Obama's Energy Dilemma

Back Energy fueled Growth or Please Rent Seeking Green Lobby

by Joel Kotkin

Talk all you want about the fiscal cliff, but more important still will be how the Obama administration deals with a potential growth-inducing energy boom. With America about to join the ranks of major natural gas exporters and with the nation’s rising oil production reducing imports, the energy boom seems poised to both  boost our global competitiveness and drive economic growth well above today’s paltry levels.

This puts President Obama in a dilemma. To please his core green constituency, he can strangle the incipient energy-led boom in its cradle through dictates of federal regulators. On the other hand, he can choose to take credit for an economic expansion that could not only improve the lives of millions of middle- and working-class Americans, but also could assure Democratic political dominance for a decade or more.

Stronger economic growth remains the only way to solve our nation’s fundamental fiscal problems other than either huge tax hikes or crippling austerity. As economist Bret Swanson has pointed out, the best way to raise revenues and reduce expenditures, particularly for such things as welfare and unemployment, would be to increase overall growth from the current pathetic 2 percent rate to something closer to 3 or 4 percent.

Swanson suggests in a few simple charts (PDF) that a 4 percent growth rate would drive output to levels that would cover even our current projected spending levels. Even at 3 percent, the additional revenue would be enough, for example, to fill in Medicare’s looming $24.6 billion liability that is projected to 2050. The effects of higher growth are likely far greater than either any anticipated bonanza by raising taxes on the “rich” or enacting the most extreme austerity.

The energy revolution presents Obama with the clearest path to drive this critical boost to greater economic growth. New technologies for finding and tapping resources, such as fracking and other new technologies to tap older oil fields, could make America potentially the largest oil and gas producer by 2020, according to the International Energy Agency.

Equally important, an increasingly energy self-sufficient America would enjoy significantly greater independence from pressure from the often hoary influence of such unattractive regimes as Saudi Arabia, Venezuela, and Russia. Approval of the controversial Keystone pipeline from Canada to Texas would cement what would effectively be a North American energy community utterly independent of these trouble spots.

Those that have embraced the energy revolution have already created a gusher in energy jobs, which pay wages on average higher (roughly $100,000 annually )  than those paid by information, professional services, or manufacturing . The six fastest-growing jobs for 2010-11, according toEconomic Modeling Specialists International, are related to oil and gas extraction. In total, nine of the top 11 fast-growing jobs in the nation over the past two years are tied in one way or another to oil and gas extraction.

Over the decade, the energy sector has created nearly 200,000 jobs in Texas, as well as 40,000 in Oklahoma, and more than 20,000 in Colorado. Growth on a percentage basis is even higher in North Dakota, which saw a 400 percent increase in these jobs, as well as Pennsylvania, where jobs increased by 20,000.

In contrast California, whose Monterey Formation alone is estimated to be four times larger than North Dakota’s Bakken reserve, has chosen, in its irrepressible quest for ever greater greenness, to sharply limit its fossil-fuel industry As a result, it has generated barely one-tenth the new fossil fuel jobs generated in archrival Texas. Not surprisingly, California and other green-oriented states have lagged behind in GDP and income growth while the energy states have for the most part enjoyed the strongest gains.

In addition, domestic energy growth directly spurs the construction of new, as well as the rehabilitation of old, industrial facilities. This already is occurring across a vast swath of America, from revived steel mills in Ohio and Pennsylvania to massive new petrochemical plants being planned along the Gulf Coast. Further development of energy resources, according to a study by Price Waterhouse Coopers, could create upwards of a million industrial jobs over the next few years.

For Obama, getting behind energy boom presents both enormous opportunities as well a serious political dilemma. In terms of cutting emissions, the rising use of natural gas has been a huge boon,allowing the U.S. to make greater cuts than any other major country over the past four years. Yet, the green lobby, once sympathetic to this relatively clean fuel, has turned decisively against any new gas development.

As a major component of Obama’s wide-ranging  coalition of grievance holders, environmentalists expect  to exercise greater influence in the second Obama term. Hollywood, now virtually an adjunct to the “progressive” coalition, will soon weigh in with Promised Land, a predictably anti-fracking movie, starring Matt Damon. Living up to Hollywood’s tradition of serving as what Lenin called “useful idiots”, the movie is financed in large part  by investors from the United Arab Emirates, whose profits would be threatened by the growth of American energy production.

The ideological stakes for the green movement are tremendous . Greatly expanded American fossil-fuel production violates the “peak oil” mantra that has underpinned environmental thinking for decades, and undermines some of the core rationale for subsidizing expensive renewables such as solar and wind.

Geography also may play a major role here. Outside of Colorado, the industrial Midwest and western Pennsylvania, where the shale boom is widely seen as boosting local economies, the vast majority of energy-producing states tilt strongly to the GOP. In contrast, Obama’s strongest support comes from green-oriented coastal residents whose familiarity with energy production starts and ends with turning on a light or switching on an Ipad.

Obama’s financial base—in contrast to that enjoyed by the Republicans—relies little on the energy industry. The president’s corporate support comes largely from the entertainment, media, and software industries. Many of Obama’s strongest business backers, particularly in Silicon Valley,have become entangled financially with “renewable energy” schemes, many of which can only survive with massive subsidies in the form of tax credits, loans, and surcharges on energy consumers.

Yet the president has good political reasons not to undermine the energy boom tht can deliver on his promise to deliver high-wage jobs and prosperity to the beleaguered middle class and working classes. In the campaign, the president wisely and openly sublimated his inner green, even taking credit for the expansion of fossil-fuel production. As the campaign came to a close, as Walter Russell Mead observed, “the less we hear about green and the more we hear about brown, about oil and gas drilling.”

As in so many areas, Obama’s political judgments were on target. His “brown” shift helped deprive the GOP of a key issue in critical swing states such as Colorado, Ohio, and Pennsylvania. Seeming moderation on energy also helped keep Democratic Senate seats in such key producing states as West Virginia, North Dakota, and Montana. A sharp turn back to a hard green position, particularly a ban on fracking, would leave these and other energy-state Democratic miracle babies isolated and vulnerable .

Right now, the administration’s energy policy seems a bit muddled, as the Obama team emerges from the fog of the campaign wars. On the one hand, there are signs that the Bureau of Land Management may take upwards of 1.5 million acres of western lands off the table for energy production. Yet at the same time, the bureau has announced plans to open 20 million acres off the Gulf Coast for exploration.

One can understand Obama’s ambivalence on the issue. Embracing the energy boom, and the ensuing economic expansion, could create an economic bonanza while continuing to reduce carbon emissions. This can be further enhanced by backing efforts by natural-gas producers to expand more into the bus, heavy equipment and truck market. On the other hand, this tack will risk the ire of rent-seeking renewable-energy firms and greens,  as well as their media and Hollywood claques.

Rather than divide the country into green and brown camps, the Breakthrough Institute’s Ted Nordhaus and Michael Shellenberger suggest, the administration should seek “a rapprochement” between the natural gas industry and the environmental movement. Dirtier energy sources, notably coal, could be jettisoned while the country shifts, at least for the medium and short run, toward a greater reliance on cleaner gas energy.

Ultimately, the decision whether to embrace an energy-led growth strategy may well determine whether President Obama can improve middle-class prospects. In the coming months, he will need to choose between pleasing the green purists around him and generating a long boom that would elevate him to Mount Rushmore levels, and assure his party’s political dominion for a generation.