The Future of Energy Policy in 2017

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The economics worldview grounded in supply and demand for shale development is tempered by the salient question: Can we keep the current global financial system operating as we reach limits that are economic, geopolitical and price-driven in nature? This is a central question that the Trump Administration will face come January 20, 2017.

Also on the table:

  • Can the price of oil and other commodities be kept high enough?
  • Can the price of renewables provided by solar and wind trend low enough to replace or supplement the fossil fuel status quo?
  • Can we still keep the return on investment high enough to attract capital?
  • Can workers earn adequate wages to support higher energy prices and still buy necessary goods?
  • Will rising interest rates constrain debt access?
  • How will increasing inflation impact purchasing power and reconstruction of economic demand?

Often critical linkages are missed. Unless markets and companies remove barriers and offer near-term substitutes that replace energy products that are cheaper than currently available—without requiring a huge transition in machinery or infrastructure—the country is at risk for deep financial problems. Unbridled markets without socioeconomic balance or conscious and sustainable capitalism creatively destroy jobs via such innovations, increase debt burdens, and stretch the consumer’s ability to pay. This may also be part of the U.S. economic inequality and productivity decline in the past decade.

Global affluence seems to slow growth in OECD countries. Demographics and regulation fuel a lack of productivity (and increase costs) as more complexity with costs are shifted to the citizenry. Workers have less time to be productive in their jobs as shown since 2000. Monopoly and oligarchy concentrations in many U.S. industries foster suboptimal outcomes and inefficient rent transfers. These are reflected in predatory consumer pricing and price responses that exacerbate inflation and stranglehold economic principles.

Affluence can only be maintained with cheap energy—and it will likely not be from oil due to escalating production costs. And it will likely not be from coal because of environmental costs and other externalities. Nuclear is vulnerable to cost overruns of monumental risk and cost exposure. But time has shown that a strategy of cheap energy is short lived, and not based on values that endure.

Energy affluence can only be achieved with permanent value by efficiency, waste heat recovery, combined heat and power, demand-side management, building design efficiency, and/or increased supply diversity with renewables coexisting with nuclear. The role of natural gas will be to shape demand with an immediate supply of fuel for electricity. Government policy in the long-term is better served to cover the initial cost hurdles to facilitate the required energy transition.

Technology including energy storage, materials science, electrochemistry and IT solutions will optimize the end game and make a difference.

New business models and access to capital will be required to support this transition. This can only occur with regulatory reform and modernization that fuels market access to innovation and creative solutions that advance markets beyond the limits of the entrenched status quo.

The business opportunity is too great to not foster an all-of-the-above portfolio energy strategy that promotes innovation, technology, efficiency, and the value-added information delivered by it. These energy products and services have national value and export value that are not limited to the fuels themselves.

Otherwise, we will be stuck with 19th-century fuels, used in 20th-century infrastructure, wondering why we cannot compete and meet the escalating global challenges of the 21st century.

CE3 Blog by Michael J. Zimmer, Executive in Residence, Ohio University Russ College of Engineering and Voinovich School of Leadership and Public Affairs. Edited by Elissa E. Welch, CE3 Project Manager, Ohio University. January 2017.