03.01.12 9:45 AM ET
Is Energy the Last Good Issue for Republicans?
With gas prices beginning their summer spike to what could be record highs, President Obama in recent days has gone out of his way to sound reassuring on energy, seeming to approve an oil pipeline to Oklahoma this week after earlier approving leases for drilling in Alaska. Yet few in the energy industry trust the administration’s commitment to expanding the nation’s conventional energy supplies given his strong ties to the powerful green movement, which opposes the fossil-fuel industry in a split that’s increasingly dividing the country by region, class, and culture.
But Republicans, other than the increasingly irrelevant Newt Gingrich, have failed to capitalize on the potent issue, instead lending the president an unwitting assist by focusing the primary fight on vague economic plans and sex-related side issues like abortion, gay marriage, and contraception. The GOP may be winning over the College of Cardinals, but it is squandering its chance of gaining a majority in the Electoral College, holding the House, and taking the Senate.
No single sector affects more people and industries than energy, and none is more deeply affected by the disposition of government. Energy divides the nation into two camps. On one side there are the regions and industries dependent on the development and use of energy. They include the increasingly expansive energy-producing region stretching from the Gulf Coast and the Great Plains to parts of Ohio, Pennsylvania, and the Appalachian range.
The centers of energy growth, including areas stretching from the Gulf Coast through the Great Plains to the Canadian border, have generated the highest levels of job and income growth over the past decade (along with parasitic Washington, D.C.).
Nine of the 11 fastest-growing job categories are related to energy production, according to an analysis by Economic Modeling Systems Inc. Energy jobs pay an average of $100,000 annually, about the same as software engineers earn in Silicon Valley.
Perhaps more important politically, this bonanza is now spreading to historical battleground states Ohio, Pennsylvania, and Michigan. Long-depressed areas like western Pennsylvania are reversing decades of decline as new finds and advances in natural-gas drilling have opened up vast new stores of domestic energy. The new energy wealth has created new jobs, enriched property owners, and provided states with potential huge new sources of revenue.
On the other side of the energy divide stand a handful of dense, mostly coastal metropolitan areas with either little in the way of energy resources or, in the case of California’s most affluent urban pockets, little interest in exploiting them. With a shrinking industrial base and less dependence on automobiles, these areas now constitute the political base for the both the Democratic Party and the growing green-industrial complex, which boasts strong ties to Silicon Valley’s well-heeled venture-capital “community” and their less celebrated, but even wealthier, Wall Street allies.
In these places, the current fossil-energy boom is regarded less as a boon than as an environmental disaster in the making, a view captured in the unrelenting attack on shale development in the news pages of The New York Times and other outlets in broad sympathy with the Obama administration. New production of low-cost, low-emission natural gas also threatens the viability of politically preferred renewables such as solar and wind. But unlike fossil fuels, such “green” initiatives have created very few jobs; overall, the promise of “green jobs,” as even The New York Times has noted, has failed to live up to its hype.
Given the success in the other energy states, California—with double-digit unemployment—might reconsider its policies, but this is unlikely. “I asked [Gov.] Jerry Brown about why California cannot come to grips with its huge hydrocarbon reserves,” John Hofmeister, a former president of Shell Oil’s American operations and a member of the U.S. Department of Energy’s Hydrogen and Fuel Cell Technical Advisory Committee, told me recently. “After all, this could turn around the state."
Brown’s answer, according to Hofmeister: “This is not logic, it’s California. This is simply not going to happen here.’”
But elsewhere in the U.S., new technologies such as hydraulic fracking and vertical drilling have vastly increased estimates of North America’s energy resources, particularly natural gas. By 2020, the United States, according to the consultancy PFC Energy, will surpass Russia and Saudi Arabia as the world’s leading oil and gas producer.
As President Obama has acknowledged, this surge of production boasts some great economic benefits. American imports of raw petroleum have fallen from a high of 60 percent of the total to less than 46 percent. Overall, according to Rice University’s Amy Myers Jaffe, U.S. oil reserves now stand at more than 2 trillion barrels; Canada has slightly more. She pegs North America’s combined reserves at more than three times the total estimated reserves of the Middle East and North Africa.
At the same time, energy exploration is sparking something of an industrial revival. The demand for new rigs, pipelines, and a series of new petrochemical facilities has created a burst of industrial production across much of the country. Steel mills, makers of earth-moving equipment, and construction suppliers all have benefited. A recent study by PricewaterhouseCoopers suggests shale gas could lead to the development of 1 million industrial jobs. Not surprisingly, some of the biggest backers of shale-gas exploration are prominent CEOs from industrial firms.
Energy policy may also be critical for the future of the Great Lakes–based American auto industry. Despite expensive PR ventures like the electric Chevy Volt, the Big Three depend for profits largely on SUVs and trucks. High oil prices will only help their competitors from Japan, South Korea, and Germany, all of which are ramping up in the emerging Southeastern auto corridor. Rising oil prices could also raise the costs of food production, which relies heavily on energy-intensive fertilizers and machinery.
Aware of the negative consequences for a still-weak recovery, President Obama has started to mount a defense for his energy policies. Last month he launched several preemptive strikes, claiming credit for rising U.S. production while ridiculing Republicans for their “drill, baby, drill” response to rising energy prices.
Obama is correct in asserting that increases in domestic production will not solve the energy price issue overnight, or even in the near future. But it was disingenuous for him to then take credit for the current energy boom, which resulted largely from policies adopted during the Bush years, while Obama’s policies have, if anything, slowed exploration and development.
It’s fairly clear that the president and his team—notably Energy Secretary Steven Chu and Interior Secretary Ken Salazar—are at best ambivalent about greater fossil-fuel development. Obama, for example, recently proposed cutting tax breaks and subsidies for the oil industry, which he estimated at $4 billion annually—a new expense for the companies that would in large part be passed on to consumers at the pump.
This is not necessarily a bad thing in its own right, but along with the effective tax hike, Obama proposed doubling down on the much larger and, to date, far less productive giveaways to the green-industrial complex, which received $80 billion in loans and subsidies in the 2009 stimulus. According to various studies, including the Energy Information Agency, solar firms enjoy rates of subsidization per kilowatt hour at least five times those gained by fossil-fuel firms.
If all energy subsidies were removed, the fossil-fuel industry likely could shrug off the hit, while the heavily subsidized green-industrial complex would markedly diminish. Yet even if Congress refuses to continue the green subsidies, it’s probable that administration regulators would find ways to slow fossil-fuel expansion in a second Obama term. Responding largely to the Democratic environmental lobby, they have already overruled the State Department to delay the Keystone XL pipeline from Canada. Plans for new multibillion-dollar petrochemical plants on the Gulf will make easy pickings for federal regulators from agencies now controlled by environmental zealots.
“The energy states feel they are being persecuted for their good deeds,” says Eric Smith, director of the Tulane Energy Institute in New Orleans. “There is a sense there are people in the administration who would like this whole industry to go away.”
In the short run, Obama’s political exposure in the energy wars is somewhat limited. Most of the big-producing states—Oklahoma, Wyoming, Utah, Texas, Louisiana, Alaska, and North Dakota—are unlikely to vote for him anyway. Nor does he have to worry about too much pressure from inside his party; Democratic ranks in Congress from energy-producing states have thinned considerably in recent years, removing contrary voices inside the party.
A more dicey issue relates to contestable states like Ohio, Pennsylvania, and Michigan, where many see the energy boom as a source of economic recovery. To make their case in these and other swing states, Republicans first have to make energy the overall revival of the American economy—the key issue for this November’s election. If they insist on campaigning primarily as stolid defenders of rigid social values and election-year promises of painless tax cuts, they will have themselves to blame for their drubbing in November.