Analyzing Energy Policy Trends

President Nixon, in his 1974 State of the Union Address, declared: “Let this be our national goal: At the end of this decade … the United States will not be dependent on any other country for the energy we need …”[1] Since then, every US president, regardless of party, has echoed the need for energy independence. President Obama again lauded the nation’s progress towards energy independence in his recent State of the Union Address. He credited this achievement, and reduced carbon emissions, to his Blueprint for a Secure Energy Future (more commonly referred to as the all-of-the-above strategy).

Oil Imports and What We Pay at the Pump

The President’s energy blueprint calls “to secure America’s energy future by producing more oil at home [than it imports];”[2] he argued that his all-of-the-above energy strategy is working when he told the nation that “more oil was produced at home than we buy from the rest of the world – the first time that’s happened in nearly twenty years.”[3] In fact, the EIA reported that US crude production was higher than crude imports for the month of October 2013 – the first time that’s happened since March of 1995. Domestic production increased while imports fell again in November 2013. So, on a monthly basis, the President was correct. However, as domestic production topped imports for only the last three months of the year, the year-end totals show the US still imported about 500 million barrels of crude more than it produced in 2013. The trend in the domestic/import ratio is projected to continue to favor domestic production in 2014, [4] which will likely be the first year domestic product tops imports on an annual basis.

It is less correct, however, to say the President’s energy blueprint deserves credit for increased domestic crude production. Issuing permits for recovering oil and natural gas from federal lands and offshore areas is the domain of the federal government (specifically, the Bureau of Land Management); permission to recover resources from private lands are negotiated between the parties and regulated by the states.[5] For the President to justly lay claim to increased domestic crude production, that production would need to occur on federal lands. Federally owned lands have only yielded 10-20% of the US’s annual oil production over the past decade. (See Figure 1.) The amount of crude produced on those lands and offshore areas has ebbed and flowed throughout the Bush and Obama administrations; there’s insufficient evidence to suggest one administration has been more supportive than the other, but it’s at least clear that neither had a significant impact in overall crude production.

Figure 1. US oil production on Federally-Controlled Lands compared to State and Privately-Controlled Lands

Source: Data compiled from various Energy Information Agency and Office of Natural Resources Revenue sources.

A more likely impetus for the overall production increase in domestic oil is the innovation in horizontal drilling, which has facilitated the extraction of crude from previously unrecoverable shale formations. This is certainly the case for natural gas production; the Congressional Research Service reported: “The shale gas boom has resulted in rising supplies of natural gas. Overall, U.S. natural gas production rose by four trillion cubic feet (tcf) or 20% since 2007, while production on federal lands (onshore and offshore) fell by about 33% and production on non-federal lands grew by 40%.”[6] (See Figure 2.)


Figure 2. US Oil and Natural Gas Production on Federal and Non-Federal Lands between FY2007 and FY2012.

 Source: Congressional Research Service, March 7, 2013

President Obama also claimed that increased domestic oil production “can keep driving down oil imports and what we pay at the pump.” But no correlation exists between the quantity of oil imported by the US and the domestic retail price of gasoline. Figure 3 shows, for example, gas prices falling between 1980 and 1986 while the US increased its oil imports relative to domestic production. Gas prices exhibited high volatility, but overall increase, while the US import/domestic ratio remained relatively stable between 2002 and 2008. And as domestic production began increasing in 2009, so too did gas prices.

The lack of correlation between the US’s import/production ratio and gas retail price is attributable to oil being a globally fungible commodity. As the price of foreign crude oil fluctuates, so too does the price of domestic crude oil and products. (See Figure 4.)

Figure 3. Trends in the amount of oil produced and imported by the US compared to the average price per gallon of gasoline.

Sources: Data compiled from various Energy Information Agency and Bureau of Labor and Statistics sources.

Figure 4. Trends in US-produced crude oil (WTI) price compared to notable international oil benchmarks (Brent, OPEC Basket)

Sources: Data compiled from various Energy Information Agency and Bureau of Labor and Statistics sources.


Becoming a Leader in Solar

But, as the President said, “It’s not just oil and natural gas production that’s booming; we’re becoming a leader in solar, too.” The President’s optimism was a reversal from his 2009 State of the Union Address when he lamented that the US “invented solar technology, but [has] fallen behind countries like Germany and Japan in producing it.” Though the solar industry has increased its energy capacity, its market prospects appear largely unchanged.

The US’s solar energy capacity has increased each year since at least 1996, including a six-fold increase between 2008 and 2012. The increase in US solar panels is owed to three primary factors. First, solar costs haves fallen by an average 6-7% each year since 1998 as a result of workers becoming more efficient as they gain installation experience, and production capacity for solar system components increased to alleviate supply interruptions.[7] Second, almost 75% of the states have legally binding standards or informal goals prompting utility companies to produce more energy from renewables – in some cases explicitly requiring a set percentage of their total energy come from solar power.[8] Finally, state and federal financial incentives, such as tax credits, cash grants, and loan programs, also incentivize new solar construction.[9]

These factors have led to solar industry growth, which cannot be considered in isolation. The solar industry still represents a small market, thus percentages of growth appear bigger more significant than the actual changes are. Also, future market size for solar may be limited because the technology is non-dispatchable – its energy output is not completely user controlled, and thus cannot be adjusted to meet demand changes. Power reductions from low ambient light (due to weather or night) prevents solar from producing more than 20-25% of its capacity and from being dispatchable.[10] As such, solar power is less valuable to the energy system than sources capable of providing base-load power.

The driving factors for solar increases aside, the US still falls short of being a “leader in solar.” In 2009, when the President implied the US solar market had regressed compared to other nations, the US fielded 1,600 MW of solar capacity; less than Germany (10,600 MW), Spain (3,500 MW), and Japan (2,600 MW). In 2012, the US had 7,300 MW of solar capacity; still less than Germany (33,000 MW), Italy (16,000 MW), and China (8,300 MW). In other words, though President Obama’s demeanor regarding US solar power has changed, the nation’s solar energy progress has, at best, kept pace of the competition; it has certainly not taken the lead.


Leading to a Cleaner, Safer Planet

The President also claimed “our energy policy is … leading to a cleaner, safer planet. Over the past eight years, the United States has reduced our total carbon pollution more than any other nation on Earth.”

The US did, in fact, reduce its carbon emissions more than any other nation in the world in the eight year period between 2004 and 2012 (the latest period for which a comprehensive data set is available). The US produced more metric tons of carbon dioxide than any nation in the world in 2004 (about 6,500 million metric tons); it reduced that by about 690 MMTCO2 over the following eight years. However, the same energy production processes which emit carbon power the economy and allow it to grow. As the two are inextricably linked, changes in carbon emissions should be taken in context with changes in GDP.

The US may have led the world in carbon emissions in 2004, but its GDP growth was also higher than any other nation. Of the world’s next eleven largest economies, Canada (9 MMTCO2) is the only other nation outside the EU to have reduced its emissions in that eight year period. But Canada’s GDP only increased by 10% ($155 billion in constant 2005 USD) of the increased GDP enjoyed by the US ($1.56 trillion). China, on the other hand, enjoyed more economic growth (60 or about $1 trillion) than the US, but also increased its emissions by 4,100 MMTCO2.

The only statistical competitor to the US is the EU. France, Germany, Italy, Spain, and the UK all rank within the top twelve economies and each reduced their emissions by an average of 70 MMTCO2 between 2004 and 2012. Fourteen other members of the EU also reduced their emissions, but have smaller economies. As a collective, the EU lowered its carbon emissions by 530 MMTCO2 (77% of the US decrease) while increasing its GDP by $1.08 trillion (69% of the US increase). The US has maximized carbon reductions and economic growth more than any other nation or economic consortium, and can make a strong argument for being the global leader in carbon reductions over the past eight years.

Figure 5. Trends in carbon dioxide emissions and GDP of the world’s largest economies.

Source: Data compiled from British Petroleum and World Bank sources.

However, attributing these improved carbon emissions to the all-of-the-above plan was an overstep. First, the president cited carbon reductions over an eight year period when he’s only been in office for five years and his energy blueprint has only been published for three years. Second, the EIA reported in October of 2013 that the decrease in carbon emissions was attributable to slower economic growth, transitions in the fuel supply, and slower population growth – two of the three were clearly not objectives of the energy blueprint.

The EIA’s report compared trends between 2007 and 2012 with trends of the preceding decade. The biggest change between these time periods was due to a slowing of economic growth. The second largest contributing factor was transitions in the fuel supply; specifically, the agency attributed 198 MMTCO2 in reductions to the shift from coal to natural gas and 116 MMTCO2 in reductions to increased use of nuclear and renewable energy.[11] This suggests changing fuel supplies accounted for an average 72% of the US’s annual carbon reductions for the past five years.


Before making grandiose claims of the successes of his energy strategy, President Obama told the nation, “it is you, our citizens, who make the state of our union strong.” This is, perhaps, nowhere truer than in regards to progress on energy and climate change issues. Most of the nation’s progress on these issues occurred unaided, and unhindered, by his all-of-the-above strategy. As President Obama and his successors look to support the American people in our continued pursuit of progress, it would be of value to develop a cogent framework for what drives changes in the energy and climate systems.

[1] Richard M. Nixon, “State of the Union Address: 1974,” Washington, DC: The White House, January 30, 1974.

[2] The White House, “Blueprint for a Secure Energy Future,” Washington, DC: The White House, March 30, 2011.

[3] Barak Obama “President Barack Obama’s State of the Union Address,” Washington, DC: The White House  Office of the Press Secretary, January 28, 2014.

[4] US Energy Information Agency, Short-Term Energy Outlook (STEO), Washington, DC: Department of Energy, EIA, November, 2013.

[5] Marc Humphries, “U.S. Crude Oil and Natural Gas Production in Federal and Non-Federal Areas,” Washington, DC: Congressional Research Service, March 7, 2013.

[6] Humphries, Marc, 2013.

[7] Galen Barbose, Naim Darghouth, Samantha Weaver, and Ryan Wiser, “Tracking the Sun VI: An Historical Summary of the Installed Price of Photovoltaic in United States from 1998 to 2012,” Berkeley: US         Department of Energy, July, 2013.

[8] Sergey Mityakov and Margarita Portnykh, “The Infant Industry Argument and Renewable Energy Production,”  Arlington: George C. Marshall Institute, 2012.

[9] Sergey Mityakov, and Margarita Portnykh, 2012.

[10] US Energy Information Administration, “Levelized Cost of New Generation Resources in the Annual Energy Outlook 2013,” Washington, DC: EIA, January, 2013.

[11] US EIA, “U.S. Energy–Related Carbon Dioxide Emissions, 2012,” Washington, DC: EIA, October, 2013.

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