The problems and opportunities of US energy policy

What is the overall goal of US energy policy?

Most of my colleagues in Washington would agree that it’s about minimizing energy costs and pollution, incentivizing reliability and innovation, and relying on in-house sourcing wherever possible.

Yet what we actually do runs counter to these goals.

Considering:

• In 2020, when oil prices were falling, former President Trump threatened to halt military aid to the Saudi government unless they cut production to increase energy prices. If our goal is to lower energy costs, why would we ever pressure the Saudis when prices are “too” low?
• The International Monetary Fund has calculated that the United States subsidize the fossil fuel industry to the tune of $662 billion each year. The Inflation Reduction Act provides just under $400 billion in support of clean energy over 10 years. If our goal is to encourage innovation and clean energy, why are we spending more than 10 times as much on tax subsidies to protect dirtier, more mature technologies?
• If you drill an oil well, you can take advantage of more tax credits designed to accelerate your investment and production from that well. If you also buy an electric vehicle, you can get a tax credit to reduce US oil demand. If we had a coherent energy policy, we would not subsidize extraction and conservation simultaneously.

The truth is that we have never had a coherent energy policy. In our early years as a nation, we were short on resources and short on people, so we created laws that explicitly incentivized resource extraction, from forestry to mining. Those incentives created powerful special interests that fought to preserve those subsidies, even as we created (smaller) compensatory conservation subsidies.

US energy policy is like a taxpayer-subsidized all-you-can-eat buffet with a few diet coupons and gym memberships at the checkout.

Our energy system consists of inputs and outputs. Inputs are things like coal, oil, sun and wind, which we use to create energy but are of little use in themselves. Outputs are what we create with our inputs: the things that make our beer cold and our showers hot. Energy productivity is the value generated by selling those outputs based on the amount of inputs needed to create them. Countries with higher energy productivity create wealth by selling their products.

When comparing the wealth generated by the energy productivity of some countries, an alarming trend emerges:

• UK, GDP of $378.79 per MMBtu*
• Germany, $312.50
• United States, $198.41
• Iraq, $177.30
• Saudi Arabia, $163.13

(*Millions of metric British thermal units. Figures shown are from the pre-COVID year of 2019)

It makes sense for modern service-based economies like Germany and the UK to maximize energy productivity, just as it makes sense for extractive and resource-based economies like Saudi Arabia and Iraq to do the opposite. It is only the inconsistency of US energy policy that has made us look more like it.

But we don’t see this as a cause of depression. Let’s take it instead as a call to action, because there is great optimism in this data. There are no limits of technology, capital or talent to our ability to reduce CO2 emissions₂ emissions, reduce our exposure to volatile fossil energy markets, reduce the wealth flowing to petro-state dictators AND grow our economy. Given the ability to have our cake and eat it, we don’t have to figure out how to get China to act with us; we can just act and leave their economy in the dust if they don’t catch up.

We have before us the opportunity to grow AND decarbonise our economy. To show the world that it is possible. Guide. We can start by eliminating fossil fuel subsidies, fixing our permitting process to remove barriers to clean energy, reforming our energy markets to remove disincentives to conservation…and so much more.

The choice before us is simply whether we want to get rich on a healthy and sustainable planet or keep paying people to dig holes in our backyard. It shouldn’t be a difficult choice.

Sean Casten represents the Sixth District of Illinois.