In his State of the Union Address Jan. 28, US President Barack Obama perpetuated an energy policy that's distorted in promotion and discredited in direction.
"The 'all the above' energy strategy I announced a few years ago is working, and today America is closer to energy independence than we have been in decades," the president boasted. In fact, his Environmental Protection Agency has foreclosed the fueling of new power plants with coal in a fiat hardly characteristic of all-the-above energy choice. And his administration deserves none of the credit he claims for movement toward energy independence. He illuminated a large reason why this is so when he promised to "use my authority to protect more of our pristine federal lands for future generations."
Tax fiction
Distortion didn't end there. Trumpeting solar energy and related jobs, the president said, "Let's continue that progress with a smarter tax policy that stops giving $4 billion a year to fossil fuel industries that don't need it so we can invest more in fuels of the future that do." The figure comes from administration estimates of savings supposedly achievable through elimination of tax mechanisms persistently mislabeled "subsidies." In most cases, the mechanisms are instead adaptations to unique features of extractive industries. One big-dollar target is a deduction available to other industries but already limited in value to oil and gas companies.
To assert that tax law gives oil and gas companies billions of dollars a year is ridiculous. Yet Obama has done so throughout his presidency, confident that most Americans lack the background to unravel his generalization and expose its manifold fiction.
The president has to resort to deceptive populism. His energy strategy is demonstrably misguided. Europe, too, has committed itself to the sponsorship of costly nonfossil energy to replace affordable hydrocarbons. Like Obama, supporters of the approach base their policies on aggressive mitigation of climate change. Results are educational.
The week before Obama's speech, European Union authorities proposed to soften mandates for the use of renewable energy. Environmental groups complained, of course. But political support has collapsed for officially preferred but otherwise uncompetitive energy forms. European leaders had to act.
Predictably, the costs of EU energy manipulation have become unbearable. A study published by the European Commission alongside the proposal for weakened mandates documents the pain. During 2008-12, the study says, wholesale electricity prices declined by 35-45% in major European markets. Wholesale prices of natural gas fluctuated over the period but didn't increase overall. Yet average household prices in the EU over those 5 years rose by 4%/year for electricity and 3%/year for gas. For industrial users, retail electricity prices rose by 3.5%/year, while gas prices increased less than 1%/year.
The main driver of the retail increases were taxes and levies implemented to finance energy and climate policies, normally the smallest component of energy prices but the fastest-rising during the study period. "The levies in particular have increased significantly more than others," the study says. "Indeed, the cost of renewable energy added to retail prices constitutes 6% of the average EU household electricity and approximately 8% of the industrial electricity price before taking exemptions into account."
Costs and politics
In most EU countries, consumers pay the subsidies needed to make renewable energy marketable. The costs, therefore, are evident and therefore increasingly influential in politics. The US subsidizes renewable energy with tax relief, obscuring the costs and dissipating the politics—at least awhile. Instead of paying directly through their energy bills, Americans pay as supporters of a mammoth and growing federal budget deficit that will raise pressure for increased tax rates and diminished services. Obama's speech nevertheless promised yet more programs, inevitably requiring more spending.
Americans need to learn from the European energy adventure. They're being directed toward similar hardship by a president too willing to say whatever he must in support of his doomed program. Obama, too, should learn something from Europe: Eventually, politics answers to economics.