US energy sector feeling winds of change

By Ed Crooks and Sheila McNulty
Published: November 5 2008 20:47

In the last few days of the campaign, Republicans attacked Barack Obama in coal-producing states such as Ohio and Pennsylvania by highlighting his warning in January that companies building coal-fired power stations would go “bankrupt” under his plan to cut carbon dioxide emissions.
Although in vain, the tactic was a well-aimed blow.

Energy policy is one of the areas where Mr Obama has the most ambitious goals, and where his administration is likely to make the greatest difference.
The twin objectives of strengthening US energy security and fighting climate change point towards radical policies that are set to raise the cost of energy and bring about the most profound shake-up in the industry for more than two decades.
As oil has fallen from $147 a barrel in July to about $68 on Wednesday, the pressure to cut consumption has also faded. Mr Obama has been careful with talk of “energy independence”, a concept derided by most industry experts, but he is committed to curbing US demand for foreign oil.
His target is a cut equivalent to US imports from the Middle East and Venezuela, – 4.3m barrels per day last year, or 20 per cent of US consumption – in 10 years.
A fall on that scale would not be unprecedented. A deep recession and soaring oil prices brought an equivalent decline between the late 1970s and the early 1980s.
Mr Obama hopes to deliver his cut in imports by measures including raising fuel economy standards for vehicles by 4 per cent per year, and setting a new target for “advanced” second generation biofuels to be brought in by 2030.
In the longer term, the bigger impact is likely to come from the strategy to fight climate change.
Mr Obama is committed to an 80 per cent reduction in greenhouse gas emissions by 2050, and has set several intermediate objectives.
He wants a national trading scheme for carbon dioxide emissions, in which companies would have to pay for all permits, unlike the European Union, where the introduction of the scheme was smoothed by giving away permits at first.
That explains why Mr Obama rightly identified his plans as bad news for coal-fired power generators.
He has also proposed targets for the proportion of the US’s electricity to be derived from renewable sources: 10 per cent by 2012 and 25 per cent by 2025.
Steve Mitnick, a partner at Oliver Wyman, an international management consulting firm, said: “I think we’re positioned for a major boom for wind and solar.”
Copyright The Financial Times Limited 2008