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State of the Union Hints at Ways to Bridge the Gap Between Old and New Energy

by Michael Levi
February 13, 2013

The State of the Union address last night was notable for the prominent placement of energy and climate and for its recommencement to what President Obama has called an all of the above strategy. I was particularly struck by the inclusion of two new efforts that would aim to concretely bridge the gap between fossil fuel backers and clean energy enthusiasts: the Energy Security Trust Fund and a new prize for development of natural gas with carbon capture and storage.

The Energy Security Trust Fund has been pitched, in different variations, by Securing America’s Energy Future (SAFE) and Senator Lisa Murkowski (R-AK). These proposals have envisioned earmarking revenues from new oil and gas drilling for spending on clean energy innovation. The White House fact sheets on the speech are ambiguous as to whether they see the Trust Fund getting money from existing or new drilling. But the political reality is that this proposal only has legs if it has something for everyone – and that means it needs to mix new oil and gas development with more investment in clean energy innovation. Indeed that is pretty much the point. There is no technical reason that money can’t be taken from general funds to support innovation, and there is no reason that lands can’t be opened for drilling without spending the revenues on clean energy. To me the biggest virtue of this approach is that it starts to tie the fortunes of various combatants together: oil and gas supporters can only cut clean energy funding by blocking drilling; clean energy backers suffer if oil and gas development is curtailed.

The proposal to award a $25 million prize to the first developer to implement carbon capture and storage (CCS) on a natural gas combined cycle power plant is in a similar vein. The most profitable way to do CCS on a gas-fired power plant is to inject the carbon dioxide that’s captured in order to enhance production of oil. If the administration can find ways to jump-start this effort, the result would be development and cost-reductions of a critical low-carbon technology together with activity that could, as the Natural Resource Defense Council has pointed out approvingly, simultaneously give a big boost to oil production. My only quibble with the proposal is that it’s too small – I’m not sure the $25 million will do the trick. Why not propose that a slice of the roughly $10 billion (over the next decade) that’s currently slated to go to the percentage depletion tax credit currently enjoyed by oil producers be redirected to support projects that combine oil, gas, and CCS? It would be a win for zero-carbon energy and for many oil and gas producers at the same time.

That gets back to what I really like about these two ideas. (What I dislike is that they’re both in the final chapter of my forthcoming book; so much for originality.) Neither of these ideas alone is likely to be directly transformative for American energy – that requires much bigger moves on both oil and gas and on zero-carbon fuels. But both could help build some of the trust between long-warring parties that will be required for large changes to eventually happen. As someone wise reminded me recently, once people agree on one thing, they often end up agreeing on other things too.

Post a Comment 2 Comments

  • Posted by Michael Wara

    I totally agree regarding the magnitude of the proposed prize – $25M is laughable, or just plain ignorant of the issues. Don’t Obama’s energy people know that Duke is taking a $700M charge on cost overruns at Edwardsport?

    Coal mining from federal lands needs to be in this discussion as well. PRB, Uinta Basin, etc…

  • Posted by Robert L

    Why not tie these two ideas to shale gas drilling as well? States could use royalties and taxes from gas drilling for clean energy development. And as far as CCS goes, since I’m not a shale gas expert, I wonder– could CO2 from CCGT plants be used in the injection mix for shale gas drilling?

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