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Friday, September 23, 2011

Global Energy Outlook: 10 Takeaways and Policy Implications

Politicians love to talk about and legislate on energy. Why? Not only because energy production and consumption are central to our economy, national security and everyday life, but also because of the environmental movement's push against carbon-based energy and push for renewables, as well as populist pandering on issues like oil and gas prices and profits.

Indeed, the Obama administration's agenda on energy has focused on subsidizing non-economic renewable sources of energy, while trying to demonize, raising taxes and impose costly regulations on carbon-based energy, such as oil and coal.

Unfortunately, this is not exactly new political terrain. Populists have been railing against so-called "Big Oil" for more than a century, and the environmental movement's ignorance of economics have guided too much policymaking for over four decades now.

Interestingly, though, despite all of the grandiose political claims regarding a future dominated by renewable energy, more sober assessments tell a very different story, showing that economics cannot be completely replaced by political fantasies.

Consider the following 10 key takeaway points from the U.S. Energy Information Administration's just-released "International Energy Outlook 2011."

1) "In the IEO2011 Reference case, which does not incorporate prospective legislation or policies that might affect energy markets, world marketed energy consumption grows by 53 percent from 2008 to 2035... Much of the growth in energy consumption occurs in countries outside the Organization for Economic Cooperation and Development (non-OECD nations), where demand is driven by strong long-term economic growth. Energy use in non-OECD nations increases by 85 percent in the Reference case, as compared with an increase of 18 percent for the OECD economies."

2) "Fossil fuels are expected to continue supplying much of the energy used worldwide."

3) "Although liquid fuels-mostly petroleum based-remain the largest source of energy, the liquids share of world marketed energy consumption falls from 34 percent in 2008 to 29 percent in 2035, as projected high world oil prices lead many energy users to switch away from liquid fuels when feasible."

4) "World natural gas consumption increases by 52 percent in the Reference case, from 111 trillion cubic feet in 2008 to 169 trillion cubic feet in 2035... Natural gas continues to be the fuel of choice for many regions of the world in the electric power and industrial sectors, in part because its relatively low carbon intensity compared with oil and coal makes it an attractive option for nations interested in reducing greenhouse gas emissions. In the power sector, low capital costs and fuel efficiency also favor natural gas."

5) "In the absence of national policies and/or binding international agreements that would limit or reduce greenhouse gas emissions, world coal consumption is projected to increase from 139 quadrillion Btu in 2008 to 209 quadrillion Btu in 2035, at an average annual rate of 1.5 percent."

6) "Strong economic growth and large domestic coal reserves in China and India lead to a substantial increase in their coal use for electric power and industrial processes. Installed coal-fired generating capacity in China nearly doubles in the Reference case from 2008 to 2035, and coal use in China's industrial sector grows by 67 percent."

7) "World net electricity generation increases by 84 percent in the IEO2011 Reference case, from 19.1 trillion kilowatthours in 2008 to 25.5 trillion kilowatthours in 2020 and 35.2 trillion kilowatthours in 2035."

8) "In many parts of the world, concerns about security of energy supplies and the environmental consequences of greenhouse gas emissions have spurred government policies that support a projected increase in renewable energy sources. As a result, renewable energy sources are the fastest growing sources of electricity generation in the IEO2011 Reference case at 3.1 percent per year from 2008 to 2035"

9) "Future generation from renewables, natural gas, and to a lesser extent nuclear power largely displaces coal-fired generation, although coal remains the largest source of world electricity through 2035."

10) "High construction costs can make the total cost to build and operate renewable generators higher than those for conventional plants. The intermittence of wind and solar, in particular, can further hinder the economic competitiveness of those resources, as they are not operator-controlled and are not necessarily available when they would be of greatest value to the system."

Despite the anti-carbon-based fuel agenda, the EIA analysis, once again, makes clear that carbon-based fuels will continue to energize most of the economy for the foreseeable future.

The problem for U.S. entrepreneurs, businesses, employees and consumers will develop if policymakers try to - or continue to try to - overrule sound economics with misguided politics. Consider, for example, the implications if Mr. Obama's EPA were to succeed in imposing carbon-dioxide caps on the U.S. economy.

Energy costs would skyrocket, as the cost of carbon-based fuels would have to increase to reduce usage, being replaced by far more costly renewable sources. Meanwhile, as cheaper forms of energy are used elsewhere in the world, including China and India, for example, U.S. competitiveness would be diminished dramatically - driving investment, businesses and jobs overseas.

Economic reality is not subject to unrealistic dreaming by politicians. If the U.S. policymakers impose an anti-carbon-based energy agenda, U.S. investment, business and jobs will suffer accordingly.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

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