Obama Must Drop Green For Real Energy

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WASHINGTON- In his State of the Union address tonight President Obama will call for more "investments" in green energy to help the economy, according to White House sources.

Green energy might create some jobs-the Labor Department counted 3.1 million green jobs in the U.S. economy last year-but it makes energy more expensive, raising utility costs for consumers. Instead, for economic growth, the president should focus on oil and natural gas.

To show the effects of oil and gas development on the economy, look no further than new data on the U.S. trade deficit, released on Friday. The Commerce Department showed the trade balance shrinking from $49 billion in November to $38 billion in December, the smallest in three years, mostly due to increases in petroleum exports and declines in imports.

This will likely turn fourth quarter GDP growth into positive territory, a reversal from the Commerce Department's announcement on January 30, when it was estimated that GDP growth shrank by one-tenth of one percent.

Due to new hydrofracturing (known as "fracking") technology, the oil industry set new records in December. Petroleum exports rose 9 percent from November to $12 billion, the highest on record, and imports declined 11 percent to $30 billion. Companies such as Shell, Valero, and Nobel Energy are expanding their plants or building new ones due to lower natural gas prices.

Electricity from natural gas, of which America has a 200-year supply, is less expensive than electricity produced from alternative fuels. The U.S. Energy Information Administration has estimated that the average levelized cost for natural gas-fired plants entering service in 2017 is $66 per megawatt hour, compared to $153 per megawatt hour for solar-powered plants, $96 per megawatt hour for wind power, and $115 per megawatt hour for biomass.
The bottom line: households have far higher electricity bills using alternative energy than natural gas.

This disproportionately affects low-income Americans, who spend a higher share of their income on energy. Data from Labor Department released last September show those in the lowest fifth of the income distribution spend an average of 24 percent of income on energy, compared to 10 percent of income for those in the middle fifth, and 4 percent of income for those in the top fifth.

Mr. Obama justifies the higher cost of renewable energy on the grounds that carbon emissions from fossil fuels raise global temperatures and causing global warming. However, the United States is only responsible for 16 percent of global carbon emissions, so cutting back on U.S. emissions will have only a minimal effect on global temperatures unless other countries join the effort.
But other countries are increasing emissions. China, India, and even Germany are expanding coal consumption, according to the International Energy Agency. Global coal use will rise by 1.2 billion tons in five years. "By 2017," according to a recent IEA report, "coal will come close to surpassing oil as the world's top energy source." Mr. Obama's reductions in U.S. emissions, with their associated costs, will just be a drop in the global coal bucket.

Department of Energy grants and loan guarantees have been notoriously unsuccessful in attempts to make alternative energy profitable. Of the 33 energy loan guarantees made since 2009 under the Energy Department's programs, 30, or over 90 percent, have shown signs of trouble. "Trouble" ranges from missed production goals to bankruptcy filings.

Of the companies that received loan guarantees, three have filed for bankruptcy so far (Solyndra, Abound Solar, and Beacon Power), two have reported operating losses (AREVA, Nevada Geothermal), at least one (Tesla Motors) has missed production goals, one (BrightSource) has cancelled its IPO, and at least 23 have struggled with poor credit ratings.

Of companies that received grants, three have filed for bankruptcy: A123, Ener1, and Evergreen Solar. Losses have been reported at grant recipients Ecototality and Smith Electric (which also cancelled an IPO). LG Chem's Compact Power has placed workers on rotating furloughs due to insufficient demand for lithium ion batteries. Energy Conversion Devices, which received a $13.3 million stimulus tax credit in January 2010, filed for bankruptcy in February 2012.

Manufacturers of green energy have a guaranteed market in the 38 states which have passed laws requiring utilities to produce a percentage of their electricity from renewables. The 12 states without renewable portfolio standards, which will have lower energy costs, include most southern states, as well as Idaho, Wyoming, and Nebraska.

Just one example: irrespective of cost, Pacific Gas and Electric has committed to buying all the power from BrightSource Energy, an Oakland, California, solar generation company which received a $1.6 billion loan from the Energy Department. The purchase is in order to fulfill California's requirement, signed into law by Governor Jerry Brown in April 2011, that 33 percent of electricity be generated by renewables by 2020.

Alternative energy is a loser for Californians, and residents of all other states with renewable electricity requirements, who must pay higher electricity costs.
Federal support of green industries in fiscal year 2012 was over $12 billion. Data from the Joint Committee on Taxation show $6.2 billion in tax breaks for green energy. In addition, $6.3 billion was spent on green energy purchases and grants.

Even the military has jumped on the green bandwagon. In response to pressure from the executive branch, both the Air Force and Navy have announced plans to get half their fuel from renewable sources by 2020. The Navy has paid $26 a gallon for biofuels, compared to $3.50 a gallon for traditional fuels. In 2012 the Air Force paid $59 per gallon for 11,000 gallons of biofuels. Even without the approaching sequester, this is a poor use of funds.

During a speech to House Democrats on Thursday at their retreat in Lansdowne, Virginia, Obama said he wanted to focus on "job creation here in the United States of America." If Mr. Obama wants job creation, that means oil and gas.

Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is senior fellow and director of Economics21 at the Manhattan Institute. Follow her on Twitter: @FurchtgottRoth.   

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