxide.

Editors Note: This blog is an excerpt from a research paper I completed a few months ago. 

Offshore Drilling on Federal Land

Let’s examine what has been done to impact production of oil and gas on Federal lands.

• In response to record crude prices of $147 per in 2008
• President Bush announced a plan to revamp leasing of offshore federal lands to include areas previously under a moratorium
• A Democrat controlled Congress agrees to a bipartisan proposal lifting a ban on new areas for oil and gas leases offshore federal lands
• In January of 2009, the interior department issues a draft proposal for leasing for the 2010 -2015 time period which includes
• 31 Outer Continental Shelf (OCS) Lease Sales in the following areas
• 4 areas off of Alaska
• 2 areas off the Pacific Coast
• 3 areas off the Atlantic Coast
• 3 areas in the Gulf of Mexico

• After President Obama was inaugurated, his appointee, Ken Salazar delayed implementation of the aforementioned draft plan which was supposed to begin leasing in 2010
• Salazar finally put forth a new plan in November of 2011 taking all areas except those in the Gulf Coast (already open) off the table.

As one can see the Obama Administration took immediate steps to curtail exploration in new offshore areas.  Under Salazar only the area already open to federal offshore exploration (the Gulf of Mexico) would be allowed until at least 2017.  So much for a pro drilling policy!  See Figures 15 and 16 for details.

Figure 15

OCS Areas Opened for Exploration under the Bush Plan

Source: Obama and DOI impose 5 yr drill ban by Carol Greenburg

Figure 16

OCS Areas Opened for Exploration under the Obama Plan

Source: Obama and DOI impose 5 yr drill ban by Carol Greenburg

Glacial Permitting Process

The Deepwater Horizon oil spill was a disaster.  However, the President’s subsequent actions in concert with his Department of Energy show a bias against any deepwater drilling.  Here are the facts:

• On May 27, 2010 in the aftermath of the Deepwater Horizon disaster, President Obama placed a 6 month moratorium on drilling in waters 500 feet or deeper.
• On June 21, 2010 U.S. District Court judge granted a preliminary injunction halting the moratorium and immediately prohibited the U.S. from enforcing the ban.  The judge indicated that “a blanket moratorium with no parameters seems to assume that because one rig failed ... that rigs drilling new wells over 500 feet also universally present an imminent danger”
• Finally, in October 2010, Salazar set what he called the “gold standard” of safety for operators drilling in deep water.  Some are listed below
• Blow out preventer must be inspected and its design must be approved by a third party
• Must provide information on stopping or mitigating the impact of a failed blow out preventer
• Casing and Cementing procedures must be approved by a professional engineer

• Also, in October, the head of the Bureau of Ocean and Energy Management (this agency issues the drilling permits) said:
• Further guidelines are being developed
• The first permits under the new regulations will be issued by the end of 2010.
• On February 2, 2011, the same District Judge held the U.S. in contempt of court saying that the U.S. acted with “determined disregard” by reinstituting a series of policy changes that were a de facto moratorium.
• In the wake of the disaster, shallow offshore wells were also impacted.  In 2010, regulators demanded modifications to 101 shallow offshore drilling plans (compared to only 59 in 2009)
• First permit since the moratorium was issued on February 28, 2011
• Only 4 more permits (reissue permits) were approved between February 28 and March 22^nd 2011

As one can see, the administration has systematically slowed permitting on both deep water drilling (Typically 7 per month to about 3 per month) and shallow water drilling (Typically about 15 per month to about 5 per month).  See Figures 17 and 18 for details.

All approved Federal drilling permits under President Bush and President Obama are shown in graphical form in Figure 18.5.  Note the stark decline under President Obama.

Figure 17

Figure 18

Figure 18.5

Killing the Keystone XL Pipeline

The most pubic manifestation of the President’s war on carbon is the recent “delay” of the Keystone XL pipeline.  The pipeline when completed could move 700,000+ barrels per day of Canadian crude oil to Gulf Coast refineries.  The initial application for permitting the Keystone XL pipeline was submitted in 2008.  A 2010 assessment of the project by the Department of Energy stated that Keystone XL “would not appreciably increase” global life-cycle greenhouse gas emissions.  The final Environmental Impact Statement completed by the State Department in August 2011 reached the same conclusion.  After all of this, the State Department and the President stopped the project from moving forward, ostensibly because of concerns that the current route crosses an important aquifer.  Didn’t State and the Administration know about the aquifer?   There are about 55,000 miles of crude oil pipelines and about 95,000 miles of refined products pipelines in the U.S. alone.  It is interesting to note that there are already two major crude oil pipelines that traverse the aquifer and hundreds of miles of other lines in the Ogallala aquifer area (See Figure 19).  Why is the Administration objecting if major crude pipelines already traverse the aquifer?

Figure 19

Pipelines Crossing Ogallala Aquifer

Alternative Energy vs. Carbon Based Fuels

Can synthetic and or renewable fuels eliminate our dependence on foreign oil?  At current oil prices, both synthetics (like coal liquefaction coal gasification, etc) and renewable fuels (solar, wind, biomass) are 2 to 3 times more expensive on a BTU basis than oil.  To date, 29 States (including Oregon) have mandated the used of renewables through what is called RPS (renewable portfolio standards). Depending on the state up to 33% of the electricity generated is mandated to be generated by renewable sources by 2025. The Manhattan Institute and the Beacon Hill Institute in concert with the Cascade Policy Institute have recently completed studies on RPS and the conclusions are the same – consumers will pay up to 30%+ more for electricity than if no RPS mandates were enforced.   Because of litigation, one such project called Cape Wind off the coast of Massachusetts, has received a good deal of scrutiny.  It has come to light that Cape Wind will charge the Massachusetts utility company, NSTAR, about 20 cents per kilowatt hour of electricity generated with price escalations built in for the 25 year life of the contract with that utility (note, we in Oregon pay a bit less than 8 cents per kilowatt hour).  What a ratepayer rip-off!  RPS will kill jobs and move businesses out of state or country where energy prices are competitive.  By the time the public realizes they are being “hosed” it will be too late.  RPS projects have a 20-25 year fixed price contract with utilities.  As such, utilities will not be able to shed this high cost energy until contracts expire!  State RPS mandates will artificially inflate electricity prices and slow domestic economic growth 

The War on Carbon

The current portfolio of fuels used to generate electricity is shown in Figure 20.  Carbon based fuels generate 90.6% of America’s electricity.  Hydroelectric generates 7% while renewables account for only 2.4% of America’s electrical needs.

Coal is an abundant American resource with a 250 year supply.  Coal dominates as the fuel of choice with about 50% of the market because, up to this point, it has been the most economical fuel for electric generation.  Because of new “fracking” technology, domestic reserves of natural gas have increased dramatically and prices for gas have fallen sharply.  Gas is cheap, available and clean.  Moving forward, gas fired power plants will be competitive with new coal plants.

The President, with a super majority in the Senate and majority in the House was unable to enact Cap and Trade legislation which would have, in effect, resulted in a substantial tax on carbon while subsidizing renewables.  Unable to implement its green energy agenda through legislation, the Administration turned to its regulatory arm (EPA) to circumvent the will of Congress.  On April 17, 2009, the Obama Administration’s EPA issued an endangerment finding which stated that global warming poses a serious threat public health and safety.  As such carbon dioxide and other “green house gases” (GHG) would be subject to regulation under the Clean Air Act.  EPA reached its final conclusion in December of 2009 “After a thorough examination of the scientific evidence and careful consideration of public comments”.  The Agency’s final “endangerment finding” included carbon dioxide and five other compounds.  This finding clears the way for an all out war on carbon.

In his first term, the President has limited his war on carbon to the Coal industry.  Two EPA regulations are particularly troublesome

• MACT – released in December 2011
• By 2016 existing coal plant emissions of mercury and “other hazardous” compounds must be reduced to levels achieved by the by the least polluting 12% of the current coal fired fleet of power plants
• Compliance costs estimated by the EPA at $9.6 billion per year will be passed on to the consumer
• The rule will force non-complying plants to shut down
• EPA estimates that about 55% of all coal plants will be affected by the rule
• Coal fired power plants will be shut down.  Estimates vary widely
• Some in the industry claim that more than one third of the current coal fleet will be shut down as a result of the rule.
• The Institute for Energy Research indicates that the MACT rule coupled with the Cross State Air Pollution rule will shutter about 10% of the current coal fired plants
•  The EPA claims that only 1% of the fleet will be shuttered
• The Electric Reliability Coordinating Council (an industry trade organization) claims that 1.44 million American jobs will by lost as a result of the rule     
• EPA issued a proposed rule on 3/24/2012 that limits on Greenhouse gas emissions on new electric generating plants
• The proposed rule limits emission of CO2 to 1,000 pounds per megawatt hour  (Coal plants typically emit nearly 1,800 pounds per megawatt hour)
• According to the NY Times article, coal fired power plants have no easily accessible technology that can bring their emissions under the limit
• If this rule is implemented as proposed it will preclude construction of any new coal fired plants in America

As a result of industry and public outcry, EPA recently asked for more time to review its own MACT rules.  Congress is weighing in.  Senator James Inhofe has proposed legislation that will block implementation of the MACT rules.  Environmentalists want this rule implemented on schedule and a court battle regarding the “stay” may be inevitable.

The President’s second term strategy was made clear when he said to Prime Minister Medvedev that he, the President, would have much greater flexibility to deal with Russia after the next election (presumably because the President would not have to deal with the political implications of his decisions).  Of course, the President did not know that his conversation was being picked up by a “hot mike”.  Even if Congress is controlled by conservatives, the President, if re-elected, will use the awesome power of EPA and other agencies to implement his agenda.

In a paper entitled “Five Reasons the EPA Should not attempt to Deal with Global Warming” (Heritage Foundation, April 23, 2009 by Ben Lieberman and Nicolas Loris)

The Following points are made.

• Regulation of Carbon is devastating to the economy
• Single year losses to GDP could exceed $600 Billion
• Energy Costs would skyrocket an additional 30%
• Annual job losses could exceed 800,000 for several years. (manufacturing would be hardest hit)
• Higher energy costs and job losses would fall disproportionally on the poor and uneducated
• The benefits of controlling carbon emissions are negligible
• EPA suggests that a 60% decrease in carbon emissions would reduce global warming by .1-.2 degrees Celsius by 2095.
• The Extreme views of Global Warming zealots are not supported by the consensus
• The EPA administrator relied upon conclusions reached by the U.S Climate Science program and Intergovernmental Panel and Climate Change (IPPC)
• A U.S. Senate minority report was released in December of 2008 that included 650 dissenting scientist refuting claims made by the IPPC
• The bureaucracy would significantly expand to regulate Carbon
• More bureaucrats mean more tax dollars spent on non-economic activity
• This moves our economy further down the path of central control
• Regulations already hamstring construction projects.  It can take 4-5 years just to complete the environmental impact statement and review

I believe that unreasonable emissions standards and State RPS mandates will artificially inflate electricity prices and slow domestic economic growth.  Our nation would be better served by using our own coal and natural gas resources as low cost fuels to generate electricity.

As one can see, the EPA has awesome power and can circumvent the will of Congress and the people.  EPA decisions can essentially ignore the economic impact of a potential regulation.  Currently, without a super majority in Congress, EPA regulations cannot be overturned.  I believe that Congressional oversight must be injected into this process of out of control regulation.  A new law is must be passed so that Congress is forced to review and pass each proposed EPA regulation that has an economic impact of $100 million or more.

Figure 20

Fuels Used to Generate Electricity in the United States

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