Daniel Lacalle

An Energy Plan for the US… That would be great for Europe

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The main guidelines that the Trump team have outlined for the United States energy policy can be summarized in two words: energy independence (read ). To declare “United States energy domination” a strategic priority, both in foreign and economic policy.

The key driver is to develop $50 trillion of untapped oil, shale and natural gas reserves as well as hundreds of years of clean coal reserves. Liberalizing licensing for exploration at the national level and cutting red tape, the goal of the Administration is to achieve and maintain total independence from imports of any type of hydrocarbon. With this policy, the US could almost double its proven reserves and produce 12 million barrels a day of oil by 2020.

This policy would help slash the trade deficit, create millions of jobs and at the same time, through competition, lower household and industry energy bills, increasing competitiveness and… cutting CO2 emissions thanks to carbon capture and efficiency development.

Eliminating subsidies to renewables is part of the plan. The sector does not need them anymore, and has the opportunity to show that it is true. The US Energy Administration estimates that the cost of solar in 2046 will remain three times higher than that of coal or nuclear. These estimates are criticized and questioned by the renewable industry, and this is a unique opportunity to prove it, benefitting consumers at the same time.

Nobody in the administration will prevent the development of renewable energies, quite the contrary. Just phase out subsidies that were already being slashed. Solar energy received more subsidies since 2008 than all the other technologies combined, $ 575,875 per thousand megawatts. But solar costs have dropped dramatically in the past three years and now it can compete in the same terms with any other technology, but also without unjustified government interference in the development of other technologies.

The US will review the federal tax incentives for renewables, an incentive that already was in gradual reduction until its disappearance. And no one will be forced to install any technology by law. Renewables will continue to grow and benefit, like all others, from lower taxes and opening up regulation, facilitating developments and reducing bureaucracy. In this respect, however, there are different views in different States of the Union; In some the promotion of renewables is fundamentally a political priority.

Some media say that Trump attacks renewables. Since when facilitating competition, reducing obstacles and eliminating subsidies that the sector itself says are not needed, means “attacking”? Let us not forget that the shale revolution happened during the Obama administration… Because it worked. And that hundreds of solar companies failed… Because they didn´t.

Removing legal barriers and bureaucracy that limits exploration and development of resources, while promoting energy competition without  federal restrictions is good news for customers and industries. This will certainly help solar and wind demonstrate their potential to compete in equal terms with others,… and the beneficiary will be the consumer.

The Department of Energy (DOE) has just published a Quadrennial Energy Review (QER), which reviews in detail the power system, from generation, centralized and distributed, to the end user, including an analysis of grids, distribution, storage, cybersecurity, and new business models. The DOE proposes a series of recommendations of action for the Government at federal level.

The main conclusions point to the strategic nature of the protection and development of the value of the electrical system, through its modernization and transformation, since the most important infrastructure in the United States depends on it.

The DOE indicates that the US electric sector faces significant challenges:

An aging infrastructure – which the administration seeks to modernize via private investment and fiscal incentives -, the change in the generation mix and the growth of the intermittent generation in a country where demand has been almost flat, thanks to efficiency, despite the increase in GDP.

The energy sector reduced its CO2 emissions thanks to the winning combination of shale, natural gas and renewables, and the relevance of nuclear power, which is 60% of the emissions-free generation in the US, is critical to continue improving. Clean coal technology, added to hydro, nuclear and natural gas, will add to renewables in a cleaner environment that does not cost the consumer dearly.

Faced with the challenges of energy independence, the modernization of the electricity grid is an essential element to tackle. But rapidly lifting unnecessary regulatory barriers and lowering taxes are critical to allow hydraulic power, renewables, clean coal and nuclear to contribute to a winning mix.

The most interesting thing about these measures is that infrastructure costs will not mean higher prices for consumers or increased tariffs. Modernization and decarbonization should be promoted from improving competition and unblocking legislative obstacles.

The United States, with its energy revolution, has achieved lower costs for consumers and industries and at the same time reducing emissions more than the EU. Household and industrial electricity prices on average are less than half the European mean, and CO2 emissions have fallen more with the development of shale gas in the US than with massive subsidies to renewables in the EU. Accelerating technological competition and eliminating perverse incentives will work.

All countries in Europe could learn from this policy. Putting competitiveness and free market as an essential element for technological improvement.

 

Daniel Lacalle is PhD in Economics and author of “Life In The Financial Markets” and “The Energy World Is Flat” (Wiley)

@dlacalle_IA

Picture courtesy of Google Images

Article published in Spanish in @elespanol

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