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Is The Obama Energy Plan Really That Bad?

by Michael Levi
April 4, 2011

Daniel Ahn wrote a post here last Friday voicing strong disappointment with President Obama’s big energy speech. Here’s the core of his argument:

“President Obama’s speech on energy given Wednesday on Georgetown University’s campus was disappointing to say the least. In particular, the highlight of his speech, a pledge to reduce the nation’s oil imports by one third by 2025, is both conceptually unsound as well as difficult to achieve physically.”

I want to push back on a couple pieces of Dan’s case.

First, I’m with him on the argument that “energy independence” is a pretty silly goal. Like he says, the United States is integrated into global oil markets, regardless of its own import balance. But this is the reality of political rhetoric; if the underlying policy is sound, I’m willing to live with a sales pitch that uses some sloppy terminology. (It’s also worth noting that Obama didn’t really frame his own proposal as promising energy independence – he described past Presidents as having done so.) Of course, bad framing can ultimately distort policy. But it’s the potential policy distortion, not the rhetoric, that I’d rather focus on.

Second, it’s important to remember that prices aren’t the only thing that matters. Lower U.S. imports mean that price shocks have less negative macroeconomic impact. Dan says to ask someone who lives Norway about whether they see higher oil prices at home when world prices rise. I’d ask them a different question: how does your economy fare when oil prices went up? The answer is that it fares far better than the economies of large oil importers.

Last, and perhaps most important, is the question of whether the Obama goal is feasible. Dan points out that we’d need to cut U.S. oil imports from 11.2 mb/d in 2008 to 7.4 mb/d in 2025 to meet the goal, whereas the EIA projects that we’re currently headed to 9.4 mb/d of net imports. He’s skeptical of our ability to meet that goal; I’m less so.

Why? Here’s Dan’s case on the supply side:

“The bulk of the [currently projected] import reduction comes from the category of “other,” which includes biofuels and shale oil. More liquid fuel production may come from gas-to-liquids driven by plentiful natural gas supplies.”

That’s not quite how I read the EIA projections. The big gains projected for 2025 come from biofuels (as Dan notes) and from natural gas liquids. Shale oil, as far as I can tell, barely registers in the current estimates of where we’ll be in 2025. If shale oil pans out, we could see a 1 mb/d+ uptick in projected production circa 2025. Given that a good bit of the Obama energy blueprint focuses on resolving fracking concerns, I’d say that that’s pretty central.

How about the demand side? I don’t see why we can’t squeeze another 1 mb/d out of strong fuel economy regulations and perhaps some efforts to push gas into the transport sector (though I’m not convinced that the latter are wise).  Plenty of estimates suggest that you can cut consumption by something on the order of 1 mb/d with decently improved CAFE standards.  And last year’s EIA showed a potential to squeeze out a few hundred thousand barrels a day of oil consumption through modest substitution of natural gas in transport.

So I’m not nearly as pessimistic about the plan. That said, I’m with Dan on one bottom line: with or without the new “Energy Security Blueprint”, the United States will be vulnerable for a long time. We need a much more sophisticated policy for living with that vulnerability than we currently do.

Post a Comment 3 Comments

  • Posted by Auyon Siddiq

    Just want to say that Daniel Ahn is a fantastic addition to your team. I enjoyed reading his post, but in particular, I enjoyed the collegial mini-debate between you.

    I think this sort of back-and-forth dialogue is a nice new feature of this blog, and definitely wouldn’t mind seeing similar discussions in the future (of course, its best when its organic and not necessarily planned).

  • Posted by Vic Livingston

    The U.S. military has the answer to the world’s energy crisis. It’s called scalar electromagnetic energy, and its applications are being purposely limited to weapon systems and suppressed from public knowledge. Even noted physics departments do not teach scalar electromagnetics. The technology has the capacity to produce limitless “free” energy from a vacuum state — or to produce weapons that can destroy mankind with precision-targeting of individuals or mass populations. And the technology is covertly being used to silently torture Americans extrajudicially deemed to be dissidents or undesirables — that’s what the profusion of all those “cell towers” so close together are about, says a veteran journalist: http://nowpublic.com/world/u-s-silently-tortures-americans-cell-tower-microwaves
    http://NowPublic.com/scrivener

  • Posted by Geoff Dabelko

    Michael,

    I’m very sympathetic to your argument about demand and that it holds great potential for reducing energy consumption, whether import or domestic. My concern is how infrequently that element of the strategy is emphasized and pursued. It is not quite as verbotin as no new taxes, but the requirement to pursue policies that do not undercut “the American way of life” is code for we must be able to continue with wasteful use of energy (cheap fossil fuels, large cars, suburb-based organization etc). So it is acceptable to be for energy efficiency if it does not impact my way of life which is fundamentally tied to unsustainable use of energy.

    So the question is what is the frame (economic competitiveness imperative, national security…) that facilitates not just capturing easy energy efficiency gains but actually enables a conversation about redefining the good life ie the American way of life. That more ambitious discussion appears to be missing.

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