A Bottleneck?

Of  major concern to the deployment of ocean energy technologies is the regulatory process. Jurisdictional uncertainty between and among federal and state agencies creates substantial regulatory risk. That risk makes financing close to impossible to secure. Funds are not released by public or private investors where regulatory hurdles are seemingly insurmountable.  The President will need to create a lead regulatory entity with the mission of collaborating with scientists, local communities, and industry to produce comprehensive and predictable rules. The jumble of agencies and rules that now cloud jurisdiction makes the task of deploying renewable technologies and particularly ocean technologies a Herculean one at best.

$7-10 Billion over two years--- Phase out Subsidies, Tax Credits and Allowances to Traditional Energy Providers

Verdicts have been entered as to the guilt or innocence of ethanol as a long term solution/problem for American energy policy.  By and large ethanol production is a solution that only contributes marginally to the energy problem. It’s a quick fix. We would have to plant every acre of arable land in the U.S. to corn or some other cellulosic crop to achieve a 1% replacement for imported oil. The C/B does not favorably compute for the American consumer/driver.  Escalating food prices here are not the reaction to shortages abroad.  Our prices are reactions to the cost of transporting goods and the demand for the short run fix…ethanol.  Corn prices doubling and tripling heralds similar increases for just about every other grain crop and for just about all feed crops and, therefore, meat, fish and poultry prices.

Eliminating ethanol is not likely in the next 36 months.  Instead, $20 billion in ethanol subsidies should be phased out and transferred, allowing competition among renewables to determine the survival of the most efficient producers. Or, conversely, subsidize equally ocean, wind and solar so that all are playing on the same level ground. Where would we be on this issue now if, in 1934, 1964, 1981, 1993 and 2003 opponents of ocean energy hadn’t scuttled its development?

The major types of  transfers to the energy industry can be characterized as follows:

Tax expenditures. These includes tax goodies such as the renewables production credit; oil and coal depletion allowances; the subsidy for phony coal “synfuels,” produced by drenching raw coal with fuel coal; coal-bed methane gas (which many in the business refer to as “moonbeam gas”); and the like.

* Federal R&D, directed at the labs and elsewhere in the DOE firmament, including its myriad and unaccountable contractors. These taxpayer funds, says EIA, “do not directly affect current energy production and prices, but, if successful, they could affect future production and prices.”

* Targeted electricity subsidies. These include the federal power marketing program (TVA, Bonneville, WAPA) and federal “preference power” sales to public power utilities. This category also includes the Rural Utilities Service in the Department of Agriculture.

The increase in subsidies – again, we’re talking real dollars, adjusted for inflation – over the past ten years, says EIA, reflect an increase for renewables (from $1.4 million to $4.9 million, none of this for ocean kinetics), an increase in coal pork fat (from $567 million to $932 million), and a big hike in nuclear bacon ($740 million to $1.3 billion).

The biggest gainer in the subsidy machine has been tax expenditures, growing from $3.2 billion in FY1999 to $10.4 billion in 2007. Direct expenditures rose from $1.7 billion in 1999 to $2.6 billion in 2007. R&D spending was up from $2.5 billion to $2.8 billion, while federal electricity subsidies rose modestly from $753 million to $767 million.

The subsidy count is likely to climb in the future, according to EIA. “Recent federal legislation, including the Energy Policy Act of 2005…and the Energy Independence and Security Act of 2007…suggest that certain energy-related tax expenditures are likely to increase.” Nuke subsidies are likely to push the federal pedal to the metal, says EIA, noting the generous subsidies in the 2005 law, including generous loan guarantees, $25 billion for the first generation of new plants.

What’s the result of generous subsidies? In the words of EIA, “Notwithstanding the doubling of federal energy-related subsidies and support between 1999 and 2007, and a significant increase in most energy prices over that period, U.S. energy production is virtually unchanged since 1999.”

Econ. 101 suggests that higher prices, along with hefty government subsidies, would lead to more production. But the U.S. energy economy doesn’t mimic the market models, notes EIA.

State and federal limits on oil and gas exploration, uncertainty over greenhouse gas policies, and natural declines in production from existing oil and gas fields, says EIA politely, “may have impeded growth in energy production despite modest growth in consumption.” In other words, current U.S. energy policy – the product of successive Republican and Democratic maladministrations – has distorted the U.S. energy economy and rendered it increasingly dysfunctional.

The U.S., over many years has concocted a policy of limits to production and increases in subsidies that is intellectually and fiscally bankrupt. 

To effect real change that matters the President will need to change energy policy. Oil the “King” must be replaced.  In the absence of such a change there is little reason to have hope.  We will have demonstrated to the world that because we have sacrificed our freedom by bowing to oil, we have also sacrificed our progress as a creative nation

 

 

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