In the 1970s, energy policy was driven by belief in permanent scarcity and resource exhaustion that lasted until turn of the century.
In 1977, President Jimmy Carter gave an energy address that became known as the Moral Equivalent of War speech in which he made three statements about oil and gas that are seen today as farfetched: “The oil and natural gas we rely on for 75 percent of our energy are running out. … Unless profound changes are made to lower oil consumption, we now believe that early in the 1980s the world will be demanding more oil than it can produce. … World oil production can probably keep going up for another six or eight years.”
As a consequence of that mindset, our nation has invested more than $154 billion in research to develop alternative forms of energy. Between 2010 and 2013, the latest data available from the Energy Information Administration, subsidies for wind and solar energy alone grew from roughly $6 billion annually to $11 billion. And yet, these two preferred alternatives to fossil fuels survive only because of subsidies.
According to American Enterprise Institute scholar Benjamin Zycher, solar power “is not cost-competitive with conventional electricity, and cannot survive without massive subsidies.” Robert Bryce, a senior fellow at the Manhattan Institute, calculated that “on an energy-equivalent basis, wind energy’s subsidy is nearly three times the current market price of natural gas.”
In addition to wind and solar, the government has used subsidies and mandates in an attempt to shift demand from conventionally powered vehicles to electric and hybrid ones. Most analyses conclude that the demand for electric vehicles would collapse without subsidies.
The government pursuit of renewable energy set up an unintended experiment. While Democratic and Republican administrations followed subsidized wind and solar, the private sector made investments to enable it to continue production of large quantities of conventional oil and gas and develop the technology needed to economically unlock the enormous reserves of unconventional oil and gas.
Advances in seismic technology were followed by horizontal drilling and hydrological fracturing — fracking — which have enabled America to move from a future of increasing liquefied natural gas imports to one of becoming an exporter. Reserve depleting has been replaced with reserves sufficient to last a century at today’s rate consumption.
The same thing has happened with oil production, where the steady decline in production and increase in imports has been reversed. Even with current low prices, the United States produced 74 percent more than it did in 2006.
Advances in oil and gas technology continue to open new frontiers. The U.S. Geological Survey estimates that gas hydrates hold more carbon than the world’s other fossil fuels combined. Last year, the United States and Japan along with ConocoPhillips, announced the world’s first successful field trial (in Alaska) of a technology that uses carbon dioxide to free natural gas from methane hydrates in the sea bed.
The Global Warming Policy Forum stated, “Methane hydrates constitute the world’s No. 1 reservoir of fossil fuel. Ubiquitous along vast stretches of Earth’s continental shelves, they hold enough natural gas to fuel the world for a thousand years — and beyond.”
This unintended experiment has demonstrated once again the futility of industrial policy initiatives. Successful commercial innovation comes from risk taking, an alignment of knowledge and expertise, and the ability to capture the rewards of success. The belief that government can pick winners in the commercial arena has always been seductive while the results have been unequivocally negative.