Two professors in the Leavey School of Business argue that economic recovery shouldn't be used to justify poorly regulated energy development. This piece was originally distributed by McClatchy–Tribune Information Service in Nov. 2012.
Recent job growth numbers suggest that the U.S. economy is finally pulling out of its worst economic crisis since the Great Depression. With unemployment at nearly 8 percent, plenty of Americans are still hurting.
Energy policy can clearly play a role in economic growth if we choose policies that achieve the maximum benefit at the least cost. Unfortunately, some solutions being touted for fostering U.S. energy independence fail that basic economic test, offering little immediate help for the economy but costly economic and health consequences in the long run.
For instance, parts of North Dakota and Pennsylvania have recently experienced a natural gas bonanza, through a process known as "fracking," which could also potentially be used to extract oil from shale deposits in Montana.
According to projections by the International Energy Agency, tapping these new resources plus improvements in energy efficiency could allow the U.S. to become energy independent over the next 20 years.
The same report projects that oil prices will increase because of new demand from developing countries. Thus, tapping these new energy resources will benefit energy companies, but not consumers at the pump. Before expanding the use of fracking and other new extraction methods, we need to understand all of their costs. Fracking injects as much as five barrels of water and chemicals for each barrel of oil recovered.
It is currently exempt from the Clean Water Act, and there is no requirement to disclose even the chemicals that are used. It has resulted in flammable tap water and changes in local water tables, while the longer term effects on the water supplies and ecosystems have yet to be determined. In effect, the current government policy provides a major subsidy to fracking, by not requiring accountability for environmental costs.
The U.S. also has large coal deposits, but a recent study published in the prestigious American Economic Review found that coal-fired power plants create costs to public health that are more than twice the value they add to the economy.
In the long term, the cost of all fossil fuels should also include their contributions to climate change, because the overwhelming majority of climate scientists now agree that human generated carbon emissions are the major contributor. Even with extremely conservative assumptions about the costs of climate change, encouraging major expansion of fossil fuel production looks like bad policy.
Fortunately, there are other paths to energy independence and fuel cost savings for consumers that have lower environmental costs and provide greater benefits to American workers.
Plug-in hybrid cars, which are now offered by both GM and Ford, can accomplish the equivalent of 100 miles per gallon in local driving. Offering temporary incentives for purchasing these cars will stimulate demand and lower their production costs. This has already happened with standard hybrid cars, which now sell well with no subsidies. Converting to energy efficient cars will provide much greater fuel cost savings for consumers and more well-paying U.S. industrial jobs than new US based energy extractions.
Solar and wind energy now cost roughly the same as other alternatives for new power plants, and investments in an improved electric power grid will provide jobs and allow us to tap the full potential of these new energy resources.
The keys to maintaining and improving the economic recovery in the short term are well-known to economists: they include resolving the impending fiscal cliff and maintaining low and stable interest rates. Sound energy policies can also play an important role in job creation and provide significant long-run benefits.
We should not use the pain of America's unemployed to justify poorly regulated fossil fuel development that is bad for America in both the short run and the long run.
Stephen A. Smith and William A. Sundstrom are professors in the Leavey School of Business at Santa Clara University.