Energy Policy: The Appeal of 'All of the Above'
The first in a weekly series of articles RCP will publish through Election Day exploring the many implications of policymakers’ decisions regarding this crucial sector of the economy.
On March 22, 2012, as he positioned himself for his re-election campaign, President Obama stood in front of what seemed like acres of stacked pipes in Cushing, Okla., and talked glowingly about the nation’s newfound hydrocarbon bonanza. Speaking at a time when the U.S. was just coming to terms with the explosive growth in oil and gas production destined to make $100 a barrel oil a thing of the past, the president stressed the “all-of-the-above” phrase that became official White House energy policy.
It has also become a ubiquitous expression among politicians, Democrats and Republicans, to describe the ideal energy policy. But what does “all-of-the-above” actually mean?
Ostensibly, the phrase conveys the realization that Americans’ energy needs must be met by some combination of coal, oil, natural gas, nuclear, solar, wind, hydroelectric power, or other alternative sources—and even conservation.
“When officials say ‘all of the above,’ they mean they are neither foreclosing nor disfavoring, from a policy standpoint, development of any energy resource or technology from conventional fossil fuels to alternatives,” said Bob McNally, and a former Bush administration energy official who is president of The Rapidan Group, a Bethesda, Md.-based consultancy.
To underscore this point, the day before Obama visited the Oklahoma pipe storage facility, he mentioned “all of the above” at a Boulder City, Nev., solar storage facility and while inspecting a New Mexico oil drilling operation leased to ConocoPhillips on federal land. Obama invoked these energy solutions in his 2013 State of the Union address, too, while proposing a vague Energy Security Trust designed to use oil and gas revenue to fund research into alternative sources of clean power.
“So, yes, we’re going to keep on drilling,” he said in Oklahoma. “Yes, we’re going to keep on emphasizing production. Yes, we’re going to make sure that we can get oil to where it’s needed. But what we’re also going to be doing as part of an all-of-the-above strategy is looking at how we can continually improve the utilization of renewable energy sources, new clean energy sources, and how do we become more efficient in our use of energy.”
Obama’s use of a phrase first popularized by Republican governors came in response to changing technologies that carried the possibility of altering electoral politics.
For several decades in the run-up to Obama’s first presidential campaign, anti-fossil-fuel momentum had been building in the Democratic Party. Reflecting this sentiment, Obama promised a transformational shift away from such fuels at a time John McCain’s running mate, Sarah Palin, was leading conservative audiences on the campaign trail in chants of “Drill, baby, drill!”
But over the course of his first term, a shale revolution was taking place. The combination of sideways drilling and hydraulic fracturing pioneered in Texas spread to other states, including Pennsylvania, which became a hydrocarbon-exporting state for the first time in generations. From 2008 to 2012, natural gas production expanded 12-fold there as small drillers such as Cabot Oil and Range Resources used the new technology to coax gas from the Marcellus Shale formation that rests beneath much of the Keystone State. Do such developments have political ramifications? The answer is that they might.
Texas has been solidly Republican in national elections, but Pennsylvania has gone for the Democrat in six straight presidential cycles. Could that change in 2016? Although Republicans certainly hope so, the RealClearPolitics poll average shows Hillary Clinton with a steady lead in Pennsylvania. But the factors that makes a state Republican red or Democratic blue are not carved in stone—though sometimes they can be etched in carbon. Take West Virginia, for example. In the 10 elections between 1960 and 1996, the only times the state went Republican were in the Richard Nixon and Ronald Reagan landslides of 1972 and 1984, respectively.
The Mountain State flipped back to red in 2000, however, and shows no signs of changing course. It only has five electoral votes, but when Hillary Clinton came across earlier in the campaign as being cavalier about the coal-mining jobs lost because of the Obama administration’s stricter requirements on coal-burning electric power plants, Clinton issued a rare mea culpa.
“Simply put, I was mistaken in my remarks,” she said. “Coal will be part of the energy mix for years to come.”
“The market shifted out from under the Obama administration,” said Kevin Book, a principal with ClearView Energy in Washington. “Instead of them transforming the energy mix, the energy mix transformed their vision.”
Perhaps, but this is a two-way street. Republicans also have had to adjust to the new energy map—and new technological developments as well.
For starters, Midwest and Plains state Republicans ardently and sometimes awkwardly defend ethanol mandates and wind tax credits to their more ideologically pure free-market-oriented conservative colleagues in Congress.
Meanwhile, other Republicans have noticed that solar energy—an alternative fuel they once excoriated solely by invoking the Solyndra debacle—has undergone a stunning metamorphosis. Two years ago, Duke Energy, as traditional a utility company as any in the country, committed $500 million to expanding solar power sources. So when Republican North Carolina Gov. Pat McCrory talks about “all of the above” energy, he’s not only talking about off-shore oil and gas exploration—although he is touting those sources—he’s also referring to former tobacco plantations that are now solar farms.
Besides politics, however, there’s a reason that politicians in both parties stress multiple sources of power: They know that the U.S. economy depends on plentiful and affordable energy—and for now, at least, that means a broad mix of sources.
The Energy Mix in 2017 and Beyond
By some measurements, the U.S. energy mix today – which contributes mightily to America’s $18 trillion annual economy – looks similar to the country’s energy make up from the early 1980s. But simply spotlighting examples like the similar amounts of coal production taking place in both 1981 and 2015 ignores two major differences.
The first is that the trajectory of U.S. dependence on foreign sources of energy, oil in particular, has fallen dramatically since its peak in 2005. Oil imports equaled 60 percent of total U.S. consumption that year but now equal less than 30 percent.
Second, “energy intensity” in the U.S. has dropped dramatically in the last several decades. Measurements of how much energy consumption is needed for each unit of gross domestic product (GDP) have declined nearly 60 percent since 1990, signaling much greater efficiencies per dollar of work
As seen in the chart below, 2016 is expected to be the first year in U.S. history that natural gas will generate more U.S. electricity than power from coal, while non-hydro renewables (wind and solar) continue to surpass hydroelectric’s electricity share.
What this all tells us is that policy matters when it comes to “all-of-the-above.”
In 2005 and 2007, Congress passed two major energy bills that funded about $14.5 billion in tax incentives for domestic production of both fossil fuels and renewable energy. The 2005 bill also exempted hydraulic fracturing from federal oversight and gave that oversight to state authorities, which freed drilling companies to allocate resources without fear of federal agencies invoking the “pre-cautionary principle” that could stop all investment at the stroke of a regulator’s pen.
The consequences have been dramatic. Before the advent of large-scale hydraulic fracturing in the mid-2000s, most analysts and CEOs expected the U.S. to dramatically increase its imports of liquefied natural gas and to increase U.S. dependence on foreign source of energy. Now, with the fracking revolution well underway, the U.S. is expected to export natural gas for many decades to come.
The clearest example of the “all-of-the-above” influence on the political system can be seen in the major legislative compromise of December 2015 that allowed for a dramatically expanded build-out of wind and solar power in exchange for a lifting the 40-year-old ban on oil exports from U.S. shores.
“We’ve significantly diversified our generation mix in renewables and had a tremendous wind build-out,” said Book. “Solar is smaller, but the rate of change is high. There has been a significant de-carbonization as efficiency propagated through the system.”
Wind’s installed capacity during the Obama administration has tripled, and could grow by another 50 percent by 2021 with the five-year extension of tax credits passed in December. Solar is starting from a much smaller installed base than wind, and has more upside, and is already producing roughly 1 percent of total U.S. electricity.
Those gains notwithstanding, traditional energy sources aren’t going away anytime soon. As Democrats stripped references to “all of the above” from the party platform this summer to placate progressives ahead of the national convention, the CEO of the U.S. Chamber of Commerce’s Institute for 21st Century Energy sounded a note that some Democratic candidates may well echo now that the general election battle has been joined:
“What we believe, the states believe, the governors believe, the industry believes,” said Karen Harbert, “is that we are going to use all of these forms of energy for a very long period of time. So let’s find ways to level the playing field, have an open market and have a government that doesn’t overregulate and choose winners and losers in this.”