Leading From Behind, Again

The President’s acceptance of the current oil and gas boom as a major economic driver reminds me of the man who runs to the front of a parade and then claims to be leading it. For several years, the President employed an “all of the above” rhetoric that did not match his actions. Now, in a style reminiscent of the saying “an enemy of my enemy is my friend,” comes a late embrace of natural gas as the President advances his war on coal.

Although fourth quarter economic growth looked encouraging, overall growth for the year was anemic. Time is running out on the President to take the right actions to get the economy on the path to robust growth. The oil and gas boom is a critical driver. Making natural gas a, as the President said in his recent State of the Union address, “bridge fuel that can power our economy with less of the carbon that causes climate change” is irrelevant while his administration also takes regulatory action that imposes excessive costs on the economy and hence hurts economic growth. Gas has an important role to play in the health of our economy independent of the reasons for embracing it.

The repeated claims about carbon and climate change may play well to his base and make his science advisor happy but those claims become more detached from reality as science marches on. Repetition doesn’t create facts.

The President should get a briefing from the head of the Energy Information Administration on carbon intensity and historical trends. The US, indeed the world, has been decarbonizing for over a century and will continue to do so. Jesse Ausabel of Rockefeller University demonstrated that reality years ago. The world wide boom in shale gas production which is just beginning will ensure that trend continues.

Now that the President has embraced the oil and gas boom, his administration should take a Hippocratic Oath on energy—first do no harm. There is a legitimate role for the federal government in making sure that development takes place safely and in an environmentally friendly way. This can be accomplished by a true partnership with the oil and gas industry and recognition that industry has strong incentives to produce safely and in an environmentally sound way. A look at the record over the past five years or so demonstrates that.

There is no shortage of actions that the Administration can take. In taking them might create incentives for other businesses to conclude that it is now safe to invest some of the $2 trillion that is sitting on the sidelines, in part because the Obama administration’s industrial policy philosophy.

What are some of those actions?

-Expediting federal leasing would be a good start as most of the production increases that have taken place are on private lands.

-Directing agencies to do a regulatory review to cut through red-tape, remove barriers to investment and development, and set objective criteria for cost-benefit assessments.

-Accelerating approvals of export licenses and LNG terminal plan

-Asking Congress to remove the ban on oil exports and directing the Secretary of Energy to use his authority to allow more exports.

-Approve the final leg of the Keystone pipeline.

-Make the Shale natural gas zones a true partnership with states where the federal government is primarily a source of information.

-Stop singling out the oil and gas industry for discriminatory tax proposals.

-Let renewables evolve as the technology and economic dictate by abandoning industrial policy initiatives that simply reward crony capitalists.

The natural gas market for transportation will evolve because of abundance and cost. Subsidies to accelerate it will only misallocate resources and produce unintended consequences. There are already signs that centrally fueled commercial vehicles are converting to natural gas because it makes good business sense to do so. Natural gas vehicles for personal use will take longer because of the size penalty imposed by natural gas tanks that have to be larger because natural gas is less dense than gasoline.

Proponents of natural gas for transportation can be expected to mount campaigns for infrastructure subsidies citing the chicken and egg argument. They conveniently ignore the fact that the gasoline infrastructure developed without the helping hand of taxpayer funds. So can the natural gas infrastructure. The “helping hand” of government incentives and subsidies will only make rent-seekers rich and create incentives to game the system. The market works, so let it.

This article appeared on the National Journal weblog at http://disqus.com/wokeefe/

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