Varun Sivaram

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Five Energy Stories to Watch in 2011

by Michael Levi
January 5, 2011

2009 was the year of climate policy optimism and the Copenhagen meltdown. 2010 was marked by the BP oil spill and the collapse of cap-and-trade. What stories will 2011 bring in the energy and climate world? Here are five guesses:

  1. Shale Gas. The revolution in U.S. shale gas production, whose reverberations are already being felt around the world, is also sparking a big backlash. It turns out that when masses of Texans move into suburban neighborhoods far away from home and start driving industrial trucks around 24/7, some people get annoyed. It doesn’t help when a few folks near drilling sites find out that they can light their tap water on fire. Add to this mix an ideologically anti-regulation House and environmental groups looking for new villains, and the scene is set for a big clash. The public ambivalence about shale gas appears to be mirrored by a divide within the Obama administration, with some officials highly skeptical of the environmental wisdom of extensive drilling, and others eager to expand a low-cost, low-carbon, energy source. If the two sides don’t find an agreeable middle, expect things to get ugly.
  2. Gasoline Prices. No one really knows whether oil will go substantially above $100 in the coming year, but if it crosses that symbolic threshold, expect advocates of expanded drilling to go to town. What remains to be seen is whether in a post-BP-disaster world, “Drill Here, Drill Now” has as much traction as it once did. Of course, U.S. drilling policy won’t make a difference to any near-term price spike – the biggest thing that matters, other than how the global economy grows, is how much oil Saudi Arabia decides to produce.
  3. EPA Regulation. I’d be surprised if Congress doesn’t severely restrict EPA’s authority to regulate greenhouse gas emissions this year. President Obama may be able to veto a standalone bill, but if Congress repeatedly attaches language to other pieces of legislation, he won’t be able to veto everything. The big question, then, is how far Congress will go. In particular, will it be able to restrict regulation of local air pollutants? That sort of regulation could shut down a lot of coal plants, which would end up having big consequences for greenhouse gas emissions. Many in Congress will want to curtail EPA’s authority here, but it will be tougher to argue in favor of more mercury in kids’ drinking water than to oppose greenhouse gas controls.
  4. Clean Energy Trade Fights. The United States and China already started to skirmish last year over unfair barriers to trade in clean energy products like wind turbines and solar panels. This isn’t going away, because it’s driven by big underlying forces: fundamentally different economic and innovation systems in the United States and China; a U.S. clean energy market that isn’t going to be as big, at least in the near term, as many producers expected, leading them to look elsewhere for sales; and rhetoric in both countries that emphasizes the “competitiveness” angle in justifying government support for clean energy, which almost invariably leads to calls for protectionism.
  5. Energy R&D. Proponents of clean energy are going to have a tough time for at least a couple years, but many of them think that there’s a bipartisan opportunity to expand U.S. government support for energy innovation. The stratagem I hear the most about involves boosting defense department investment, both through direct spending on R&D and through procurement. On the flip side, there many members of Congress will be gunning to cut energy spending. I suspect they’ll try to bolster their case through investigations of DOE stimulus spending, which could turn ugly. The end result of this may be significant change, or it may be stalemate, but either way, I wouldn’t be surprised to see some fireworks.

A few months ago, I’d have added a sixth entry: a U.S. or Israeli attack on Iran, and the ensuing impact on energy markets. My sense, though, is that the Iranian nuclear program is limping along slowly enough that that isn’t in the cards in 2011. Of course, we could always be surprised.

Post a Comment 1 Comment

  • Posted by Ed Costello

    Why do you accuse environmental groups of “looking for new villains” in connection with shale gas development? The industry itself concedes that shale gas “fracking” is much more damaging to the environment than traditional gas drilling.

    [ML: Not an accusation; just a description. Lobby groups of all stripes often need enemies, and there’s nothing fundamentally wrong with that. Also, it’s not clear to me that industry says that fracking is “much more damaging to the environment” than traditional gas drilling. Reference?]

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