So, I just finished my 60-odd page Poli Sci thesis at Haverford College on US energy supply and policy. I figured I'd post the executive summary here because hey, why not? Some wonk might find it interesting. Actually, Jerome a Paris's work inspired me to write on this topic in the first place, so it seems somehow appropriate. Anyway, read on the flip if you so desire. It's 3 pages at 1.5 space.
This report is intended as a soup-to-nuts appraisal of America's energy supplies. It begins with background on America's energy history - from where we have traditionally derived energy, why we need energy sources, how our demand has changed over the years, and how supplies have historically changed in order to meet demand. It moves from there to examine the challenges facing America in its quest to maintain secure energy supplies. It examines the most viable of the various avenues available to us to meet growing energy demands, and explains the economic and environmental pros and cons of each. Only currently available technologies are considered. Based on the information available, this report lays out a suggested ideal energy source mixture in its second-to-last section. In conclusion, it offers concrete policy options which might be implemented in order to reach these goals, also analyzing the political coalitions which would need to be organized in order to put such policies into effect.
The energy needs of the United States could be described as astronomical and growing. Additionally, other parts of the world with historically very low energy consumption, such as India and China, are rapidly industrializing, bringing their energy usage per capita ever closer to first-world standards. The upshot is that global energy consumption is expected to double over the next 20 years, which would far outstrip current supplies. The United States economy is critically energy-dependent, from manufacturing and high tech down to the fuel for the automobiles that get workers to their jobs every day. Energy instability, in addition to absolute energy price hikes, could have crippling economic consequences.
The status quo, unfortunately, is that of both instability and rising absolute prices:
∑ Oil, our key transportation fuel, is near record high prices, and is subject to the events half a world away. Additionally, the idea of the "Hubbert Curve" suggests that world oil production may soon be peaking, simply due to the depletion of most easy-to-access reservoirs. This all suggests future reliance on oil is likely to be very painful.
∑ Coal and natural gas constitute the bulk of our electrical-generating capacity. Coal is cheap and domestically produced, but extremely dirty. Gas is often found alongside oil, and is starting to suffer from the same price swings as petroleum. Both coal and gas can produce synthetic oil, an expensive process but a viable option if oil prices greatly outrun coal or gas prices.
∑ Nuclear power is a wildcard. Construction of nuclear capacity requires major investments, and the issue of waste disposal remains unresolved. However, nuclear power carries very low fuel price risks, and is very clean outside of the waste issue.
∑ Solar power, for all its hype, is probably too expensive for use in the near term. Wind power, however, is extremely promising, and is capable of producing a significant part of our electricity. The only downside is high upfront investment costs. Current use is minimal.
∑ Biofuels - ethanol and biodiesel - are questionable as well. Potentially they could replace a large portion of our oil consumption with fuel derived from domestic crops. At this point, however, it is uncertain exactly how much fuel can be derived from the distillation process.
Among electrical generating fuels, it appears that coal will remain the cheapest energy source per kilowatt-hour for the foreseeable future, while natural gas, currently the favored fuel for new electrical generating capacity, is likely to be the most expensive source. Wind and nuclear will likely fall in between. Taking the costs of pollution remediation into account, however, can double the cost of coal, and add about 50% to the cost of gas. This leaves nuclear and wind power as the clearly superior candidates for future production. Wind power carries the additional benefit of bringing revenue to rural communities.
Oil remains a thorn in our side, however, as it holds a near monopoly on the transportation fuel market. Policy ought do whatever possible to reduce reliance on foreign oil through increased reliance on domestic synthetic petroleum and, if possible, on biofuels.
This report recommends that the government keep its hands off of tactical decisions as to what type of energy to deploy where. An ideal policy, rather than working against the power of American business, should work with it, recognizing that business and government have different objectives. Business works in the short term, considers externality expenses to be no expenses at all, and is free to take risks. Government must plan for the long term, considers all externalities to be internal costs to the nation, and cannot afford to let a critical industry like energy fail. Government's challenge, then, is to adopt such policies that business, working within its own framework, will coincidentally fulfill the public's needs as well. Considering that, this report makes three specific recommendations:
1. Scrap all existing energy subsidies and tax breaks. They are confusing and get in the way of systemic reforms.
2. Institute an Energy Investment Deduction, which will allow investors in energy a full and immediate tax write-off of all investments in energy infrastructure. This will encourage business to make critical infrastructure investments which likely will not pay off for years by essentially giving them a cash bonus upfront. It will also encourage the use of wind and nuclear energy along with synthetic fuel refining. These require more investment, and thus promise more write-offs.
3. Institute Industrial Emissions Taxes, and allow a cap-and-trade system in which low polluters can sell pollution credits to high polluters. This turns pollution reduction into a profit-making opportunity.
The change from current energy tax policy to the EID can be expected to cost up to $320 billion over 30 years. However, even modest changes in industry behavior save hundreds of billions in energy costs. Considering these savings, the program potentially could result in savings of over $1 Trillion over 30 years.
This program carries the benefit of appeal to numerous disparate groups. Reaganites should like the tax cut aspect. Environmentalists get the shift from coal and gas. Industry gets increased demand due to higher investment. Farmers get massive investment in their towns. Opposition can be expected largely from those benefiting from current loopholes. Which coalition will prove stronger is, of course, unknown.