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Thursday, April 4, 2013

Tom Block: Time to take up our national challenge to develop coherent energy policy

While the focus of Washington, and my columns, has been on the budget, taxes, sequestration, etc., we continue to have a national challenge to develop a coherent energy policy. The tug of war between cheap energy, climate change and energy independence continues to pose a public policy challenge the political establishment has yet to resolve.
 
For Kentucky this debate has serious long-term implications, as cheap energy through coal has been a source of economic strength for the state in its effort to attract jobs from economic sectors that are large users of electricity. We saw this in the past legislative session with the debate on the best policy for maintaining aluminum capacity in Kentucky. I witnessed this firsthand when I was on a task force of a major financial firm that was looking for a site to locate a large data center. I learned that data centers while not employing large numbers of people consume vast amounts of energy, and the firm only looked at locations, including Kentucky, that had low-cost energy.
 
Coal is one of the most complicated economic and political domestic issues for U.S. President Obama who has indicated that he wants to push a global warming agenda, but also talks about the elusive goal of clean coal. With the large U.S. coal deposits and potential political downside to being viewed as anti-coal, the future of coal policy is very much up in the air. From environmentalists, utilities, railroads and coal companies, there are a lot of players in the debate over coal policy. One issue is whether or not to maintain coal jobs in the U.S. through exporting coal. Exports are viewed positively by the coal industry and some segments of labor as exports could help to support coal employment at a time when U.S. electric capacity from coal continues to shrink. The politics of coal has stalled aggressive global warming policies by the U.S., and with the current lineup in Congress it seems unlikely that there would be any major policy initiative on this front for the next several years.
 
Probably a greater threat to coal than any major climate change initiative is the growing supply of natural gas that is developing in the U.S. Through new technology, referred to by the shorthand term of “fracking”, America has been able to rapidly develop a domestic source of natural gas. The growing supply of natural gas is stretching storage capacity and pushing natural gas prices down. In fact, the supply of gas is growing so quickly that the U.S. is on the threshold of a major policy decision about how we become an energy exporting nation.
 
Whether or not the U.S. will allow export of the growing gas surplus is an emerging issue with significant implications across the economy and a diverse coalition is building on both sides. Generally environmentalists are against exports as they believe that it would lead to higher prices and hence more reward to new drilling methods such as fracking. Some big industrial concerns such as chemical companies that are large users of energy like the idea that the U.S. has low-cost gas to fuel their plants and gives them a competitive advantage in global markets. Opponents to exports have been enhanced with the rise of Oregon Senator Ron Wyden to the chair of the Senate Energy Committee, as he is a strong opponent of gas exports
and earlier this year held his first hearing as committee chair on the subject of gas exports.
 
Gas companies obviously want higher prices and support exports. The coal lobby also wants the price of gas to go up to make coal more competitive. There are significant foreign policy implications as energy-importing countries are looking more and more to U.S. gas to replace both nuclear for safety reasons and coal for carbon reduction compliance. There may be no issue that is as critical to the Chinese government as air pollution and coal generated plants is a leading cause of bad air. Foreign buyers will need to sign large long-term contracts that will require U.S. government approvals under current law.
 
Kentucky is at the center of this debate with large coal reserves creating low-cost energy, but the handwriting is on the wall that coal is not the energy source of the future. Kentucky, over time, will need to adjust.
 

Tom Block is a public policy consultant who had a 21-year career with JP Morgan Chase where he served as head of government relations in New York City and created a Washington research product. He also created the bank’s EU Government Relations program and developed a new position as U.S. Government Policy Strategist focusing on how U.S. government policy impacts capital markets. He has an extensive government and banking background, has worked on political campaigns and as a speech writer. He is a family trustee of Bernheim Aboretum in Louisville and holds a bachelor’s degree in political science from American University. He and his wife make their home in Kentucky. He is a regular contributor to KyForward. Contact him at tomblockct@aol.com.

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