[1THING] Blog

[ John Sununu: We Don’t Need No Stinkin’ Energy Policy ]

History suggests he’s wrong.

Republican John E. Sununu represented New Hampshire in both the U.S. House and Senate before being defeated in his re-election bid for senator in 2008. His tenure in Congress was largely characterized by support for conservative policies — for example, he scored “100 percent on the Club [for Growth]’s 2005 Congressional Scoreboard” — but his 84 percent party-line voting record shows that he broke ranks on occasion.

Some of his voting wrinkles can be found in his stance on energy and environment policy, including, for example, his co-sponsorships of:

  • the Clean Air Planning Act of 2007, which would have established a uniform cap-and-trade system for power plant emissions of sulfur oxides, nitrogen oxides, mercury and carbon dioxide, and called for “the future integration of additional sectors of the economy” into “an economy-wide national greenhouse gas trading market,” and
  • the New Energy Reform Act of 2008, a bill that aimed to increase off-shore drilling but also to encourage the development of alternative energies through a variety of R&D investments and tax incentives.

In case you were wondering, neither bill was enacted.

A new Sununu?

But that was then and this is now and even Republicans with perfect scores from the Club for Growth have found themselves moving to the right. Sununu appears to be part of that trend.

While in Congress, Sununu sponsored bills designed to advance a coherent national energy policy. But on Monday asking in the Boston Globe what the country’s “best energy policy” would be, he answered simply: “None.” In his words:

“The fundamental problem with a national energy policy is that it’s an abstract idea that politicians of all stripes can love… incentives, subsidies, gimmicks, initiatives, and promotions. At best, such measures are ineffective. Usually, they work against one another. Always, they cost you money and ignore reality: Markets allocate resources and improve efficiency far better than bureaucrats.”

To support this argument, Sununu cites history: “America,” he argues, “has had energy policies — lots of them — and they all stunk.” He points to 1977 as the birth of America’s modern energy policy “with the creation of the Department of Energy under President Carter.” And waxes at length about the failures of the U.S. Department of Energy. And of course mentions the “billions taxpayers lost on bankrupt firms like Solyndra, A123, and Evergreen Solar.”

But the coup de grace in Sununu’s diatribe is the recent success of the homegrown fuel that has changed the face of America’s energy future:

“Government did not create the shale gas boom. Government did not turn North Dakota’s once languishing Bakken oil fields into one of the country’s largest. … It came without taxes, it came without bans … it came without protocols, mandates, or plans.”

The moral of this story is clear: Let’s stop government interference and allow free markets to operate unfettered — no picking winners and losers — and things will be just fine, or even way better than fine.

But alas, Sununu may call his story history, but it’s really just a story and a rather inaccurate one at that. Let’s take a look..

U.S. energy policy began in 1977? – Not

Calling out the post-1977 period as the era of “modern energy policy” that is distinctly different from earlier periods is a rather huge stretch. The U.S. government has provided a helping hand for nascent industries almost since the country’s founding.

According to the Congressional Budget Office, U.S. government tax policies providing support for the energy industry began in 1916.

Annual Fuel Subsidies, United States
From “What Would Jefferson Do?” Nancy Pfund and Ben Healey, DBL Investors, September 2011

Other types of federal support for energy stretch back even further: below-market land grants supported the timber industry in the 19th century and protective tariffs for the coal and timber industries date back to the Tariff Act of 1789.

Then there’s the Solyndra thing

The 2009 stimulus funding designed to give a boost to alternative energy companies through loans and loan guarantees and grants is an easy target. Yep, investments in the failed Solyndra and the like didn’t pan out. Just as investments in R&D projects at universities and in the private sector don’t always pan out. That’s the nature of pushing innovation. But how about a little perspective here?

First, as has been pointed out before (such as here and here), in the venture capital world, a failure rate of 50 percent to 70 percent is normal. DOE’s failure rate? Currently, somewhere around eight percent. (And by the way the failed green energy projects received lots of private funding too, and, as this New York Times editorial points out, the government’s “biggest bet to date” is on a nuclear project.)

And, just because a project has gone bankrupt doesn’t mean that some or all of the government loan won’t be repaid. (See here and here.)

Two other quick points. As I’ve discussed before, compared to its support for fossil fuels, government subsidies for renewables are substantially less than those for fossil fuel. What’s more, as Sourcewatch points out, “most of the largest subsidies to fossil fuels were written into the U.S. Tax Code as permanent provisions. By comparison, many subsidies for renewables are time-limited initiatives implemented through energy bills, with expiration dates that limit their usefulness to the renewables industry.” So there’s that.

How shale gas became a player

Back to Sununu, he writes: “back in the land of competitive markets, where honest investment and innovation still matter, something very interesting has happened. … America’s natural gas reserves logged their biggest gain ever last year, reaching record levels.“

It requires an unusually high degree of myopia to suggest that the shale gas boom has occurred without federal intervention or encouragement. The history of fracking tells a story of a long relationship between private industry and the U.S. government.

While the fracturing of vertical wells in oil development dates back to the 1860s [pdf], it wasn’t until 1947 that the process of hydraulic fracturing — the “’formation breakdown’” during acidizing, water injection, and squeeze cementing” — was first experimented with. But those early hydraulic fracturing projects targeted deposits in limestone, a much softer formation than shale. (In fact, as the Breakthrough Institute points out, they had to drill “through shale to get to limestone deposits, unable to successfully permeate the porous shale rock.”)

In the 1970s federally funded research led to the technological breakthroughs in horizontal drilling, hydraulic fracturing, and mapping and data accumulation that opened up drilling to tight formations like shale. For example, DOE invested nearly $140 million in gas research over three decades, and between 1980 and 2002 drillers received a tax credit amounting to $10 billion. Hydraulic fracturing pioneer Mitchell Energy didn’t cover the costs of its fracking tests until drilling its 36th well. Who picked up the tab for wells one through 35? Not the markets.

Does it stink?

Odor is a relative thing. One person’s perfume is another’s olfactory irritant. To John Sununu, federal energy policy falls into the latter category. He’s welcome to his opinion but not to the facts.

The oil and gas industry is what it is today thanks in large part to decades of federal support, and America’s new and “bright” shale gas-rich future is no exception.

Some believe that, shale gas notwithstanding, the real future for energy lies in renewables. And just as the fossil fuel industries needed the federal government to get a leg up — and in fact still receive the government’s largesse despite gargantuan profits — it seems unlikely that the United States will be a leader in renewable energy without the federal government playing its part. Smells okay to me.

[ Leave a Reply ]


− four = 1

By submitting a comment here you grant 1THING San Francisco a perpetual license to reproduce your words and name/web site in attribution. Inappropriate or irrelevant comments will be removed at an admin's discretion.