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Why America Must Focus On Domestic Energy Solutions Instead of Imports

John Petersen

On September 17th, the White House released a report titled, 100 Recovery Act Projects That Are Changing America. Since the report included eight companies that were awarded a total of $1.1 billion in ARRA battery manufacturing and vehicle electrification grants in August 2009, I created the following table to summarize the first tier job creation impact.

10.25.10 Jobs.png

As I pondered over the relatively high cost per first tier manufacturing job, I decided it might be better to look at the overall value chain including second tier job creation impacts (new jobs in companies that make equipment for the ARRA funded factories) and the third tier job creation impacts (new jobs in companies that will sell raw materials and components to the ARRA funded factories). That process brought me back to the following table from a June 2010 report on the advanced battery sector from Goldman Sachs.

10.25.10 Value Chain.png

While the Goldman table is by no means definitive, it clearly shows that a substantial share of the initial funding will be used to buy imported equipment and a substantial share of the future material and component inputs will likewise be bought from foreign manufacturers. It's enough to make you wonder whether ARRA wasn't more effective at creating offshore jobs than domestic jobs.

While bloggers like me frequently note that current energy policies are merely substituting one dependence on imports for another dependence on imports, we usually focus on the reliability and stability of global supply chains rather than a fundamental economic issue that strikes me as far more important – stimulating domestic production as opposed to stimulating foreign production.

Most of us understand the concept of fiscal multipliers where $1 million in spending on a new factory turns into several million dollars of GDP as one company's capital investment becomes revenue to a contractor who then pays his employees who then buy goods from businesses that then pay their suppliers etc, etc. Most of us also understand that fiscal multipliers are stronger contributors to GDP when the second and third tier impacts create domestic jobs instead of overseas jobs. Frankly I have a hard time getting excited about energy policies that don't focus first and foremost on converting spending on imports into spending on domestic products.

The following chart comes from an Energy Perspectives Overview that the Energy Information Administration published as part of its Annual Energy Outlook 2009. It shows that the US was self-sufficient in energy until the 1950s when consumption began to outpace production. By 2009, net imported energy accounted for 24 percent of all energy consumed. The bulk of those imports, or roughly $200 billion per year, are imported crude oil.

10.25.10 Consumption.png

When I consider the massive annual outlay for imported oil, the first question that comes to mind is "Why aren't we doing more to shift consumption from imported oil that impoverishes the nation to domestic natural gas that would enrich the nation several times over through the fiscal multiplier effect?" While my calculus skills aren't strong enough to nail the analysis down to hard numbers, it doesn't take a lot of math to recognize that every dollar of energy consumption that we can shift from imported oil to domestic natural gas will reduce the import drain by a dollar and increase domestic economic activity by several dollars. While advocates argue that cost of shifting transportation from oil to natural gas is a compelling value proposition in its own right, by the time we account for fiscal multiplier differentials between imported oil and domestic natural gas there's simply no contest.

America's strengths are legion and it became a prominent global power by playing from its strengths instead of its weaknesses. The two strongest players on America's energy team are domestic natural gas production and the minimization of waste through energy efficiency. Truly smart energy policy must merge with the broader issue of truly smart economic policy by keeping energy spending at home instead of sending it overseas.

Disclosure: None



was posted on AltEnergyStocks.com.


       

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Comments

I published an article on the multiplier effects of green spending in July 2009 that has a chart of the expected jobs from various sectors.

The numbers were much higher than the 3 jobs per $1M here, but they included expected multiplier effects.

The best sector for creating new jobs turns out to be Mass Transit, with Weatherization/Energy Efficiency coming in second. And electric trains don't *need* batteries.

The global jobs creation numbers were far higher than the 3 per million number, but I'm not convinced that the domestic jobs creation numbers were anywhere near what they could or should have been.

For what it's worth even trains on catenary systems need batteries or supercapacitors to maximize the efficiency gains of recuperative braking. It's just been one of those areas that didn't get a lot of attention in the past.

" When I consider the massive annual outlay for imported oil, the first question that comes to mind is "Why aren't we doing more to shift consumption from imported oil that impoverishes the nation to domestic natural gas that would enrich the nation several times over through the fiscal multiplier effect?" "

Wrong thoughts. If the USA would impose the same car fuel efficiency standards as e.g. the European Union to it's indigenous car manufacturers, it would instantly bring it's 24% imported crude oil part to zero, saving $200 Billion a year in the process, or $650 per US citizen each year. But I guess that Exxon's funding of the majority of the political establishment must be the explanation of this divergence in approach . . .

http://euobserver.com/885/28171
Mr Obama's plan would require the average US vehicle - cars and light trucks - to achieve 35.5 miles per gallon by 2016, a 30 percent advance over current fuel standards.
China currently enforces an average fuel efficiency standard of 35.8 miles per gallon (mpg) and Japan demands 42.6 mpg.
Europe meanwhile requires vehicles achieve 43.3 mpg and by 2016 - the deadline of the Obama scheme - vehicles in the 27-country bloc will have to meet an efficiency standard of 50 mpg.
Using a slightly different measuring stick to that of the US, the EU would require that the average carbon emissions from all new cars be reduced by 18 percent to 130 grams per kilometer by 2015.
Fines for breaching the standard were also watered down. Originally to have been € 20 per excess grams, they are now to be only € 5 per grams.


I'm a huge fan of efficiency technologies in the automotive sector including stop-start, mild and full hybrids. I only get crusty when folks start talking about cars with plugs which are insanely wasteful. Now that the EPA and NHTSA have successfully lit a fire under the automakers to improve efficiency, I expect the improvements over the next few years to be striking.

That does not, however, change the fact that moving transportation from imported fuel to domestic fuel is critically important for the domestic economy and one of the best tools in the policy arsenal.

Unfortunately your premise that the EU standards are stricter than their American counterparts is wrong.

The widely touted EU limit of 130 g/km is based on a vehicle weight of 1,372 kg (3,025 pounds) and is subject to proportional upward adjustment based on vehicle weight. See Annex A:

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32009R0443:EN:NOT

If you assume an average vehicle weight of 4,000 pounds and adjust km to miles the numbers are exactly the same.

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