Both my grandmother and my financial adviser told me, “Don’t put all your eggs in one basket.” This aphorism helps me manage life’s inherent risk and uncertainty. Unfortunately, Washington policymakers aren’t heeding this advice when it comes to energy policy.
EPA’s proposed carbon regulations would make coal an energy “loser” and drive it out of America’s fuel mix. This would make electricity production more reliant on natural gas for baseload power and more reliant on wind and solar for intermittent power.
What would a reduction in power supply diversity mean for electricity costs and our economy? The U.S. Chamber’s Institute for 21st Century Energy, the Edison Electric Institute, and the Nuclear Energy Institute asked research firm IHS to study this question. After looking at data from 2010-2012, the report found that, compared to a less diverse case with no meaningful contributions from coal and nuclear, our current mix of energy sources has lowered electricity generating costs by $93 billion per year while also reducing price volatility. With less diversity wholesale electricity prices would have been 75% higher and retail prices would have been 25% higher.
Since many industries buy electricity on the wholesale market, higher prices would mean fewer resources available to invest and hire workers. IHS estimates that the economic pain from less energy diversity would be over one million jobs lost and annual household disposable income reduced by around $2,100.
“The federal push to eliminate coal and favor some technologies over others could turn a major strength of our nation—a diverse supply of electricity resources—into a big vulnerability,” said Karen Harbert, president and CEO of the Energy Institute
IHS explains why energy diversity is best for electricity consumers:
Engineering and economic analyses consistently show that an integration of different fuels and technologies produces the least-cost power production mix. Power production costs change because the input fuel costs—including for natural gas, oil, coal, and uranium—change over time. The inherent uncertainty around the future prices of these fuels translates into uncertainty regarding the cost to produce electricity, known as production cost risk. A diversified portfolio is the most cost-effective tool available to manage the inherent production cost risk involved in transforming primary energy fuels into electricity. In addition, a diverse power generation technology mix is essential to cost-effectively integrate intermittent renewable power resources into the power supply mix.
We’ve lived so long with a diverse energy portfolio that we take it for granted. This past winter during the polar vortex, many Americans benefited from our diverse energy mix as Heath Knakmuhs, senior director of policy at the U.S. Chamber’s Energy Institute explains:
The colder temperatures in some parts of the country stretched natural gas demand, and utilities turned to coal to provide power. While increasing natural gas production is a very good thing for our economy and our security, it should not be at the expense of other sources.
If EPA’s greenhouse gas policies were already in effect, many Americans would have been shivering, sitting in the dark, or both. Energy policies that drive abundant fuels like coal out of the market will result in higher electricity costs, jobs lost, and families hurt.
With temperatures rising, did you know that there's an emissions-free, affordable power source that will keep you cool?
Nuclear energy is one of our most reliable sources of energy. Unlike some other emissions-free sources of energy, it can operate whether the wind is blowing or the sun is shining: 24/7, 365. In fact, nuclear provides 20% of the electricity used by Americans every day.
While progress on nuclear energy has slowed, there are finally some new plants under construction that will help meet our nation's growing energy needs. Recently Christopher Guith, Senior Vice President for Policy at the Institute for 21st Century Energy, visited the Vogtle Electric Generating Plant in Waynesboro Georgia, where construction of two new nuclear reactors is underway.
Once completed, the two reactors will power over 2 million homes with 100% emissions-free electricity, while bringing high-paying jobs to the region. It's a win for the Waynesboro community and energy consumers across the country.
Watch this Energy Institute video to see firsthand why nuclear matters to the U.S. – then share the video with others to help spread the word.
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This is an example of the intense demand for workers there. As Hoekstra writes, shale oil development is the instigator for this:
Thanks to the shale oil extraction and a welcoming business environment, the state has increased its oil output tenfold over the past eight years, capped so far by records of more than one million barrels of oil per day for two straight months. Some 12 percent of US oil comes from North Dakota.
As a result, North Dakota boasts the nation’s lowest unemployment rate (2.6 percent in May.) The oil jobs are lucrative enough, commanding average salaries of about $100,000, “often with little-to-no experience or need for a college degree.”
North Dakota isn’t an anomaly. The Bureau of Economic Analysis (BEA) data show that energy development is driving above-average economic growth in states such as Wyoming, West Virginia, Oklahoma, and Colorado.
With smart federal policies, we can expect this to continue. A U.S. Chamber Institute for 21st Century Energy study found that shale oil and natural gas development could support 3.9 million jobs by 2025.
While we shouldn't expect pizza drivers to make $50K everywhere, we do know the job-creating potential of developing America’s energy abundance.
[H/t Mark Perry]
The United States may be enjoying a natural gas boom, but at the Energy Information Administration’s annual summit, International Energy Agency executive director Maria van der Hoeven cautioned, “Energy security requires diversity. You don’t want too many eggs in one basket.”
In her speech, van der Hoeven applauded the impressive gains in natural gas production from hydraulic fracturing:
It was only seven years ago that your country was importing more than 300 billion cubic feet of gas a month. Now, you are on the cusp of becoming a net exporter. You are producing gas in abundance, so much so that it is muscling out other sources of power.
She noted that reduced energy diversity could have serious implications, using the Northeast’s harsh cold snap last winter as an example:
Now, if your energy system had relied only on gas at the time of the “polar vortex”, the additional heating demand would have meant there was not enough gas for the power sector, and the system would have failed. Coal, nuclear and wind were all essential for keeping the lights on. Diversity of your power mix guaranteed your short-term energy security.
Unfortunately, later on in her speech, van der Hoeven not only backed EPA’s costly proposed greenhouse gas regulations but wants the agency to take “further steps” in reducing emissions. She believes carbon capture and sequestration technology is the answer. However, the technology is years away from being viable. EPA’s regulations are intended to drive coal out of America’s energy mix, resulting in less energy diversity and less energy security.
Current anti-coal policies are already doing damage to the latter. In April at the U.S. Chamber, FirstEnergy president and CEO Anthony Alexander explained that because of EPA power plant rules, “an estimated 376 coal-based units will close in 38 states over the next three to five years. That’s nearly 17 percent of our nation’s coal fleet’s capacity.”
Van der Hoeven correctly touted that fuel mix diversity is important to energy security. However, she contradicted her commentary by pushing for policies that would shove coal out of America’s energy picture.
This Bloomberg story shows that to sustain America’s energy boom, we need to ensure we’re investing enough in our roads:
With the U.S. projected to be energy self-sufficient by 2030, according to BP, crumbling highways may threaten billions of dollars of investment in the oil patch. Because more wells are being drilled using hydraulic fracturing, there’s greater need for truckloads of water, sand and chemicals, as well as steel structures used in the process in fields often miles from major roads.
“If you drive a cattle truck one or two times a year, you’re not affecting that road very much, but the first day you drive a 175,000-pound substructure of a drilling rig up that road you begin to destroy it,” Daryl Fowler, the county judge in DeWitt, Texas, said by phone May 20. “You’re looking at $2 billion of capital investment in our county alone that will be thwarted or curtailed completely if the road system is abandoned and they can’t get their product to market.”
DeWitt County is in southeast Texas, about halfway between San Antonio and the Gulf of Mexico, and in the heart of the Eagle Ford shale formation. About 87,000 barrels of oil a day were extracted within its borders last year, more than in 39 states and all but five other counties in Texas.
In North Dakota, where record-amounts of oil are being produced, there are similar highway concerns:
In North Dakota, nice weather may cause the biggest road problems. As the freezing winter thaws into spring, soil softens beneath roads and the state highway department restricts truck loads. The limits typically last from March through May or June, and for the past five years they’ve stayed on some highways in the Bakken area year-round.
Road issues, bad weather and exhausted wells have hampered crude production growth in North Dakota. Oil output from the state’s portion of the Bakken shale grew 24,000 barrels a day between December and April after growing 166,000 barrels a day from June through November last year.
Adequate transportation investment is critical. However, the Highway Trust Fund will soon become insolvent and throw state highway construction projects into chaos.
As Congress works to find short- and long-term solutions to the fund’s shortfall, here’s a reminder that a reliable transportation system is critical for every sector of the economy, including energy.
Read this explainer to learn more about the Highway Trust Fund.