Energy Policy: Can We Focus on Reality for a Minute?

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Coming out of the pandemic, the world economy is set to grow significantly. But the global energy situation is in dire need of realistic public policies that support U.S. production to the benefit of not only the U.S. but energy markets around the world.

In the midst of a global energy crisis, public figures recently converged on Glasgow. The crisis has been catastrophic in Europe. Electricity prices have skyrocketed due to higher natural gas prices and few sources of electricity. This pricing surge is killing Europe’s manufacturing sector, making it uncompetitive globally. Manufacturing plants are either being subsidized by the government, operating under an emergency EU exemption or are shutting down.

After having proven incapable of dealing with the reality of its energy situation, Europe is now held hostage by Russia and is scrambling to secure LNG supplies. It’s considering a second look at nuclear.

The inescapable fact is that Europe needs natural gas and nuclear energy in order to meet its energy needs and greenhouse gas (GHG) reduction goals.

Further east, China is also suffering from significant energy shortfalls and is struggling to secure supply at home and abroad. Although China recently made news by committing to carbon neutrality by 2060, a closer look into what is really happening inside the country underscores that this commitment is mere words. China is currently the world’s largest GHG emitter, comprising about 27% of global emissions. With about 250 megawatts of new coal generation coming online in the next few years, China’s contribution to emissions should only move higher in the coming years.

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The U.S. is also suffering from its own energy crisis, albeit not as significant as what Europe and Asia are facing—yet. A big reason for this is because we produce much of our own energy, and we don’t have exorbitant taxes on what we produce and consume.

However, that could change. U.S. policies are not focused on increasing oil and gas production or even keeping it from declining. Rather, they are focused on reducing domestic production.

At the same time, President Biden and U.S. officials blame high gasoline prices on OPEC and Russia, asking them to increase production and take our market share. Our own officials scoff at the notion of making up supply from domestic resources even though we were net exporters a few months ago.

At press time, President Biden had signed the $1.2 trillion infrastructure bill into law and the U.S. House of Representatives had passed the $1.75 trillion “Build Back Better” (BBB) reconciliation bill. The infrastructure bill contains language incentivizing the carbon capture and storage, and the budget reconciliation package expands the 45Q tax break for CCS activities.

BBB also puts forth a large fee, $900 per ton of methane in 2023 ramping up to $1,500 per ton by 2025, on “waste methane” from oil and gas facilities. The fee, if passed into law, will hurt U.S. gas consumers and will impact the competitiveness of U.S. LNG. Thankfully, a slew of provisions that would have removed decades old allowances for tax deduction for certain expenses, was dropped from the House bill. The BBB now goes to the Senate where its fate is unknown.

In a 50:50 Senate, at least two Democratic Senators have raised opposition to the bill as is and some others would probably require changes to the bill before they could vote for it. Fears of inflationary impacts could sink the bill in the Senate. It is difficult to believe that the U.S. has this golden opportunity to ramp up its production during a period of very high oil and natural gas commodity prices, and our policymakers are snubbing the notion of facilitating the opportunity.

Through the shale revolution, the U.S. showed that it could significantly increase global market share and become a net exporter despite decades of conventional wisdom saying it cannot be done.

Today it can be done, more efficiently and cleanly, than anywhere else in the world. Why are we asking other countries to sell us what we can produce here?

Abroad, the easiest way for Asia to reverse its coal power ramp up and meet its carbon neutrality goals is to replace those plants with gas-fired ones that use imported U.S. LNG. This is also a part of the solution for what ails Europe. The $100 billion being sought at COP26 to help the developing world deal with climate change could be used to help Asia develop the infrastructure needed to turn American natural gas into power and deliver it to homes and businesses. U.S. natural gas has helped the U.S. reduce its own GHG emissions.

Good public policy could help the rest of the world do it as well. To do that though, we must deal with reality.