Harnessing the Energy Revolution

The North American energy landscape is being transformed. CFR Fellow Michael Levi on why it would be a mistake to choose just one path.
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May 15, 2013

There are seismic shifts going on in the global energy market, driven in no small part by the growth of energy production in the United States. The near and longer term impacts of these shifts will depend on how countries react to the economic, security, and environmental opportunities and challenges they represent. OpenCanada spoke to Michael Levi, Senior Fellow for Energy and the Environment and Director of the Program on Energy Security and Climate Change at the Council on Foreign Relations, about his new book The Power Surge, and what it will take for the United States to thrive in an era of energy transformation. 

The premise of The Power Surge is that the North American energy landscape is being transformed. What developments in the energy sector make this is a truly revolutionary period?

What makes this such an extraordinary time is the sheer number of transformations that are underway – we’ve had oil production rise every year for the last four years, adding up to about two million barrels a day in the U.S., and poised to go much further; we’ve seen natural gas pass coal as the top domestic source of U.S. energy in 2011; we’ve seen the largest increase in oil production in a single year last year since the beginning of the modern oil industry; we’ve had increases in renewable energy production all of the last four years, and we’ve had decreases in oil consumption almost every year since 2005. You have to go back 30 or 40 years to see this many big transformations at once – back to at least the 1970s, when nuclear power was just emerging; the oil market was transforming in the aftermath of the 1973 oil crisis; U.S. oil production was peaking; and the modern environmental movement was just emerging, to see so many things changing on so many different fronts.

To navigate through this period of parallel transformations successfully, you argue that the U.S. should pursue a “most of the above” strategy. How can a strategy that allows for the continued development of oil – even if this takes place alongside renewables – be reconciled with the goal of reducing carbon emissions?

If the only thing in the world you cared about was addressing climate change then you wouldn’t follow all an “all of the above” or even a “most of the above” strategy. You would follow an “only things that don’t involve carbon emissions” strategy. But climate change, while a major challenge, is certainly not the only challenge facing the U.S. today; we have massive economic and security challenges that we need to deal with as well. A “most of the above” strategy allows you to tackle climate change aggressively without saying it’s the only thing you care about, or throwing other legitimate goals away. A genuine “all of the above” approach where you pursue all available options wouldn’t take climate change into sufficient consideration, because some of the available options – unfettered coal combustion, for example – are actually too damaging to the climate to develop further. But an approach that only focuses on climate change ignores the other significant challenges and opportunities we face.

A “most of the above” strategy includes oil and gas so that you don’t end up shutting out opportunities that could improve people’s lives. But it also includes regulations to protect people from the real environmental risks that developing oil and gas involves, and makes people pay for emitting dangerous levels of pollution or excessive oil consumption. It requires ambition and flexibility to implement so that, for example, we expand natural gas production, but also see the kind of continued gains in clean, energy efficient cars and trucks that will lower vehicle emissions over the long term.

Is there a country or region that’s implementing “most of the above” approach right now?

I haven’t seen one. To some extent, this is because they don’t have same variety of opportunities the U.S. has to pursue right now – the set of resources and technologies we have available is pretty unusual. There are countries pursing multiple efforts at once, of course. But whether its China or Europe, I don’t think any country has yet to come close to what I would consider a genuine “most of the above” approach.

Many political players in the U.S. don’t favor a “most of the above” approach because they view energy politics as zero-sum.  Why is that? Is this true of the wider public?

Part of the reason for that perspective is because a lot of folks in Washington have become convinced that all the opportunities are in one area of the energy sector, and all the dangers lie in another – for example, that any support for renewables undermines the future of natural gas or oil production. When that’s what you believe, you end up with a very polarized debate. In the book, I try to understand where each side is right and where each side is wrong, to cut through the myths and reveal a path forward that makes some sense, and demonstrate that it doesn’t have to be a zero-sum game.

While I was writing the book, I spent a lot of time traveling around the country and talking to people. Some were hardcore supporters of one side or the other. But, more often, I met people who were well informed and saw merits in both sides. I also met people who had been fed a lot of misinformation and who had developed strong opinions, but who started to see merits in pursuing a variety of opportunities when the issues were explained to them in a more nuanced way. I think that the American public at large, when given good information and presented with smart options, adopts less rigid views about the best way forward than their representatives in Washington.

The debates around Keystone XL seem like an apt example of the kind of political polarization that happens when nuanced information on the issues isn’t provided.

The Keystone debate has been dominated by voices that blow the consequences – in every dimension – out of proportion to the reality. Neither the economic nor the climate impacts of the Keystone project would be particularly large. But instead you hear that its do or die for the American economy, and that its “game over” for climate change. When you say something is “game over,” that doesn’t allow for any rational or sensible discussion of cost and benefits. When you say something is a panacea for the economy, you cannot have a coherent conversation about whether it’s actually worthwhile to move it ahead. When people deal only in extremes, it’s impossible to even consider whether a compromise might be found.

 What do you think of the argument that the construction of Keystone XL is imperative for U.S. national security?
I think that the energy security argument is overstated. When civil war broke out in Libya two years ago, the price of oil from Canada increased more than the price of oil from the Middle East. We’re part of an integrated global market, and so is Canada. Theoretically, in a case of global war where energy exports from outside North America were cut off, the more oil coming from Canada the U.S. could rely on, the better. But that’s not a near-term prospect, to say the least. I think it’s clear that if the U.S. says “no” to Keystone, that will have serious implications for the bilateral relationship. But it’s not clear to me that saying “yes” will fundamentally transform our national security situation.

The Keystone project is being driven by the impact of the oil sands on Canada’s energy industry. Can the U.S. learn anything from the Canadian experience with developing the tar sands when it comes to dealing with the attendant challenges of the natural gas boom?

Absolutely. The first big thing the U.S. can learn is that when energy development happens very quickly, you often have trouble keeping up at the community and regulatory levels. It’s important for energy development to proceed at a pace where all of the elements of society can keep up, so that the benefits and trade-off are distributed fairly, and the chances of a backlash are minimized. The second big thing is that while there are big economic benefits from growing energy production, we’re talking about a cyclical industry. We saw briefly in 2008-2009 what that means for economies that become highly focused on energy. That won’t happen on the national scale in the U.S., but it may happen in some states and some regions. It’s important to think ahead about those cyclical risks so that we set ourselves up for serious problems on the way down.

What about Canada’s experience with setting guidelines around foreign investment in the energy sector?

The lesson from Canada on that point is that it’s important for the U.S. to get its strategy on foreign investment straight before it’s confronted with a big case. Making policy through individual cases often is not the ideal way to go. In practice that may be what happens – this is how foreign investment policy has evolved in Australia and Canada, so I wouldn’t be surprised to see it evolve that way in the U.S. as well. But, right now we have a bit of space in the U.S. to think about how we want to govern foreign investment. It will be better for us if we settle on a coherent way of addressing this question before we have to deal with a politically charged case.

How optimistic are you that coherent thinking around this and other challenges related to the U.S. power surge will develop in time for America to fully exploit its inherent economic, security, and environmental opportunities?

I’m not enormously optimistic, particularly in the near term. But I think that over time, we have a real shot at taking advantage of the innovations and discoveries now taking place across the energy industry. It seems like forever ago, but we actually had bipartisan energy legislation in 2005 and 2007. And in 2008, we had two presidential candidates fighting over whose cap and trade plan was better. Despite how it may feel, the time when people could see the merits in pursuing multiple opportunities simultaneously isn’t ancient history, and it’s not gone forever.