More than Anticipated Less than Possible

Four years ago, if one were to predict that domestic oil production would reach a 19 year high in 2012 or that a natural gas boom would changing the shape of the economy, they would have been laughed at. President Obama’s ideology, and that of his appointees, has been hostile to fossil fuel energy. In spite of their opposition, domestic production is up, imports are down, and jobs and investment in the oil and gas industry are growing – all largely a result of affordable natural gas.

The purpose of looking back is to make clear the difficulty of predicting the country’s energy future, especially with so many variables that politicians don’t control and so many global unknowns that impact policy and investment decisions. Predictions are never easy, even more seldom correct, but that difficulty is much greater in today’s political environment.

Looking ahead, the future of energy policy could be bright, but probably not as bright as it could be. A lot will depend on the President’s real priorities, who he appoints to key agencies like the EPA, the Department of Energy, the Department of Interior, and to key White House positions. If he appoints individuals who realists – not ideologues – there is reason for some optimism. If, on the other hand, he appoints people who are zealots, individuals who operate like Lisa Jackson has, it is likely to be a rough four years of weak economic performance and unrealized domestic production.

What the President does about Keystone XL could be telling. Freed from having to cater to the environmental extreme, he should move ahead quickly to grant the long-delayed State Department approval. That would improve relations with Canada, help achieve greater North American energy independence, and help solve the storage and distribution bottlenecks that constrain the movement of domestic crude oil. Fracking regulations, federal leasing, and the previously proposed ozone standards will all act as bellwethers as well.

Based on the last four years, the best outcome is probably an environment that reflects the Hippocratic oath to first do no harm. During the President’s first term, leasing of federal lands was slowed-walked and the regulatory process was marked by excess. A roll back is out of the question, so the best hope for is nothing new. That again will depend on appointments and the President’s priorities.

Energy and environmental legislation are remote at best, although rationalization of major environmental laws is long overdue. What the Senate would pass, if anything, would be unacceptable to the House. And, what the House could easily pass, would be dropped into a black hole by Harry Reid.

As was seen on fiscal cliff negotiations, the White House and Congress simply can’t bargain and close a deal. If they can’t on something as important as taxes and spending, there is little reason to believe they could on energy and environmental issues.

As columnist Bob Woodward observed, we have a situation that is like permanently being in divorce course with no settlement on who gets the kids. More gridlock is the likely future for important legislation and especially energy and environmental legislation. While the President says he will not negotiate again on the debt ceiling, the House and Speaker may be willing to accept a default to get real spending cuts. Default has been made to appear more draconian than it is. Over the last four years, annual federal spending has increased $700 billion. If spending cannot be brought more in line with the pre-recession level going forward there is no hope for fiscal sanity any time soon. The point being made is that the default scenario would make bi-partisan agreement on other matters even more difficult.

The President has shown he knows how to win and get his way on what is important to him—healthcare and taxes—but he has not shown an ability to govern. Unless the White House adopts a different model going forward, we are likely to see an economy that underperforms because of uncertainty by the private sector, excessive regulatory burdens, and hostility toward fossil energy. The President may succeed in achieving an even bigger federal government that resembles the social-democrat model of Europe but the long term consequences will not be rewarding.

This article appeared on The National Journal’s Energy Experts weblog athttp://energy.nationaljournal.com/2013/01/whats-ahead-in-2013-for-energy.php

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