September 24, 2012

Election 2012: Romney's Energy Program – Back to the 1970s

After the American Century

Romney and the Republicans propose a return to the 1970s energy policy. He is the spokesman for the old fossil fuel energy regime, intent on maintaining its technological momentum. He would increase the supply of gas and oil, de-fund energy savings programs, leave innovation choices to the private sector and let alternative energies fend for themselves in the marketplace. 

The Romney energy plan, “Believe in America,” (2012) does not deny global warming, as George Bush did for much of his presidency, but completely ignores it.
All the emphasis in the Romney plan falls on increasing production, and Time Magazine concluded that the plan could be summarized as “drill, baby drill.” Like Gerald Ford and Ronald Reagan, Romney promises energy independence through increased domestic production. While this idea proved a chimera for Nixon, Ford, and Reagan, a reconceived “North American Energy Independence” that includes Mexico and Canada (without actually asking them) seems more plausible in 2012. US oil imports have been declining during the Obama years, from roughly 60 percent to 40% of total consumption.

Nevertheless, oil prices are still high. Most voters do not seem to understand that the price of oil does not fall if US imports of oil decline. The price of oil is a world-wide commodity price that is driven up by surging global demand. At the second debate on October 17 Romney suggested rpeatedly that Obama was somehow responsible for the high price of oil, but as a Harvard Business School graduate, one assumes that he knows this is sheer nonsense.

Romeny was attempting to make an issue out of oil drilling during the past four years. in fact, the Obama Administration has opened more areas to on/shore and offshore drilling, and Romney would expand this further. Domestic production has also increased due to new drilling techniques that have revived old oil fields and opened up new ones, notably for shale oil. During the past five years Pennsylvania and North Dakota have enjoyed an economic boom that is decried by environmental groups because it relies on hydraulic fracturing, a controversial technique that when used in Texas, Appalachia, and the Great Plains suddenly cut natural gas prices in half from 2008 to 2009. The Energy Information Administration has calculated that the US may eliminate imports of natural gas by 2020. The same agency estimates that increased domestic oil production could reduce imports to 38% of the total, with much of the remaining imported oil coming from Canada and Mexico. Romney’s plan is to further increase domestic oil extraction by opening up more offshore areas and federal lands to achieve energy independence by 2020.

Romney's energy program,"Believe in America," apparently means, "Do not believe in global warming." For Romney also proposes to increase CO2 emissions. He would repeal the EPA limits on carbon dioxide pollution from power plants, a very significant change since 92% of all the coal burned in the US is used to produce electricity. He would also abolish the higher fuel-economy standards that Obama has put in place, thereby increasing oil consumption. Both of these measures would increase US carbon intensity, in contrast to John McCain, who proposed to reduce carbon emissions through “cap and trade” policies. The Romney plan only mentions wind and solar power twice, in each case attacking them as costly and job destroying. 

The Romney plan, which seems to have been written by the oil companies, is far less visionary than Richard Nixon's approach to the energy problem. Back in 1971, before the energy crisis had really become a national issue, and well before there were any lines at the gas pumps, Nixon sent this message to Congress:

“For most of our history, a plentiful supply of energy is something the American people have taken very much for granted. In the past twenty years alone, we have been able to double our consumption of energy without exhausting the supply. But the assumption that sufficient energy will always be readily available has been brought sharply into question within the last year. The brownouts that have affected some areas of our country, the possible shortages of fuel that were threatened last fall, the sharp increases in certain fuel prices and our growing awareness of the environmental consequences of energy production have all demonstrated that we cannot take our energy supply for granted any longer.”

It is hard to imagine Romney sending this message, for he seems to think it is about 1965. He and the Republicans illustrate the economic theory of path dependence, in which a corporation (or a nation) clings to a technological system that is becoming uncompetitive. In the 1970s the typewriter manufacturers did not make the transition to personal computers. In the 1890s the old high wheel bicycle makers went bankrupt because they did not make the transition to low slung safety bikes. Fundamental innovations almost always seem to come from outside the established market leaders, who suffer from “path dependency.” Established firms are too committed to a particular conception of what their product is. This commitment is embedded in its manufacturing process and endemic in the thinking of its managers. When a major innovation appears, a leading firm often studies the technology but remains committed to its product and production system. Indeed, established industries typically redouble their commitment to the traditional product that has made them the market leader. They make incremental improvements in manufacturing and yet lose market share to the invader.

Likewise, beginning in the middle 1970s, for more than fifteen years Detroit’s automakers failed to understand and adopt Japanese lean production and lost their position as the world’s leaders. Something similar has been occurring in the energy field. While Europe (led by Germany) and China have invested heavily in alternative energies, American utilities have moved more slowly to adopt solar and wind power, or to develop decentralized smart grids. Obama and his Department of Energy, led by Steven Chu, understand this. But Romney, like Detroit’s CEOs in the 1980s, or the executives who ran the typewriter manufacturers into the ground in the 1960s, remains wedded to a technological system that is already being replaced. Romney has proclaimed himself to be the most competent to steer the American economy into a prosperous future, but at least in the energy field his eyes remained fixed on the past.