May 07, 2014
Thomas Friedman wants to “go big, get crazy” when it comes to energy policy in order to both deal with Vladimir Putin and global warming. The idea is that if the United States can drastically reduce its demand for foreign oil it would put downward pressure on world prices and thereby hurt Russia’s economy. His way of reducing demand for foreign oil is a combination of promoting clean energy and allowing increased oil drilling and fracking, “but only at the highest environmental standards.” He also would allow the XL pipeline, but a quid pro quo would be a revenue neutral carbon tax.
There are a few problems in Friedman’s story. First, it’s hard to see why the frackers would take it. The main limit on fracking at the moment is not regulation but low gas prices. In real terms, natural gas prices are less than half of their pre-recession levels and less than a third of their 2008 peaks. In states like Pennsylvania, where they have a drill everywhere policy, production is dropping because new sites are not profitable.
If we put new regulations on fracking, for example making the industry subject to the Safe Drinking Water Act and thereby forcing it to disclose the chemicals it uses, that would likely mean less fracking rather than more. That means both that the industry is not likely to buy it and that his policy would go the wrong way in terms of increasing U.S. production.
The same applies to his proposal for a carbon tax coupled with approving the XL pipeline. The tar sands oil that would go through the pipeline would be especially hard hit by a carbon tax. That would likely make it unprofitable, a point that Friedman himself notes. For this reason the industry is unlikely to see the XL pipeline as much of quid pro quo for a carbon tax. In short, it doesn’t seem like he has much of the basis for a deal here.
His description of the Europeans, and in particular the Germans, is also inconsistent with his description of his “big” and “crazy” plan. Friedman tells readers:
“Europe’s response has been more hand-wringing about Putin than neck-wringing of Putin. They talk softly and carry a big baguette.”
Actually Europe and in particular Germany have done a great deal to reduce their use of fossil fuels over the last two decades. Germany’s energy intensity of production (energy use per dollar of GDP) has fallen by 30 percent over the last two decades to a level about half of the U.S. level. Almost a quarter of its energy comes from clean sources and this share is increasing by 2 percentage points a year.
In short, Europe has been doing a great deal to reduce its demand for fossil fuels. It certainly could do more, but if the United States had been following the European path over the last two decades, the price of fossil fuels would certainly be much lower than it is today. Of course, a big part of the story is that Europeans are more likely to carry a big baguette than to drive a big SUV.
Addendum:
A friend reminded me of one of Thomas Friedman’s great energy plans from the past, this time with China as a partner. The piece is here and my comment here.
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