Event Title
The Fallacy of an "All-of-the-Above" Energy Policy
Location
Room 302
Start Date
4-7-2012 10:15 AM
End Date
4-7-2012 12:00 PM
Description
As a candidate in the 2008 presidential race, President Obama had bold ideas for developing a renewable energy industry in the United States. He advanced a platform in which revenues from emissions trading would provide direct funding for research, development, and deployment of renewable energy. Over time, as greenhouse gas pollution credits diminished, renewable energy sources would flourish and ultimately lead to a U.S. electricity system powered primarily by renewable sources.
Four years later, the President’s bold ideas have turned into an “all-of-the-above” energy policy. Under this policy, the United States should develop all sources of energy, including domestic oil, coal, nuclear, natural gas, and, yes, renewables. Although the policy would reduce subsidies for some energy resources – such as oil – and increase them for others, including nuclear and renewable energy, the all-of-the-above policy amounts to a retreat from renewable energy development. Simply stated, it is impossible to promote all energy sources and simultaneously provide adequate support to the emerging renewable energy sector.
An all-of-the-above energy policy seems to assume that different energy sources can compete with each other on an equal playing field, or that subsidies can even the playing field enough to make renewable energy sources competitive with traditional electricity sources. This assumption, however, ignores the historical, economic, technological, and political realities of the U.S. electricity system.
For example, regulation of electric utilities as natural monopolies has created an electricity system reliant on large, fossil-fuel plants capable of providing power to thousands of distant customers. These incumbent power plants achieve economies of scale that make competition unlikely in many U.S. regions. Moreover, the regulatory framework for natural monopolies rewards the construction of large, capital-intensive plants. It is unrealistic to expect an emerging renewable energy system to compete in this framework. Even in those parts of the United States that have restructured and made power generation a competitive enterprise, market dynamics work against renewable energy. The wholesale electricity market operates pursuant to supply-and-demand dynamics. Due to previous government investment, embedded property rights, and lax regulation, cheap natural gas produced from hydraulic fracturing has flooded the wholesale electricity market. Renewable energy, which has yet to benefit from the same government largess or ability to externalize costs, cannot compete in this skewed market.
This paper will explain how these market dynamics, and other realities of the U.S. electricity system, make an all-of-the-above energy policy dangerous for renewable energy. It will also propose ways in which the Obama Administration could retool its energy policy to make renewable energy a truly competitive electricity source.
The Fallacy of an "All-of-the-Above" Energy Policy
Room 302
As a candidate in the 2008 presidential race, President Obama had bold ideas for developing a renewable energy industry in the United States. He advanced a platform in which revenues from emissions trading would provide direct funding for research, development, and deployment of renewable energy. Over time, as greenhouse gas pollution credits diminished, renewable energy sources would flourish and ultimately lead to a U.S. electricity system powered primarily by renewable sources.
Four years later, the President’s bold ideas have turned into an “all-of-the-above” energy policy. Under this policy, the United States should develop all sources of energy, including domestic oil, coal, nuclear, natural gas, and, yes, renewables. Although the policy would reduce subsidies for some energy resources – such as oil – and increase them for others, including nuclear and renewable energy, the all-of-the-above policy amounts to a retreat from renewable energy development. Simply stated, it is impossible to promote all energy sources and simultaneously provide adequate support to the emerging renewable energy sector.
An all-of-the-above energy policy seems to assume that different energy sources can compete with each other on an equal playing field, or that subsidies can even the playing field enough to make renewable energy sources competitive with traditional electricity sources. This assumption, however, ignores the historical, economic, technological, and political realities of the U.S. electricity system.
For example, regulation of electric utilities as natural monopolies has created an electricity system reliant on large, fossil-fuel plants capable of providing power to thousands of distant customers. These incumbent power plants achieve economies of scale that make competition unlikely in many U.S. regions. Moreover, the regulatory framework for natural monopolies rewards the construction of large, capital-intensive plants. It is unrealistic to expect an emerging renewable energy system to compete in this framework. Even in those parts of the United States that have restructured and made power generation a competitive enterprise, market dynamics work against renewable energy. The wholesale electricity market operates pursuant to supply-and-demand dynamics. Due to previous government investment, embedded property rights, and lax regulation, cheap natural gas produced from hydraulic fracturing has flooded the wholesale electricity market. Renewable energy, which has yet to benefit from the same government largess or ability to externalize costs, cannot compete in this skewed market.
This paper will explain how these market dynamics, and other realities of the U.S. electricity system, make an all-of-the-above energy policy dangerous for renewable energy. It will also propose ways in which the Obama Administration could retool its energy policy to make renewable energy a truly competitive electricity source.