Editorial: Dollars and energy

May 4, 2009
Because the US government plans to spend heavily on energy over the next decade, taxpayers have reason to wonder what they’ll get for their money.

Because the US government plans to spend heavily on energy over the next decade, taxpayers have reason to wonder what they’ll get for their money. Answers won’t come easily. The spending will take many forms, from direct payments on activities such as clean-coal research to tax incentives for renewable energy and conservation. No simple accounting will be available.

A new report from the US Energy Information Administration nevertheless suggests where the country is heading in its latest experiment with governmental fuel selection. According to EIA, the American Recovery and Reinvestment Act of 2009 (ARRA)—the stimulus bill signed by President Barack Obama on Feb. 17—definitely will change patterns of energy use and production in the next 2 decades. But it won’t meet ambitious goals by which the spending and market intrusions have been marketed.

What ARRA will do is cost money. The administration estimates ARRA spending on energy will total $65 billion through 2019. Against that cost, the EIA report holds up important performance metrics.

Important changes

The report updates EIA’s Annual Energy Outlook 2009 to accommodate two important changes: deterioration of the global economy and enactment of ARRA. EIA compares the new projection to 2030 not only with the original report but also with a forecast predicated on new economic conditions without ARRA. “The effect of ARRA alone, including its energy-related provisions and its stimulative impact on the economy, can be roughly estimated by comparing the no-stimulus case to the updated reference case,” EIA says.

Relative to the no-stimulus case, the updated forecast incorporating ARRA changes sees major expansion of renewable energy for power generation, of wind generation, and of geothermal and biomass capacities. It also expects lower energy use for buildings and lower household and commercial spending for nontransportation energy. Total energy consumption in 2020, the outer limit for ARRA spending, will be 104.67 quadrillion BTUs (quads), EIA now predicts. That’s 0.54 quads higher than in the no-stimulus case—up in all categories except natural gas and nuclear.

ARRA lifts total US energy production by 0.49 quads to 81.88 quads in 2020 from the no-stimulus level, with increases confined to coal, biomass, and other renewables—the big beneficiaries of spending under the stimulus bill. The measure pushes up the combined contribution to 2020 energy supply of those sources by 1.91 quads. If half the federal energy spending under ARRA relates to supply, the US will have spent $17/MMbtu to achieve an annual boost from favored energy forms representing 2.3% of total domestic production. For perspective, natural gas is now worth about $3.30/MMbtu crude oil about $8.60/MMbtu. The total supply increment for coal, biomass, and other renewable energy is only fractionally greater in 2030 against the no-stimulus assumption than it is in 2020.

US import dependency declines over the course of the study period in all cases, but differences between the no-stimulus case and new projection are negligible. In 2030, the US still relies on foreign sources for 22-23% of its energy in the EIA forecast. This is not energy independence, a prominent goal of energy policy-making.

Oil as a share of total consumption also falls slightly—from 40% in 2007 to 37% in 2020 and 36-37% in 2030. Again, differences in specific years with and without ARRA are slight. So the new law advances the US very little toward the goal enunciated by Obama in February to “begin to end the tyranny of oil in our time.” The decline was going to happen anyway.

Emission changes

Differences are bigger for energy-related emissions of carbon dioxide, another driver of energy policy. They’re 1.3% lower with ARRA than without it in 2013 and 0.6% lower in 2030. But those differences are inconsequential to global average temperature.

The ARRA commits Americans to major expenditure on energy behavior that few would choose for themselves. It does so in service to energy goals—supply independence, greatly diminished reliance on oil, moderation of observed warming—that it will not attain.

Major spending on minor achievements is a poor deal in any system of economics. Some might call it senseless.