Wednesday, April 15, 2009

Obama's Energy Policy and the oil companies

One question which popped in my mind after the class one day was about the role of oil giants in supporting Obama’s perspective of future America. It seems that future plans of oil giants like BP, Shell, and Exxon Mobil etc. differ from that of Obama.

During his campaign Obama said, “Breaking our oil addiction is one of the greatest challenges our generation will ever face“. Last week, the Energy Efficiency and Conservation Block Grant Program (EECBGP) received $3.2 billion from ARRA (Ref. 1,2) . This program is the first of its kind. It would provide grants to projects that reduce energy usage and emissions. Moreover, emphasis on improvement in energy efficiency is also on high priority. Allocation of funds will be provided under the ARRA-2009 to various local governments, counties and cities. Texas has been provided with $218Million which is just second after California. Success of each project will be measured based on factors like jobs created/or retained, Renewable energy capacity installed, reduced greenhouse gas emissions etc.

In contrast, all the oil giants (which are facing severe downturns in their history of oil business) have other plans. These companies face a financial crunch because of problems like oil price shedding and higher capital required to dig oil from far offshore challenging limits. Also, in the last four years, Exxon Mobil, Royal Dutch Shell and Total have reported production drop (Ref. 3) . So what do they claim by their ‘diversified energy’ campaign for a secured future??

Exxon plans to invest $29 billion on finding, drilling and refining fossil fuels and chemicals only. No investments on renewable energy have been planned yet4.
Rex Tillerson, CEO of Exxon Mobil questions the support of the government to renewable energy for future years(Ref. 4) .

An interesting blog by ' lighthouseffect' about BP already explains about the company's 'Beyond Petroleum' campaign.

Shell announced stark decrease in renewable energy investments 3 weeks back (Ref. 5) , purely focus on oil, gas and biofuels. As for the numbers, Shell has invested $1.25 billion from 1999 till 2006 on alternative energy (Ref. 6) . Now, it is planning to drop all new investment in wind, solar and hydrogen energy.

So where does this drive for renewable energy stand?

I think that the EECBG Program will create and environment to provide opportunity for local innovation. Incentives have been awarded to make this possible. The stimulus package offers financial incentives for renewable energy initiatives. It promises reduced capital costs from uncapped 30% tax credit. One of the programs supported by EECBGP is Windspire, a type of small wind turbine. Windspire produces about 2000kWh of electricity at wind speeds of 12mph, enough to power 25% of home expenditure (Ref. 7). Moreover, its relatively lower cost, low noise levels, and its design for harnessing wind power in urban, suburban localities makes it an attractive deal (Ref. 8) . The link below is from AWEA sighting the California experience:

What should be done?
An uncapped 30% tax credit has already been introduced by the government as mentioned above in the stimulus package. I hope that the oil companies exploit this opportunity. Moreover, I think these tax credits should be withdrawn if the companies don't maintain a particular percentage of their overall investment for renewable energy.

Also, if these companies continue to campaign about their diversified profile and still don't increase their investment, then, I think a 'tax on overall profit' of energy companies may be introduced depending on their alternative energy investment. As the percentage of money spent on renewable energy increases, the tax may decrease.
Though that the above step sounds hard on them, but steps like these might ensure some activity from these companies in the coming future. Any other suggestions??


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