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Michael Levi and Peter Orszag On America’s Energy Future

By Ideas Lab Staff May 10, 2013

In a recent conversation held by the Council on Foreign Relations, Orszag and Levi discuss the economic impact of the shale revolution.

In a recent media call held by the Council on Foreign Relations Michael Levi, senior fellow for energy and the environment at CFR, discussed domestic energy issues with Peter Orszag, vice chairman of global banking at Citigroup and former director of the Office of Management and Budget and a CFR adjunct senior fellow.

Levi, who recently penned a post for Ideas Lab on energy independence, says the country’s energy scene is evolving in ways that have been counter to predictions and expectations.

“Five years ago, we were talking about the consequences of becoming dependent on imported natural gas. Now we’re talking about whether we should export natural gas. Oil consumption, which seemed like it would go up forever, has fallen steadily over the last seven years. And renewable energy production has doubled at the same time, in part because of government support but in part because of some pretty radical declines in cost that people didn’t anticipate,” Levi said.

“At the same time that you’ve had these changes in the energy world you also have had big changes in how energy effects the broader world around us. A lot of what we think we know about energy we figured out in the 1970s, in the aftermath of the first energy crisis, the first Earth Day. We focused on how energy affected the economy, security and the environment, but the way those relationships work has changed since then.”

Energy independence is more elusive today, Levi argues, even if the U.S. is able to produce all the all it currently consumes. And climate change, he says, should be central to any discussion about the future of energy here.

“Smart rules” from Washington are necessary, Levi says, to help the U.S. capture opportunities, keep bad actors in line, and help use natural gas to replace coal in the power system to drive down emissions. “We need support from government for further innovation and clean energy and steps that help private companies in the market take into account the damages to the climate that are created by overconsumption of fossil fuels and the harm to national security that comes when we use too much oil, Levi said.

A revolution in shale gas, Orszag says, has multiplier effects on the greater economy, not only counting the increase in new production – a stimulus in other energy sectors, but also lower energy prices allows for greater disposable income for consumers. “So you can imagine, you can think of that almost as if it’s a — basically $100 billion a year tax cut,” Orszag said.

However Orszag also called on the institution of a carbon tax to help deal with the threat of significant climate change, “in order to generate the responses from private firms and from households that would be desirable.”

The full transcript of the call is available at the CFR, along with other articles in its Renewing America project.