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By Robert Rapier on Aug 27, 2012 with 12 responses

What Mitt Romney’s Energy Plan Should Look Like

Following Mitt Romney’s release of his energy plan, I intended to offer a detailed critique. However, there are already numerous critiques out there that would not differ much from my own. My critique would have been a near mirror image of Michael Levi’s Pipe Dreams at Foreign Policy, so instead here I offer some qualitative comments on the plan — as well as how I feel it could be strengthened.

In a nutshell, Romney’s plan looks to me like half a plan due to all of the things it does not address. It is mostly a series of Republican talking points, some of which make sense, some of which are over-reliant on dreams of U.S. energy independence, and some of which, in my opinion, should be modified. The highlights of the plan are:

  • Empower states to control onshore energy development
  • Open offshore areas for energy development
  • Pursue a North American Energy Partnership
  • Ensure accurate assessment of energy resources
  • Restore transparency and fairness to permitting and regulation
  • Facilitate private-sector-led development of new energy technologies

The Ingredients of a Sound Energy Plan

The plan is based on a number of very optimistic projections about the future potential for oil production in the U.S. The plan is long on supply side elements, but short on demand side elements and oblivious to political considerations. I devoted an entire chapter in my book Power Plays to the topic of a bipartisan energy policy, which I excerpt below:

A sound energy policy should take into account the supply side, the demand side, and the possibility that projections will be wrong on one or both counts. Energy policy decisions must also factor in the impact on current and future generations, and they should be capable of weathering changing political climates. Unfortunately, when energy policy decisions fail to meet these criteria, the result is a dysfunctional, inconsistent energy policy.

Based on what I think makes for a sound energy policy, Romney’s plan fails this test. Without a doubt U.S. oil production is on the rise, but this is not the first reversal in oil production trends since U.S. oil production peaked in 1970. During President Carter’s first two years in office, U.S. oil production increased by 600,000 barrels per day as the Alaska Pipeline came online. The present shale-driven reversal has been even more impressive. Monthly oil production has risen by more than 1 million bpd since President Obama’s first year in office, but is still 4 million bpd below the peak levels of 1970. Romney’s plan presumes these increases can continue for years to come, but that is an unknown.

As an aside, one thing I have pointed out before is that President Obama will be the first president since LBJ to preside over 4 straight years of increasing domestic oil production. The reasons for that are explained in detail here. But as a result of that, it will be more difficult for President Obama’s political opponents to paint him as an opponent of U.S. oil production.

How the Romney Energy Plan Can Gain Bipartisan Support

In my opinion Romney’s plan would be staunchly opposed by Democrats, and it does not consider alternate outcomes. Let’s say, hypothetically, that the optimists are wrong and that the U.S. can’t continue to expand oil supplies for years to come. What then?

I do believe that to the extent that the U.S. requires oil we should develop our own oil to the greatest practical extent. So there are aspects of Romney’s plan that are a good start. But I would make a specific change to the plan that would help address objections from Democrats, and would make a contribution toward reducing demand. To the extent that new areas are opened up for exploration, I would 1). Structure those contracts so that royalty rates escalate along with oil prices; and 2). Earmark the proceeds of lease sales and royalties toward programs that reduce dependence on oil. Those programs can be toward conservation, efficiency, or alternative sources of energy.

The purpose of the first change is so the U.S. government — and in theory U.S. citizens — can better share in windfall profits that would occur if oil prices rise to $200 (for example). Those windfall profits in turn could funnel a lot of money into programs for reducing oil dependence. Alternatively, some of that money could be rebated directly to U.S. citizens in a manner akin to the Alaska Permanent Fund that returns oil dividends to Alaska’s citizens each year. I think these changes would make it far more likely to gain bipartisan support.

Romney’s plan has been criticized for failing to acknowledge climate change, as well as failure to offer sufficient support to renewables. Romney has promised to eliminate the Production Tax Credit (PTC), which I think would be a mistake if done abruptly. I have complained before about the harm of inconsistent energy policies that result from shifting political power. In order to address that, I would propose to phase out the PTC over the course of 10 years. That way producers have some long term certainty over how much support they will receive, and opponents of the PTC will see the credit phased out over time.

One final word on Romney’s plan. Some conservatives are unhappy that Romney indicated his support for the Renewable Fuel Standard (RFS). While I have said many times that my preference is for market-based approaches instead of mandates, I do not favor simply scrapping the RFS. Doing so would have a devastating impact on the economy across the Midwest. So while longer term there are alternatives to the RFS — and I have discussed some of them in depth — the risk of simply getting rid of it is far too great.

Link to Original Article: What Mitt Romney’s Energy Plan Should Look Like

By Robert Rapier

  1. By Alice Finkel on August 27, 2012 at 7:44 am

    Romney has put several detailed plans into the public eye well before the election — a refreshing contrast to his secretive opponent who still has no open or detailed plan of any type. In the political process, what is first put on the table bears very little resemblance to what is eventually implemented. But it is a measure of a politicians willingness to expose himself to criticism. Obama can hide and avoid criticism as long as the media refuses to question him. Romney lacks media support, so he must appeal directly to the public.

    Obama was lucky that the tight oil & gas revolution was gearing up when he came into office. He would almost certainly have shut down fracking if not for the fact that it created one of the few high points in the US economy on his watch. And he has to get re-elected, after all.

    As a case in point, intelligent observers will remember Nancy Pelosi’s famous comment on Obama’s signature piece of legislation, Obamacare: “We have to pass the bill before we can see what is in it!”

    I hope you like cronies, because right now in America, you’re soaking in them.

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    • By Justin on August 27, 2012 at 9:40 am

      Oh good, I’m glad your impartial. Lets be honest both of their policies lack parts from the other that would be good to implement. I’m not giving Romeny credit for putting his policy out there if it’s not a complete one.  And if you think Romney lacks media support just turn on Fox News or listen to any of the million conservative talk radio shows. In the meantime please save me the drivel you posted above.

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    • By Optimist on August 27, 2012 at 4:46 pm

      I hope you like cronies, because right now in America, you’re soaking in them.

      Amen to that!

      Wait! Are we talking about Obama or Dubya? Or Mint Robme?

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  2. By tennie davis on August 27, 2012 at 7:32 pm

    Subsidising the ethanol industry……one beer at a time;)

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  3. By notKit P on August 27, 2012 at 7:33 pm

    Does Mitt Romney’s Energy Plan include the power industry?

     

    Why yes Kit it does! Why do you ask? Well it seems like the power industry is an important part of the energy picture. I searched Mitt Romney’s Energy Plan plan for the word ‘coal’ and it is used almost twenty times.

     

    The main focus of the Obama’s energy policy is a war against the coal industry. Obama is trying to burn as much fuel in Air Force One as he can to cut the ribbon on new solar PV. While there is nothing wrong with solar per se, when it comes to comes to producing power it is Mickey Mouse.

     

    Arab states are not building or investigating nuke plants to offset oil power generation. At the current cost of oil, generating cost of oil are more than $200/MWh compared to $60/MWh for nukes.

     

    Before many of you were born, oil was cheap in the US and making electricity with it was okay. So we retired most of the oil plants to reserve capacity. The Bush policy was to develop renewable energy and nukes while modernizing gas and coal-based generation.

     

    During a re session, Obama is hell bent destroying the coal industry. He voices a concern that we are loosing a race with China over solar while ignoring that China past us long time ago burning coal.

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    • By Jeff Bloom on August 28, 2012 at 10:38 am

      Coal production has declined mostly because of cheaper natural gas.

      The main problem with coal is it is a major contributor to global warming. In addition burning coal isn’t too great for your health: http://www.catf.us/resources/publications/files/The_Toll_from_Coal.pdf. Moreover, not many people would want to live downstream from a coal slurry pond.

      Denmark gets about 20% of its electric power from wind and they are shooting for 50% by 2020. Wind makes up 20% of Iowa’s electric power. I don’t consider 20% and growing to be Mickey Mouse. Energy storage is a big challenge but people are working on that: http://blogs.scientificamerican.com/plugged-in/2012/05/14/energy-storage-for-more-than-renewables/. .

      If China keeps burning more and more coal then the world is screwed as far as global warming is concerned. The solution, however, isn’t to do nothing.

       

       

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      • By Steve PC on August 28, 2012 at 2:49 pm

        Just a few thoughts from someone who has been in the utility/energy business for 40+ years–

        - as someone here correctly pointed out–the greater use of renewables mandates the use of fossil/nuclear as backup generation.

        -Coal is both abundent and usable in coal gasification combined cycle plants w/ 60-80% efficiencies–clean coal–as clean as natural gas since it is scrubbed prior to combustion–not after. Note- current direct burning coal plants are about 35% efficient.

        - Recent reduced use of coal is due to not only the abundence of low cost natural gas, but the efforts to reduce coal use through regulation and intimidation.

        I’ve been to and in many modern coal mines and have never seen a “coal slurry pond”. True, coal fired power plants produce ash as a by-product, but it has value and is sold into the cement market.

        After all is said over and over again–for the last 50 years–we need to produce our energy on a cost/enviornmental basis. That means coming to agreement on how much of each resource to promote. If you do not admit that each resource has it’s issues and deal with them, we will never move forward toward a reasonable future.

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        • By Jeff Bloom on August 28, 2012 at 6:29 pm

          Renewable energy does necessarily mandate the use of nuclear/fossil fuel for backup. There are other options for energy storage such as compressed gas and pumped hydro. I do agree that nuclear needs to be pursued.

          Yes coal can be made cleaner, but you still have the problem of all the CO2 it produces. Moreover the mining of coal through mountain top removal is devastating.  Hopefully something like this won’t happen again: http://en.wikipedia.org/wiki/Kingston_Fossil_Plant_coal_fly_ash_slurry_spill

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          • By notKit P on August 28, 2012 at 7:35 pm

            There is nothing wrong with getting some power from wind if you live in Denmark or Iowa. In fact it might even be a good idea.

             

            I find it interesting that someone would worry about mountain top removal but think it is okay to put up a bunch of wind mills. I am okay with both in the right place following regulations to minimize the environmental impact.

             

            Leadership on a national level is understanding we live in a world with places like India and China who are going to use coal with far less car for the safety of miners and concern for the environment. We have very good air quality in the US because we have installed pollution controls on our power plants, factories, and cars. Very few people heat with biomass or coal these days.

             

            Harvesting wind and corn is great for Iowa. Hazard Kentucky is a different place with resources. Mining coal is what they do to put food on the table.

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          • By Ed Reid on August 30, 2012 at 10:23 am

            Have you ever pondered how convenient it was that the failure of a dike at a coal ash slurry pond owned and operated by “a corporation of the federal government” provided the impetus for the federal government to develop far more stringent regulations for the design and operation of coal ash slurry ponds”? I have. :-)

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  4. By Tom G. on August 28, 2012 at 11:54 am

    You are of course talking about Kool-Aid right, LOL. 

     

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  5. By Michael Cain on August 31, 2012 at 6:21 pm

    The part that I find most interesting in the plan is turning the decisions about onshore production from federal land holdings over to the states.  The only place that this will have a significant impact is in the West; federal land holdings outside of the West are insignificantly small, or used for purposes where the control would be retained by the federal government (eg, on military bases or historical sites or national parks).

    Federal land management policies in the West have been a point of contention for decades.  I have argued for years that ceding control of those large land holdings to the states is a viable strategy for one of the political parties to “buy” Senate seats and electoral votes.  Actually ceding the land would go even farther — most western states’ severance taxes on energy resources are considerably higher per dollar of produced resource than the amount they receive through federal royalty sharing.  The last time the idea of transferring ownership to the states was seriously considered was back in the 1930s.

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