Energy and environmental rules make up a large share of the total cost of federal regulation. Because of this, government regulation of energy sources and the pollution they generate create powerful economic incentives--and disincentives--that drive business choices among competing fuels and power generation methods.
The Obama Administration has launched a major initiative intended to reshape the mix of fuels that power the American economy. It has chosen to follow an indirect approach of subsidies and regulations, rather than more visible and less popular direct energy or carbon taxes. However, implementation of this plan has been complicated by other government actions and external events.
The 2009 stimulus bill provided the Department of Energy (DOE) with billions of dollars to support alternative energy projects. Its first funding initiative was to provide $1.37 billion in loan commitments for construction of three large solar plants in the Mojave Desert. If successful, the project will generate 400 megawatts of electricity, nearly doubling the nation's existing solar power output. Ironically, the DOE's ability to fund this and other alternative energy projects has been slowed by its lack of expertise in conducting the environmental assessments required before major federal actions can be taken.
DOE also has committed $8.33 billion in loan guarantees for two new generation nuclear reactors. If built, the project will be the first commercial nuclear power plant constructed in the U.S. in 30 years. However, the administration has abandoned plans to store radioactive waste created by nuclear electric generating plants in the Yucca Mountain facility. Without a disposal policy, the role of nuclear power in meeting the country's energy needs will remain compromised.
The administration also has approved the construction of the country's first offshore wind farm near Cape Cod. It will serve as a major test of the role offshore wind turbines can play in meeting the country's energy needs.
In March, President Obama announced that he would seek legislation to open vast areas of the Outer Continental Shelf off the east coast, in the eastern Gulf of Mexico, and in the Arctic Ocean north of Alaska to oil and gas exploration. However, the Deepwater Horizon oil spill off Louisiana has clouded the prospects for expanded domestic production.
In sum, the Administration's energy strategy is to promote all alternatives to coal simultaneously, to identify which alternative or sustainable fuels can make a meaningful difference and to avoid having to make difficult technical, economic and political choices among competing energy sources.
John F. Cooney is a partner in the Washington, D.C., office of Venable.