Is Energy the Last Good Issue for Republicans?

Joel Kotkin
Editor of NewGeography.com and Presidential fellow in urban futures at Chapman University

Crossposted on New Geography

With gas prices beginning their summer spike to what could be record   highs, President Obama in recent days has gone out of his way to sound   reassuring on energy, seeming to approve an oil pipeline to Oklahoma   this week after earlier approving leases for drilling in Alaska. Yet few in the energy industry trust the administration’s commitment to   expanding the nation’s conventional energy supplies given his strong   ties to the powerful green movement, which opposes the fossil-fuel   industry in a split that’s increasingly dividing the country by region,  class, and culture.

But Republicans, other than the   increasingly irrelevant Newt Gingrich, have failed to capitalize on the   potent issue, instead lending the president an unwitting assist by   focusing the primary fight on vague economic plans and sex-related side   issues like abortion, gay marriage, and contraception. The GOP may be   winning over the College of Cardinals, but it is squandering its chance   of gaining a majority in the Electoral College, holding the House, and taking the Senate.

No single sector affects more people and industries than energy, and none   is more deeply affected by the disposition of government. Energy divides   the nation into two camps. On one side there are the regions and   industries dependent on the development and use of energy. They include   the increasingly expansive energy-producing region stretching from the   Gulf Coast and the Great Plains to parts of Ohio, Pennsylvania, and the   Appalachian range.

The   centers of energy growth, including areas stretching from the Gulf   Coast through the Great Plains to the Canadian border, have generated the highest levels of job and income growth over the past decade (along with parasitic Washington, D.C.).

Nine of the 11 fastest-growing job categories are related to energy production, according to an analysis by Economic Modeling Systems Inc. Energy jobs pay an average of $100,000 annually, about the same as software engineers earn in Silicon Valley.

Perhaps   more important politically, this bonanza is now spreading to historical   battleground states Ohio, Pennsylvania, and Michigan. Long-depressed   areas like western Pennsylvania are reversing decades of decline as new finds and advances in   natural-gas drilling have opened up vast new stores of domestic energy.  The new energy wealth has created new jobs, enriched property owners,  and provided states with potential huge new sources of revenue.

On the other side of the energy   divide stand a handful of dense, mostly coastal metropolitan areas with   either little in the way of energy resources or, in the case of   California’s most affluent urban pockets, little interest in exploiting   them. With a shrinking industrial base and less dependence on   automobiles, these areas now constitute the political base for the both   the Democratic Party and the growing green-industrial complex, which   boasts strong ties to Silicon Valley’s well-heeled venture-capital   “community” and their less celebrated, but even wealthier, Wall Street   allies.

In   these places, the current fossil-energy boom is regarded less as a boon   than as an environmental disaster in the making, a view captured in the   unrelenting attack on shale development in the news pages of The New York Times and other outlets in broad sympathy with the Obama administration. New production of low-cost, low-emission natural gas also threatens the   viability of politically preferred renewables such as solar and wind.   But unlike fossil fuels, such “green” initiatives have created very few jobs; overall, the promise of “green jobs,” as even The New York Times has noted, has failed to live up to its hype.

Given   the success in the other energy states, California—with double-digit   unemployment—might reconsider its policies, but this is unlikely. “I   asked [Gov.] Jerry Brown about why California cannot come to grips with   its huge hydrocarbon reserves,” John Hofmeister, a former president of   Shell Oil’s American operations and a member of the U.S. Department of   Energy’s Hydrogen and Fuel Cell Technical Advisory Committee, told me   recently. “After all, this could turn around the state.”

Brown’s answer, according to Hofmeister: “This is not logic, it’s California. This is simply not going to happen here.’”

But   elsewhere in the U.S., new technologies such as hydraulic fracking and   vertical drilling have vastly increased estimates of North America’s   energy resources, particularly natural gas. By 2020, the United States, according to the consultancy PFC Energy <http://fuelfix.com/blog/2011/11/15/u-s-oil-and-gas-yield-will-beat-peak-by-2020-research-projects/> , will surpass Russia and Saudi Arabia as the world’s leading oil and gas producer.

As President Obama has acknowledged, this surge of production boasts some   great economic benefits. American imports of raw petroleum have fallen   from a high of 60 percent of the total to less than 46 percent. Overall,   according to Rice University’s Amy Myers Jaffe, U.S. oil reserves now stand at more than 2 trillion barrels; Canada has slightly more.   She pegs North America’s combined reserves at more than three times the  total estimated reserves of the Middle East and North Africa.

At   the same time, energy exploration is sparking something of an   industrial revival. The demand for new rigs, pipelines, and a series of  new petrochemical facilities has created a burst of industrial   production across much of the country. Steel mills, makers of   earth-moving equipment, and construction suppliers all have benefited. A recent study by PricewaterhouseCoopers suggests shale gas could lead to the development of 1 million industrial jobs. Not surprisingly, some of the biggest backers of shale-gas exploration are prominent CEOs from industrial firms.

Energy   policy may also be critical for the future of the Great Lakes–based   American auto industry. Despite expensive PR ventures like the electric   Chevy Volt, the Big Three depend for profits largely on SUVs and trucks.   High oil prices will only help their competitors from Japan, South   Korea, and Germany, all of which are ramping up in the emerging   Southeastern auto corridor. Rising oil prices could also raise the costs   of food production, which relies heavily on energy-intensive   fertilizers and machinery.

Aware   of the negative consequences for a still-weak recovery, President Obama   has started to mount a defense for his energy policies. Last month he   launched several preemptive strikes, claiming credit for rising U.S.   production while ridiculing Republicans for their “drill, baby, drill”   response to rising energy prices.

Obama   is correct in asserting that increases in domestic production will not   solve the energy price issue overnight, or even in the near future. But   it was disingenuous for him to then take credit for the current energy   boom, which resulted largely from policies adopted during the Bush   years, while Obama’s policies have, if anything, slowed exploration and   development.

It’s   fairly clear that the president and his team—notably Energy Secretary   Steven Chu and Interior Secretary Ken Salazar—are at best ambivalent   about greater fossil-fuel development. Obama, for example, recently   proposed cutting tax breaks and subsidies for the oil industry, which he estimated at $4 billion annually—a new expense for the   companies that would in large part be passed on to consumers at the   pump.

 

This   is not necessarily a bad thing in its own right, but along with the   effective tax hike, Obama proposed doubling down on the much larger and,   to date, far less productive giveaways to the green-industrial complex,   which received $80 billion in loans and subsidies in the 2009 stimulus.   According to various studies, including the Energy Information Agency, solar firms enjoy rates of subsidization per kilowatt hour at least five times those gained by fossil-fuel firms.

If   all energy subsidies were removed, the fossil-fuel industry likely   could shrug off the hit, while the heavily subsidized green-industrial   complex would markedly diminish. Yet even if Congress refuses to   continue the green subsidies, it’s probable that administration   regulators would find ways to slow fossil-fuel expansion in a second   Obama term. Responding largely to the Democratic environmental lobby,   they have already overruled the State Department to delay the Keystone   XL pipeline from Canada. Plans for new multibillion-dollar petrochemical   plants on the Gulf will make easy pickings for federal regulators from   agencies now controlled by environmental zealots.

“The   energy states feel they are being persecuted for their good deeds,”   says Eric Smith, director of the Tulane Energy Institute in New Orleans.   “There is a sense there are people in the administration who would like   this whole industry to go away.”

In   the short run, Obama’s political exposure in the energy wars is  somewhat limited. Most of the big-producing states—Oklahoma, Wyoming,  Utah, Texas, Louisiana, Alaska, and North Dakota—are unlikely to vote  for him anyway. Nor does he have to worry about too much pressure from inside his party; Democratic ranks in Congress from energy-producing  states have thinned considerably in recent years, removing contrary   voices inside the party.

A   more dicey issue relates to contestable states like Ohio, Pennsylvania,   and Michigan, where many see the energy boom as a source of economic   recovery. To make their case in these and other swing states,   Republicans first have to make energy the overall revival of the   American economy—the key issue for this November’s election. If they   insist on campaigning primarily as stolid defenders of rigid social   values and election-year promises of painless tax cuts, they will have   themselves to blame for their drubbing in November.

This piece originally appeared in TheDailyBeast.

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