Reflections on Energy Proposals in the State of the Union Address

Energy issues were a focal point last night in the President's State of the Union address. He highlighted the significant increase in oil and gas production, the vast economic potential of natural gas, energy independence, as well as echoing his continued support for renewable and alternative energy. Below is brief analysis from a state perspective into some of the specific proposals, the reaction from Congress, and the prospects for potential action.

President Obama issued a laundry list of accomplishments from his first term and issued call for an "all of the above" energy policy to blunt critics that claim he is hostile to oil and natural gas development.  He noted that his Administration has opened millions of new acres for oil and natural gas leasing, which has led to the highest level of domestic production in eight years and reduced our dependency on foreign oil to its lowest level in 16 years. Congressional critics were quick to react by pointing out that production increases were occurring on private or state land, and were also a result of previous legislation that is just now going into effect. The President also stated his commitment to "open more than 75 percent of our potential offshore oil and gas resources," which is likely a reference to the most recent Five Year Plan by the Department of Interior. This plan drew significant bipartisan criticism from Virginia lawmakers for refusing to open up their coastline for exploration, and from industry for limiting lease opportunities only to areas with decades-old seismic data for "undiscovered and technically recoverable" reserves.  Natural gas, in particular, played a prominent role in the President's speech where he noted the US has a nearly 100-year supply and that new advancements in hydraulic fracturing and horizontal drilling could add up to 600,000 new jobs, according to energy experts. While praising the increasing economic and energy security potential of our domestic shale gas reserves, the President issued a word of caution that it must be performed in an environmentally responsible manner and that many have legitimate concerns about impacts to their water supply or other environmental issues associated with hydraulic fracturing. He pledged that all hydraulic fracturing operators must disclose the ingredients they use for any lease on federal land, which could be a potential sticking point with industry if it requires listing trade secrets in their solution formulas. 

Passage of clean energy tax incentives and renewable energy production were also focal points of last night's address. The President said, "I will not cede the wind or solar or battery industry to China or Germany because we refuse to make the same commitment here. We have subsidized oil companies for a century." He went on to say, "It's time to end the taxpayer giveaways to an industry that's rarely been more profitable and double-down on a clean energy industry that's never been more promising." Obama referenced ongoing disagreement about climate change policy, but in spite of those challenges he intends to again push for a Clean Energy Standard, which he similarly called for last year. While the President did not lay out specifics, last year's version would require each state to generate at least 80 percent of its power with "low-carbon"  or "clean" resources by 2035. The policy debate largely stymied around two issues. First, what constitutes as a low-carbon or a renewable resource (i.e. new nuclear, hydropower, or clean coal)? Second, there is significant Congressional opposition, particularly in the House of Representatives, to new energy mandates or policies that could raise consumer rates. Legislation is expected to be introduced soon by the Chairman of the Senate Energy Committee, Jeff Bingaman, but prospects of its passage are dim because of many regional differences in electricity generation, the difficulty of creating policy to encapsulate the 30 existing state renewable energy standards, and election year politics.

Other key initiatives announced by the President was his intention to open public lands for the production of enough renewable energy to power three million homes and his directive to the U.S. Navy to purchase one gigawatt of clean power. President Obama also lauded the doubling of renewable energy development during his first term and his intention to push Congress for more incentives to improve the energy efficiency of buildings, upgrading an aging and wasteful power grid, and the need to encourage more clean energy manufacturing jobs -most notably he issued a goal to make the United States the leading manufacturer of high-tech batteries. 

Notably absent from the President's remarks were any mention of the Keystone XL pipeline decision. During the State of the Union rebuttal, Governor Mitch Daniels of Indiana admonished the President for policies that "stifles the development of homegrown energy" that "cancels a perfectly safe pipeline that would employ tens of thousands."  Expect to see more commentary on the State of the Union and developments in the payroll tax debate where supporters of the pipeline may attempt to attach support for the project to any long-term compromise.