14 January 2016

The US 2016 budget is a gift to the energy industry

Dawn Stover

Dawn Stover

Stover is a science writer based in the Pacific Northwest and is a contributing editor at the Bulletin. Her work has appeared in...

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The federal budget bill signed into law at the end of 2015 is widely seen as a good tradeoff for the climate: Although it repealed a 40-year-old ban on the export of crude oil produced in the United States, it also temporarily extends generous tax credits for solar and wind power. Even Democratic advisers who have worked on climate issues are in favor of the Consolidated Appropriations Act of 2016, as it's officially known. Analyses like this one by Varun Sivaram and Michael Levi of the Council on Foreign Relations argue that the budget deal will substantially reduce carbon emissions over the near term because it will give a bigger boost to renewable energy than to the fossil fuel industry.

The urgency of the climate problem makes it tempting to focus on incentives in the new budget that will undoubtedly stimulate the solar and wind industries during the next five years. But after 2020, only the fossil fuel industry will be celebrating. The lifting of the crude oil export ban has no expiration date, and will help to indefinitely prolong the consumption of fossil fuels. That's a step backward from everything that was accomplished at the Paris climate change talks during the same month the budget bill passed.

The trouble with the new budget is that it addresses dollars and cents but not metric tons of carbon. What's missing is a carbon budget that caps the consumption of fossil fuels at an amount that can be safely burned without jeopardizing life as we know it. A balanced carbon budget would leave much of the world's oil right where it is—in the ground.

A win for Big Oil. Energy analysts argue that allowing US companies to export crude oil will make no significant difference—for the foreseeable future at least—in the total amount of oil consumed or carbon dioxide emitted, because global demand will remain unaffected. They point out that prices are currently low, giving oil companies little incentive to send oil overseas. Lifting the export ban is "not a climate issue," asserted the founder of the Bipartisan Policy Center in a piece with a nonsensical headline that suggested otherwise: “Exporting oil is key to US progress on climate change."

This is a similar argument to the one made in favor of the now-cancelled Keystone XL pipeline, which would have transported Canadian tar sands oil from Alberta to refineries on the US Gulf Coast: Supporters said that the pipeline would have no effect on Canadian production or greenhouse gas emissions, because the oil would be produced regardless of where or how it was transported. (They also said that "not a drop of crude oil" transported by Keystone would be exported out of the United States, but of course that was before the export ban was lifted). This argument assumes that demand alone determines the consumption of a commodity, ignoring the role of supply—which can be affected by everything from the weather to OPEC policy.

Proponents have made the same argument in favor of US coal exports, saying that they would not increase overall global consumption and would be "cleaner" than higher-sulfur coal that might otherwise be mined in China. But as economist Thomas Michael Power has showed, exporting coal from Wyoming would increase the total amount of coal burned globally, because expanded supply helps to depress prices and thus increases consumption. There is no reason to think that this scenario would play out differently with Wyoming oil.

Lifting the oil export ban is a gift to an industry that spent $326 million on lobbying and political campaigns during the 113th Congress, according to political commentator Bill Moyers, and the industry expects to see more jobs and drilling as a result of the budget deal. The Trans Pacific Partnership, a trade deal President Obama hopes to see become law this year, would make it even easier to export more oil by lowering tariffs currently in place between the United States and 11 other Pacific Rim countries. As Moyers writes, "Selling off cheap oil abroad is . . . like throwing gasoline on the fire." The climate fire, that is.

It’s also an abdication of US leadership. In November 2015, President Obama rejected the Keystone XL pipeline, saying that “America is now a global leader when it comes to taking serious action to fight climate change. And frankly, approving this project would have undercut that global leadership.” A month later, there was no such talk when Obama agreed to the lifting of the oil export ban. His press secretary said that it was something that “we did not support” but that “we’re not overly concerned with the substance.”

A windfall for wind and solar. Solar and wind companies are also getting an excellent return on their investments in lobbying. The 2016 spending bill extends a tax credit for individuals and businesses that covers 30 percent of the cost to install solar systems. Wind developers, on the other hand, get a production tax credit that pays them for the power they produce; projects under construction by the end of this year will receive 2.3 cents per kilowatt-hour for the first 10 years of operation. Solar and wind companies were bracing for the loss of these incentives, so the budget deal was an excellent Christmas present for them.

By one analysis, the latest credits are expected to increase solar construction by 54 percent through 2020. For wind power, the credit phases out over five years, creating a strong incentive to begin building as soon as possible. But contrary to what most analysts have written, the renewables gold rush will actually create a short-term increase in emissions. That’s because it will take years for renewable-energy projects to "pay back" the carbon debt required for their construction. And every dollar spent on renewables is a dollar that can’t be spent on things that bring about immediate reductions in energy use and carbon emissions, such as programs that encourage conservation and carpooling.

Analysts tend to make the same mistaken assumption about renewables as they do about oil: that there will be no net gain in energy consumption as a result of building new solar and wind projects, because these projects will displace energy that would otherwise be generated by burning fossil fuels. Unfortunately, the evidence suggests that most renewable energy is additive, displacing only a small fraction of the energy from fossil fuel sources. A study published in the journal Nature Climate Change in 2012 found that “the average pattern across most nations of the world over the past 50 years is one where each unit of total national energy use from non-fossil-fuel sources displaced less than one-quarter of a unit of fossil-fuel energy use and, focusing specifically on electricity, each unit of electricity generated by non-fossil-fuel sources displaced less than one-tenth of a unit of fossil-fuel-generated electricity. These results challenge conventional thinking in that they indicate that suppressing the use of fossil fuel will require changes other than simply technical ones such as expanding non-fossil-fuel energy production.”

The history of human civilization is one of developing new energy sources while retaining older ones. Plenty of Americans (including me) are still burning firewood, despite the later introductions of coal, oil, hydropower, natural gas, nuclear energy, wind, and solar. More piling-on isn’t the ultimate solution; that lies in a transition to a low-carbon economy, which will be difficult to achieve without a radical transformation of government subsidies and policies—and probably also of how we use energy, not just what kind of energy we use.

Encouraging the adoption of renewable technology is essential for a carbon-free future, but only if society simultaneously reduces its dependence on fossil fuels. The key to cutting emissions is keeping fossil fuels in the ground. And that is exactly what the budget bill doesn’t do. Instead it perpetuates an “all of the above” energy policy that prioritizes the health of the energy industry over that of the planet.

Energy independence. The White House touts its all-of-the-above strategy as a way to make America more energy independent and to support jobs. How does exporting American oil—at a time when we currently import crude oil—make us independent, though?

Forgotten in the kudos for the December budget bill was another bill passed a month earlier, the Bipartisan Budget Act of 2015, which calls for a “strategic test drawdown” of the nation’s Strategic Petroleum Reserve beginning in 2018. The November bill authorizes the sale of 58 million barrels of oil between the fiscal years 2018 and 2025 for deficit reduction purposes, as well as an estimated 40 to 50 million barrels of oil in fiscal years 2017 to 2020 for modernization (to cover improvements to infrastructure, maintenance of caverns where the oil is stored, and new facilities to “optimize the drawdown and incremental distribution capacity” of the reserve). On top of that, the latest highway bill, the Fixing America’s Surface Transportation (FAST) Act, calls for the sale of 66 million barrels of oil from the Strategic Petroleum Reserve to support the Highway Trust Fund. Together these sales amount to about one-fourth of the reserve. Additional barrels may be sold to pay for a $2 billion modernization program beginning in 2017 that will include building new oil pipelines.

If the Strategic Petroleum Reserve was a bank account, we’d be drawing it down for current spending instead of saving for a rainy day. Meanwhile, China and India are beefing up their oil reserves. It’s unclear what impact the US drawdown, coupled with unfettered exports, will have on national security or on political stability in other parts of the globe. One thing is certain, though: it’s unlikely to make the United States more energy independent.

Exports may not be great for US jobs, either. It may help keep jobs alive in the mining and drilling sectors, particular in oil-boom areas like North Dakota. But by exporting crude oil, the United States will be outsourcing refinery jobs to other countries. At the same time, it’s likely that the tax credits for renewable energy will boost imports of solar panels and wind turbines from China and elsewhere, because the United States can’t manufacture enough hardware to meet a short-lived spurt in demand.

Short-term thinking has long been an impediment to climate action, and the current budget deal is no exception. Oil prices and production can swing wildly, stubbornly refusing to submit to expert forecasting. (Remember predictions during the past decade that “peak oil” was imminent?) Quarterly reports and five-year government plans are what got us into this climate mess. They won’t get us out. Over the long term, the budget deal strengthens US oil developers by enabling them to compete with state-run oil firms on a global playing field—a shift that cannot be dismissed as “not a climate issue.”

Balancing the wrong budget. The fundamental problem with the congressional budget deal—and the Paris climate deal, for that matter—is that they fail to establish a carbon budget. As with a household budget that is out of control, if you're trying to balance your climate budget, you should make a plan for paying down your debt rather than continuing to increase it while pretending that you’re going to rein in your spending at some future date. Instead, Congress and the White House are treating the current surplus of oil as if it were money burning a hole in their pocket. They want it to go up in smoke—literally—as quickly as possible.

The December budget deal is likely to produce visible results in the form of wind turbines and solar panels sprouting on the landscape, which may make some people feel as if they’re making progress in the battle to save the planet. But focusing only on the new renewables, while ignoring growth in fossil fuel consumption, is just another form of climate denial. The budget doesn’t offer a technology-neutral solution that puts a price on carbon and lets the market decide. It doesn’t ask us to consider whether global warming is a luxury we can’t afford. The budget plays favorites with renewables and oil, rather than creating incentives to divest from fossil fuels in our stock portfolios, our government policies, and our daily lives.

Congress is like a family that can’t decide whether to buy a Prius or a Hummer. It definitely can’t afford the Hummer, so it has decided to buy both.