The stalemate going on in Washington about the fiscal cliff highlights the two very different economic viewpoints held, not just in Washington, but across America: more government, more taxes; less spending, lower taxes. But there is a third prong that is largely absent from the discussion: growth and creating new wealth—and energy can play a big role, but it, too, has two divergent sides.
To have success, both sides need to feel that they are getting what they want.
Energy should be part of the current fiscal cliff discussions because all recessions since 1973 have been preceded by a spike in oil prices. In the last decade, we’ve seen a consistent climb in oil prices—with the average household’s gasoline expenditure now more than double what it was in 2002—coupled with a steady decline in Gross Domestic Product.
High energy costs are a drag on the economy—which is important to Republicans. But they also mean less federal and state tax revenues and lower revenues endanger entitlement programs—which are important to Democrats. Earlier this year, it was announced that Social Security is going to run out of money three years earlier than projected last year. The 2012 Social Security Trustees report states: “This is the largest actuarial deficit reported since prior to the 1983 Social Security amendments, and the largest single-year deterioration in the actuarial deficit since the 1994 Trustees Report.” The report cites “many factors.” However, it blamed “a surge in energy prices in 2011” for “lower average real earnings levels over the next 75 years than were projected.”
Energy can give both sides what they want. To achieve this, Democrats will need to understand that oil is important and Republicans will need to acknowledge that there is some role for government to play. Can both parties feel that they are getting what they want without sacrificing their core principles?
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A new proposal put forth by the Energy Security Leadership Council (ESLC—a project of Securing America’s Future Energy [SAFE]) believes that there is a bipartisan solution that can improve the US economy, promote fiscal stability, and protect national security. ESLC brings together two sides that don’t typically communicate, yet have a common interest: energy security. One side is made up of high-volume oil consumers such as FedEx, Southwest Airlines, Coca-Cola, Waste Management, and Royal Caribbean International—and is chaired by FedEx’s Fred Smith. The other side is composed of former military leaders committed to improving US energy security through reduced oil dependence—led by former Marine Corps Commandant General P. X. Kelley. The oil consumers understand that rapid swings in prices directly affect the bottom line. The military leaders understand that US dependence on foreign oil limits our flexibility on foreign policy. Without the need for middle-eastern oil, our approach to Libya might have been totally different.
These two sides have come together and drafted: A National Strategy for Energy Security: Harnessing American Resources and Innovation. At a press conference where the proposal was released last week, co-chairs Smith and Kelley said: “As long as our nation remains dependent on oil, restoring economic growth and stabilizing our fiscal outlook will be undermined by the manipulated and volatile prices of a cartel-dominated global oil market. This report offers a framework for policymakers to leverage domestic energy abundance in support of mitigating the urgent and severe threat posed by oil dependence.”
Their plan includes some items that will be more attractive to Democrats and others with greater appeal for Republicans—though as Robbie Diamond, Founder, President and CEO of SAFE explains it, most of the suggestions will happen anyway within the next 30 years, but the plan lays out a path to expedite America’s energy security and economic recovery.
For example, Democrats will appreciate the proposal’s suggested “Energy Security Trust Fund,” seeded with revenue from new production—not new taxes; diversifying the fuel base of the transportation sector; and the suggestion that the Department of Energy “reorient” itself toward R & D activities to catalyze technologies most likely to improve US energy security. While Republicans will warm to the plan’s ideas for development of energy resources in the Outer Continental Shelf—with coastal states granted revenue sharing as an incentive; state participation in developing “best practices” for hydraulic fracturing; and improved federal permitting processes for major energy projects by streamlining authority, promoting transparency, and reducing frivolous litigation. Something for both parties—while benefitting America with a unified plan.
In our conversation, Diamond emphasized that the plan calls for government investment in R & D, not in individual companies. R & D is a role that has been historically and successfully held by government. If the concepts can stand on their own, the consumers will choose them. By contrast, current government “investing” picks winners and losers, and the heavy emphasis on wind and solar resources does nothing to improve energy security—hence the idea of the DOE “reorientation.”
Diversification of the fuel base for the transportation sector is important, even though the myth of peak oil has been shattered. Because of the global market, geopolitical crises can create a supply shortage, or cartels can slow production—both can cause price spikes. The report points out that both Canada and Norway are oil self-sufficient, yet they still face global pricing. By incorporating America’s abundant supply of natural gas and plug in electric vehicles where feasible, the US needs less foreign oil and is less susceptible to market manipulations with its volatility, and, additionally, the US market is more secure.
While the US natural gas and oil boom won’t result in greatly reduced oil prices, maximizing production can make our economy stronger, create jobs, and lower the trade deficit—and should be encouraged while protecting the environment.
As avoiding the fiscal cliff will require some give and take on both sides, the National Strategy for Energy Security: Harnessing American Resources and Innovation proposal offers insight as to how the two sides could find a solution without sacrificing their core principles. The ESLC started with the goal: energy security—and then together mapped out ways to reach it. They didn’t put ideology first, as has been done on the fiscal cliff negotiations.
Agendas are being set right now in Washington, DC, and the economic boost and energy security America’s resources and innovation can provide should be part of the solution.
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