TODAY’S STUDY: SNAFUS, NIMBYS, BANANAS & NEW ENERGY

The anecdotes are usually told by a would-be builder or project advocate. They are about how protectors of an unknown but rare critter or a small but vocal group of locals prevented a big power-producing project from going forward.

The old-timers will call it a SNAFU (Situation Normal, All Fouled Up). Somewhere in the anecdote, the protectors and locals will be called NIMBYs (Not-In-My-BackYarders) or, worse, BANANAs (Build Absolutely Nothing Anywhere Near Anythingers).

The protectors and locals, though, burn with the passion of the righteous. Often, they are justified. There are precious living things and irreplaceable places that truly deserve defenders.

In other cases, as the study below reports, those defenders are simply being selfish. Over 3 TRILLION dollars in earnings and almost 1 and ½ TRILLION dollars in employment proceeds, the study found, are now being lost to stopped energy projects. In this economy, that leaves a lot of families hungry and a lot of children at the edge of poverty.

And, as the last twelve months' West Virginia coal mine cave-in, Gulf oil spill and Fukushima nuclear meltdown conclusively demonstrate, newer and safer generation capacity is urgently needed.

The real question, which the study motivates more aggressive work on but does not answer, is this: How can more power and heat be served to an energy-voracious (and job-starved) modernity without doing in the precious and irreplaceable?

The study covers new generation capacity from both Old Energy and New Energy sources but the controversies and rising costs into which Old Energy is sinking make concerns about them less complicated. Though the vested interests will nor roll over easily, the marketplace will sooner or later dismiss them, sooner in nations wise enough to put a price on climate change-inducing emissions and radioactive threats.

In China, central planners are building New Energy projects and new transmission at a stunning pace. They reportedly take a sort of early-Industrial-Revolution approach to ecological and environmental concerns, seeing the landscape as too immense and its critter-inhabitants as too plenteous to worry about.

Many in the U.S. have emerged from that impatient mentality. They remember the disappearance of thousands-flocked avian migrations, the slaughter of the once herds-to-the-horizon buffalo and the ugly inequities of water-stealing desert cities turning majestic mountains to barren moonscapes. They are determined to stop the madness.

Between the two extremes there is a middle ground. States have begun identifying already inhabited areas rich with resources as Renewable Energy Zones and streamling the permitting process in them. To its enormous credit, the Obama administration is pioneering a path at the federal level to New Energy project growth through similar advanced planning. Areas of federal lands have already been pre-designated as appropriate sites for development. Solar power plant development in the West and offshore wind development along the Atlantic coast have already advanced as a result.

It is not a trouble-free process. The defenders still have a voice and the builders still want more than they can have. Don’t expect a time when there will be no anecdotes or name-calling.

Only expect that as the threat of climate change grows and the need for New Energy becomes greater, there will be a growing sense of compromise. Defenders and builders are already beginning to see that whatever precious places and irreplaceable things – not to mention wealth and well-being – is lost to the development of New Energy, more will be lost to the threat facing this entire good earth if they don't find common ground.

Project No Project; Progress Denied: A Study on the Potential Economic Impact of Permitting Challenges Facing Proposed Energy Projects
Steve Pociask and Joseph P. Fuhr Jr., March 10, 2011 (TeleNomic Research and U.S. Chamber of Commerce)

Executive Summary

This study estimates the potential loss in economic value of 351 proposed solar, wind, wave, bio-fuel, coal, gas, nuclear and energy transmission projects that have been delayed or cancelled due to significant impediments, such as regulatory barriers, including inefficient review processes and the attendant lawsuits and threats of legal action. These energy projects were reviewed and catalogued by the U.S. Chamber of Commerce as part of its Project No Project initiative and are available at www.projectnoproject.com. To be clear, we do not believe that all of the subject projects ever would or necessarily should be approved, constructed, and operated. However, the Project No Project initiative and our independent research, which is summarized in this study, demonstrate that impediments such as regulatory barriers to energy projects can substantially reduce and impair private investment and job creation. After a year of research on these projects, the following are the major highlights of our study:

All the Projects-No-Projects (click to enlarge)

• In aggregate, planning and construction of the subject projects (the “investment phase”) would generate $577 billion in direct investment, calculated in current dollars. The indirect and induced effects (what we term multiplier effects) would generate an approximate $1.1 trillion increase in U.S. Gross Domestic Product (GDP), including $352 billion in employment earnings, based on present discounted value (PDV) over an average construction period of seven years. 1 Furthermore, we estimate that as many as 1.9 million jobs would be required during each year of construction.

• The operation of the subject projects (the “operations phase”) would generate $99 billion in direct annual output, calculated in current dollars, including multiplier effects, this additional annual output would yield $145 billion in increased GDP, $35 billion in employment earnings, based on PDV, and an average 791,200 jobs per year of operation. Assuming twenty years of operations across all subject project types, we estimate the operations phase would yield a potential long term benefit of $2.3 trillion in GDP, including $1.0 trillion in employment earnings, based on PDV.

• Therefore, the total potential economic and employment benefits of the subject projects, if constructed and operated for twenty years, would be approximately $3.4 trillion in GDP, including $1.4 trillion in employment earnings, based on PDV, and an additional one million or more jobs per year.

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As noted above, we do not believe that all of the subject projects will be approved or constructed even in the absence of any legal and regulatory barriers. Also, as with all economic forecasts, we recognize that there is an element of uncertainty. This could be true here because, to our knowledge, this is the first empirical study to quantify the macroeconomic and employment impact of the regulatory barriers imposed on the development and operation of so many energy projects. Consequently, we believe additional work is needed to improve the list of energy projects and to refine this study’s methodology. Among other things, future work could attempt to quantify other potentially lost benefits such as the economic impact of increased domestic energy supplies and associated reductions in consumer prices due to greater amounts of available energy.

Notwithstanding the above caveat, we believe this study provides an instructive and statistically defensible picture of the potential for corrosive economic and employment impacts that can arise from significant project obstacles such as inefficient regulatory processes, including attendant lawsuits and threats of legal action. Moreover we believe the data demonstrates these impacts are substantial. Furthermore, because we have, for example, excluded domestic on-and off-shore oil and many natural gas projects from our study cohort, we have substantially underestimated the impact of the regulatory barriers and other project impediments. In other words, this is a conservative analysis.

At a minimum, our study demonstrates that private investors and developers are prepared to fund, build and operate energy projects that could materially increase GDP and create many jobs. However, in view of project obstacles such as regulatory inefficiencies, this investment may only come to fruition if policymakers take the steps needed to streamline and improve existing regulatory processes so that projects can be given a fair opportunity to secure a final permit based on the soundness of the project, and not on the ability to withstand a tortured permitting process. Potentially, these and other similar projects offer substantial economic opportunities, but these opportunities can only be realized if these projects are reviewed and evaluated in an efficient, effective, and timely manner. Based on our review of the circumstances of the 351 projects identified, we conclude that, absent policy action aimed at constructive reforms to the regulatory process, there is substantial risk that economic progress and opportunity will to continue to be denied for millions of American citizens.

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Overview of Projects Studied and Key Caveats

This study is a first attempt to broadly inventory many energy project proposals that have completed (or substantially completed) feasibility planning but are now delayed due to, among other significant impediments, regulatory inefficiencies and legal actions, and to quantify the potential economic and employment impacts of these inefficiencies and actions.

The projects included in this study are listed in Appendix II. Nearly 400 projects were initially identified from numerous public sources for inclusion in the data base used for this analysis. Project-specific information including capacity and investment, were collected and verified where possible. Based on a comprehensive audit we found consistent and usable information for 333 distinct projects. These included 22 nuclear projects, 1 nuclear disposal site, 21 transmission projects, 38 gas and platform projects, 111 coal projects and 140 renewable energy projects – notably 89 wind, 4 wave, 10 solar, 7 hydropower, 29 ethanol/biomass and 1 geothermal project. Since some of the electric transmission projects were multistate investments and, as such, necessitate approval from more than one state, these investments were apportioned among the states, resulting in 351 state-level projects attributed to forty-nine states. Splitting the transmission projects into their various state portions enables the calculation of potential economic benefits by state. Some of the identified projects proposed producing “mixed outputs” (e.g. electricity and fuel) and others entail the use of mixed inputs to produce electricity as the final product. Several of the transmission projects specifically address the growing need to move renewable energy onto a smart national grid, a necessary ingredient to improving the efficient usage and distribution of this energy across the nation.

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Future work is advised, which could, among other things, increase the number of projects considered and refine the economic estimates. Although the collection of projects used in this study is substantial, it is by no means all encompassing. For example, very few gas exploration projects, such as the transfer portion of Florida’s Destin Dome, were included, and no oil exploration and offshore oil drilling projects were included in the study in order to simplify the analysis and to demonstrate the impact of significant project obstacles, such as regulatory barriers on renewable and other energy projects currently promoted by Federal energy law and policies.

Many of the nation’s recent energy laws were designed to incentivize a wide range of new, cleaner energy technologies. In fact, among the impeded energy producing projects identified in this study, nearly half (45%) were identified as renewable energy projects, which suggests that cleaner energy projects are hitting the same roadblocks as gas, oil, nuclear and coal projects. Furthermore, if renewable energy projects are to be approved, so must transmission projects. This is because solar fields, wind farms and wave facilities are seldom located where the energy produced is consumed. In these circumstances, energy from renewable projects must be transmitted from their source to where it can be used. Problematically, obstacles and opposition to transmission projects also have been considerable, compounding the difficulty of renewable energy project deployments.

There are several key caveats to our conclusions. First, because this study excluded domestic oil and gas (offshore and onshore) drilling projects from the analysis, our estimates of the economic and employment impacts of substantial obstacles such as regulatory inefficiencies and legal barriers may significantly underestimate actual aggregate benefits. For instance, we omitted the Shell Oil Company’s Alaska OCS, which was estimated to create 35,000 jobs over the next fifty years in the development and to extract up to 65.8 billion barrels of oil and 305 trillion cubic feet of natural gas.

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Second, as discussed earlier, projects were omitted if there was insufficient information to quantify the economic impact of the upfront investment and the projects’ annual operations. Additionally, many other projects may not have been identified because they were nascent proposals that were opposed early on and never moved ahead. Also, some of the projects analyzed in this study may have been scaled back during the regulatory approval process, and many others were never considered in anticipation of insurmountable regulatory, legal, and other cost considerations. This study makes no attempt to quantify the actual expenses investors may have incurred dealing with permit challenges and lawsuits that plagued their projects during project approval, construction, and operational phases.

Third, while this analysis calculates the size of the proposed potential benefits from this inventory of projects, we recognize not all of the projects could or should be approved. Further, they would not and could not commence concurrently. For obvious reasons, simultaneous approval and commencement of all of these projects would create severe shortages of materials and skilled labor, which would affect input prices. Also, changes in energy demand could affect energy prices, thereby affecting the financial viability of some projects.

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Fourth, if projects are cancelled at one location, it does not mean that an investment could not eventually take place elsewhere. For instance, assume that an Atlantic offshore wind project was cancelled. Although this may represent considerable economic loss for a particular state, investors are free to look for other opportunities, particularly overseas in countries with more streamlined permitting processes. So there may eventually be jobs created elsewhere by other investments, but not necessarily in the state where a project was initially proposed. Nevertheless, the data demonstrate approval of even a portion of the proposed projects now stalled due to significant impediments, such as regulatory and legal approval barriers could potentially generate substantial economic and employment benefits.

The next section explores the methodology we employed to calculate the potential economic benefits of the energy projects included in this analysis.

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Conclusions

This study has collected 351 energy projects and calculated the economic impact that would occur from these projects. While it is inconceivable that all of these projects could or should be approved, tallying up the value of these projects makes clear the enormous potential for increased output and jobs. Specifically, this study has identified projects that, if built, would be worth $1.1 trillion in U.S. GDP, $352 billion in employment earnings and up to 1.9 million jobs per year – from just their construction.

Once these projects are fully operational, they would combine to generate $145 billion in GDP and $35 billion in employment earnings (in PDV) for each year of operation, as well as create 791,200 jobs annually over their productive lives. Because these projects can continue to produce and provide jobs for twenty years or more, the twenty-year operations of these 351 energy projects would contribute roughly $2.3 trillion to GDP and $1.0 trillion in employment earnings. If the twenty years of operations are combined with the potential benefits from the initial investment, the total potential benefits of energy projects considered in this study would amount to roughly $3.4 trillion in GDP and $1.4 billion in employment earnings, as well as require 1,020,000 jobs annually over the entire period. Not calculated in this study is that the energy produced would be valuable in keeping energy prices affordable, which would spur economic production and permit a cleaner mix of energy than is available today.

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This first of its kind study has been enabled by the work undertaken by the U.S. Chamber of Commerce to identify and catalogue the 351 energy projects that form the basis for these economic forecasts.45 That said, we hope our independent report leads to further analyses of the regulatory obstacles to completing new energy and infrastructure projects. Considerably more can be done—such as a complementary macroeconomic analysis to determine the effect of constructing the 351 projects on energy prices, supplies, and generation mix; or expanding the analysis to include new project areas and their potential economic benefits, including projects on highways, cellular telephone towers, oil and gas exploration, and big-box retail stores. In the end, we hope this study is a valuable tool for policymakers as they consider new ways to create jobs and economic value for the country, and the obstacles many of these projects face in trying to get off the ground.