Energy Industry Split Over Climate Change Legislation

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Green, Macroeconomics

The once united oil and gas industry is probably well aware that their current infighting over climate change legislation is counter productive in terms of the mutual support, but it is as firm an indication as any that climate change and the legislation resulting from it is being taken seriously by the energy industry. According to a NY Times article, producers of natural gas are fighting their long time allies the oil companies trying to cut a better deal for their lower carbon emitting fuel. Electricity producers are fighting with coal producers over future fuel sources and the mix of renewable to natural gas to competing coal technologies. As the debate continues, one time allies like Exelon, who operate low-emission nuclear plants, and the Southern Company, a big consumer of coal, find themselves on opposite sides of the debate over renewable energy. Producers that use nuclear or hydro-electric power sources tend to favor tighter emissions targets because they have low or zero emissions themselves. But producers heavily dependent on coal power, which makes up half of the industry, are vigorously against them.

Lobbying on Capitol Hill by all groups is fast and furious, estimated at $200m in the first half of this year alone. The fear is government legislation will create boom and bust conditions for different sectors of the market much as bio fuels and ethanol subsidies did in 2007. The knock-on impact to agricultural prices went global in the years after those distorting incentives were introduced.

Meanwhile in the wider economy, there are worries about jobs and economic growth that could be impacted by higher energy costs. Opinions abound on both sides of the argument and it has to be said they are all just opinions. Nobody knows for sure how the effect of cost increases on the economy will trade off against increased jobs in the green economy. The Pew Environment Group reported in the Washington Post surveyed every state and found that from 1998 to 2007 “clean energy” jobs grew at a national rate of 9.1%, compared with a traditional job growth rate of 3.7 percent. Many fear however that we are creating a green bubble. In the process of throwing money at all of these technologies we are not really analyzing the cost benefits thoroughly. Wind power is a prime example of this. Much of the private money has pulled out of this sector over the last year driven by doubts over the sustainability of the economic model and trouble raising investment funds in a much tighter lending environment. The danger with all this lobbying by the energy industry is that the resulting legislation will be skewed in favor of one fuel source or another more as a result of pressure applied than sound economics.

–Stuart Burns

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