1. Energy Myths and Energy Policy
Jim Peach
Department of Economics and
Arrowhead Center
New Mexico State University
Contact: jpeach@nmsu.edu
2. Myth 1: Energy is scarce
• Myth 1 is often stated as: “we are running out of oil (gas, coal, uranium)”
• Myth 1 has set the context for US energy policy for at least a century
– Naval Petroleum Reserve No 1 established in 1910 by President Taft
– Strategic Petroleum Reserve established 1974
– Oil depletion allowance established in 1927
– The Department of Energy Organization Act (1977)
– EISA 2007 and ARRA 2009
3. Myth 1: Closer to home
• “High reliance on O&G revenues creates two challenges for the state: revenue
volatility and long-run sustainability”
• Tom Clifford, Chief Economist, New Mexico Legislative Finance Committee, August 5, 2010.
Pump Jack near Hobbs, NM
Photo by Jim Peach
4. Hubbert’s Peak:
From M. King Hubbert’s “Nuclear Energy and Fossil Fuel”—a paper delivered to the American
Petroleum Institute’s 1956 annual conference
No copyright notice appears on this paper. Mr. Hubbert is deceased.
9. Myth 1: Coal and Uranium
• Coal (US)
– Reserves 458 billion short tons as of 2010
– Production 1.1 billion short tons
• Uranium
– ??
10. Myth 2: Energy prices will always increase
• Myth 2 is closely related to Myth 1
– That is energy prices will always increase because we are “running out” of energy
• Myth 2 is simply false
– Real energy prices are highly volatile
– In 2012 gasoline prices at the pump are about what they were in 1980
– In 2012 residential electricity prices are lower than in 1980
– More –next slides
17. Uranium (Spot Price) Variability: 2000 to 2009
Annual
Percent
Change
U308
Spot
Price
Real ($2005)
Sources: Uranium Prices from EIA Uranium Annual Marketing Report 2010, Table S1b
GDP deflator from Bureau of Economic Analysis, NIPA Tables 1.1.9
18. Myth 3: Energy prices are market determined
• Supply and demand are important but governmentS are key players in the energy price game
• Some examples –but only a few
– Texas Railroad Commission set world oil prices for several decades (1930s to 1970?)
– How? by controlling supply
– OPEC is a cartel of governments and has had great influence on oil prices since the early 1970s
– Strategic Petroleum Reserve releases and threats to release
– Uranium prices heavily influenced by FSU releases from DOE
– Loan guarantees and limited liability for the nuclear industry
– Renewable Portfolio Standards (state level)
– Public Utility Commissions (in NM it is the PRC)
– Subsidies
– Many, many other regulatory and environmental factors set by governments influence energy mix and prices
19. Myth 4: The energy problem is a technology problem
• New technology is wonderful but should be considered a bonus
• “We” have the technology now to solve energy problems
• Myth 4 is responsible for the vast majority of federal energy expenditures
– The National Labs NETL, NREL, LANL, Sandia, ORNL ….
– Plus federal research contracts
– All focused on developing new or improved technology
– Almost no expenditures on policy
20. Myth 4: The energy problem is a technology problem
• Technology already available
– Net-zero construction of housing and non-residential buildings
– Energy efficient public transportation
– Autos that get 50 mpg
– Industrial energy efficiency vastly improved during past four decades
– Not to mention the really cool stuff
• Myth 3 is responsible for the vast majority of federal energy expenditures
– The National Labs NETL, NREL, LANL, Sandia, ORNL …. (21 by my count)
– Plus federal research contracts
– All focused on developing new or improved technology
• Almost no expenditures on policy
21. Myth 5: The energy problem can be solved without a plan
• Government has been, is, and, will be a major player in the energy game
• The US has 1,000s of pages of energy policy developed over more than a century
– Much of it is confusing and contradictory –see next slide
• The US has no energy plan
– Lack of a national plan hinders state policy-making
• Businesses plan –banks insist on a business plan
• A national energy plan could reduce investment uncertainty and increase energy investment and
production
• A national energy plan could reduce energy price volatility
22. Myth 5: The energy problem can be solved without a plan
• Apparently, the goal of US energy policy is to provide cheap, abundant, domestically
produced, labor intensive, clean, renewable, secure, reliable energy while promoting
economic growth, reducing (and increasing) fossil fuel production, reducing global
warming, and using as little water as possible. Conservation measures –from weatherization
of housing units to the construction of green buildings are also consistent themes in recent
energy legislation. This is a tall order. Doing all of this is about as likely as the development
of commercially viable cold fusion.
23. Myth 5: The energy problem can be solved without a plan
• You've got to be very careful if you don't know where you are
going, because you might not get there. Yogi Berra
Thank you!
Questions?
Editor's Notes
Hubbert (1903-1989) presented his work as early as 1949. See M. King Hubbert “Energy from Fossil Fuels” Science, February 4, 1949, Vol 104, pp. 103-109. Available at: http://www.hubbertpeak.com/Hubbert/science1949/The Energy Information Agency (EIA) of the Department of Energy made anestimate of future non-Communist world oil supply in its Volume 3 of the 1978Annual Report to the Congress which was released in 1979. The EIA hasprojected70.3-90.4free world oil supply to range between 56.2-63.1 MBD in 1985 andMBD in 1995.These estimates are considerably higher thannon-Communist world oil supply made in this report.the projections forThe EIA estimates for1995 estimates are even 10 to 30 MBD above the OTA high estimate for- 73 -
Caution. Most uranium is not sold on the spot market. Rather, most uranium is sold on medium and long term contract prices. Yet, economists are always concerned with what happens at the margins. The spot price is the margin of uranium markets. Uranium volume is measured in terms of U308 equivalents.
