Technology Assessment Division

Develop a Meaningful National Energy Policy

Present U.S. Energy Policy
The present energy policy of the United States is an incredibly simplistic hodgepodge of items wholly inadequate for a subject as complex and as important to the wellbeing of this country as energy supply. For all practical purposes, present policy can be summarized as follows:

 

  • The federal government has a long history of imposing unrealistic regulations on the oil and gas industry from such things as the 1938 Natural Gas Act, the 1954 Phillips decision of the Supreme Court, the Powerplant and Industrial Fuel Use Act of 1978, and the 1978 Natural Gas Policy Act. Counterproductive distortions in the supply of natural gas caused by these policies are still affecting us today.
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  • Through ineffective and excessive regulations on permitting and construction and by neglect in the area of nuclear waste disposal, the federal government has ensured the demise of the nuclear power industry in the U.S. Meanwhile, unprocessed radioactive powerplant wastes pile up, and other industrialized nations forge ahead harnessing the power of the atom, often with U.S. technology.
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  • The federal government places entirely too much emphasis and reliance on the Strategic Petroleum Reserve as the cure-all to prevent and/or deal with all future supply disruptions and threats to oil imports. This is irresponsible and naive in view of the increasing dependence of the nation on foreign oil which already exceeds 50% of U.S. supply.
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  • The final key ingredient to existing U.S. energy policy is low oil and natural gas prices. Somehow, the natural market place laws of supply and demand are supposed to automatically solve whatever energy problems the preceding measures do not address. What this fails to recognize is that U.S. energy supply and demand are part of world supply and demand over which U.S. market forces do not have control. Low oil and gas prices will not last forever, but while they last, they make effective long term development of domestic oil and gas resources as well as development of alternative energy supplies marginal or uneconomical.
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  • The Energy Policy Act of 1992 and the President's Domestic Natural Gas and Oil Initiative rank high on good intentions, but are woefully lacking on meaningful action. The Clean Air Act Amendments of 1990 will have a far larger impact on energy than either of these policies.

 

As demonstrated in the past, it can be expected that when the next energy "crisis" arises and all of the above fail, the federal government will react by implementing comprehensive new federal regulations on the oil and gas industry to legislate the country out of the crisis. Certainly the most advanced nation in the history of the world can formulate a more responsible and effective policy than demonstrated so far.

 

 

Needed in U.S. Energy Policy
Though not intended to be comprehensive, the following is a list of some of the most crucial energy policy inadequacies that need to be effectively addressed in a comprehensive U.S. energy policy.

 

Petroleum
Insufficient incentives and even financial disincentives in the tax laws for oil and gas exploration continue to drive U.S. petroleum investments overseas.

 

Inconsistent offshore drilling policies (i.e., all out development off the coasts of Texas, Louisiana, Mississippi, and Alabama with drilling banned everywhere else but off Alaska) have a debilitating impact on developing new supplies of our most flexible energy resource.

 

 

Nuclear Power
Constantly changing regulatory requirements and institutional obstacles have essentially killed the future development of nuclear power in this country while most of the world continues to exploit and improve this energy source. Realistic and stable regulatory requirements combined with streamlined approval of standardized designs, and definitively resolving the safe disposal of nuclear wastes could restore public confidence in atomic energy and revitalize the nuclear power industry. Additionally, if nuclear power is to have a long term role, the commercialization of the fast breeder reactor is necessary to stretch nuclear fuel supply from about half a century to a couple of centuries.

 

 

Energy Conservation
Official concern for energy conservation disappeared with the last gasoline station lines. Energy conservation standards, targets, etc. should be strengthened, not eased. Having the most voracious energy consuming appetite in the world dictates that a continued commitment to the gradual long term reduction of energy requirements is essential for long term prosperity and security.

 

 

Coal
The abandonment of a concerted drive to develop a synthetic fuels industry due to low oil prices ensures both higher overall energy prices in the future and dependence on unreliable foreign sources. It's a good thing aviation pioneers did not wait for air travel to become more economical than the train to establish the aviation industry or air travel would still be available only to the rich and powerful. Coal is the nation's most abundant energy resource. At one time ships and trains burned coal and could once again. Cars and airplanes cannot burn coal, but they could burn liquid fuels from coal. For environmental, economic, and other reasons, it is not feasible to convert to coal the schools, businesses, stores, homes and much of industry that utilize natural gas or fuel oil; on the other hand, they could use synthetic gas or oil from coal. For those industries that could feasibly convert to direct combustion of coal, transportation access and costs would often present crippling obstacles due to lack of coal slurry pipeline legislation.

 

 

Fusion
Ultimately, the technology that will free the world from its bondage to limited economical energy will be nuclear fusion. The recent retreat from the already feeble nuclear fusion research effort amounts to negligent disregard of our children's long term energy future.

 

 

Impediments to Developing Responsible Energy Policy
Development and implementation of a responsible energy policy requires short term (up to ten years) trade offs for the long term (ten to twenty years or more) good. Unfortunately, our Washington leaders are elected politicians and their perception of the long term, with few exceptions, is the next election, be it two years, four years or six years. These disparate, short planning horizons produce an inherent conflict, yielding a predicament in which the few Washington politicians who realize what needs to be done are unwilling to risk the political heat of singularly pushing legislation that entails consequential cost and/or sacrifice for benefits that will be realized after the next election, much less beyond that period.

 

 

Promoting Sound Policy
The key to developing and implementing a successful energy policy is to coalesce a broad base of support by convincing as many diverse interests as possible that sound energy policy benefits them and their states. To accomplish this, the interests of environmentalists, conservationists, coal states, oil and gas states, producers, consumers, etc., all have to identify with the policy.

 

A national energy policy cannot just be implemented in oil and gas states or just energy producing states. If natural gas is to be pushed to replace other fuels to clean up the air in our polluted cities while there is a surplus supply of gas, then some serious plans must be made about what to do when gas returns to a short supply situation - other than diverting gas supplies away from industry in the gas producing states.

 

In the past when energy issues have been debated, Louisiana has always been cast in the image of a rich producing state floating in a sea of oil and gas that is being inequitably shared with the consuming states.

 

Often misunderstood or overlooked is the fact that about two thirds of the production from the state is in the federal OCS (Outer Continental Shelf) territory and, hence, produces no revenue for the state while at the same time incurring great cost to the state in terms of damage to the wetlands and funding of onshore public works support infrastructure necessary to facilitate OCS exploration and production.

 

Also often overlooked or not explained is the fact that though Louisiana is the 2nd highest energy producing state in the nation (5th if OCS production is excluded), Louisiana is 3rd highest in per capita energy consumption and 6th highest in total energy consumption. Therefore, Louisiana is more of a consuming state than 44 other states! This story is never told, nor are Louisiana's difficulties as a key consuming state given much concern at the federal energy policy level.

 

Additionally, Louisiana is consuming most of this energy as a through-processor of energy supplies for the rest of the nation, consuming colossal amounts of energy for their benefit. For example, Louisiana nitrogenous fertilizer manufacturers who employ less than 1500 people use approximately 20% of all natural gas consumed in the state, to transform natural gas into ammonia and urea, 98% of which is shipped out of state for use as fertilizer. With about one third of the entire U.S. ammonia and urea capacity located in the state, who is going to be the worst hit when poor energy policy results in these plants not being able to obtain sufficient and/or affordable natural gas feedstock - the nation's farm belt or Louisiana? Perhaps hundreds of thousands of out of state agricultural jobs and tens of millions of food consumers are dependent on this single energy intensive Louisiana petrochemical industry, yet how often have the "consuming" states been concerned about the cost and availability of natural gas in Louisiana?

 

Another example of how Louisiana is consuming its resources into oblivion for the primary benefit of other states is petroleum refining. The energy equivalent of 10% of Louisiana's entire petroleum product consumption is required just to fuel the processes that refine crude oil into gasoline, diesel fuel, jet fuel, heating oil and other products consumed out of state. The oil refining industry employs less than 13,000 workers in the state; whereas tens of millions of jobs throughout the country are dependent on the affordability and availability of the products from the continued operation of these refineries and associated petrochemical facilities in Louisiana.

 

Many other examples could be cited of the numerous energy intensive natural gas and oil derived chemical products Louisiana (and also Texas, Oklahoma, and California) through-processes for the rest of the U.S. Per unit of output, these industrial processes in Louisiana are characterized as capital (equipment), energy, raw material, and pollution discharge intensive, and low in labor requirements and dollar value added, essentially the opposite of the out of state industries that upgrade these chemicals into ultimate end products.

 

 

Conclusion
The essence of this discussion is that the rest of the country needs to realize that Louisiana is as much, or even more of, a consuming state as they are. Moreover, since Louisiana's consumption is primarily that of a through-processor of fuel derived products, the rest of the country needs to understand that their economies are indirectly as dependent as the oil and gas states on sound energy policy that fosters the economic and available supply of energy in Louisiana and the other oil and gas producing states.

 

Implementing an effective energy policy that will ensure net long term affordable and available energy supplies does not come without short term costs. Those short term costs consist of the adequate funding of substantial advanced energy research to develop new technology and the financial incentives to expand domestic energy production and to commercialize existing technology that is not economical with short term low world oil prices and low natural gas prices.

 

Economic incentives through an effective national energy policy can resuscitate the ailing oil and gas industry while at the same time encourage energy conservation, solar energy, renewable fuels, clean coal technology, synthetic fuels from coal, and national energy security. With all of this diversity, certainly a broad base of support can be mustered under the leadership of Secretary O'Leary and the President.

 

 

Epilogue
It has been said by great philosophers and leaders that a nation that fails to learn lessons from history is doomed to repeat the mistakes of the past. This will be this nation's epitaph if a responsible energy policy is not soon implemented.

 


 

Submitted to
U.S. Department of Energy
for the
STATE OF LOUISIANA
by
JACK McCLANAHAN
Secretary of Natural Resources


 

For Consideration at the January 13, 1995
New Orleans Public Meeting on
Development of the
1995 National Energy Policy Plan

 

 

Prepared by
T. MICHAEL FRENCH
Director of Technology Assessment


 

Technology Assessment Division
Louisiana Department of Natural Resources
P.O. Box 94396
Baton Rouge, LA 70804-9396