Keystone Application Resubmitted; Obama Administration’s Delay Helping China
TransCanada resubmitted its permit application to build the Keystone XL pipeline earlier today, a multi-billion dollar private investment that would create thousands of American jobs and improve our access to North American oil. No brainer, huh? After working with the government of Nebraska, TransCanada is now prepared to build the pipeline along a route that better protects sensitive ecosystems and water resources in the state.
The Washington Post editorialized this week in favor of moving forward on the pipeline, saying, “the case for ultimately approving the Keystone XL pipeline – always strong – has grown stronger.”
Of course, despite the rigorous review this pipeline has already been subjected to, the Obama Administration has punted on making a final decision on construction until after the president’s re-election campaign, in 2013. This unnecessary delay in building a major piece of energy infrastructure falls squarely on the shoulders of the Obama administration, which rejected the pipeline late last year in a political move to appease the environmental left. In the wake of Obama’s rejection, Canada has proceeded with plans to get the oil out of the country by other means; notably, China is fast on our heels trying to make shipment of the oil to Asia via tanker our fiercest competitor.
The American people know how vital this pipeline is to our recovery and our future energy security; recent polling suggests that 2/3 of people who have heard of the pipeline want it to be built. While conservatives in Congress continue to pursue other means to speed up approval for the pipeline, the president continues with half measures like a laughable staged announcement that he will fast track its southern leg -- which conveniently does not need his support.
Resubmitting this application is a welcome sign from TransCanada that they will not give up on building the Keystone XL. Let’s hope that this time – with the support of the American people and the state of Nebraska – the pipeline will get a green light.
Senate Omnibus Improves Stakes for Job Growth
Senators John Barrasso and Orrin Hatch, as leaders of the Senate Western Caucus, introduced a piece of legislation today that would let the Senate vote on important pieces of job-creating legislation already passed by the House. Their Western Economic Security Today (WEST) Act will (1) end the Obama Administration’s defacto moratorium in the Gulf and Outer Continental Shelf, (2) streamline EPA permitting requirements and limit EPA regulations, and (3) protect agriculture by eliminating the threat of burdensome and erroneous regulations.
Though this bill will create jobs in the Western U.S., its provisions improve the stakes for job creation across the country. The eight House-passed pieces of legislation are focused on getting the government out of the way of our nation’s job creators and improving our prospects for domestic energy development. The WEST Act will help us overcome several obstacles the administration has thrown up, including a revised offshore leasing plan that takes major new acreage off the table, the looming threat of greenhouse gas and other regulations from the EPA, and lethargic permitting processes that tie up resources and jobs. Crucially for the western U.S., this bill will also end an artificial and ongoing water shortage in the San Joaquin Valley imposed by strict and economically crippling enforcement of the Endangered Species Act.
The environmental left is sure to oppose this omnibus, embodying the viewpoint that government intervention, no matter how severe, should take priority over job creation and economic development that engender prosperity. Of all the provisions, the green lobby is sure to most vociferously oppose the provision stripping EPA of its ability to regulate greenhouse gas emissions. The Clean Air Act was never intended to apply to pervasive emissions like carbon dioxide that literally drive economic growth. Without repealing this authority, we’re sure to see an avalanche of crushing regulations from EPA that will eliminate coal and drive up the cost of producing and accessing energy for all Americans.
Of course, the House has long been at work trying to create breathing room for job creators among the rampant overreach and red tape emanating from the White House. Under the leadership of Harry Reid, however, conservative Senators favoring quick, effective action to create jobs are given little respite to pursue creative solutions. The WEST Act is a bold move by Sens. Barrasso and Hatch to pressure the Senate Majority to approve or reject job creating opportunities for Americans at no cost to government.
Goolsbee Plays Petroleum Politics
Looking to avoid the political perils of $4 gasoline, the White House is searching high and low for a chance to claim leadership on energy prices. That’s why one of their top allies in economics, Austan Goolsbee, took to the editorial pages last week to launch a clever — but too cute — argument to justify a politically motivated oil sale from the Strategic Petroleum Reserve.
The politics are simple: Craft an argument that we have too much oil in the SPR and use it to justify a sale for strategic purposes, then convince the electorate you’re working to lower gas prices.
What about the substance? Remember that the SPR was created in response to the Arab oil embargoes as a domestic crude oil reserve to counter a severe supply disruption. Its original authority provided up to 1 billion barrels in petroleum reserves; current capacity hovers around 727 million barrels, of which 697 million barrels are filled.
Goolsbee argues that the SPR is an “insurance policy” that should be sized to the potential loss. He suggests that we insure against “potentially strategically vulnerable sources” outside North America, and that we have an SPR equal to about 75-80 days’ worth of these imports.
Because the U.S. is currently benefiting from increased domestic and Canadian production of unconventional oil resources, imports are down. And since our imports from the strategically vulnerable sources are down, we need less insurance.
To Goolsbee, it’s time to sell.
But hold on. Why 75-80 days of non-North American oil? He offers no justification except to point out that it is about what we had until 2008. Unfortunately, the canonical insurable event – the original Arab oil embargo – lasted 149 painful days. Perhaps the likelihood of a similar embargo is lower today, but how much lower?
And embargoes are not the only threat. How should we think about disruptions from natural disasters and national security threats? Putting some hard numbers on these exposures seems like a sensible prerequisite to downsizing the nation’s insurance protection.
And why is the focus on imports? Goolsbee asserts, “If you produce all the low-cost energy you need domestically, you don’t need a reserve.”
But the SPR is not just as an insurance policy for oil imports. It’s an insurance policy for oil use. And we use a lot. If North American supply is disrupted by a natural disaster or terrorist strike, the exposure is identical to that if jihadists successfully destroy a Saudi facility.
Worse, if this happened, imports would increase. The Goolsbee rule would lead the U.S. to bulk up the SPR, buying oil for the strategic reserve at the same time that the price is increasing on the world market and domestic wealth is declining in the face of an intensified trade imbalance.
It makes little economic sense to sell low and buy high — considering that the SPR was designed to insulate our economy from the price swings associated with severe supply disruptions.
His final argument is that cutting back to 75-80 days of imports would allow the release of 185 million barrels of oil that could raise $20 billion for the Treasury.
Nobody should be in favor of expensive over-insuring. But it is a mistake to look at a strategic national and economic security investment as a potential revenue raiser.
Goolsbee’s argument is a clever way to help the White House justify an SPR release. I bet you’ll see it echoed by the White House soon.
Don’t be fooled. And don’t sell the SPR.
This piece originally appeared on Politico.
Obama Points Fingers While the House Looks for Solutions
House Republicans have their head in the game when it comes to finding solutions for the pain at the pump, while the administration continues to point fingers and place blame for problems they don’t know how to fix. Today the President attacked market speculators, who he blamed for manipulating oil markets and “driving prices higher”. His solution? $52 million to increase oversight of energy markets, which are already regulated by the Federal Trade Commission and the Securities and Exchange Commission.
Meanwhile, House Republicans are busy looking for actual policy solutions to high gas prices, none of which have to do with throwing more money at a problem. Today at a committee markup, House Republicans approved two draft bills to get the administration out of the way. Later this week, we can look forward to a floor vote that would force the administration to approve the Keystone XL pipeline. The Nebraska legislature is hard at work fast-tracking an amended pipeline route after derailing the pipeline this winter. If they’re on board with getting this pipeline completed quickly, Washington should get on board too.
High gas prices could deal a serious blow to this recovery. Despite declining slightly to $3.91 this week, gasoline prices have still more than doubled since Obama took office. According to the US Chamber of Commerce, 24% of small businesses consider the cost of gasoline their highest concern. When they’re paying for high gas prices, our nation’s employers can’t hire, invest or expand. Meanwhile, on Sunday’s Meet the Press, Obama’s Treasury Secretary, Tim Geithner, told us that energy costs for families have not risen in the past 5 months.
President Obama has grown comfortable with falling short in energy leadership and blaming others for the collateral damage. With administration policies already costing us about $2 for every gallon of gasoline we use, it’s imperative that the president stop finger pointing and get to work like the House.
It's Official: EPA Issues Draft Regulation for Power Plant Greenhouse Gas Emissions
We’ve heard about it already, but last week EPA made it official: First ever greenhouse gas regulations for power plants hit the Federal Register. EPA’s move is the next step in a process that started with the 2007 Supreme Court case Massachusetts vs. EPA, a decision that gave EPA the authority to regulate greenhouse gas emissions if they pose a threat to human health and the environment. EPA claimed its authority with a 2009 endangerment finding, and has been taking steps to toward this regulatory action ever since.
Last week’s regulation limits the amount of carbon dioxide a power plant can emit per unit of power produced to 1,000 pounds per megawatt-hour. To put this in perspective, new natural gas facilities emit just under that limit; coal plants emit as much as 1,800 pounds per megawatt-hour. Good news for gas; bad news for coal.
Still, EPA doesn’t deem this regulation to be “economically significant,” meaning it won’t impose an impact of more than $100 million. How does that add up? First, the regulation doesn’t apply to any existing facilities. Second, the Obama EPA has been hard at work issuing waves of burdensome regulation on traditional air pollutants that make coal substantially less competitive. Third, natural gas – coal’s chief competitor – is hovering at its lowest prices in 10 years. Put it all together, and this regulation isn’t economically significant, because the EPA has already regulated the coal industry into oblivion and natural gas prices are taking care of the rest.
The EPA says that new coal can be built as long as it employs carbon capture and sequestration (CCS) technology. They even give facilities a lengthy compliance window, allowing them to average facility emissions over 30 years. But CCS hasn’t yet been employed at a commercial stage and there are considerable technological, legal, and infrastructure challenges to overcome before the technology can be viable. This all adds up to an effective death knell for King Coal, a strategic fossil fuel that has dramatically fallen from favor while still supplying half of the nation’s electricity.
Limiting the cost impacts of killing coal hinges on cheap natural gas for the foreseeable future. This seems like a viable reality, with fracking (and mild winters) putting a glut of natural gas on the market, driving down prices. With prices this low, we can expect new generation to be natural gas heavy, sidelining not just coal but also nuclear, wind, solar, and other alternatives.
Natural gas, however, has a volatile price history, swinging between $2 and $11 per MMBtu over the past decade. And there are forces that could cause prices to swing again. Pending EPA and Interior regulations may slow the pace at which we get natural gas out of the ground and drive up the costs to develop, process, and transport the fuel. The natural gas industry itself is desperate for higher profits, and is looking for new markets, like a natural gas-fired automobile fleet and exports overseas. Counting on natural gas now commits us a future in which natural gas price swings can change the tide of our economy.
At its core, government command-and-control regulation of greenhouse gases is an expensive proposition. Carbon dioxide is wholly unlike traditional air pollutants; it doesn’t result from fuel impurities or any limitation in combustion. Carbon dioxide is the emission that drives our economy, producing 70% of our electricity and fueling virtually all of our transportation. No matter how you slice it, EPA greenhouse gas regulations will be “economically significant,” even if they’ve found a way around that tag for now.
