Drill Baby Drill? Policy makers ponder the best way out  of America’s oil dependency

Gasoline prices have been bellying up to the $4 per gallon bar as we near the presidential election. Is it a time again for chants of drill-baby-drill?

At the Global New Energy Summit in Colorado Springs last week, nobody actually came out and called that chant the political posturing that it was in the 2008 election. But a few came close as they worked through the many wrinkles of energy policy and politics, from hydraulic fracturing (fracking) to electrical transmission lines.

With military credentials on his lapel, Dennis McGinn took the broadest swing at the contrived simplicity of drill-baby-drill. He’s a retired vice admiral in the U.S. Navy, and last year took the helm of the American Council on Renewable Energy, or ACORE.

To achieve greater national security, he said, America must reduce its reliance on fossil fuels. McGinn pointed to this vulnerability in strategic military initiatives in the Middle East conflicts. The primary mission of tens of thousands of American men and women is to safeguard the supply of fossil fuels needed for military operations.  Mobility is thereby limited.

But more broadly, American reliance on fossil fuels paints America into a corner, undercutting its moral authority in negotiating with OPEC countries. “We are hobbled in a sense because we use 20 to 25 percent of the oil that is used every day in the world,” he said, while only having 3 percent of the world’s population.

America’s dependency on oil, he also said, puts us in the awkward situation of “financing both sides of the war” in the Middle East.

McGinn said that he has seen “some very, very credible analysis with some conservative-type assumptions” that if the health and security costs of oil, including even a small portion of the military costs around the world, are factored in, people should be paying about double what we are now, perhaps $7 to $8 per gallon.

Should we do that?

“Heck no, it would be very destructive to our economy,” McGinn added. “But we need to recognize that every million barrels of oil that we can reduce, we are better off militarily, economically and diplomatically.”

Produce more of our own, i.e. drill-baby-drill? “That is a short-term solution that will simply perpetuate the addiction we have, no matter whether we get it from the Canada Keystone XL pipeline, or exploration of off-shore deposits or in Alaska,” said McGinn.

The oil market, he explained, is a global one – which is why we will never drill our way out of the problem. “We need to use less of it. That’s the bottom line.”

But how? McGinn and other speakers chewed over the regulatory and policy framework as well as market forces.

McGinn, again, observed that it’s a global marketplace for energy. Natural gas prices will not linger at $2 per thousand cubic feet (mcf) forever. As for nuclear power plants, he credited the new reactors with being very efficient – but expensive. “You have to ask yourself what is the opportunity cost of $8 billion to $9 billion (the cost of a new reactor)?”

That much money invested in energy efficiency, demand-response systems and a smarter grid would achieve much – perhaps, he suggested, reducing the need for a new power plant altogether.

The answers?

Robert Bennett, the former Republican senator from Utah ousted in the last election because he wasn’t conservative enough, called for a rejiggering of landownership in the West, to aggregate state-owned lands. They are, in most cases, currently interspersed among federal lands. Grouping state-owned lands together, he said, would give the states authority to permit oil and gas drilling. The federal permitting process, he explained, can take years and years.

Drill-baby-drill isn’t Bennett’s sole answer. He sees various roles for the federal government in moving us along the energy transition. The federal energy laboratories, such as those in Colorado and Idaho, have a role in advancing research, he said, applying muscle to problems that individual companies alone do not have.

Bennett sees a more sparing role for the federal government in direct funding. “I think the Solyndra case has been overblown in the political campaign, but I do believe that using the Department of Energy as a venture capital firm for energy technologies probably is not a good idea,” he said.

Transmission planning and siting, however, is a play where the feds should get involved, he said. The current grid is no more than a patchwork of state and sometimes regional grids. The nation’s economy would be boosted if electricity were more efficiently transmitted around the country. He cited the oft-used comparison to the interstate highway system. “Many good things can come out of the integration of a national grid.”

Speakers generally agreed on the need for a more coherent national energy policy; what that policy needs to be is less clear. The approach greatly depends upon your evaluation of the climatic risk of burning fossil fuels.

Gov. John Hickenlooper (D- Colorado), a former oil geologist who did his master’s thesis in northwestern Wyoming, differed slightly in his approach to the risk of climate change. “My position is that we don’t think our houses will burn down in a fire, but just the same, we’re willing to spend 2 percent of our income on insurance.” Changes in precipitation caused by climate change, he said, “have the potential to have devastating consequences.  So we need to begin factoring some risk-weighted approaches.”

Looking to areas where conservatives and liberals can share turf, U.S. Sen. Michael Bennet(D-Colorado), said that conserving energy is an area where Democrats and Republicans should find agreement.

The tax code and subsidies also came under discussion.

Bennett, the former Utah senator, said the tax code is too complex. “You want to create a tax code that is efficient, that is simple to understand, and is competitive with the rest of the world – and then leave it alone long enough that people know it will be around for awhile.” That, he said, will leave room for more intelligent investment decisions.

Bennet, the current senator from Colorado, offered a different perspective: “I also don’t favor the government picking winners and losers, but anybody who believes the current tax code isn’t picking winners and losers hasn’t read it very carefully.”

McGinn, speaking the next day, had the same conclusion. Tax incentives for fossil fuels “have been around for so long I call them entitlements. It’s incredible we’re still doing this for an industry that has record profits.”

(Banner photo courtesy of Orange County Archives/Flickr)

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Published on April 17, 2012

{ 1 comment }

klem April 17, 2012 at 9:05 am

“Gasoline prices have been bellying up to the $4 per gallon bar”

Across the border in Canada, gas is hitting $5.50 a gallon already.

“Tax incentives for fossil fuels “have been around for so long I call them entitlements. It’s incredible we’re still doing this for an industry that has record profits.”

Almost every successful industry out there gets tax incentives of some kind or another. If you want to drop fossil fuel tax incentives, drop them for everyone else as well. And then see how far that goes.

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