National Energy Policy or Wishful Thinking?

On May 17th, the Bush administration released to the public its long-awaited task force report on energy issues facing the US. The 170-page National Energy Policy (NEP) is the product of the National Energy Policy Development Group chaired by Vice President (and former Halliburton CEO) Dick Cheney. The NEPD group included a veritable Who’s Who of the administration, counting among its number Secretary of State Colin Powell, the Secretaries of Treasury, Interior, Agriculture, Commerce, Transportation, and Energy, Lawrence Lindsey, Assistant to the President for Economic Policy, and Christine Todd Whitman, Administrator of the Environmental Protection Agency. Perhaps not surprisingly, the document bears more than a passing resemblance to a corporate annual report; and indeed there is little in the 170 pages that will cause offence to the US commercial energy sector.

From the outset a clear emphasis is placed on enhancing and securing supply and distribution, as opposed to moderating consumption. The over-riding justification is that of a belatedly recognised energy ‘crisis’, one that was allegedly ‘ignored’ by the previous administration. The mise en scène is established right from the beginning of the report. The second paragraph states bluntly: America in the year 2001 faces the most serious energy shortage since the oil embargoes of the 1970s. The core of the crisis is one of cost, not capacity. In essence, the report identifies three principal components of the crisis – significant rises in consumer gasoline prices, electricity brownouts and blackouts, and overall higher energy costs for businesses, which may lead to layoffs for workers. Following on from this, the panel asserts that a “fundamental imbalance between supply and demand defines our nation’s energy crisis.”

Rather than a national energy ‘policy’, what the Bush cadre have produced more closely resembles a party campaign platform, staking out an extreme vision of the direction in which the administration would like to point the US during its stewardship. While such an all-or-nothing posture can be compelling in an election battle, it is certain to antagonise the opposition once in power. This is precisely the high-risk strategy Bush and his advisors have chosen to follow. During the first four months of the Bush presidency, this gamble paid off handsomely. Bush struck out on a bold path during the traditional honeymoon period between the new administration, Congress and the public. Rather than seeking, as many assumed he would, consensus and reconciliation after a bitterly disputed election result, Bush took advantage of the honeymoon to aggressively press forward some of the most contentious policies in the Conservative agenda. With Republican control of both houses of Congress, such a gamble was plausible.

Unfortunately for the president, the bubble burst sooner rather than later. Having alienated some of the more moderate members of his own party, the defection of Senator Jeffords and consequent passing of control of the Senate to the Democrats spells a quick end to Conservative dreams. In this case, the bold strategy of pressing forward with an unyielding energy policy may backfire. There is little room for compromise in the Bush energy plan, and Conservatives may have effectively backed themselves into a corner over such issues as the environment and conservation. Public concern over global warming continues to rise, and the price of gasoline at the pump has made many Americans re-think the wisdom of driving the now fashionable, but horrifically fuel-inefficient, off-road vehicles that litter shopping mall parking lots across the country. Control of the Senate provides the Democrats not only with a viable platform from which to attack the administration, but also gives them the means to control the flow of legislation through Congress.

National Energy Security

At the core of the Bush proposal is the assertion that a real and substantial threat exists to the US economy, and by extension, the ‘American way of life.’ Having framed the policy as being an emergency response to a developing crisis, the Bush administration is able to appear to have its heart in the right place regarding conservation and the environment without actually having to modify any of its agenda. The Bush administration is banking on the daily reality of high fuel costs to consumers creating a climate of consensus around the need to ‘do something.’ The argument will resonate with the US middle class in particular, as the right to cheap fuel is deeply ingrained in the national psyche. With the economy flattening and long-term prospects for recovery uncertain, environmental arguments take on a less-compelling cast. Conservation is still seen in many quarters as something one does to be noble; where the economy, wages and unemployment are concerned, there is little room for such sentimentality. This attitude has changed substantially in recent years, but will still find resistance so long as the economic outlook remains gloomy.

In a re-run of the failed attempts of the Nixon, Carter and Reagan administrations’ calls for energy ‘independence’ the Bush team seeks to open up the Alaska National Wildlife Refuge and other federal lands to energy exploration. Similarly, a streamlining and consolidation drilling approval for the Outer Continental Shelf is proposed. While oil and gas firms would be pleased to see these lands opened to exploitation, the mere idea of the further commercialisation of public lands will continue to prove deeply unpopular with the electorate.

Furthermore, there are the cold, hard facts that estimated potential yields from domestic US reservoirs will be but a small fraction of current US consumption, currently 9.0 mb/d and on the rise. Alaskan reserves, once tapped, will likely yield a mere 0.5 mb/d. This hardly constitutes meaningful ‘independence’. As much as the US would like to restrict imports to its own hemisphere, no amounts of additional imports from Canada, Mexico and Venezuela are likely to provide a ready substitute for the roughly 2.8 mb/d currently imported by the US from the Middle East and North Africa.

With respect to fossil fuel ‘independence,’ much depends upon the Bush administration’s attitude towards OPEC in light of continuing conflict with Iraq. The latest dilemma to face the US administration is Iraq’s decision to halt production in order to force renewal of the Oil-for-Food programme and discourage implementation of the stricter ‘smart sanctions’ advocated by the UK and backed by the US. The US has thus far been reluctant to use strong-arm tactics with OPEC; it will be politically difficult for the US to ask OPEC to pay the price for Iraqi intransigence by asking it to increase production, which may bring about a fall in price, thus forcing the OPEC member states to effectively sustain a financial loss through no fault of their own.

In truth, the administration is using the bogeyman of ‘foreign oil’ to justify expanding domestic exploration, while simultaneously seeking to enhance access to production abroad. While not entirely consistent, it explains the reluctance on the part of the Administration to deal seriously with cutting domestic consumption: too much is riding – quite literally – on boosting the economy and avoiding a protracted recession. Bush is trying hard to send the markets a signal that the energy industry, the automotive industry, and the manufacturing sector generally, will not be hit by any slump in growth due to more expensive energy.

What is particularly dismaying is that, even in the context of national security, there is a gaping void in the report regarding the continuing, tragic Israeli-Palestinian conflict, which continues to destabilise the entire Middle East region. Surely anything calling itself a comprehensive energy policy cannot remain silent with respect to the ongoing violence that moves ever closer to engulfing both neighbouring and distant countries in the region. If indeed uncertainty over access to oil supplies is the administration’s genuine concern, shouldn’t a commitment to regional stabilisation be at the top of the agenda? In no sense can the US become wholly oil independent, and Middle Eastern oil will by necessity continue to be sought by the US for decades to come. It is time the US recognised its own policy failures in the region. Rather than abandoning the Middle East to collapse into ever more desperate cycle of violence – a completely untenable option – it should instead reassess its failed past policies. At the centre of this failure is the broad perception by the Arab world that US policy is a reflection of Israeli will. In order to be effective in the region, the US must be credible to all parties engaged in the peace process. It is only as an honest peace broker, actively encouraging the implementation of UN sponsored resolutions, that the US will attain such credibility.

The contradictory nature of the energy plan is nowhere clearer than in its advocacy of making a strategic priority of increasing utilisation of western hemisphere oil and gas production, while simultaneously seeking to open up non-western OPEC production to foreign firms. For example, the report singles out the contribution of Saudi Arabia in enhancing market stability by virtue of its large reserves. This begs the question, how then is stability enhanced by essentially making a scapegoat of OPEC for high energy prices? It seems clear that the report is speaking to two audiences with two different messages. On the one hand, there is tough talk about reducing foreign oil dependence, while on the other hand there is an express desire to shift imports to ‘friendlier’ regional suppliers whose reserves can never serve as anything other than a partial substitute for Middle Eastern production. In a context of avowed increasing oil consumption, it is difficult to see how either energy independence or international political stability is served by such wishful thinking on the part of the Bush administration. Rather than crude arm-twisting, the US would be best served by productive engagement with OPEC that leads to increased political stability for producing countries.

How successful the administration will be in convincing America of the purported need to put aside sentimentalism for the environment in favour of economic growth remains to be seen. In light of how slender the Bush electoral ‘mandate’ was (if indeed it existed at all), there could be a strong backlash against such fear-monger tactics. Even the least astute of American voters knows of the debt owed by Bush to the oil and gas industries for bankrolling his campaign, and there remains in the US a healthy scepticism of political motives. If the administration refuses to budge on its more aggressive proposals, not only will the Democrats tie them up in procedural knots, but also the public may reward the Bush ‘vision’ with a Democratic House of Representatives in less than two years’ time.

California and the Electricity Crisis

One of the notable logical leaps in the report is the suggestive link made between the brownouts and blackouts in California over the past months and the need to tap new oil and gas reserves in order to meet increasing energy demand. As has now been widely acknowledged by electricity analysts, the California crisis has little to do with supply constraints. At the root of the disaster is a mire of infrastructure problems in the transmission grid, created and exacerbated by an ill-conceived regulatory regime and persistent under investment. As much as the highly visible events in California strike a chord in the public consciousness regarding the self-proclaimed energy ‘crisis’, there is no logical nexus between California and much of what the Bush administration seeks to accomplish.

The administration proposes easing the permitting process for new power plants, transmission lines, pipelines, and refineries. So as to deal directly with the infrastructure problems in the transmission grid, its proposal to use eminent domain to untangle the complex multiple levels of permitting (county, state and federal) may hit roadblocks in Congress. Representatives from targeted areas where problems are particularly acute, such as the western states, will balk at ceding local and state regulatory power to the federal government unless sufficient incentives are offered. Streamlining, while desirable, may be difficult to achieve.

The words ‘nuclear power’ once more may be uttered in polite company, promoted as a safe and clean alternative to fossil fuels. The chief issue to emerge will most likely be the location of waste repositories, as opposed to plant safety fears. This is a much larger issue, in practical terms, than public concerns about plant safety, which have fallen off dramatically since the twin spectres of Three Mile Island and Chernobyl. With bi-partisan opposition to dumping of nuclear waste in Nevada nearly inflexible, this may prove to be a tough battle for the administration. Furthermore, it is not enough to make permits easier to obtain. The financial sector may well be reluctant to invest in long-term nuclear plant construction knowing the tendency in the past for such projects to become bogged down in litigation over environmental impact, utility rates and cost overruns. Without a clear signal from the market that investment will be forthcoming for new plants, utilities are not likely to risk their profits.

A more practical alternative in the near-term would be to focus on the expansion and upgrade of existing nuclear plants. This requires far fewer legislative and regulatory hurdles and avoids for the time being potential conflicts with state and local regulatory agencies over the permit process. While nuclear plants offer the lowest energy costs once up and running, the cost to bring such plants on line is extremely high. It may well be that in the longer term new clean-burning coal technology offers the most economically and politically viable solution to the need for increased power-generating capacity in the US.

Reducing Consumption

Lip service is paid to conservation and moderating consumption, however one of the principal means by which consumption could be reduced – namely fuel consumption standards for new vehicles sold in the US – is largely ignored. With sales of high profit margin sport utility vehicles (SUVs) continuing to be lead automaker sales, Detroit is likely to fight to the death over any attempt to raise real fuel economy averages. Thus the justification for leaving this sector alone will be the threat to jobs in the uncertain economic climate. Likewise, the Bush administration will avoid at all costs allowing itself to be seen doing anything that might suggest that the US standard of living is unsustainable (harking back to the disastrous Carter pronouncements on the national ‘malaise’). Indeed, after the ‘crisis’ rationale, improving the US standard of living ranks high on the Administration’s agenda in the NEP.

What Does the Future Hold?

The message of the Bush proposal is clear: notwithstanding an overall tone of environmental sensitivity, the heart of the new policy lies in expanding energy production to meet increasing demand. This shift in emphasis away from the environment comes at a time when the administration is taking considerable international criticism for its formal abandonment of the Kyoto agreement. Furthermore, the policy reflects an isolationist obsession with pursuing the illusory goal of ‘energy independence’ while simultaneously advocating increased investment in developing foreign energy resources.

However, prospects for transforming the plan into real legislation have altered considerably since the loss of a Republican majority in the Senate following the defection of Senator Jeffords of Vermont. The Bush strategy of pressing forward with the most radical ambitions of the conservative agenda right from the outset of its term – a strategy that proved surprisingly effective after a mere five months in power – will likely be curtailed as political reality dawns on the administration. Democrats now control the leadership of Senate committees, which means that they hold the procedural power of life and death over what legislation reaches the floor for a vote, and what form it will ultimately take. Democratic power will come not in compromise, but through the leverage of obstruction. While Americans don’t like the politics of gridlock, they are uneasy in equal measure with giving one party too much power. Given the administration’s radical energy agenda, this is one time the US electorate might be happy to see a few roadblocks thrown in the administration’s ideological path. Indeed, arguments that ‘national security’ is at stake are not likely to sway many people. This crisis is about the economy and the American lifestyle. Can the two be reconciled? Without compromise by the Bush administration, it does not appear likely. One thing remains certain, however: the smooth highway travelled by Bush and company so far in their brief tenure in office is about to get much rougher.

By: Frank De Mita


Energy Policy