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Lessons from Energy Policy Debate

By    |   Monday, 15 July 2013 03:00 PM

As part of its weekend programming, C-SPAN's BookTV broadcast a presentation by Michael Levi, a senior fellow and program director in the fields of energy security and climate change at the Council on Foreign Relations (CFR), of his book The Power Surge: Energy, Opportunity and the Battle for America's Future, appropriately enough, at the World Affairs Council (WAC) of Houston.

The concept behind this article is that Levi's views on the state of the debate on energy policy, while not directly related to the ongoing financial crisis, have implications for it that may be of interest to readers. Levi's thesis is that it is possible and necessary to conduct the energy policy debate in a manner that recognizes the validity of parts of the agenda of both sides of the contest.

The article will conclude with some comments about how the principles of energy policy do and do not transfer to financial regulation.

At the beginning of his talk, Levi asked the audience to think back four decades to 1973, a time when oil and gas production had peaked, gas lines had appeared and it was three years since the first Earth Day. (I recall that if a driver didn't see a line, it meant that the station was closed, and a station attendant in Colorado was shot to death for not attending to a customer promptly.)

OPEC quadrupled its prices, and the market responded by investing in new technology. Congress enabled construction of the Alaska pipeline and imposed fuel economy standards.

The intensity of the debate over energy policy peaked in 1980, with patterns eerily similar to those of the 2012 election campaign. Ted Kennedy campaigned against high prices as causing hardship for the poor (New England is especially sensitive, because it doesn't have any refineries), and David Stockman attacked Jimmy Carter as a front man for state-owned oil.

The result, according to Levi, was a deadlock. Production plummeted, Congress gave up on fuel economy standards and the country coasted. However, over the past several years, the debate has resumed due to global warming and skyrocketing oil prices. Also, the composition of the energy market has transformed in recent years. Natural gas has passed oil as a domestic energy source, oil production has risen for four years, renewable energy has risen and prices have fallen and consumption has peaked due to concentration (probably also because the economy is slow).

Levi believes that the debate has relapsed into a paralytic state. Bipartisan legislation was enacted in 2005-2007 and exploration expanded, but now the debate is over fracking and alternative energy sources.

For Levi this is "hugely frustrating," because in a span of five years, the market has changed more radically than in the previous half century, but the policy debate has settled back into old arguments, with each side trying to defeat the other. The result is that opportunities are available, but the failure to exploit them leads to frustration.

Levi set out succinctly the reasons he wrote the book:

1. To tell the story of what's happening in American energy through the eyes of people like the mayor of Youngstown, Ohio, who backed a plant that ended up dumping toxic water and causing an earthquake, and two left-wingers, one of whom was angry that his corn field had been destroyed by fracking, trading 100 years of corn production for one year of energy, and the other who wanted the local economy to revive after decades of depression. It's a story of both excitement and fear.

2. To understand and explain what the changes mean for things people care about — energy independence, foreign relations, climate change and jobs, and the theme that emerges is that the country is stuck in the past. Levi refutes the claim that the country is moving toward energy independence, because the world has changed and the market is global.

3. To make the point that the best policy is "most of the above," arrived out by weeding out the bad investments and proceeding with the others.

One of the attractions of this book is its realism. Levi concludes that the effort to promote better policies will fail for three reasons:

1. We won't get fracking right, and this failure could produce a backlash. Therefore, it is important to approach change with humility.

2. We'll get lazy and not follow fuel economy rules. He told a story about meeting with Saudi oil officials who told him that as the United States increases production of oil and gas, it will realize that we can't blame OPEC anymore.

Levi warned that the changes that are needed will not achieve the most desired goal of energy independence, but they are still needed and will not happen by themselves.

3. We might not realize that we can pursue both production and conservation at the same time, because each side is focused on defeating the other. Levi laments the fact that after both candidates last year supported Department of Energy research, Congress could cut its funding by 80 percent. He worries that we will fail to build anything and will miss the new opportunities.

For me, the parallels between the state of play in energy and in the financial crisis debate are that in both cases, the combatants have highly developed propaganda machines, and the debate has settled into 40-year-old patterns. However, there is no upside to the financial crisis. The pundits who say that new policies will produce, as one put it, a renaissance in the banking industry had better hope that they are wrong.

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As part of its weekend programming, C-SPAN's BookTV broadcast a presentation by Michael Levi, a senior fellow and program director in the fields of energy security and climate change at the Council on Foreign Relations (CFR), of his book The Power Surge.
Monday, 15 July 2013 03:00 PM
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