New energy secretary could boost CA oil production

Monterey Shale map frackingFeb. 8, 2013

By Chriss Street

President Obama’s expected naming of Ernest J. Moniz as the next secretary of energy is good news for energy producers and consumers, especially those in California. It represents the recognition that oil and gas development is the only potential revenue source available for the administration to avoid the type of austerity spending cuts sweeping Europe.

Moniz’s expected nomination, if confirmed, also could boost energy production in California, generating new tax revenue that could ease the state’s budget problems.

Moniz is a respected expert on electrical energy and currently serves as the director of MIT’s Energy Initiative, a research group that is heavily funded by the oil and gas industry. The outgoing energy secretary, Steven Chu, pushed hard for job-killing cap-and-trade legislation, and the prohibition of exploration on federal lands. And he wasted billions of dollars on sustainable energy boondoggles, such as the bankrupt Solyndra of Fremont, Calif. — a $535 million hit to taxpayers. Chu, a physicist at the University of California, Berkeley, failed to mention the Solyndra boondoggle in his farewell letter.

With public employees panicking over sequestration spending cuts scheduled to begin in early March, the Obama administration seems poised to triangulate away from its radical environmentalist friends to embrace oil and gas fracking in places like California’s massive Monterey Shale formation to protect union jobs.

Avoiding Greece

The European PIIGS (Portugal, Ireland, Italy, Greece and Spain) have been forced by the International Monetary Fund, dominated by the United States, into austerity programs that raise taxes, slash crony spending and eliminate union featherbedding.  But after four years of draconian austerity, the Greek Finance Ministry reported the tiny nation saw tax collections fall 15 percent over last year.

It seems that, if you raise taxes, businesses deplete their cash reserves, curtail reinvestment and postpone payments to their own vendors.  Economists refer to this phenomenon as austerity’s self-reinforcing “cycle of pain.”  As tax collection falls, governments raise tax rates further, perpetuating another cycle of pain.

The most recent Congressional Budget Office’s projections estimate the U.S. federal deficit will climb by $7 to $9 trillion over the next 10 years.  If these deficits actually happened, the United States eventually would suffer a monumental debt crisis.  But unlike tiny Greece, which can ask for aid from the IMF, there is no entity large enough that could or would bail out the United States.

To address America’s debt and spending crisis, Congress raised some taxes last month and set automatic spending cuts, known as the sequestration, that become effective next month.  The pain is structured to be shared equally between the military and the welfare state with 9.7 percent cut in defense, 7.3 percent in non-defense and 2 percent for Medicare spending.

Anticipating coming crunch, government spending fell at an annual 6.6 percent rate in the last quarter of 2012, driven by a 22.2 percent decline in defense spending.  This subtracted 1.33 percentage points from the economy.  Vendors to government cut their rate of inventory accumulation, slashing another 1.27 percentage points of GDP.  The combination of these factors slowed the economy by at a 2.5 percent annual rate, a small economic contraction.

President Obama is getting lots of grief from public sector unions regarding the potential size of the sequester layoffs.  Under the Executive Branch of the federal government, he controls 1,942,528 “permanent employees” and 167,675 “temporary employees.” The U.S. Postal Service is off-budget as self-funding, but it now is dumping Saturday services.

Unions could decide to share the sequestration pain to save jobs. But the Office of Personnel Management guidance calculates all federal employees then would be forced to take a 22 days of unpaid furlough a year to meet sequestration cuts.

The U.S. Army estimates that 78 percent of its combat brigades will be forced to skip training due to sequesterDirector Douglas Elmendorf of the bi-partisan Congressional Budget Office recently warned that too high spending cuts will undermine the already weak economic recovery.

Steven Chu was the tip of Obama’s spear to push “public investment” schemes in wind and solar energy, while fighting against fracking and other new petroleum drilling innovations.  When Chu was appointed four years ago, crude oil’s price hovered around $37 to $40 per barrel. Today it sits at around $95.  With the shale boom driving huge tax collections for certain states, federal unions looking to get in on the gravy train helped push Chu out.


Moniz looks to be the ideal choice as Secretary of Energy.  He was confirmed by the U.S. Senate as undersecretary of energy during the Clinton Administration and his academic credentials at the Massachusetts Institute of Technology are stellar.  He strongly advocates that developing low-cost natural gas for electricity is a “bridge fuel” to lower carbon pollution.

In Meeting Energy Challenges: Technology and Policy, Moniz wrote:

“Adequate electricity supplies are central to economic growth and quality of life…. In the industrialized world, capacity needs to be increased in a manner consistent with the strict reliability requirements of the digital economy. In addition, outdated infrastructures need to be modernized, and suitable mechanisms for market deregulation need to be developed.

America is on the cusp of an energy independence that will drive prices down and spur a new manufacturing boom.  Obama may be appointing a pro-energy secretary of energy to drive tax revenue up to save public sector union jobs, including those in California.


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Chriss StreetErnest J. MonizfrackingSteven Chu

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