COMMENTARY: Environmental Policy Constrains U.S. Oil Supply

Is there no end to the soaring fuel prices? Crude oil may reach as high as $150 or $200 per barrel by the end of this year according to many analysts.

The world’s oil supply is perilously tight. American dependence on unreliable foreign sources for more than 60 percent of domestic oil demand, indeed, drives the price at the pump. With new policy, the United States certainly could increase domestic production of oil.

Such is the impetus behind The American Energy Production Act of 2008, introduced in the U.S. Senate on May 1 and supported by our Texas Senators, Kay Bailey Hutchison and John Cornyn. The legislation would stimulate domestic oil production by removing federal bans on oil development in Alaska and off the Pacific and Atlantic coasts, expediting EPA permits for refineries, encouraging leases for oil shale development, and mandating production of coal-derived fuels.

U.S. oil production has steadily declined since the 1970s. Over these 35 years, oil exploration, pumping, pipeline infrastructure, and refining have been consistently opposed by the powerful environmentalist establishment … and with great success. It is time to reconsider these constraints on domestic production.

Consider the volumes of U.S. oil resources. The most conservative measure is “proven reserves.” To be proven, it must be reasonably certain that the crude oil can be produced using current technology at current prices, current commercial terms, and with government consent. The U.S. Energy Information Agency (EIA) estimates the U.S. has 21.8 billion barrels of oil (bbo) in “proven reserves.”

At today’s consumption rates, proven reserves would last 50 years. Yet the amount of proven reserves might jump to more than 50 billion barrels if the government “consented” to development of areas now off-limits.

And “recoverable reserves” — known oil resources capable of recovery, but with more cost and technical difficulty than proven reserves — hold several thousand times more. These resources include: light oil in place (293 bbo); heavy oil (81 bbo); oil sands (80 bbo); and the mother lode, oil shale (2,118 bbo). Add the 21.8 bbo proven reserves and 30 bbo off-limits, and the total 2.6 trillion barrel endowment of American oil resources would support U.S. demand for thousands of years.

Unlike Britain, Canada, or Norway, federal decision has barred offshore oil exploration in half the Gulf of Mexico, and off the East and West coasts. The U.S. Department of Interior estimates that these offshore bans cover more than 16 billion barrels.

The environmental establishment still preaches that producing oil and preserving the environment are mutually exclusive propositions. But the original environmental risks have been almost eliminated by creative technology and safeguards. None of the offshore platforms hit by the gales of Hurricane Katrina spilled a drop of oil. In the Gulf of Mexico, where offshore production is allowed, innovative means of enhancing aquatic habitat have been highly successful.

Alaska’s Arctic National Wildlife Refuge is considered the largest untapped oil field in North America. Even with elaborate means to preserve wildlife habitats, former President Bill Clinton vetoed legislation to allow its development. Estimates of practically recoverable crude oil there are between 10 and 12 billion barrels.

The 92 million acres of federal lands in the lower 48 states also contain oil resources. Shortly after 9/11, Congress reviewed all energy resources on federal lands. Their study found that only 25 percent of the lands were accessible for oil development. Restrictions precluded access to all but 18 percent of the estimated 4.2 billion barrels of recoverable oil.

With ever increasing global demand for fuel, all cost-efficient and environmentally responsible energy sources are needed. For the next several decades, however, there are no realistic alternatives to the petroleum dominance in transportation fuels. Renewable fuels, batteries, and hydrogen fuel cells can, in the near future, provide only a sliver of the volume needed.

What percentage of voters would still support environmental policies that constrain U.S. production of oil? In a March 2008 nationwide survey of registered voters by the Institute for Energy Research, 72 percent prioritized U.S. energy independence ahead of global warming concerns.

The American Energy Production Act of 2008 offers a critical step forward. After 9/11 and again after Hurricanes Katrina and Rita, comparable legislation was introduced. As the urgency waned, so did enthusiasm for the new policy. Perhaps gasoline at $5 or $6 per gallon could break the inertia that perpetuates American dependence on foreign oil.

Environmental protection and affordable energy are compatible. Like no other, this country can still achieve ever greater levels of environmental quality, reliable energy, and national security.

Kathleen Hartnett White is Director of the Center for Natural Resources at the Texas Public Policy Foundation, a non-profit, free-market research institute based in Austin. She is the former Chair of the Texas Commission on Environmental Quality.

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TPPF COMMENTARY: A Note of Caution, as Wind Power Whips Through Texas

A Note of Caution, as Wind Power Whips Through Texas

By Drew Thornley

Who knew a “free” source of energy could be so expensive?

The Electric Reliability Council of Texas recently estimated that billions of dollars in investment will be needed to transmit wind-generated electricity from the areas of Texas most suitable for wind generation—West Texas and the Panhandle—to the areas of the state that need energy the most—the I-35 corridor and the upper Gulf Coast. These costs will be borne by Texas ratepayers. How did we get here?

Renewable energy mandates and subsidies have paved the way for Texas’ wind energy boom. Today, Texas leads the nation in installed wind power capacity, adding 1,708 megawatts (MW) in 2007, bringing its total to 4,446 MW by the end the year. California is a distant second, with a total of 2,439 MW by year’s end. In 2007, 0.77% of the nation’s total electric generation came from wind energy; here in Texas, wind accounts for 2% of total generation.

Robust wind power expansion is expected, as Texas producers are required to generate 5,880 MW of renewable energy by 2015 and face a 10,000-MW target for 2025. To this end, $700 million went into new wind Texas farms in January.

Wind energy proponents extol wind as free, safe, and clean, but these characterizations miss the point. Energy users expect reliability, and challenges dot the path from wind to the electric grid to energy consumer.

For wind turbines to produce power, the wind must blow. Because the wind does not blow constantly, wind turbines produce a fraction of their potential generating capacities. Furthermore, winds blows the least during the summer months when power is needed the most. ERCOT relies on just 8.7% of wind power’s capacity when determining available power during peak summer hours. Also, due to wind’s intermittency, wind farms must rely on conventional power sources to back up their supply.

Besides generous federal subsidies and tax incentives, Texas entices wind developers with tax exemptions and deductions; yet wind power remains more expensive per kilowatt-hour than conventional energy sources.

ERCOT’s estimates for transmitting West Texas wind energy, under four different scenarios, range from $3.78 billion to $6.28 billion. ERCOT estimated costs by using straight-line lengths for transmission cables. Thus, transmission costs were estimated using a best-case-scenario approach and, as such, should be considered minimums. Add to this ERCOT’s estimates of $410 million to $1.03 billion for connecting wind generation to the new collection substations.

Wind energy also comes with legitimate environmental concerns. Wind farms require vast tracts of land, disrupting farming acreage and animal habitats; and turbine blades kill thousands of birds each year, including protected species.

ERCOT estimates Texas’ electricity demand will rise 20% by 2015 and 43% by 2025. Texas must remain focused on providing its residents with affordable, reliable energy and not turn its back on fossil fuels, which can meet our needs and are cleaner than ever before.

Wind alone cannot meet the increasing demand we face. Rather, wind is one stick in a bundle of larger sticks, all of which can and should contribute to meeting energy demands. Wind should be part of a diversified portfolio of energy resources, anchored by the traditional energy sources that have the capacity to meet Texas’ burgeoning energy needs.

Drew Thornley is a natural resources policy analyst at the Texas Public Policy Foundation, a non-profit, free-market research institute based in Austin.

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TPPF COMMENTARY: Washington’s Answer To Energy Problems Doesn’t Add Up

The label of a “Do Nothing” Congress might well serve as a badge of honor, given the misguided national energy bills now being debated.

Despite being described by proponents as “energy” bills, these proposals would neither produce more energy nor make energy more affordable. Instead of workable solutions to meet today’s energy needs and provide an economically viable roadmap for the future, the collage of ill-conceived legislative provisions is based more on political expediency.

The bills will wreak further havoc on the nation’s energy challenges, denting both the national economy and the pocketbooks of Texans. The energy bill just passed by the House will harm both our nation’s reliable energy supply and our national economy.

Both chambers have set their sights on so-called “price gouging” – the Senate as part of its energy bill, the House in stand-alone legislation. While seemingly noble in their intent, the proposals would effectively impose price controls, raising gas prices for consumers and limiting the availability of fuel for American families and businesses. Apparently, many in Congress have forgotten our disastrous 1970s experiment with these. Rather than punish energy providers through additional taxes and regulations, Congress should promote increases in America’s refining capacity.

The legislation imposes government mandates requiring massive increases in the use of renewable fuels, such as corn-based ethanol. Besides raising costs for livestock feed, the price of corn adversely affects consumers through higher prices for meat, dairy products, and other dietary staples. The House bill requires a five-fold increase in biofuels production – to 36 billion gallons of biofuels per year – by 2022.

Now that speculators have sped up production due to new mandates and federal subsidies, we have a glut of ethanol in the Midwest, because it must be shipped and stored separately from other fuels. Requiring consumers to use enormous amounts of subsidized ethanol does not make practical, fiscal, or environmental sense.

Pending mandates on utilities will require use of a certain percentage of renewable energy sources for electricity. The House bill requires electric utility companies to obtain at least 15 percent of their power generation from renewable fuel sources. Renewable energy holds great promise and will clearly be part of our nation’s future energy portfolio, but forcing the adoption of alternative energy upon consumers comes with great economic risk, namely in the form of higher utility bills.

Until these important segments of the industry mature, consumers have relatively affordable and convenient access to energy sources that should not be disrupted. Consumers should not pay a forced premium because promising technologies have yet to fulfill their promise.

The House bill also includes a 10-year, $21 billion tax increase; requires fuel economy be increased to an industry average of 35 miles per gallon by 2020; calls for phasing out the incandescent light bulb; and mandates increased standards for appliance efficiency.

What is not in the bills, however, is even more concerning. There no additional provisions to increase U.S. energy production and capacity, and the bills remove existing incentives and add regulatory obstacles to increasing needed supply – the key factor guiding today’s energy prices.

A reliable supply of energy will become increasingly critical for Texas. In 2005, Texas’ population was 23 million. That number is projected to increase to 28 million by 2020 and 35 million by 2040. At these growth rates, Texas’ electricity demand will increase 20 percent by 2015 and 43 percent by 2025. Meeting the 2025 demand will require Texas to add 50 to 100 new, large power plants, according to the Electric Reliability Council of Texas.

Additionally, while everyone speaks about the benefits of renewable energy, wind, solar, and other renewable technologies are not yet able to generate the enormous amounts of electricity needed in our communities. Only coal in the near term – and nuclear a little farther off – can provide sufficient power. Emissions from coal-fired plants continue to decline, while nuclear is a safe, proven, near zero-emission source of reliable energy.

Policies that allow the market system to increase capacity, production, and supply are the key to sound energy policy. Sadly, today’s political formula – noble goals plus special interests plus unintended economic consequences equals ineffective legislation – simply doesn’t add up for consumers.

Drew Thornley is an economic freedom policy analyst at the Texas Public Policy Foundation, a non-profit, free-market research institute based in Austin, TX. Margo Thorning is senior vice president and chief economist for the American Council for Capital Formation in Washington, DC.

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