Energy Abundance Is Possible And Europe Shows Us Why It Is Necessary

At 7.5%, the inflation rate is the highest it has been since the early 1980s. One of the biggest drivers of inflation is the rising cost of energy. The price of gasoline is up more than 40% since January of 2021, while fuel oil is up 47% and electricity is up 11%. Russia’s illicit invasion of Ukraine will only exacerbate these higher costs. But it does not need to be this way. America has the technology and resources to achieve energy abundance if we can get out of our own way.

Energy is a key input in every industry. It powers factories and construction equipment, heats and cools businesses, and fuels the vehicles used by Uber
UBER
drivers, long-haul truckers, and Amazon delivery vans. When the price of energy goes up it reverberates through the rest of the economy, affecting the prices of all other goods and services.

Since Russia’s invasion of Ukraine, prices of both Brent and West Texas crude oil have eclipsed $100 per barrel with more increases predicted. Gasoline prices are already over $4 per gallon in California, Oregon, Nevada, Washington, and Hawaii. Some analysts are predicting that the average gas price will eclipse the 2008 U.S. record of $4.11 per gallon sometime this spring.

High energy prices in America are a pain, but Germany is in a worse spot. In response to the invasion of Ukraine, Germany stopped its Nord Stream 2 gas pipeline project which would have made it cheaper to import natural gas from Russia. Russia accounts for half of Germany’s energy needs, so it must find alternatives in a hurry. It now plans to increase gas reserves and build two liquefied natural gas terminals, but that will take time.

German officials are also considering keeping three nuclear plants running, but their scheduled shutdowns may be too far along for that to happen. The reality is that Germany’s required shift in energy strategy is not going to happen overnight, and consumers are going to face high energy prices in the near term as a result.

America can avoid Germany’s predicament, but not without policy changes. Keeping energy costs low should be a priority, but too many policymakers take the availability of energy for granted.

On his first day in office, President Biden cancelled the Keystone XL pipeline after more than a decade of costly investment and planning. The pipeline would have transported 830,000 barrels of oil per day from Canada to refineries on the U.S. Gulf Coast while strengthening America’s relationship with a key ally.

Biden also quickly suspended new oil and gas leases on federal land and water. A U.S. District judge later overturned the order on a rulemaking technicality, but Biden is back at it. Another federal judge recently blocked the Biden administration’s change to how the costs and benefits of emissions are calculated, and in response Biden again paused new oil and gas leases and permits. In addition to the negative energy impacts, Louisiana and other states argue that such moratoriums harm workers and decrease state and local government revenue from oil and gas rents and royalties.

It is clear the Biden administration is not prioritizing energy abundance, but it is not the only barrier. Many states get in the way, too. New York banned fracking in its 2021 budget, and former governor Andrew Cuomo blocked construction of federally approved interstate gas pipelines. This not only prevents gas from reaching New York but hinders access for the rest of New England as well.

Natural gas is not the only energy source, of course, but it seems New York does not want to use anything. The nuclear plant that supplied 25% of New York City’s energy was closed last year for a variety of reasons. Instead of building a new one, the state planned to use natural gas in the short run before switching to hydropower.

Now the switch to importing hydropower from Canada is in jeopardy due to opposition from so-called environmental groups Riverkeeper and the Sierra Club. Their complaint? That creating reservoirs to power the turbines involves flooding areas containing bushes and trees, and over time this organic material decomposes and creates carbon emissions. Wow.

It is not just an aversion to fossil fuels that keeps America from lower energy costs. Too many obstructionists prevent us from building any energy projects. Environmentalists’ favorite energy source, solar, is routinely stymied. A few recent examples of this are in Kentucky, Montana, Indiana, and Oregon.

Wind projects are also frequently rejected or delayed. Robert Bryce recently collected data on over 300 wind projects from 2015 to 2021 that were rejected outright or restricted. Even a recently approved wind project off the coast of Massachusetts was fought by Nantucket residents supposedly worried about harm to whales.

Wind and solar can play a role in America’s energy policy, but more resilient sources are needed. Realistically, oil and natural gas will be important for the foreseeable future. Nuclear and geothermal are other viable sources that need to be scaled up.

Alas, the Nuclear Regulatory Commission—responsible for issuing licenses for nuclear plants—has a rejection rate of nearly 100%. Oklo Power’s application to build a new, cutting-edge small modular reactor was recently rejected due to “information gaps”. The application was 600 pages long. The inexperienced may think 600 pages should be enough, but the NRC’s guidance document for applications is around 4,500 pages.

A recently approved application from NuScale to build a less innovative nuclear plant clocked in at 12,000 pages. It also took NuScale more than 10 years and over $500 million to get certified by the NRC. Is it really a surprise that we cannot build more nuclear plants in America?

Of course, it is physically possible to expand the use of nuclear. China is doing it using American technology from Westinghouse. From 2016 to 2020 China built 20 nuclear power plants. It has another 17 under construction.

France, which already gets 70% of its electricity from nuclear, is also investing in more nuclear. President Macron recently announced plans to build 14 new-generation nuclear reactors as well as a fleet of small modular reactors.

When it comes to nuclear, America is falling behind due to a lack of will.

Geothermal is another route to energy abundance. Like nuclear—and unlike wind or solar—geothermal operates 24/7, so it avoids the intermittency problem. This means it is a reliable source of energy when the sun is not shining or the wind is not blowing.

Geothermal plants already exist—the Blue Mountain plant in Nevada has been operating for over a decade—but they are not as widespread as they could be. Simple policy changes, such as extending the permitting relief that gas and oil already get to geothermal drilling, would make it easier and less costly to expand the use of geothermal while increasing innovation through learning by doing.

Instead of focusing on the complicated red-tape, harmful regulations such as NEPA, cumbersome local zoning rules, or frivolous lawsuits that are the real culprits behind America’s energy problem, the Biden administration invoked the boogeyman of collusion, asking the FTC to investigate the gasoline industry for signs of illegal conduct.

This investigation is a distraction and shows how unserious the Biden administration is when it comes to energy policy. The price of oil is set on the international market and the profit margin on gas is tiny. Most gas station owners view gas as a loss leader, or a way to get people to stop to buy higher-profit items like soda, snacks, and alcohol from the accompanying convenience store.

So far, the Biden administration has been a disaster for America’s energy supply. But the situation in Ukraine may be forcing it to adjust. The deputy director of the National Economic Council recently asked for more domestic oil production.

Unfortunately, investment in expensive drilling projects has been declining, in part due to regulatory uncertainty, and any new projects would take months to come online. The Democrats’ record of hostility towards fossil fuels and the administration’s inability to address the real barriers holding back domestic energy production make new projects unlikely as companies have no reason to think they would be profitable.

In addition to the supply side problems, other nonsensical policies get in the way of American energy resilience. The Jones Act requires any shipment between U.S. ports to be on a U.S.-built, manned, flagged, and owned vessel. While there are defenders of the act, the downside is that it can make shipping oil or natural gas between U.S. states prohibitively expensive.

Hawaii imports several million barrels of oil from Russia because it is cheaper than bringing in U.S.-produced oil from the mainland.  The Jones Act also forces Boston to import natural gas from Russia rather than from refineries in Louisiana because there are no liquefied natural gas tankers compliant with the act. Such arrangements may have been tolerable two weeks ago, but things have changed, and policy must adjust accordingly.

America has the technological know-how and natural resources to drastically lower energy costs and insulate our energy supply from bad actors like Russia. Unfortunately, public policy is holding us back. Too many bad choices have been made over the years to turn things around immediately, but with the right policy changes we can unleash American innovation and achieve energy abundance and resilience in the not-so-distant-future. Now is the time to act.