October 5, 2012

We heard both candidates discuss alternative energy at this week’s presidential debate in Denver.

President Obama said, “we’ve got to look at the energy sources of the future, like wind and solar and biofuels, and make those investments.” The support for alternative energy sources, however, is not universal. Need to Know asked leading experts in energy, the environment and politics to help us better understand the various facets of the renewable energy debate.

How will this presidential election affect the conversation around and support for alternative energy production?

Robert Bryce: There’s a clear difference between Governor Romney and President Obama on energy policy. Governor Romney favors traditional sources. The Obama administration has lavished billions of dollars in subsidies, loan guarantees, and other measures on alternative-energy programs, which have included everything from electric cars (which has resulted in a huge waste of taxpayer dollars) to batteries and wind energy. Governor Romney has said he will eliminate the production tax credit, the 2.2 cents-per-kilowatt-hour subsidy given to wind-energy producers. Obama supports an extension of the PTC.

Furthermore, Governor Romney favors dramatic increases in domestic production of hydrocarbons – coal, oil, and natural gas. Of those, coal is the most controversial. U.S. consumption of coal is falling rapidly, due to lower cost natural gas. But it’s also falling because of regulations being promulgated by the EPA under President Obama. The most important of those is a proposed rule that would prohibit the construction of all new coal-fired generation units. The president says he’s in favor of “clean coal” but it’s not at all clear what that phrase means.

The big issue for the next four years, regardless of who is president, will be the attitude toward U.S. energy exports. The U.S. already exports significant quantities of refined oil products. It’s on the verge of becoming a big exporter of both natural gas and coal.

Amy Harder: During the election itself, the campaign-trail rhetoric will only further polarize the conversation around and the support of alternative energy production. Both candidates are using this topic as a way to differentiate themselves—President Obama is decidedly supporting it while Governor Romney has distanced himself from many of the policies that support alternative energy production.

After the election could be a different story. What story it is depends on who wins. If President Obama wins reelection, then I think the debate around alternative energy production will remain polarized for at least the short-term future as both parties use the issue as a political tool to differentiate one another. If Governor Romney wins, I could see a small opening for the issue to become less polarized—if he advances modest policies, such as research and development, for alternative energy.

How does the U.S. compare in both alternative energy production and use to other developed countries?

RB: The U.S. produces more than twice as much biofuel as any other country. (Brazil is second.) In fact, the U.S. is producing so much corn ethanol that it is exporting significant quantities of that fuel to Brazil. The U.S. is also the biggest producer of wind energy, with nearly twice as much production (121 terawatt-hours last year) as the next biggest producer, China. (Note: China has more installed wind-generation capacity-about 62 gigawatts-than does the U.S., which has 47 gigawatts. However, the U.S. wind capacity is more productive.) Solar energy production is relatively small at 1.8 terawatt-hours per year. In 2011, Germany, the world’s biggest producers of solar-generated electricity, produced 19 terawatt-hours.

In my view, nuclear should be considered an “alternative.” And right now the U.S. is producing nearly twice as much electricity from nuclear as France. Renewable energy gets lots of attention from the Green/Left, but it cannot provide the scale of electricity that the world needs. Nuclear can. Is it a perfect solution to our energy needs? No. But then there is no perfect solution.

AH: The United States lags behind most other developed countries when it comes to alternative energy production. This is due to a couple key factors: 1) Congress has not enacted any major policy that would provide a long-term incentive to deploy alternative energy, such as Europe’s cap-and-trade system; or provided massive subsidies to the industry like China has. 2) The U.S. has seen a huge growth in unconventional oil and natural gas resources in recent years, which has taken the attention of both the private sector and Washington’s policymakers away from the alternative energy space. That’s not to say that the attention is completely away from renewable energy, of course. But for example, prior to 2009, natural gas was considered a temporary bridge fuel from coal to renewable energy. Now, given all the vast resources of shale natural gas, it’s viewed more as a permanent, or at least a very long bridge fuel, to renewable energy resources. Many other countries, such as those in the European Union, do not have the shale resources the United States has—or at least they have not discovered any such resources yet.

After the Solyndra debacle, is the concern over the viability of domestic companies producing sources of alternative energy a legitimate one?

RB: The Solyndra mess – and the controversy over federal subsidies and grants for renewable energy start-ups – is only one of several challenges facing domestic renewable companies. The biggest problem they face is low-cost natural gas. Several analysts, as well as billionaire T. Boone Pickens, have said that for wind energy to be economically viable, natural gas prices need to be about $6. The current spot price of gas is about half that sum. Solar energy is about twice as expensive as wind energy to produce, therefore, it needs natural gas prices to be even higher. And yet there’s no reason to believe that natural gas prices will climb to anywhere near $6 for the next several years. The shale revolution has resulted in a glut of natural gas production that will take several years to work out. Add in the flood of cheap photovoltaic panels coming out of China, and solar’s problems are even more obvious.

But keep in mind that the bursting of the renewable-energy bubble is not just happening in the U.S., it’s happening in Europe as well. There, it’s not due to cheap natural gas, but rather to the fact that many countries in the E.U. can simply not afford to continue the heavy subsidies that they have been giving to renewable energy producers.

AH: In a perfect world, everyone would take the Solyndra debacle for what it was: A bad investment that’s not reflective of the rest of the renewable-energy industry. Looking through that lens, Solyndra should not cause concern over the viability of domestic companies producing sources of alternative energy. Specific aspects of Solyndra make it an outlier, not an example, of most of the rest of the renewable-energy industry. Of course, we’re not in a perfect world and Solyndra has rattled the investment world because of how politicized the bankrupt manufacturer has made discussion on Capitol Hill of all renewable energy. Looking through that lens, investors are concerned that federal support for alternative energy production is waning and, therefore, companies’ ability to get the necessary capital to build out more alternative energy projects.

Where should the government be investing in terms of renewable or alternative energy sources, and how should the government determine which sectors to subsidize?

RB: In my view, all energy subsidies should be eliminated to make all forms of energy compete, fair field, no favor. I’m not holding my breath for that to happen. Nevertheless, government’s primary role in the energy sector should be focused not on picking winners with subsidies, but on research and development. Earlier this year, the Breakthrough Institute released a report that called on the Federal Government to reform energy subsidies and instead focus on energy-focused R&D. That is the right approach. The National Institutes of Health spends about $30 billion per year on health-related R&D. Federal support for energy-focused R&D is about $5 billion. Given the vast scale of America’s energy consumption, that’s a small amount of money.

AH: This is a subjective question and depends much on what role you think the government should have in energy production. Despite the politicization of renewable energy, most Democrats and most Republicans do agree that government should provide basic research and development for alternative energy and advanced technologies for more established energy resources like fossil fuels. In recent years, more Republicans have taken the position that the government should have no more role than that, which includes not providing tax subsidies to renewable-energy resources like wind and solar. Many Democrats, on the other hand, have maintained that government still fills a key role in propping up energy resources whose technology is proven but is still not proven commercially. This support can be done through tax subsidies and loan guarantees, for example. The gap between technologically proven and commercially available technology is known as the “valley of death.”

Politicians from both parties talk a lot about not picking winners and losers and “leveling the playing field.” The problem with that framework is that the players are starting at different points in the game and will never really be at the same point in their technology development. Thus, it’s comparing apples to oranges. The oil industry has been receiving certain subsidies and permanent tax breaks for the better part of the last century, whereas renewable energy has received most of the new government subsidies in recent years.

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