President Obama wants "an economy that works for everybody," but in his State of the Union address Tuesday night he is set to call for more "investments" in green energy. This might work for a few favored companies that receive government grants, loans and tax subsidies. For most Americans, however, it just means higher electricity prices.
Green energy might create some jobs -- the Labor Department counted 3.1 million green jobs in the U.S. economy last year -- but it makes energy more expensive. Instead, for economic growth, the president should focus on oil and natural gas.
To show the effects of oil and gas development on the economy, look no further than new data on the U.S. trade deficit released Friday. The Commerce Department showed the trade balance shrinking from $49 billion in November to $38 billion in December, the smallest in three years, mostly due to increases in petroleum exports and declines in imports.
This will move 2012 fourth-quarter GDP into positive territory, a reversal from the Commerce Department's Jan. 30 estimate, when it announced that GDP shrank by one-tenth of 1 percent.
Due to new hydrofracturing technology, the oil industry set new records in December. Petroleum exports rose 9 percent from November to $12 billion, the highest on record, and imports declined 11 percent to $30 billion. Companies such as Shell, Valero and Noble Energy are expanding their plants or building new ones due to lower natural gas prices. Jobs in oil and gas extraction have grown by 26 percent over the past five years, even as nonfarm payroll jobs declined by 2 percent.
Electricity from natural gas, of which America has a 200-year supply, is less expensive than electricity produced from alternative fuels.
The U.S. Energy Information Administration has estimated that the average levelized cost for natural gas-fired plants entering service in 2017 is $66 per megawatt-hour, compared with $153 per megawatt-hour for solar-powered plants, $96 per megawatt-hour for wind power and $115 per megawatt-hour for biomass.
The bottom line: Households have higher electricity bills using alternative energy than natural gas. And American households in the bottom 20 percent in terms of income lose the most by going green. They spend 24 percent of their income on energy, compared with 4 percent of income for those in the top 20 percent.
Obama justifies renewable energy on the grounds that carbon emissions from fossil fuels raise global temperatures and cause global warming. But the United States is responsible for only 16 percent of global carbon emissions, so cutting back on U.S. emissions will have a minimal effect on global temperatures unless other countries join the effort.
And other countries are increasing emissions, not reducing them. China, India and even Germany are expanding coal consumption, according to the International Energy Agency. Global coal use will rise by 1.2 billion tons in five years.
Government grants and loan guarantees have been notoriously unsuccessful in attempts to make alternative energy profitable. Of the 33 energy loan guarantees made since 2009 under the Energy Department's programs, 30, or more than 90 percent, have shown signs of trouble, ranging from missed production goals to bankruptcy filings.
Even the Air Force and Navy have announced plans to get half of their fuel from renewable sources by 2020. The Navy has paid $26 a gallon for biofuels, compared with $3.50 a gallon for traditional fuels. In 2012, the Air Force paid $59 per gallon for a batch of 11,000 gallons of biofuels. Even without the approaching sequester, this is a poor use of funds.
If Obama wants economic growth and job creation, that means oil and gas, not green energy.