“Voters want action on energy,” one congresswoman told The Washington Post. “They don’t really care how much it costs.” A Democratic president was on the verge of signing “the most important energy legislation in a decade,” with tens of billions of dollars dedicated to jump-starting a cleaner alternative to fossil fuels and helping the United States achieve “energy independence.” For too long, most analysts agreed, America had put off the hard choices necessary to prevent the next oil shock and wean the country from petrodictators in the Middle East. Now was the time for bold investment and leadership from Washington.
The year was 1979. At the time I was a low-level regulator in President Jimmy Carter’s Federal Energy Regulatory Commission. It was a boring agency, but I got to work in its most exciting division: the special cases branch dealing with exotic new sources of power. From that perch I witnessed firsthand the sad, expensive, and now-forgotten saga of the Great Plains Coal Gasification Plant in Beulah, North Dakota. Like many projects being discussed in Washington today, Great Plains was hailed as the vanguard of a new domestic alternative to foreign oil.
In 1979, as lines at gas stations snaked for blocks, the House of Representatives, by a vote of 368 to 25, created the U.S. Synthetic Fuels Corporation, an “independent” federal entity charged with creating new fuel sources by spending $20 billion in seed money ($57 billion in 2009 dollars) during its first five years. Originally, the Synfuels Corporation was projected to spend $88 billion ($250 billion in today’s dollars) over 12 years to build the capacity to produce the equivalent of 1.5 million barrels of oil per day from coal.
That was just one element of Carter’s ambitious energy plans. In July 1979 he announced, “I will soon submit legislation to Congress calling for the creation of this nation’s first solar bank, which will help us achieve the crucial goal of 20 percent of our energy coming from solar power by the year 2000.” In 1980 Congress authorized the Department of Energy to spend $1.3 billion on ethanol research and loans to produce fuel for automobiles. In May of that year, Carter declared, “For the first time in our nation’s history, we will have a national energy program to put us on the road to energy security. It’s more ambitious than the space program, the Marshall plan, and the Interstate Highway System combined.”
Sound familiar? During the 2008 presidential campaign, Democratic candidate Barack Obama declared almost daily that developing new energy sources and breaking our addiction to foreign oil would “take nothing less than a complete transformation of our economy.” He explicitly compared his plan to putting a man on the moon and building the Interstate Highway System.
President Obama has not forgotten candidate Obama’s promises. In a February address to a joint session of Congress, the president boasted: “Thanks to our recovery plan, we will double this nation’s supply of renewable energy in the next three years. We have also made the largest investment in basic research funding in American history.” Obama promises to create 5 million new jobs by investing $150 billion in clean energy technologies during the next 10 years. He also aims to put 1 million plug-in hybrid electric vehicles on America’s roads by 2015, promising buyers a $7,500 tax credit. Even more ambitiously, 25 percent of our electricity supposedly will come from renewable sources such as wind, solar, geothermal, and biomass by 2025. To tie a ribbon on the alternative energy package, the president asked Congress to impose a cap-andauction scheme to reduce greenhouse gas emissions 80 percent by 2050.
Will such policies produce the promised results? They didn’t three decades ago.
After Carter’s equally ambitious moves, global oil prices dropped like a rock. The deregulation of natural gas led to vast new fossil fuel supplies, and abundant stocks of cheap coal kept electricity humming down transmission lines. Meanwhile, the federally funded Great Plains Coal Gasification Plant, on which I worked, became the largest construction project in the United States, costing $2.1 billion ($5.3 billion in today’s dollars) to build. The plant was supposed to convert coal into 125 million cubic feet of natural gas per day, an amount equal to about 20,000 barrels of oil. Instead, by 1984, as the price of natural gas continued to fall, Great Plains went into bankruptcy. It was eventually sold in 1988 to a local electric cooperative for $85 million—a little more than 4 cents on the dollar. The $2.1 billion the plant cost to build, if invested in bonds, would have grown to about $8.4 billion by 2009. Instead, Congress disbanded the Synthetic Fuels Corporation in 1986, the money irretrievably lost.
History teaches us that the government is not very good at getting the results it intends when it intervenes in complex markets subject to violent price fluctuations. And unfortunately for Obama’s Carteresque agenda, Washington also has a poor track record when it comes to alternative energy research and development.
Whistling Past the R&D Graveyard
Obama has promised to “invest” $150 billion in new energy research and development during the next 10 years. “To truly transform our economy, protect our security, and save our planet from the ravages of climate change,” the new president declared in his February address to Congress, “we need to ultimately make clean, renewable energy the profitable kind of energy.” What he presented as bold new policy has a long and decidedly untransformative track record. The main difference in 2009 is that an unfounded fear of depleting global resources has been replaced with an exaggerated fear of global warming.
Since 1961 the federal government has spent nearly $187 billion (in current dollars) for the development of advanced energy technologies and basic energy science research. About a quarter of the funds were spent during the oil crisis of the 1970s. According to an October 2008 report by the Department of Energy’s Pacific Northwest National Laboratory, $66 billion of that $187 billion has been spent researching nuclear energy, $65 billion on basic energy science, $28 billion on fossil fuel research and development, and $28 billion on renewables and conservation.
A comprehensive September 2008 report by the economic research firm Management Information Services, commissioned by the pro–atomic power Nuclear Energy Institute, slices the government’s energy-spending pie into slightly different portions. In addition to direct research and development spending, the report documents how the feds have used tax incentives, mandates, and regulations to steer energy production since 1950. During those six decades, the paper’s authors found, the oil industry received federal incentives worth $352 billion in current dollars, mostly in the form of tax breaks and regulatory relief (e.g., exemptions from price controls). Natural gas got about $105 billion, coal $99 billion, hydroelectric $84 billion, nuclear $68 billion (minus $15 billion assessed for nuclear waste storage), and renewables $47 billion.
Did all this “investment” in energy pay off? Not according to Robert Fri, a former deputy administrator of both the Environmental Protection Agency and the Energy Research and Development Administration. In the Fall 2006 Issues in Science and Technology, Fri, now a visiting scholar at the D.C.-based think tank Resources for the Future, noted that a “mere 0.1 percent of the expenditure accounted for three-quarters of the benefit.” Three unsexy programs—developing energy-efficient windows, electronic ballasts for fluorescent lighting, and better refrigerators—converted $13 million in spending into $30 billion in benefits, according to a National Research Council study cited by Fri. “Threequarters of the expenditure—a little over $9 billion—produced no quantifiable economic benefit,” he concluded. “Half of this money was applied to synthetic fuel projects that turned out to be at least a couple of decades premature.” As Fri told Chemical & Engineering News last year, “The government is very good at starting energy projects that it believes will solve energy problems, but it is not very good at generating the intended results.”
Yet Washington has gone on an energy project binge. In December 2007, Congress passed and President George W. Bush signed the Energy Independence and Security Act, which raises corporate average fuel economy standards from 27.5 miles per gallon to 35 miles per gallon by 2020, mandates that the U.S. produce 36 billion gallons of conventional and “advanced” biofuels by 2022, bans most incandescent light bulbs by 2014, and establishes the $25 billion Advanced Technology Vehicles Manufacturing Incentive Program to help retool legacy U.S. auto companies to manufacture more-fuel-efficient cars.