Energy has played a prominent role in politics during the Obama presidency, and as notable as what he mentioned is what he omitted: Keystone and Solyndra. Conservatives have already responded with criticisms of Obama’s record on oil and gas drilling, continuing to push for the Keystone XL Pipeline, and it is safe to assume these issues will remain forefront as the race for the White House continues. Today is the perfect opportunity to look back at the major energy stories of Obama’s Presidency, and what some of their implications might be for his reelection campaign.

5) Cap and Trade

On Obama’s election night, he famously said “this was the moment when the rise of the oceans began to slow and our planet began to heal,” raising environmentalists’ hopes that a domestic cap and trade policy would be passed. In 2010, with Democrats holding the executive branch as well as both chambers of Congress, proponents of the environmental policy hoped the carbon mitigation mechanism they had been promoting for  more than a decade would finally come to fruition. However, with the growth of the Tea Party movement, worries about excessive government spending, sluggish economic growth in the wake of the financial crisis, strong industry opposition and the complexity of the policy mechanism itself, cap and trade slowly died.

Campaign liability: Very low. Environmental economists disagree about the best implementation of cap and trade, not to mention inconclusive levels of public support for government action to reduce carbon emissions in general.

4) The Macondo Well Explosion

The catastrophic oil spill which lasted from April through July of 2010 was the worst open-water oil spill in American history, and devastated the Gulf coast region in addition to killing a number of oil field workers. The spill was a huge wake-up call to the potentially devastating consequences of reckless drilling practices, and caused a temporary moratorium on drilling in the Gulf.

Campaign liability: Low. The Obama Administration took a number of steps to restore confidence that the cleanup was effective, most notably by Obama himself taking a dip on the Florida coast with his daughter Malia. Although the spill caused a temporary moratorium on drilling in the Gulf, the White House claims overall oil and gas production has increased during Obama’s presidency. That said, oil and gas leasing on federal land is likely to be subject of extensive debate.

3) CAFE Standards

In summer of 2011, the Obama Administration announced it was increasing the fuel economy standards announced by the Bush Administration in the Energy Independence and Security Act of 2007. By 2025, cars and (for the first time) light duty trucks will have to reach an average of 54.4 miles per gallon (mpg). The rules will account for 90 percent of all vehicles sold within the United States, and was a substantial increase over the 35 mpg by 2020 established by Bush.

Campaign liability: Negligible. The New York Times reported this week that the proposed rules are a win across virtually all stakeholders, as they “create jobs, reduce oil consumption, create cleaner air and save drivers money, all while helping automakers increase their profits.”

2) Keystone XL

Obama rejected TransCanada’s application to build the Keystone XL pipeline earlier this week. The long-awaited decision was a divisive one: protests waged outside the White House for weeks, Congressional Republicans forced Obama to expedite his decision with language attached to the tax bill at the end of 2011, and the American Petroleum Institute (API) launched a national ad campaign in support of the pipeline earlier this month, just to name a few events from the drawn out pipeline battle (which, according to some sources, is far from over).

Campaign liability: Unclear. The Keystone issue is a touchy one, as it has been perceived as a polarizing decision between jobs and the environment. For some, the decision was in direct conflict with the recommendations of the Presidential Jobs Council, and Republicans are unified in opposition against rejecting the opportunity to create domestic construction jobs. However, in the words of one expert, “No one who was planning on voting against the president would have been won over simply because of the approval of Keystone.”

1) Solyndra

Solyndra, the solar panel manufacturer and recipient of a $500 million Department of Energy loan, went bankrupt in fall of 2011. Occurring in the immediate wake of the last-minute debt ceiling negotiations, when government spending was front and center, what was at first a source of pride for the Obama Administration has become a PR nightmare, as well as sparking a debate over the legitimacy of the Department of Energy’s entire Loan Guarantee Program.

Campaign liability: Potentially high. The first Obama 2012 ad released by the reelection campaign has focused on green energy, and some are speculating it’s a preemptive strike against Solyndra-based attacks. Critics have argued that DOE’s loans are an example of “government playing venture capitalist,” while others argue it’s important for the federal government to encourage technologies in support of the public good. We fully expect this issue to be used as a symbol for Republican’s opposition to the Obama “Green Jobs” agenda, and it will remain on the opposition’s talking points throughout the campaign cycle.

Congestion in America highlights inefficiency in the surface transportation system, and particularly the challenge of urban congestion, as a growing cause of wasted time and fuel. Total fuel wasted from urban congestion has fallen between 100,000 and 150,000 barrels of oil per day over the past ten years, and in 2010 alone drivers in U.S. metropolitan areas wasted over 1.9 billion gallons of fuel. Furthermore, in 20 of the nation’s largest cities, annual costs of congestion exceed $1 billion. In the absence of substantial policy intervention, estimates suggest that these costs in fuel waste and travel delays will increase by 30 percent by 2015 and 65 percent by 2030.

Source: Texas Transportation Institute

Source: Texas Transportation Institute

SAFE urges a comprehensive and balanced approach to increasing traveler mobility and reducing congestion related fuel waste. The report outlines the range of options available to policymakers to alleviate the costs of congestion, grouped into the following categories:

• Pricing and other flow management techniques to reduce or eliminate recurring congestion
• Accident/Incident management for mitigating the likelihood and effect of non-recurring congestion
• Improved public transit service and other alternatives to single-occupancy vehicle travel
• Strengthened long-term urban planning and development initiatives

Current federal surface transportation legislation, funding over $50 billion annually in highway and transit programs, expires on March 31 of this year. The policies outlined in Congestion in America present market-based mechanisms to cut oil consumption and increase the efficiency of surface transportation infrastructure while improving energy security. As Congress seeks to pass long-term transportation legislation, it is imperative that these instruments are incorporated, and energy security remains forefront as a key policy priority.

Click Here to Read the Full Report

First things first.  In a fairly stunning piece, even to jaded DC insiders, former Congressman William Delahunt (D-MA) is reported to be working for the small coastal town of Hull, on Massachusetts Bay “for help in developing a wind energy project.”

The catch?  “While in Congress, he personally earmarked $1.7 million for the same energy project.”  And it gets worse, as “80 percent” of the funds his firm will receive will be “from the pot of money he created through a pair of Energy Department grants in his final term of office, records and interviews show.”

Now most former members of Congress who end up in law and lobbying firms claim they aren’t actually lobbyists but instead are “strategists.”  And the former Congressman released a statement quoted by the NYT saying:  “I have no federal lobbying relationship with any past or current client.”  That may be news to the town of Hull, who’s town manager is quoted a few paragraphs later using a textbook definition of access-lobbying:

“Obviously he’s got connections into the federal government that we don’t have . . . . We’re hoping he can open doors at the federal level that we could never open.”

So the Hull wind energy project will soon join Solyndra as grist for the argument that the federal government should not be providing incentives for clean energy technology deployment because those incentives are inevitably transformed into “crony capitalism.”  But just as Solyndra was evidence of the misuse of an innovative technology loan guarantee program for economic stimulus rather than evidence of a problem with government incentives; so too is the Hull project actually a fair indictment of earmarking rather than a fatal flaw in the concept of deployment incentives.  The solution?  Programs that provide funding only where the merits of various projects can be clearly compared using  objective metrics rather than “awarded” through either the legislative process or via an opaque administrative ”negotiation.”  Reverse auctions — where bidders commit to delivering X units of energy at Y cost to the taxpayer and only the best deals are then funded — are particularly suitable for such an objective process.

The second piece begins with the type of human interest angle that can obscure rather than teach, as (again, Massachusetts) a hilltop homeowner laments that the local utility wouldn’t run a natural gas line out to his place and he must instead rely on expensive home heating oil.  The real story, as we soon learn, is that home heating oil users are spending between double and triple what their natural gas-using counteparts do.  Some are out of luck due to location; others because they can’t afford the cost of conversion — even though savings due to lower monthly bills may pay for the investment in just a few years.

What’s the current federal policy response to this problem?  It is a well-intentioned effort to help low-income homeowners stay warm in the winter through the much-maligned Low Income Heating Assistance Program, or LIHEAP, whereby taxpayers subsidize the heating bills of qualified consumers.  Unfortunately, that neither fixes the problem nor encourages conservation, but instead simply transfers wealth to homeowners (and ultimately heating oil providers) “trapped in a cycle of spending more and more for heat . . . .”

Is there a better way?  For some, it could be the hugely popular state and local program called PACE — Property Assessed Clean Energy Bonds (see www.pacenow.org).  Designed to let homeowners invest in energy efficiency retrofits in an affordable way, at no cost to taxpayers, this program has been literally sweeping the nation during the last few years.  And if it doesn’t include switching from heating oil to natural gas as an eligible activity, it should.  That would be an obvious energy market intervention worth making.  No earmarks required.

Here’s the WaPo on the decision:

ON TUESDAY, President Obama’s Jobs Council reminded the nation that it is still hooked on fossil fuels, and will be for a long time. “Continuing to deliver inexpensive and reliable energy,” the council reported, “is going to require the United States to optimize all of its natural resources and construct pathways (pipelines, transmission and distribution) to deliver electricity and fuel.”

It added that regulatory “and permitting obstacles that could threaten the development of some energy projects, negatively impact jobs and weaken our energy infrastructure need to be addressed.”

The candidates’ energy policy consensus breaks down over tax breaks for oil and gas producers and whether to just restructure, or flat out eliminate the EPA. The Iowa Caucuses on Jan. 3 saw Mitt Romney defeat surprise second-place finisher Rick Santorum by a mere eight votes and follow up primaries in New Hampshire on Jan. 10, South Carolina on Jan. 21, and Florida on Jan. 31 will have a disproportionate influence on the outcome of the Republican nomination.

Regardless of who is the Republican nominee may be, the contrast between the Republican energy platform coming out of its Tampa, Florida convention in August and the energy/environmental policies of President Barack Obama as he runs for re-election could not be starker, making the November 6^th general election one for the ages in terms of the future direction for U.S. energy policy.

Click here to read the full report.

To update: In addition to a threat last week to close the Strait, yesterday (Tuesday, January 3^rd), Iranian armed forces commander General Ataollah Salehi delivered a series of provocative statements to the USS John C. Stennis aircraft carrier that recently left the Persian Gulf’s waters, saying “We warn this ship, which is considered a threat to us, not to come back, and we do not repeat our words twice.”  The Islamic Republic  is known for its exaggerated military rhetoric (Iranian Naval Commander Admiral Habibollah Sayari is quoted as saying that closing the Strait would be “as easy as drinking a glass of water”), yet oil prices still jumped 4% in response, and U.S. officials note that Iran’s increasingly bellicose tone is likely a result of economic desperation, the Washington Post reports.

The Wall Street Journal’s Editorial Staff has taken a rather hawkish approach to the situation in their piece, “Iranian Strait Talk: A Carrier response to Tehran’s threats.” They point out that Iran fits all potential categories for regime gone rogue, with violations ranging from taking hostages and repressing their own citizens to test-firing ballistic and cruise missiles during naval exercises. In their assessment, Iran can’t do much more than bluff, considering “The “American warship” that Tehran is now threatening, the USS John C. Stennis, is a Nimitz-class carrier whose air wing alone is more capable than the entire Iranian air force.”  They conclude, “the best response to Iran’s threats would be to send an American aircraft carrier back through the Strait of Hormuz as soon as possible, with flags waving and guns at the ready. If it can’t be the Stennis, the USS Eisenhower would drive home the message.”

The companion piece to this OpEd, “Iran Won’t Close the Strait of Hormuz” was written by Bradley Russell—a Navy captain—and Max Boot, visiting and senior fellows at the Council on Foreign Relations, respectively. Their argument: while it remains true that Iran’s conventional forces are little match for American military might, they have ample asymmetrical resources at their disposal to cause severe and prolonged disruptions to global oil markets. In 1984 during the Iran-Iraq war, Iran avoided direct attacks on U.S. forces, but scattered mines throughout the Strait and used small, maneuverable patrol boats to fire a variety of missiles at tankers. A fleet of aircraft carriers is not necessary to inflict sustained damage to the Strait’s daily flow of 17 million barrels of oil, or worse, to injure or kill American military personnel.

Analysts believe oil prices have already increased by $5 to $10 a barrel due to the uncertainty, with the capability to grow much larger in coming weeks depending upon how events unfold. Both of Wall Street Journal’s articles raise several key points, but there is also a greater force at work: if it were not for our dependence on the foreign oil being transported through this strategic waterway, the Strait of Hormuz wouldn’t be considered strategic in the first place. But since the world has no other options for its primary transportation fuel, we can expect prolonged oil price spikes and continued threats as Iran flexes the only weapon it really has.

The so-called “Utility MACT” rule was signed Friday night — as Juliet Eilperin and Steven Mufson reported in Saturday’s WaPo:

The Obama administration finished crafting tough new rules Friday curbing mercury and other poisons emitted by coal-fired utilities . . . culminating more than two decades of work to clean up the nation’s dirtiest power plants.

The signing resulted from last-minute negotiations between the White House and the Environmental Protection Agency over flexibility that would be available to EPA to lengthen compliance periods.  That’s probably a good thing.  Given our abundant natural gas, many utilities can make the economics work to switch from coal to gas.  Where reliability may suffer as a result, deadlines should be extended.

WaPo then reported that the President had to make several environmental concessions to congressional Republicans late Friday night as part of a deal to extend the payroll tax cut.  Senate leaders agreed Friday night on a provision that would accelerate the Keystone XL pipeline permitting decision . . . .

And in return, a congressional rider on the Utility MACT was dropped.  Sounds like a good trade.  But let’s be clear about language here: the decision on Keystone has been ripe for some time.  The State Department EIS is done and has been for months.  What has now happened is that Republicans have countered the President’s move to delay a final decision until after the election.  To call it “accelerating” a permitting decision is just spin.  ”Accelerating” a political decision is more accurate. 

Now this deal is not yet done, as the Sunday shows and Monday papers reported.  Speaker Boehner is once again facing a revolt from his rank-and-file — not over either of the MACT for Keystone deal, but over once again increasing the debt by handing out a tax holiday.  So while the principals have all agreed on a Keystone deal, the vehicle in which is it riding is not yet over the finish line.

And even if the deal holds, it could backfire.  One potential outcome prior to this move was that the pipeline would be rerouted and ultimately approved by a new Republican presidential administration.  Now POTUS can argue that 60 days is too short to discuss a reroute and he can make the decision in February to deny the permit.

And then Congress can, one supposes, seek to overrule that decision — but that will be a steep hill to climb.  Republicans think they win on the politics by forcing cancellation and using it as a campaign issue.   Whether or not that’s a smart political calculation, the real question is where does the Canadian oil end up — in the US or in China?

Regarding Keystone XL, President Obama has been making every effort to postpone his decision on the controversial pipeline until after the election, and the GOP has been working to expedite the process.  The current effort is to attach language requiring fast action on Keystone XL to an extension of the payroll tax cut as part of the omnibus spending bill.  Extending the payroll tax cut is a top White House priority, but Senate Majority Leader Harry Reid has said that the Keystone XL issue is a “non-starter” in the Senate, and President Obama has threatened a veto.  Politico has details about the precarious situation, in which House Republicans could potentially pass a tax package including the Keystone provisions and leave for recess, leaving the Senate with a “take-it-or -leave-it” proposition.

Meanwhile, the Senate Commerce Committee is marking up a transportation bill.  In what was ostensibly a road safety bill, Senate Democrats have added investment in freight rail, which Senate Republicans are trying to strip.  Senator Lautenberg has also proposed an amendment which has constructive language on energy security and infrastructure developments to reduce petroleum dependence.  We praise the inclusion of this language, as it is essential that these issues remain forefront in all discussions of transportation policy.

Although the Strait currently remains navigable, Tehran is not leaving its intentions open to interpretation.  The Tehran Times reported today that “Iran’s threat of closing the Strait of Hormuz is a response to the United States’ threats against the Islamic Republic.” The article suggested that future practice sessions are likely, and in the words of Iranian Parliamentarian Parviz Sorouri, “If the world wants to make the region insecure, we will make the world insecure.” Under the United Nations Convention on the Law of the Sea (UNCLOS) Iran has the right to close the Strait if its interests in the waterway are threatened.

It is unclear how the United States will respond to these drills, amid ongoing debates regarding sanctioning Iran for its continued development of nuclear technologies. The Iran Threat Reduction Act, H.R. 1905, which is expected to pass in the House shortly, would tighten sanctions against the state and sanction the Central Bank of Iran if investigations find that the bank has supported Iran’s terrorist activities. House Foreign Affairs Committee Ranking Member Howard Berman (D-CA) said yesterday evening that these measures could “roil the global oil markets, but that this was worth the risk in order to prevent Iran from developing nuclear weapons,” The Hill reports. Other representatives have argued against the bill on the grounds that oil prices will spike if it takes effect.

Further complicating the matter, it is reported that Saudi Arabia has pledged not to increase output to compensate for production shortages from Iran, despite the U.S.’s efforts to secure assurances of a supply cushion.  OPEC’s Vienna meeting concluded today with a compromise between the price-hawkish Iran and the more dovish Saudis, by setting the cartel’s total production levels at 30 million barrels, thus maintaining but not increasing current output.

Now, the United States finds itself in an uncomfortable situation.  With the economy still lagging under high oil prices, a spike in response to sanctions would be problematic, but prolonged blockage of one-sixth of the world’s oil supply would have catastrophic repercussions.  Conversely, the U.S. and the west must maintain credibility regarding threatened consequences for Iran’s emerging nuclear program.  This is a perfect example of foreign policy with one hand tied behind our backs: the inability to take necessary actions against enemy states due to our crippling dependence on foreign oil.

Still, as recently as 2005, net energy exports would have been unthinkable, as U.S. net oil imports peaked at 900 million barrels.  The current situation underscores the transformative economic changes which have occurred since.  The Wall Street Journal reports:

“The shift is one of the clearest demonstrations of the diverging fates of the U.S. and emerging market economies. While the U.S. labors under stubbornly high unemployment and sluggish growth, emerging-market economies are growing strongly, bolstering demand for fuel.

U.S. customers have been pulling back in part because an anemic economic recovery has left millions still looking for work. In August, U.S. drivers burned 7.7% less gasoline than four years earlier, when gasoline usage peaked. Production of ethanol made from corn has also ramped up dramatically in recent years, cutting into the need for other fuels.”

Graph taken from the Wall Street Journal

Consequently, we see that the country’s net exporter status is not purely good news, but reflective of poor economic performance and surging demand overseas.  Furthermore, American drivers are not benefitting as they should from cheap gasoline, as “refineries on the Gulf Coast are shipping much of their output to places where demand is strong, keeping prices high.”

The country continues to be the world’s biggest net importer of crude oil, bringing in over nine million barrels every day.  Therefore, reaching net exports does not mean energy independence.  The majority of fuels the nation is exporting are refined petroleum products, as the chart to the left illustrates.

Finally, one of the most important aspects of energy security is stability, which the global oil market lacks.  According to the article,

“To be sure, the balance could shift back relatively quickly. If the U.S. economy were to rebound sharply, domestic need for fuels refined from crude oil could also shoot back up, which could increase crude import demand. In addition, U.S. refineries could lose customers if foreign economies falter, sending the U.S back to being a net importer.”

Let’s hope the U.S. economy does in fact rebound sharply, fueled in part by strong production and diversified energy sources, providing us with the fuel we need for sustained growth.