Hydraulic Fracturing is Bankrupting OPEC

The Energy Information Administration (EIA) is out with new numbers measuring the geopolitical impact of America’s domestic energy boom. As the following chart shows, revenues from net oil exports for the Organization of Petroleum Exporting Countries (OPEC) are expected to decline by 14 percent in 2014 and 46 percent next year compared to 2013 levels.

EIA OPEC

In 2015, OPEC countries (excluding Iran) will earn $375 billion less in net oil revenues than they did just two years ago, according to EIA. The dramatic change is due in large part to the plummeting price of crude oil. Brent crude, a key international benchmark, has fallen below $60 per gallon from more than $100 just a few months ago.

Oil prices are sliding largely as a result of booming production from U.S. shale plays. Domestic oil output eclipsed 9.1 million barrels per day this month—the most oil we’ve pumped in almost three decades and a 78 percent increase since January 2008. (The ability to extract oil and natural gas from dense shale rock formations is a recent phenomenon made possible by innovations in horizontal drilling and hydraulic fracturing occurring on state and private lands—energy production is actually down on federal lands).

America’s energy renaissance is upending world energy markets and freeing us from the yoke of OPEC. Producing more energy domestically allows us to import less from volatile regimes. It also means OPEC, a once-feared cartel, no longer wields the power to dictate international oil prices. That strengthens our energy security abroad and benefits American families at home.

Let the Golden Age of Oil Continue

“No one would have predicted it. To the contrary, experts predicted the opposite. In 2008, the International Energy Agency was projecting U.S. production would decline or remain flat for decades. Prior to the recession, the price of oil peaked at nearly $150 a barrel, and with global demand rising, it looked like it would remain at an elevated level forevermore.”

Rich Lowry, National Review

As Yogi Berra once said, “It’s tough to make predictions, especially about the future.” In the case of the well documented “peak oil” phenomenon, it would appear he was dead on.

Since June of this year, crude oil prices have fallen by about $40 per barrel – or more than 35 percent. Yet American oil production continues to rise.

IER-U.S.-Oil-Production-Growth copy

Domestic oil production has increased by 14% since July of last year – while rising by an unprecedented 71% since 2008. Over Labor Day weekend, American consumers on average enjoyed the lowest gasoline prices seen in four years. And they’re only getting lower.

America’s oil revolution has been met with considerable doubt, much like any improvements in American energy production that don’t rely on subsidies or green propaganda to succeed. These naysayers contend that falling oil and gas prices will make new production unprofitable, forcing companies to slow their operations.

Yet if the innovations responsible for America’s energy renaissance are any indication, improvements in efficiency will allow her golden age of oil to continue.

America’s energy boom can almost entirely be attributed to technological innovations in hydraulic fracturing and horizontal drilling. Fracking alone saved American consumers nearly $248 billion just last year. And while civil unrest and anti-American terrorists seem to dominate the headlines in some of the world’s largest oil-producing countries, American production has managed to keep the world’s crude oil prices in check.

With proved oil reserves continuing to rise in 2013 and efficiency improvements undoubtedly on the horizon, we can confidently look forward to a better future thanks to America’s traditional energy.

Christmas Comes Early for Big Wind

WASHINGTON — American Energy Alliance President Thomas Pyle issued the following statement on the Senate approving an extension of the wind Production Tax Credit (PTC):

“Christmas came early for wind industry lobbyists courtesy of the United States Congress. By passing a retroactive extension of the wind Production Tax Credit, Congress is taking money out of the pockets of hardworking Americans to stuff the stockings of foreign corporations and wealthy investors. Moreover, the PTC is integral to President Obama’s climate agenda, which will stick American families with higher energy costs.

“We look forward to working with the new Congress to unwind this culture of cronyism that is embodied by handouts like the wind PTC. The new Congress should resist Big Wind’s enticements and reject any attempt to extend the wind PTC.”

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IER Co-Signs Free Market Coalition Comment on EPA’s Power Plant Rule

In addition to submitting our own formal comment on EPA’s proposed carbon dioxide emission rule for existing power plants, IER has co-signed a free market coalition comment written by Marlo Lewis of the Competitive Enterprise Institute (CEI). The CEI coalition comment finds EPA’s power plant rule to be, “illegitimate and unlawful.” The comment explains that the “implementation costs are likely much greater than EPA estimates. It will increase electricity prices and raises reliability concerns. Its putative climate benefits are illusory. This regulation should be withdrawn.” Here are the main points from the comment:

EPA’s Rule is Illegitimate

The EPA’s climate rule is an egregious example of executive overreach. Federal agencies are not allowed to make laws, only enforce them. But as the coalition comment explains, EPA’s rule “stretches CAA §111(d) beyond all recognition. The provision does not authorize EPA to restructure state electricity markets, revise state electricity policies, or establish statewide caps for CO2.” As such, the rule is unlawful and should be withdrawn.

The Rule is Unlawful

There are many reasons the plan is illegal under the Clean Air Act, including the following:

  • EPA’s Pollution Standard rule–the legal prerequisite for the climate rule–is unlawful because it requires Carbon Capture Storage technology which is too expensive for economical use and has not been “adequately demonstrated” as the law requires.
  • CAA section 111(d) (the section the climate rule is under) does not allow for double-regulation of sources that are regulated under another section of the CAA. For instance, many power plants are already subject to emission regulations under the Mercury Air Toxics Standard (MATS).
  • A state’s electric power sector is not a specific “source” of emissions and therefore a performance standard cannot be set for an entire state, as EPA has proposed.
  • The CAA calls for regulated entities to employ the “best system of emission reduction” (BSER). This requirement does not authorize EPA to dictate state policies regarding renewable energy, electricity dispatch, or demand management.
  • Section 111(d) was intended for “highly localized” pollutants, not widespread air pollutants that are typically covered under the NAAQS program. As CEI puts it, “Carbon dioxide emissions are the most ubiquitous byproduct of industrial civilization.”
  • Performance standards are intended to improve performance by reducing emissions per unit of output, not reduce emissions by limiting production like the climate rule does by shuttering coal plants.
  • This rule for existing sources is more stringent than the rule for new sources and regulated entities not covered in the rule for new sources, neither of which are permitted under the CAA.
  • EPA claims it has authority to enact state renewable mandates, fleet dispatch policies, or rebates for programmable thermostats if states to not come up with an “adequate” state implementation plan.
  • EPA’s top-down approach conflict’s with states’ local knowledge to propose standards they consider achievable.

The Rule Infringes on States’ Rights and Citizen Choice

Competition among states gives citizens the option to vote with their feet and leave states with unpopular policies. According to CEI, “By penalizing excessive taxation and overregulation, interstate competition for the talents, assets, and allegiances of citizens may also restrain politicians in states with poorly performing economies…”

A 2014 report titled “Rich States, Poor States” found that “10 states with the cumulative net in-migration also have electricity prices at or below the national average, whereas seven of ten states with the greatest cumulative net out-migration have higher-than-average electricity rates.” This shows how important electricity prices are in promoting a competitive economic atmosphere.

EPA claims states are granted ample “flexibility” under the climate rule. However, the only “flexibility” the states are given is whether they want to get punched in the face or hit over the head. Furthermore, the climate rule guarantees that states choose more regulation over less regulation.

The Climate Rule will Increase the Price of Electricity and Decrease Reliability

The proposed rule will raise the price of electricity by forcing states to replace economical coal capacity with more costly and less reliable renewable generation. Still, EPA states that even though electricity rates will rise, electricity bills will go down due to improvements in energy efficiency. The comment cites the Virginia State Corporation Commission (SCC) staff, which is in charge of regulating utility prices in Virginia, because they believe that this is a highly unrealistic scenario. Specifically SCC staff said:

Contrary to the claim that ‘rates will go up, but bills will go down,’ experience and costs in Virginia make it extremely unlikely that either electric rates or bills in Virginia will go down as a result of the Proposed Regulation.

Finally, by prioritizing intermittent renewable sources of energy above reliable ones, the proposed rule will make it more difficult to balance the amount of electricity demanded by consumers with the amount of electricity generated–a difficult task that must be performed in real time. In short, it decreases the reliability of our grid.

The Climate Rule’s Benefits Are Illusory

The Climate rule does not have a sizable impact on climate change–the very problem it is supposed to mitigate. EPA’s own model shows that the rule will produce less than a 0.02 degree Celsius change in global temperature by 2100. This is “…too small to have any discernible impact on sea-level rise, weather patterns, polar bear populations, or any climate-related variable people care about.”

EPA Should Withdraw the Rule

This rule is illegal. It lacks the support of the American people. It imposes excessive costs and only produces illusory benefits. The rule artificially increases the cost of energy from energy sources in hopes that that will finally make renewables more competitive, and it leaves Americans with the enormous price tag. Given this evidence, the EPA should withdraw the rule.

EPA Torture Report

EPA torture 600 AEA

Whether it’s the costliest regulation in history or the coal-killing power plant rules (that Obama’s law professor says raise “constitutional questions”), it’s clear that the CIA isn’t the only government agency engaged in torture. At least the CIA isn’t torturing Americans.

United Nations: Earth ‘Has a Fever,’ Reliable Energy is the Virus

Does the UN think humans are a disease infecting the Earth? As Bloomberg reports:

UN Secretary-General Ban Ki-moon stepped up his call for all nations rich and poor alike to fight global warming, seeking to break a dispute over which should move first to rein in fossil-fuel pollution.

Speaking as senior ministers arrived at a United Nations gathering of envoys from 190 countries, Ban expressed alarm that the world isn’t moving quickly enough on the issue.

Our planet has a fever and it is getting hotter every day,” Ban said at a press conference in Lima today. “We can no longer afford to burn our way to prosperity. We must take action now. The more we delay, the more we will have to pay.” [emphasis mine]

His admonition is revealing. As any parent knows, fever is the body’s natural defense mechanism against infection. It is our immune system’s response to invading bacteria and viruses that would do us harm.

By Ban’s logic, reliable energy is a virus triggering Earth’s “fever.” He is arguing that most of the energy we use—natural gas, oil, and coal—emits carbon dioxide and raises the planet’s temperature. That makes mankind’s energy use deleterious to Mother Nature, in the same way a virus makes us sick.

What would it take to abate Earth’s “fever”? Ban’s solution is to decrease carbon dioxide emissions by increasing energy efficiency standards (use less energy) and replace inexpensive and reliable energy (natural gas, oil, and coal) with expensive and unreliable sources (wind and solar).

Unfortunately, Ban’s cure is worse than the disease. Access to reliable energy is strongly correlated with human health and prosperity. As we explain here, energy access is consistent with higher life expectancy, lower infant mortality rates, and improved access to sanitation facilities.

It should come as little surprise, then, that developing nations like China and India are reluctant to take Ban’s medicine. Global energy demand is projected to increase 37 percent by 2040, according to the International Energy Agency, driven largely by developing countries. IEA expects affordable and reliable supplies of natural gas, oil, and coal—not Ban’s preferred sources—to meet most of that demand. Those fuels will save lives and lift millions of people out of poverty.

World leaders should reject the notion that reliable energy is tantamount to a virus. Affordable and reliable energy makes people’s lives better by providing a critical building block to escape poverty and lead better, cleaner, and more prosperous lives.

ThinkProgress Makes the Case for Coal

In a recent ThinkProgress blog post, Joe Romm makes a stunning admission—he believes that zero carbon sources such as wind and solar will never be “significantly cheaper than existing coal power” in “a timescale that could matter to humanity.” That’s why the point is to increase the cost of using coal, natural gas, and other carbon dioxide-emitting sources through taxes or regulation.

Romm’s comments come as a critique of Google engineers who figured out that their RE<C project (a project to make renewable energy less expensive than coal) “simply won’t work.” Here’s an excerpt from Romm’s piece:

Google’s goal was aimed at developing renewable sources that were simultaneously cheaper than existing coal-fired power plants — and dispatchable, too! Although Google’s RE<C website and 2007 news release don’t clarify the matter, the Google engineers say they were focused on research into “how a new energy technology could perform … a lot more cheaply than an existing coal-fired power plant already does.”

I point this out mainly because the goal of getting a new carbon-free energy technology to market at a price significantly cheaper than existing coal power … is widely believed to be impossible in a timescale that would matter to humanity. [Romm’s emphasis] Back in the mid-1990s, I helped run what was then the largest R&D program in the world for developing carbon-free energy technology at the Department of Energy. I never met anyone there or in the past two decades with any actual R&D experience who ever thought such a goal was either plausible — or necessary.

After all, if you have already bought and paid for a coal plant (or indeed any fossil fuel plant), the cost of operation is mostly the cost of extracting and delivering fossil fuels. How precisely could some new carbon-free power plant built entirely from scratch possibly be as cheap as that, let alone be “vastly lower” in cost (let alone be both cheaper and dispatchable)? Answer: It probably couldn’t — certainly not in the short 4-year window Google gave the effort.

That is why pretty much every serious technology and policy analyst in the world has written that if your goal is to avoid catastrophic warming, you need some price on carbon or some regulatory policy that helps speed the shut down of coal plants before the end of their theoretical lifetime. [emphasis added]

In other words, the goal of promoting and subsidizing green energy is not to make it cost-effective–Romm believes it will not be cost effective in any timescale that matters. Instead, Romm and his travelers want to increase the cost of the cost-effective and reliable energy that we use.

The problem is that energy is the lifeblood of modern society. It gives us light, heat, and the ability to do work in ways that were unimaginable in generations past. Driving up the cost of this energy will harm all Americans, especially lower income Americans.

Travis Fisher and Alex Fitzsimmons authored this post.

Hydraulic Fracturing Moratorium Is Holding New York Back

The Energy Information Administration recently announced that U.S. proven natural gas reserves were at the highest point of all time. This is great news, but there is one glaring problem—New York.

From 2012 to 2013, proved natural gas reserves increased by 10 percent, even as U.S. natural gas production broke records.

Pennsylvania led the way with an increase of 13,535 billion cubic feet of new proven natural gas reserves. This is because of the Marcellus and the Utica shales, which underlie Pennsylvania, West Virginia, Ohio, and New York.

Natural Gas Proved Reserves Map

This is all great new, except one thing—New York’s proved natural gas reserves fell even as Pennsylvania, West Virginia, and Ohio’s natural gas reserves dramatically increased. The reason has nothing do to with the geology or the actual resources in the ground, but everything to do with politics. New York has a moratorium on large scale hydraulic fracturing—the technology that is driving these large increases. As a result, New York’s proved natural gas reserves are falling while their neighbors are increasing. That’s too bad for New York’s consumers and underemployed, who could be enjoying the economic benefits of energy production from shale deposits if politics could stop keeping them from going to work and paying less for their energy.

Marcellus Shale Play

New York’s falling proved natural gas reserves shows that geology is important, but geology is meaningless when politicians prevent people from looking what is underneath their own lands. It’s a shame when anti-energy politics hurts real people, like it does in New York.

Comments Show Flaws with EPA’s Proposed Power Plant Rule

On Dec. 1, the public comment period closed for the Environmental Protection Agency’s (EPA) proposed carbon dioxide emissions rule for existing power plants. EPA received more than 1.4 million comments on the proposal, which the agency expects to finalize by next summer in accordance with President Obama’s “climate action plan.”

We’ve compiled a survey of comments that highlight the numerous flaws with EPA’s proposed rule. The comments explain the rule’s dubious legal basis, questionable science, enormous economic costs, and negligible climate benefits.

Institute for Energy Research: “EPA’s proposed guidelines for carbon dioxide (CO2) emissions from existing stationary sources are fatally flawed. The rule violates the language of the Clean Air Act; it arbitrarily and capriciously imposes emission reduction goals with no analysis from EPA on the actual warming impacts; it is not supported by the American people nor Congress; it will drive up electricity prices; and it will threaten the stability of the electricity grid.”

IER finds that a combination of EPA rules, including the CO2 rule for existing power plants, threatens to close 72 gigawatts of reliable electricity generation, mostly from coal-fired power plants. For perspective, 72 GW is enough to power every home in every state west of Mississippi River, excluding Texas. In the following map from IER’s comment, red dots show power plant closures since 2000, while yellow dots indicate projected power plant closures:

Screen Shot 2014-12-09 at 12.18.09 PM

Marlo Lewis, Competitive Enterprise Institute, et al: “The [Clean Power Plan] is illegitimate and unlawful. Its implementation costs are likely much greater than EPA estimates. It will increase electricity prices and raises reliability concerns. Its putative climate benefits are illusory. The regulation should be withdrawn.”

CEI explains that EPA’s cost estimates are “implausibly low.” EPA claims nationwide compliance costs of $7.3 billion to $8.8 billion in 2030. Yet the Virginia State Corporation Commission estimates that just one electric utility—Dominion Power—will be forced to spend at least $5.5 billion to meet the state’s emission reduction target imposed by EPA.

The true costs are likely much higher. For instance, NERA Economic Consulting finds that EPA’s rule will cost states $41 billion in 2030 and $336 billion over 15 years.

Professor Laurence H. Tribe and Peabody Energy Corporation: “The Proposed Rule should be withdrawn. It is a remarkable example of executive overreach and an administrative agency’s assertion of power beyond its statutory authority. Indeed, the Proposed Rule raises serious constitutional questions.”

Tribe’s analysis is especially damning considering he was President Obama’s law professor at Harvard Law School. Although Tribe has described the president as “the best student I ever had” and supported his presidential campaigns, the professor gives Obama’s climate rule a failing grade for its open flouting of the Constitution.

Patrick J. Michaels and Paul C. Knappenberger, Cato Institute: “We demonstrate that the EPA’s proposed rule would result in no net benefits from avoided negative environmental effects as the environmental impacts of the proposed rule are negligible and scientifically undetectable.”

Michaels and Knappenberger focus on the scientific basis of EPA’s proposal. One interested finding, as highlighted below using EPA’s own models, is that EPA’s power plant rule will have a negligible impact on global temperatures, despite the fact that the whole point of the rule is to combat global warming.

Global Temp Rise EPA Reg

U.S. House Committee on Science, Space, and Technology: “This proposal mocks our constitutional framework and subverts the rule of law. The brazen arrogance with which this Administration is steamrolling through such an arbitrary and capricious regulation is a breathtaking affront to the American people.”

The House Science Committee’s comment devotes much space to the “crude technical assessments” EPA uses to justify its rule. These technical flaws include an “inadequate peer review” process to determine the scientific basis of the rule, “systemic biases and major omissions” in EPA’s cost-benefit analysis, and “incomplete modeling” that “disregards a number of technical, regulatory, and economic realities.” The Committee calls on EPA to “abandon this proposal.”

William Yeatman, Competitive Enterprise Institute: “As explained above, the EPA is required to address the Clean Power Plan’s incompatibility with its underlying implementing [regulations], by either amending or rescinding 40 C.F.R. §60.22(b)(5). In so doing, the agency is required to conduct a legislative rulemaking and also to provide a “reasoned analysis.” Until such actions are performed, the Clean Power Plan’s inconsistency with the §111(d) implementing regulations evidences arbitrary and capricious decision making by the EPA.”

Like several commenters, Yeatman points out how EPA’s proposal violates congressional intent under the Clean Air Act. Yeatman uniquely points out how EPA is also running afoul of its own regulations. As he puts it, instead of following its own implementing regulations, Yeatman shows that EPA is opting for a “stark change in course” that leaves its rule “impermissibly inconsistent with its underlying regulations.”

American Coalition for Clean Coal Electricity: “The proposal is exorbitantly costly, poses a serious threat to electric reliability, and will have no meaningful effect on global climate change. For these reasons, EPA must withdraw the proposed Clean Power Plan in its entirety.”

ACCCE’s comment highlights the sheer magnitude of EPA’s proposal. As aforementioned, NERA finds that the rule could cost $366 billion or more. It will also impose double digit percentage electricity prices increases on residents of 43 states. The following table from ACCCE’s comment breaks down electricity rate increases by state:

ACCCE Price By State

American Chemistry Council, et al: “The Associations strongly oppose EPA’s approach in the proposed ESPS both because of the irreparable harm it will cause to electricity generation, reliability, and costs—if not to the economy as a whole—and because of the extraordinary precedent that EPA is proposing to create.”

This comment comes from “the nation’s leading energy, agriculture, and manufacturing sectors.” In it, the authors argue that EPA’s “extraordinary precedent” is to hold electric utilities “liable for unrelated actions and actors beyond the fence line of those facilities.” Historically, under the Clean Air Act utilities were only “accountable for actions specifically at their facilities and their facilities only.” The comment represents the unified voice of opposition from U.S. manufacturers.

Obama’s Law Professor Flunks President on EPA Climate Rule

In response to the Environmental Protection Agency’s (EPA) proposed carbon dioxide rule for existing power plants, Americans submitted millions of public comments ranging from technical tomes to angry missives. Perhaps no comment stood out more than that of Harvard Law Professor Laurence H. Tribe.

President Obama studied under Professor Tribe as a student at Harvard Law School in the late-80s. Tribe has described Obama as “the best student I ever had” and supported his presidential campaigns.

Despite his adulation for President Obama, Tribe is less impressed with his former student’s respect for the rule of law. In comments co-authored by Peabody Energy, Tribe gives the EPA low marks for violating the Constitution. As Tribe puts it:

The central principle at stake is the rule of law—the basic premise that EPA must comply with fundamental statutory and constitutional requirements in carrying out its mission. The Proposed Rule should be withdrawn. It is a remarkable example of executive overreach and an administrative agency’s assertion of power beyond its statutory authority. Indeed, the Proposed Rule raises serious constitutional questions.

Tribe explains that EPA is fundamentally misinterpreting a key section of the Clean Air Act (CAA) to suit its agenda. Essentially, EPA claims that the 1990 amendments to the CAA created two separate versions of Section 111. Given this perceived “ambiguity,” EPA has assumed the discretion to “pick and choose” how it interprets the statute.

As Tribe explains, “EPA acknowledges that a ‘literal’ application of Section 111(d) would preclude the Proposed Rule” but EPA proposed the rule because of an ambiguity between various versions of section 111. But as Tribe further explains, “EPA makes no effort to identify anything that would normally be described as an ‘ambiguity’—namely, the existence of more than one possible meaning in the language that appears in a statutory provision enacted by Congress, a provision that all accept as the starting point for analysis.”

EPA’s power grab “raises grave constitutional questions,” according to Tribe, who goes on to detail how EPA’s rule runs afoul of the Constitution’s Article I, Article II, the Fifth and Tenth Amendments, and separation of powers.

In addition to violating the Constitution, EPA’s climate rule will impose enormous costs and have almost no impact on climate change. The proposed rule could cost at least $366 billion, with residents in 43 states seeing double-digit percent increases in their electricity bills, according to a recent report by NERA Economic Consulting. For all that pain, the rule is expected to reduce global carbon dioxide emissions just 1.5 percent by 2050.

Even if you support EPA’s goals, you should question the agency’s methods. Tribe concludes:

At bottom, the Proposed Rule hides political choices and frustrates accountability. It forces states to adopt policies that will raise energy costs and prove deeply unpopular, while cloaking those policies in the garb of state “choice”—even though in fact the polices are compelled by EPA. The Supreme Court has strongly condemned such arrangements, because “where the Federal Government directs the States to regulate, it may be state officials who will bear the brunt of public disapproval, while the federal officials who devised the regulatory program may remain insulated from the electoral ramifications of their decision.” New York v. United States, 505 U.S. at 169; see also Printz v. United States, 521 U.S. at 923 (citing need for “accountability” as a reason to prohibit federal government from forcing state officials to implement federal policy). The EPA thumbs its nose at democratic principles by confusing the chain of decision-making between federal and state regulators to avoid political transparency and accountability.

To read Professor Tribe’s full comment, click here.