The Five Main Obstacles to Energy Policy

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"A 'drill, baby, drill' approach will not wean the country from an almost exclusive reliance on traditional energy. Nor is it as simple as passing the magic wand of government subsidies. It most definitely is not going to be business as usual."

Marina and I got to come home to Pittsburgh for a few days. But by the time you read this, we'll be in the Bahamas.

Upon returning from our stay in Germany, some developments in the U.S. struck me.

President Obama said he aims to create advisory groups to explore regulations for natural gas drilling and usage. Republican candidate Mitt Romney outlined his energy policies in Pennsylvania just last week.

These moves signify one thing: This presidential campaign is in full swing, despite the conventions being months away.

Now I have talked about the need for a national energy policy for some time.

As with the problems confronted in Europe and highlighted last Monday, such a policy has significant barriers. . .there and here.

And while the incumbent and his expected challenger are both beginning to lay down how each sees the energy sector, it's not going to be a simple task.

Quite the contrary.

Weaning the country from an almost exclusive reliance on traditional energy is not simply a "drill, baby, drill" approach to more shale gas and oil.

Nor is it as simple as passing the magic wand of government subsidies over otherwise cost-prohibitive alternatives.

It most definitely is not going to be business as usual.

With each step, infrastructure challenges will emerge. In addition, lifestyle changes will accompany the transitions to come, with concerns over higher costs and their impact on a still-precarious economic recovery.

America may wait a little longer—especially as we move into the election cycle requirement that all complicated questions be "resolved" in a 30-second commercial or campaign sound bite.

The democratic process, whereby citizens choose their leaders, may well be the best political system ever devised. But it creates a terrible environment in which to make genuine policy. It seems we cannot satisfy more than one important objective at a time.

The longer we wait, of course, the more difficult this is going to be.

In fact, revising the U.S. energy base is going to be the most expensive, painful, gut wrenching and divisive exercise in recent history. Having always based our economy on cheap energy (first timber, then coal and, until recently, crude oil), we are now going to face a different mix where price will be an ongoing concern with broad-market implications.

But with all the changes that are going to come in energy sourcing, distribution and balance, and processing and trading, something else will be fundamentally changed.

Ourselves.

We delay at our own peril.

Two developments will happen this summer that will finally start the energy change in motion.

First, the price of oil will be rising—and fast.

Second, the two guys who want to be the "leader of the free world" will be obliged to set an agenda in response.

Therefore, let me present up front what I see as the five major impediments to a national energy approach. What we need will have to be structured over time, incrementally at first, and then more aggressively as the problems develop.

But the negatives will be unfolding right along with the policy commitments.

These are also five of the reasons why political leaders who need to be reelected shy away from the truly difficult decisions.
  1. There can be no energy policy of consequence without some people, regions, industries, or special interests getting hurt. This cannot be a win-win scenario. Usually, the political solution has been to divide the pie. That will still happen, but some slices will be bigger than others will, and some will not get any "pie" at all.

  2. Costs will be rising across the board. It makes no difference which energy sources we choose. It will feature rising extraction/processing/delivery costs, require taxpayer support or sacrifice some employment and business prospects for others. All of these results take money from just about everybody's wallet. The second problem leads directly to the next consequence.

  3. It is impossible to introduce the revisions needed in a national network without experiencing protracted periods of dislocation. This will hardly be a seamless process.

  4. We are going to run the risk of undermining our traditions of personal worth, dignity, purpose and importance. The idea of self-reliance, so immortalized in the paintings of Normal Rockwell and so admired by others throughout the world, will come under intense pressure.

  5. The major threats from the entire exercise may be human in consequence.

I have saved the most contentious for last.

It makes no difference where you are on the political spectrum. You can be a liberal, conservative, libertarian, middle-of-the-roader, libertine or for that matter a vegetarian. After the smoke clears, there will be one guaranteed result. A national energy policy that is worth the time, money, frustration and sweat required will end up permitting more government authority. It is impossible to forge a new national approach without centralizing the functions.

I have repeatedly made the point that we need a broader mix of energy than is currently available. The single biggest mistake is searching for the silver bullet to replace crude oil.

We are not in a zero-sum game here.

What we need is more guaranteed sources from genuinely different energies with one important ingredient—the ability to exchange alternative types of energy for the same end need, like vehicle fuel, for example.

There will be some regional variations that could be encouraged to exploit local availabilities, preferences and needs.

Oil, coal and nuclear will remain in the mix, along with a widening reliance on gas and a range of renewables, from solar and wind through geothermal, biofuels, kinetic and tidal power, algae and biomass.

That could leave some room for local and state variations.

But make no mistake.

There will have to be standardized regulations and an attention to the truly national picture generated from thousands of local requirements.

And that is government, warts and all.

So take a deep breath.

This is going to be a very long swim.

Sincerely, Kent

Kent Moors, Oil & Energy Investor

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