If you wanted to undermine China’s growth, you would jack up labor rates. If you aim to slow the U.S., raise the cost of energy. That is exactly what President Obama wants to do.
The president recently repeated his pledge that the U.S. will cut our greenhouse gas emissions by 26 to 28 percent below 2005 levels by 2025, his opening gambit towards reaching an international climate change deal this coming December. Not surprisingly, he didn’t mention the price tag.
It takes an investor to cut to the chase on Mr. Obama’s legacy hunt.
In a telling moment at the Milken Conference last week, Apollo’s Josh Harris told an audience that as an investor, he considered renewable energy sources like wind and solar “generally not economic,” while acknowledging that embracing such technologies might be important for the nation. John Raymond, CEO of Energy & Minerals Group, noted that solar and wind, centerpieces of Mr. Obama’s campaign, still require heavy subsidies.
Harris, sounding like a hedgie, described renewables as mere “noise,” concluding they would not move the needle on oil or gas prices any time soon. Rather than putting money behind such uneconomic energy sources, he suggested investing in technologies that might eventually lower their cost and make them competitive.
Simultaneously, down the hall, Tony Blair was making an impassioned pitch for renewables, calling climate change the challenge of our lifetime.
This is the ultimate challenge for policymakers – reining in carbon emissions in a world where sustainable energy resources remain for the most part uncompetitive. Combatting climate change without compromising growth and job creation—something Europe has notably failed to do. Tony Blair, President Obama and others wax eloquent on slowing climate change, but are mute on the costs. For good reason.
Many Americans remain unaware that a stunning geopolitical shift is taking place today. For decades, the United States has been the world’s biggest consumer of oil, and Saudi Arabia has been the biggest producer. Our adventures and alliances in the Middle East have been firmly pinned to that reality. Now, that enduring fact of life has been turned on its head.
Today, against all expectations, the United States has overtaken the Saudis as the number one global producer of oil. Combined with rising output from Mexico and Canada, North America stands to become the dominant energy region in the world. It is a shocking transformation, and one which promises huge advantages to the U.S. China may have cheap labor, but we have cheap power.
Unless we give it away.
That’s what President Obama would like us to do; he wants the U.S. to adopt the policies of Tony Blair and other European leaders who have saddled their economies with huge tax subsidies for high-cost, low-carbon fuel and adoption of onerous efficiency measures.
Towards the end of the energy discussion, a German government representative rose to his feet and rebuked the speakers for failing to focus on solar and wind power. His country, he noted, was pushing hard to produce some 45 percent of all energy from sustainable sources by 2030.
Karen Harbert, representing the U.S. Chamber of Commerce, noted that the cost of electricity in Germany is four times that of the U.S. – one of the top reasons German companies are relocating to the U.S. She also pointed out that U.S. coal exports to Germany are rising rapidly as that country builds new coal-fired plants. Not exactly climate friendly.
Indeed, U.S. exports of coal to Germany have more than doubled since 2008. Coal mining, long subsidized by the Germans, is ending, but coal burning is increasing. Ironically, not only is Germany supplanting (clean) nuclear fuel with coal – it is even opening new lignite plants, the dirtiest fuel of all.
According to a report last year from the BBC, “Lignite production in 2012 hit its highest level in almost 20 years, while initial estimates suggest this brown coal was used to generate 162bn kWh of electricity last year, more than in any year since 1990. The use of hard coal also increased, meaning the two energy sources accounted for 46 percent of Germany's overall energy production.”
Germany’s energy policies are so mixed up that in spite of huge investments in renewables and onerous efficiency mandates, carbon emissions in Germany have risen 5 percent-7 percent over the past two years. Unlike the U.S., where thanks mainly to increased use of natural gas, emissions are about 10 percent below the level a decade ago.
Meanwhile, the cost of residential electricity in the EU has soared 43 percent since 2006, while in the U.S. rates are only up 17 percent; customers in Europe spend more than twice as much as their American counterparts.
That’s what the U.S. has to look forward to.
The U.S. has long enjoyed low electricity prices, but that is changing thanks to Mr. Obama’s climate quest. In February, the EIA reported that the price of residential electricity rose 3.1 percent from a year ago, in spite of a 52 percent drop in the cost of natural gas. Cheap gas has kept a lid on electricity prices that otherwise would be rising as coal-burning pants close and a higher percentage comes from mandated renewables. That won’t last.
Last November, the grid operator in Texas, the Electric Reliability Council, said that the new EPA rules will cause consumer energy costs in Texas to rise by as much as 20 percent by 2020.
In California, consumers will be even harder hit as that state takes the lead in adopting renewables. A report last year in the Los Angeles Times notes, “Residential electricity prices shot up 30 percent between 2006 and 2012, adjusted for inflation… Experts in the state's energy markets project the price could jump an additional 47 percent over the next 15 years.”
This is Obama’s dark secret. When he applauds his proposed anti-carbon regulations, he never quite mentions the cost. He doesn’t want Americans to know the truth. At a time when our economy is still struggling to gain traction, and when we still need to put millions to work, hobbling our growth with rising energy costs makes no sense.
Top Reads from The Fiscal Times: