Time for a Grand Bargain on Energy?

In the January 2011 Jeffrey Leonard, CEO of the Global Environment Fund, proposed eliminating all US Government energy subsidies in a Washington Monthly story which added up the cost of the subsidies to about $20 billion but from the story it is tough to figure out how he got to that number. Much of what Leonard is talking about is focused on the fossil fuel demand for power generation as well as nuclear energy, renewable energy like wind and solar and biofuels including ethanol.

President Obama must have been reading it, because in his state of the union speech the President proposed abolishing the Federal subsidies but just for oil and gas companies.  Not quite as far as Mr. Leonard but the oil and gas industry tax breaks that the President would cut would save $36.5 billion over 10 years according to his budget proposal and include deductions for drilling costs, tax credits for low-volume oil and gas wells and a manufacturing tax deduction for oil and gas companies.

If the sum of energy subsidies for the oil and gas sectors and the electric power and biofuels sectors is the total of these sums that would make a $56.5 billion dent in the Federal Deficit and it does not even include the sums spend from the ARRA in one time or limited term stimulus money

In truth this $56.5 billion is rounding error in a trillion dollar problem, but the President’s speech was more showbiz than deal making.  And Jeffrey Leonard’s article was more about going after fossil fuels than saving money.

OK I get it, but maybe there is a deal here that would be a game changer. Maybe it’s time for a new Grand Bargain on Energy Policy that both sides of the aisle can agree upon.

This is America and We Do Big Things

That’s what the President said in his State of the Union Message, and I think he’s right.  America has always been about adaptive change, of reinventing ourselves, of seizing opportunities and facing up to big problems. So let’s do it!

If I were Speaker Boehner I offer the President a deal—-a BIG DEAL covering not just energy subsidies but energy policy, regulation and America’s energy strategy for the future:

1.       Eliminate ALL direct and tax expenditure energy subsidies and force energy fuels and technologies to compete in the markets letting customers in a competitive market make the choices and pay the costs instead of having the government jury-rig the game for everyone. Let’s end all the energy subsidies on oil, natural gas, coal, nuclear power, wind, solar, biomass, biofuels and ethanol.

2.       Adopt a National Clean Energy Standard. I’d even throw in a bonus in support for a national clean energy standard (CES) –a BIG CES of 50% of America’s electricity consumption will come from clean energy sources by 2035 but everything counts: nuclear energy, all sizes of hydropower, natural gas combined cycle generation and IGCC, wind, solar, landfill gas, and net metered energy contributed from PHEVs, industrial cogeneration and combined heat and power.

3.       Expand the Authority of FERC to Regulate all National Energy Policy. It’s jurisdiction would include its current wholesale regulatory and rate-setting functions but would be expanded to take over environmental regulation from all energy sources from US EPA; energy production authorization, permitting and use of Federal lands from the Interior Department and Bureau of Land Management, and preemption of states in siting, finance and interconnection of electric transmission lines.  FERC would be required to adopt a national integrated resource plan which would include balancing the economic and environmental interests in oil and gas production onshore and off shore, electric power markets and the generating resources, transmission and demand side energy services to optimize grid performance, and to establish R&D programs for each energy sector to facilitate and fund basic research, new technology development and CES application development.  Limitations on the ownership of undivided interests in US energy assets would be replaced with FERC advance approval of any proposed ownership of more than 25% of any jurisdictional energy asset.

4.       Regulatory Balancing of Energy, Environment and Economic Interests Required.  Any regulation proposed by the Government would be required to balance the competing interests of the Government in implementing its national energy policy, CES, and national energy security protection interests, the environmental public interest in preserving and protecting the nation’s environmental quality, and the national economic interest in expanding business activity, creating jobs, increasing tax revenue and the gross domestic product growth of the US.

5.       National Domestic Energy Production Policy.  It would be the policy of the United States to encourage the reasonable production of energy from domestic sources including oil & natural gas, coal, unconventional oil and gas from shales, renewable energy from hydropower, wind, solar, biomass and other renewable sources and from nuclear power. Federal bans, moratoria or limits on domestic energy production would be ended and FERC would have the authority to hold auctions for rights for oil and gas production offshore in US waters, on Federal lands in any state, grant certificates of convenience and necessity to approve specific siting and E&P activities, power generation or other energy activities imposing such reasonable licensing, permitting and other restrictions as FERC finds prudent to balance the competing interests.

6.       National Severance and Extraction Fees.  FERC would have authority to set national severance fees on domestic oil and gas production and mineral extraction up to 30% of the value of the resource on Federal lands and offshore in addition to any auction fee charged in competition to award rights to extraction. Fifty percent of any severance fees levied will be remitted to the state from which the resource was produced or in the case of off shore production from territorial waters of the United States.  The remaining fifty percent of severance revenue will be applied to US debt reduction in any year in which there is a budget deficit or to the US Treasury otherwise.

7.       National Energy Efficiency Standards.  FERC would have the authority to adopt by rule national energy efficiency standards covering building codes, electrical codes, and efficiency standards for appliances, electronics, pumps and motors and other electric consuming devices with the goal of reducing the national energy intensity levels by 50% by 2035.

These changes in national energy policy balance the national energy reliability, security, environmental and economic interests in ways that unleash the creative capacity of markets and investors.  A National Clean Energy Standard adopted along with a National Integrated Resource Plan provides an energy and fuel mix that is least cost and a best fit to secure America’s long term energy needs in an environmentally responsible manner at the lowest competitive cost.