Energy, Environment, Exclusives, Uncategorized

Fogleman: Lessons for Colorado from Europe’s energy crisis

By now you’ve probably seen the headlines about the burgeoning energy crisis in Europe stemming from supply chain bottlenecks, aggressive carbon pricing policies, and a wind drought that has significantly reduced the output of the region’s wind sector.

As a result, oil and natural gas prices have surged to record levels. Many European utilities have been forced to revert to burning coal, which has also seen its price triple, in order to meet the region’s energy needs. Yet some officials are still warning consumers of the possibility of food and energy shortages this winter.

And while the shock has not yet been as pronounced in the U.S., Colorado energy consumers are already feeling the ripple effects. The Denver Post has reported that energy prices in the Denver area are up 33% year-over-year, for example, driven primarily by a 54.8% increase in gas prices.

Meanwhile, increased natural gas prices have led Xcel Energy to announce an average monthly rate increase of 14.4% for Colorado energy consumers this winter, when Coloradans are most in need of abundant and affordable power to heat their homes.

What’s worse is the inability of domestic natural gas producers to meet the surge in demand for output. The U.S. has been the world’s largest producer of natural gas, thanks in no small part to what’s been dubbed the “shale revolution”, but recent hostility to the industry has led to massive reductions in investment in new natural gas projects.

As the Wall Street Journal reports:

“Years of awful returns and pressure from clients to exit from the oil-and-gas business have left fewer and smaller firms able to take advantage of rising prices and help boost production. The unwillingness of some banks to make energy loans has compounded the challenges to boosting energy supplies. Those left are moving to increase production, but they are relatively small players who won’t be able to make a significant impact on output. Investors are steering capital away from fossil fuels and toward companies that rank high in environmental, social and governance, or ESG, measures.”

Here in Colorado, which is one one of the biggest producers of natural gas in the country, recently passed legislation and regulatory rulemakings have added further constraints to the local industry. Senate Bill 19-181 created stringent application requirements and restrictive local land use rules for prospective oil and gas operations to navigate. It also spawned a litany of regulatory rules that substantially drive up the costs of operation and time associated with compliance.

“This winter might be very difficult, and the problem is it hits the most vulnerable among us the most,” Dan Haley, the president and CEO of the Colorado Oil and Gas Association, told Denver 7 News. “We have enough energy in this country to supply our needs and to export that to other countries. We need the political will to do it.”

The current energy predicament should serve as a stark warning to state and federal lawmakers about the risks involved in energy policy and overly aggressive top-down energy transition plans.

Ambitious carbon mitigation strategies and hubristic reliance on not yet foolproof renewables have left much of Europe with a crisis, reverting back to burning dirtier fuels, and at the mercy of Vladimir Putin for energy relief.

Here in the U.S., energy consumers are in for sustained pain at the pumps and from their utility bills, to say nothing of the not-so-transitory inflation impacting prices for other important consumer goods.

All of this bodes poorly not only for the bank accounts of the American people, but also for their future appetite for climate change reduction strategies.

A recent study found that while majorities of Americans across party lines (79% total) believe in human-caused climate change, most Americans would reject having to spend as little as $2 a month in the form of a climate tax on their energy bills in order to combat it.

What do lawmakers expect to happen to public support after extended periods of high gas prices, increased utility rates, and potential power shortages during the bitter cold winter months?

They would do well to acquaint themselves with CU Boulder Professor of Environmental Studies, Roger Pielke’s iron law of climate policy, which states “when environmental and economic objectives are placed into opposition with one another in public or political forums, the economic goals win out.”

Hopefully both the Polis administration and the Biden administration are paying attention.

Jake Fogelman in an energy policy analyst at the Independence Institute, a free market think tank in Denver.

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