Obama set to turn the US energy sector on its head

BY Heather Johnstone

With Barack Obama now settled in the White House, the United States’ energy sector may be about to undergo a revolution. PEi examines the new president’s ambitious clean energy plan, and the energy provisions in his economic stimulus package.

With Barack Obama’s inauguration as the 44th president of the United States of America on Tuesday, 20 January 2009, there can be few men, past or present, who are carrying the hopes and expectations of so many à‚— not only in the US, but also globally à‚— on his shoulders.

The way forward: President Barack Obama’s ‘New Energy for America’ plan?
Click here to enlarge image

There is no doubt that President Obama faces many challenges, not least bringing the US economy out of recession. In his recent statement: “No single issue is as imperative to the economy as energy”, it is clear that energy will form a central plank to the new administration’s policies.

Obama’s energy plan, also known as the ‘New Energy for America’ plan, aims to achieve energy security for the USA and combat global warning, and focuses on five key areas: the implementation of an economy-wide cap-and-trade programme to cut greenhouse gas (GHG) emissions, the investment of $150 billion over the next ten years to develop and deploy clean energy technologies, to dramatically increase energy efficiency to reduce the energy intensity of the economy by 50 per cent by 2030, to cut the US’ dependence on foreign oil and reduce overall oil consumption by 35 per cent by 2030, and ensure the US takes a leadership role in the global effort to combat climate change. With this plan, the new president is categorically turning his back on the fossil-fuel focused policies of the proceeding Bush administration.

Obama is keen to be seen as a champion of the national effort to cut GHG emissions. His plan supports the implementation of a market-based, fully auctioned cap-and-trade system, with a goal to cut carbon emissions to 80 per cent of 1990 levels by 2020. It is also expected that he will introduce a mandate of reducing GHG emissions to 1990 levels by 2020.

The $150 billion investment in clean energy technologies forms part of Obama’s economic stimulus package. This investment will be used to drive the development of next generation biofuels and fuel infrastructure, accelerate the commercialization of plug-in hybrid vehicles, promote the development of commercial-scale renewable energy, spur the development and deployment of clean coal technologies for new low emissions coal plants and begin the transition to a ‘smart’ national grid.

The new administration is confident that this move towards a clean energy economy will produce hundreds of thousands of much needed new jobs; January recorded the biggest monthly job loss in 34 years, and the overall unemployment rate has soared to a 16-year peak.

Obama has made it clear that he would look to outlaw the building of traditional coal fired facilities. However, some commentators have criticized his definition of ‘low emissions’ coal plants as ambiguous at best, but he has hinted that dramatic improvements towards capturing emissions, including carbon dioxide, would be acceptable.

The latter would be good news for the beleaguered US coal fired power sector. Last year saw a raft of new coal fired power plant proposals shelved, in large part due to the concern that no coal plant could be built without CCS fully employed from the time the plant goes online.

He is also proposing the creation a federal renewable portfolio standard requiring that 25 per cent of electricity produced in the United States be derived from renewable sources by 2025, and extend the production tax credit for five years for all forms of renewable energy.

Some in the power industry have expressed concern that this target could be difficult to achieve, given the fact that renewable energy today supplies just over eight per cent of the electricity in the US. The latest data from the US Department of Energy’s Energy Information Administration estimates that renewable generated electricity will account for 20 per cent of total US electricity generation by 2030, and this is seen as an ambitious target.

Nuclear energy is recognized in the plan as important in helping the US meet aggressive climate goals. However, the new administration believes that there is no future for expanding nuclear without first addressing public concerns, security of nuclear fuel and waste and waste storage. Obama says he will lead federal efforts to look for safe, long-term disposal solutions, but it may mean that no ground would be broken on new nuclear builds before 2020 at the very earliest, as many fear.

Finally, the creation of a nationl smart grid is seen as a key element in Obama’s plan to “retrofit America for a global economy”. He has said he will pursue a major investment in the national grid to enable a huge increase in renewable energy generation and accommodate 21st century energy requirements.

Although the investment needed to develop a smart grid would be ‘colossal’, the existing grid is outdated and inefficient, and is said to result in $50-100 billion losses to the economy a year.

Funding that investment will not be easy. Eventually, however, aging grids will need to be replaced à‚— at an estimated cost of $1.5 trillion between 2010-30. Thus, when the grid is renewed, in reality it may not be much more expensive to make it ‘smart’, and the benefits would be enormous.

President Obama cannot be criticized for a lack of vision in his ambitions to transform this oil-dependent country into a clean energy supremo. As always, only time will tell if he succeeds.

No posts to display