U.S. Energy Policy Should Not be Based on Rare Events

By William Hawkins l June 25, 2010


Secretary of Interior Ken Salazar           Senator Mary Landrieu                         Fox Reports on Modified Report

 

In 1979, the Three Mile Island nuclear power plant in Harrisburg, Pennsylvania suffered a cooling malfunction in its second reactor (TMI-2) which caused part of the core to melt. Some radioactive gas was released in the days after the accident, but not enough to cause any dose above background levels to local residents. There were no injuries from the TMI accident, yet it cost nearly $1 billion to clean up the facility over the next decade. The higher cost, however, was to the American economy as the accident was used by opponents of nuclear power to bring an industry that had been created in the United States to a near standstill.

America has 104 nuclear reactors producing 20 percent of the nation’s electricity. The plants responsible for this output were, however, all approved before the TMI accident. The most recent “new” reactor to go online was at the Tennessee Valley Authority’s Watts Bar plant in 1996; a reactor that had been started in 1973 but then suspended. Meanwhile, nuclear power expanded in other countries. Today, only 30 percent of the world’s nuclear energy is generated in the United States. Of the 55 reactors currently under construction around the world, only one is in the U.S. (Watts Bar 2). Twenty are in China. Many more are being planned.

Electricity demand is expected to increase 50 percent by 2030 in America, and there is now a belated interest in expanding nuclear power. The Nuclear Regulatory Commission has received 17 license applications for 26 new nuclear power reactors, the first applications since TMI. Yet, Greenpeace and other anti-growth groups still cite TMI in their campaigns against building new reactors—or even keeping current reactors running. TMI was an isolated incident. Indeed, the other reactor at the TMI complex has been running since 1982 and had its permit renewed for another 20 years in 2009. In public policy, accidents need to be kept in the larger national perspective.

Consider the destruction of the Deepwater Horizon platform in the Gulf of Mexico which produced a major oil spill. It is being used in the same way as TMI to cripple another industry vital to an American economy that will of necessity be using oil in large volumes for decades to come.

Approximately 18,300 offshore wells were drilled globally during the 2004-2008 period, at a cost over $275 billion. An even larger number are expected to be drilled over the 2009-2013 period, as oil prices rise with the global economic recovery. During the last decade, about half of all new reserves of oil have been discovered offshore. From 2005 through 2009, giant and significant deepwater discoveries of oil and gas were made in Brazil, Angola, Australia, India, Nigeria, Ghana, and Malaysia, as well as the United States. A number of countries recently joined the “Deepwater Club,” including Ghana, China, Russia, Mexico, Trinidad and Tobago, Mozambique, Cameroon, Libya, and Cuba. In 2009, there were 2,286 offshore wells around the world, 555 of which were in deep or ultra deep waters. In April, 2010, the largest concentration of drilling rigs was in the Gulf of Mexico, with 81 in U.S. waters and 33 in Mexican waters. The next largest concentrations were in the North Sea (73) and Latin America (71).

In response to the Deepwater Horizon oil spill, President Barack Obama ordered what was originally called a six month moratorium on offshore drilling. The halt came under immediate fire from members of Congress representing Gulf States that were supposedly being protected by the moratorium. During his testimony to the Senate Energy and Natural Resources Committee June 9, Interior Secretary Ken Salazar was told by Democratic Sen. Mary Landrieu of Louisiana that if a moratorium on new deepwater oil and gas wells “lasts very much longer than a few months, it could potentially wreak economic havoc on this region that exceeds the havoc wreaked by the [spill] itself.”

A bi-partisan group of House lawmakers from Louisiana, Texas and Mississippi have called on the President to ease the moratorium. They point out that oil produced from the Gulf of Mexico amounts to around 30 percent of total U-S domestic production. And of that, 80 percent is produced from deepwater wells. The oil and gas industry employs more people and generates far more income and tax revenue than do the fishing and tourism industries threatened by the oil spill. The entire domestic oil and gas industry (on shore and off) accounts for 7.2% of GDP and 9.2 million jobs as it provides an essential supply of energy on which the entire country depends.

On June 22, New Orleans-based U.S. District Judge Martin Feldman echoed these larger economic concerns when he issued a preliminary injunction ordering the moratorium lifted. “An invalid agency decision to suspend drilling of wells in depths over 500 feet simply cannot justify the immeasurable effect on the plaintiffs, the local economy, the Gulf region, and the critical present-day aspect of the availability of domestic energy in the country,” wrote Feldman. The Obama administration immediately tried to reimpose the drilling ban and appealed the judge’s decision.

The moratorium was linked to a commission established to study the oil spill and related deepwater drilling safety issues. Such commissions take a very long time to organize, study and report. However, there was an immediate uproar from experts recommended by the National Academy of Engineering who reviewed a preliminary report from the Department of the Interior regarding offshore drilling. Secretary Salazar had used the report and its peer review to justify the six month moratorium. Eight of the 15 experts named in the May 27 report sent a letter to Sen. Landrieu, Sen. David Vitter (R-LA)., and Louisiana Gov. Bobby Jindal insisting they did not endorse the department’s ban on drilling. The scientists said that recommendation was added after they reviewed the report. “The Secretary should be free to recommend whatever he thinks is correct, but he should not be free to use our names to justify his political decisions,” the letter says. Further, they point out, “A blanket moratorium is not the answer. It will not measurably reduce risk further and it will have a lasting impact on the nation’s economy which may be greater than that of the oil spill.”

In the meantime, not only will jobs be lost but shifts in resources will take place that will have long term negative impacts on American energy production. The drilling rigs are mobile, and there is a global demand for new oil and gas supplies. The rigs will move from the Gulf of Mexico to Asia or Africa where they are wanted; and once employed there, will not come back. The pursuit of new energy sources in a growing world is highly competitive, with governments increasing acting to lock up supplies for their own economies rather than for the open market. America cannot afford to drop out of the race.

The same loss of capacity occurred in the U.S. nuclear industry in the wake of the TMI accident. Though there is now talk of a “nuclear renaissance” to make up for lost time, Heritage Foundation analysts Jack Spencer and Daniella Markheim claim that “The U.S. currently lacks the industrial capacity to support a substantial expansion of domestic nuclear power” because of the long drought in American construction. They argue that key components will have to be imported from countries where nuclear power has been expanding over the decades, which is not a route to independence.

Though the U.S. is the world’s third largest producer of oil, it is also the world’s largest economy providing its citizens with a high standard of living. America imports over half the oil it uses. Policy should be aiming at reducing the nation’s dependence on foreign oil, not trying to cripple domestic production. In 2008, before the recession hit, America sent $337 billion overseas to buy oil.

On March 31, President Obama and Secretary Salazar announced a Comprehensive Strategy for Energy Security which included an expansion of “oil and gas development and exploration on the U.S. Outer Continental Shelf (OCS) to enhance our nation’s energy independence.” In his June 15 address to the nation, however, President Obama tried to change the goal from escaping dependence on foreign oil to escaping from the use of oil itself. That is impossible in any meaningful time frame. More efficient cars and trucks, including hybrids, could reduce oil consumption to where domestic sources could regain their predominant status, but the use of oil for transportation and other uses will not end. And the president’s call for alternative energy sources was largely irrelevant. As the New York Times pointed out in its coverage of the speech, “While he called for more wind turbines and solar panels, for instance, neither fills gasoline tanks in cars and trucks, and so their expansion would not particularly reduce the need for the sort of deepwater drilling that resulted in the spill.”

The United States cannot again allow an uncommon accident to cripple a vital industry. Though the Gulf oil spill may loom large on television screens its impact shrinks as it is placed in a proper national perspective. America has a $15 trillion economy which provides 300 million people with an affluent life style. The country is currently trying to recover from one of the worst recessions in modern history, and will need plentiful and secure energy sources if it is to reduce unemployment and resume a vigorous growth rate. Technology will fix any problems associated with deepwater drilling. Government policy must focus on providing a domestic setting that encourages the development of the technology, energy and industry needed to move America forward.


William R. Hawkins, a former economics professor and Congressional staffer, is a consultant specializing in international economics and national security issues. He is a contributor to SFPPR News & Analysis.