The United States is at a crossroads regarding energy policy. It has become abundantly clear that climate change is not some myth or political talking point, but is instead a clear and present danger to humanity and our planet. Indeed, even certain GOP lawmakers have come out in support of efforts to prevent and/or mitigate the devastating effects of rapid climate change. Nevertheless, energy reform is still stymied by political and economic roadblocks. The entrenched coal and oil lobbies are fighting to maintain support from Congress, and rural Americans in West Virginia and North Dakota are concerned that America’s shift toward clean energy will cost them their jobs, plunging them and their communities into destitution. This complex mix of demands is only further exacerbated by the extreme political polarization infecting the country today. Therefore, I have a modest proposal for energy reform: a grand bargain that I hope both sides of the political spectrum can agree to. It is a proposal that seeks to balance the demands and economic needs of the fossil fuel community with the planet’s need for a cleaner and more sustainable type of energy.
It is utterly insane that we continue to give oil firms such generous subsidies. It makes political sense, of course – Gulf Coast politicians benefit enormously from their symbiotic relationship with regional oil companies – but economically the policy is bizarre. Subsidies and government intervention are primarily utilized to jumpstart new industries or boost the development of under-researched technologies. It makes sense that the U.S. offered subsidies to offshore drilling companies during the early years of development, then: Oil companies needed support and assistance in order to build and test novel technologies like deep water drilling. However, these subsidies have gone on far too long. Oil extraction is now a developed industry with easy access to capital and mature technologies. Granting offshore oil companies subsidies, therefore, only transfers money away from more important and impactful government projects. Moreover, it is not as if the government needs to induce companies to drill. The U.S. has offshore oil and these companies need that oil, so there is no need for further encouragement. In essence, the government is paying companies to do what they would already do: the textbook definition of government waste.
- Create a national clean energy bank to finance R&D and manufacturing expansion within the clean energy sector
With shrinking budgets and a fairly stagnant economy, the United States cannot afford to keep doling out millions of dollars in direct transfers, loans, and tax breaks to clean energy companies. Moreover, given the mercurial nature of Washington, it would be naive to assume that support for green tech will continue to be maintained at current levels in the future. Thus, the U.S. should create a federal green energy bank to support innovative and promising technology within the field of renewable energy. By creating a bank, the government would be able to minimize costs by only having to provide the initial seed capital. Of course, this limits the risks that can be taken, but it does provide a steady and constant stream of federal support to catalyze the development of new technology. Furthermore, bank investments can always be supplemented by executive or congressional actions, allowing the government to boost support for renewable energy efforts as it sees fit.
- Dedicate U.S. federal funds toward subsidizing nuclear plant safety requirements
Nuclear energy is our best shot at significantly slowing climate change. It is a developed, energy-dense technology that can replace a significant portion of the United States’ coal and gas-fired plants. Moreover, recent innovations like the development of small modular reactors (SMR) ensure that nuclear meltdowns are a thing of the past. What is currently limiting the growth of nuclear (besides unfounded public fears) are the high upfront costs of constructing and certifying nuclear generators. This is an area in which the government can assist. Ensuring that power plants – a critical component of a modern economy – are safe and effective seems like an ideal role for government. By assisting in safety screenings and certifications, the government can significantly mitigate upfront costs and allow companies to more vigorously expand their inventory of nuclear reactors. It may seem like this policy is the same kind of political cronyism I decried above when writing about offshore oil subsidies, but it is not. Generating clean, pollution-free energy creates positive externalities: Namely, it doesn’t degrade the environment or generate illness-inducing soot. Thus, the government is essentially rewarding companies for an externality the market doesn’t factor in; it is not engaging in clientelistic and corrupt practices like those seen in the oil market.
- Approve the Keystone XL Pipeline
This is a no-brainer. The U.S. is compelled by NAFTA and other bilateral treaties to allow the unfettered movement of goods from Canada through the U.S. and to the global market, so it’s not as if Keystone will transport oil otherwise locked up in Canda. The Keystone Pipeline will create a significant number of jobs in the short-term and more efficiently transfer oil that is already being carried by train – a far more environmentally deleterious method – from Canda to the Gulf. In other words, it would have no significant impact on CO2 output because it would simply change the mechanism for transporting oil. Approving Keystone would appease the energy lobby, reduce the risk of serious oil spills, and have a negligible impact on the environment. Why this has become such a political flashpoint is truly beyond me.
- Create a 5-year program to retrain coal miners in the Appalachian region, allowing the regional workforce to retool and enter other sectors of the economy
Retraining workforces negatively impacted by government policies has a history of success, particularly regarding trade. Indeed, Obama was able to get Trade Promotion Authority by appeasing certain progressive groups with the TAAP (Trade Adjustment Assistance Program). Energy-related assistance programs would be even simpler to implement because it is far easier to determine the sectors negatively impacted by new energy sources than sectors negatively impacted by free trade and foreign competition.
- Subsidize fracking R&D and expansion, sunsetting this program in 2022
This is a more controversial position, but one that I think is ultimately necessary. Shale is different from offshore oil because it is an area in which the U.S. has a first-mover advantage and should thus continue to exploit and develop. Moreover, by granting the U.S. swing producer status, it provides America with immense geopolitical power and influence over energy markets. Furthermore, it stimulates economies in underdeveloped regions of the U.S., generating and spreading wealth. Currently, due to relatively low oil prices, the shale industry is suffering, with many companies filing for bankruptcy. By subsidizing these companies and helping them fund technologies that lower the fixed costs of production, the U.S. can support this vital sector of the economy and maintain America’s leverage in energy markets. Shale, however, is unlikely to last forever. Many estimates have the major deposits – Bakken, Marcellus, Eagle Ford, etc. – being depleted by the early to mid-2020s (see, here, here, and here). However, there is still significant debate over the true amount of shale reserves within the U.S., with a number of influential analysts arguing that the shale boom will last well into the 21st century. By sunsetting the shale subsidies in 2022, the government will be able to reevaluate the energy situation (in particular the sustainability of shale) and determine whether to renew the program or allow it to expire. Moreover, by setting a definite end date, the sunset provision ensures that the subsidies won’t outlive their usefulness.
Currently, neither side is willing to cede ground: The environmentalists don’t want to allow anything that might increase greenhouse gas emissions, and the fossil fuel industry is afraid of advancing the interests of a market competitor. By granting both sides substantive policy wins, this set of recommendations seeks to overcome partisan bickering and generate lasting change in the energy market.