DOE:

Chu navigated energy policy through changing tides in U.S. production

In February 2009, shortly after becoming President Obama's secretary of Energy, Steven Chu responded haltingly to policy questions in his first session with the oil-obsessed Washington press corps.

The U.S. economy was in a tailspin, reporters said. Oil prices had hit an all-time high the summer before, but had fallen sharply. Would the administration challenge efforts by Saudi Arabia to cut oil production? Should the United States continue refilling its Strategic Petroleum Reserve?

For much of the past hour, Chu had expounded on the administration's broad goals to advance renewable energy through the use of science and technology and to slash demand for carbon-based fuels like coal and oil. Clean energy technology was what the Nobel Prize-winning scientist and former director of the Lawrence Berkeley National Laboratory in California wanted to talk about.

To Chu, the problem had not been that oil prices were too high, particularly if the United States wanted to cut emissions and oil imports. "Somehow we have to figure out how to boost the price of gasoline to the levels of Europe," he was already on record telling The Wall Street Journal.

But when it came to Middle Eastern oil oligarchs and the management of U.S. reserves, Chu quietly quipped during his sit-down with the press, "I feel I have been dumped into the deep end of the pool."

On Friday, as widely expected, Chu resigned his post. He reflected on his four-year tenure in a 3,000-word letter to employees of the sprawling Department of Energy, trumpeting DOE's supporting role in the national quest under the first-term Obama administration to advance high-risk, high-reward energy technology.

After Congress authorized billions of dollars in spending to help stimulate the economy in 2009, Chu faced the near-herculean task of spending DOE's giant share of that wisely. It fed Chu's desire to shoot for the moon, to find the technological breakthroughs that would halt the flood of carbon flowing into the atmosphere while meeting U.S. energy needs. It meant advanced solar power, smart meters and electric cars. It meant shifting the emphasis away from coal, oil and gas.

Yet a changing tide in U.S. oil and natural gas production and environmental disasters dominated Chu's term.

"Although our oil imports are projected to fall to a 25-year low next year," Chu said in his parting letter to DOE employees, "we still pay a heavy economic, national security and human cost for our oil addiction."

The largest oil spill in U.S. history happened on his watch, thrusting Chu, the scientist, into the role of Mr. Fix-It as BP PLC's Macondo well in the deep waters of the Gulf of Mexico gushed out of control in 2010. On his watch, oil and gas drilling technology transformed the United States' energy profile from a growing reliance on imports to greater self-sufficiency. Natural gas production skyrocketed because of hydraulic fracturing, posing for the first time a threat to coal as the dominant source of electricity.

Chu's behind-the-scenes war room is widely credited with bringing order to chaos in the aftermath of the BP Macondo blowout in April 2010. His team pinned down the oil's flow rate, and it was the joint effort of government scientists and BP engineers that finally stanched the three-month-long seafloor oil gusher.

"The pressure for him to cap the well was intense for weeks on end, and he came through," said Paul Bledsoe, an independent energy consultant and former energy aide in the Clinton White House. "He really helped restore faith in the administration's capacity to deal with the emergency."

"It's true that we had no jurisdictional or regulatory authority in the deepwater spill," Chu said in an interview with E&E in July 2011. "We played a different role. We helped stop the leak."

In the interview, Chu said DOE would try to play a similar role in sorting out the entangled mess of misinformation and spin about a Texas-born shale gas boom spreading across the Northeast and the Great Plains states.

By 2011, "fracking" had become a term of art among environmental activists. It signified a technology-driven oil and gas drilling boom that was fouling air and water in the name of energy security and corporate profits. Obama again turned to Chu to investigate and help assuage public concern about onshore natural gas development. DOE jumped into an argument about the environmental impacts of oil and gas drilling that had reached a fever pitch.

"The conversation in some ways has become more constructive," said Fred Krupp, president of the Environmental Defense Fund. Krupp served on a seven-member panel Chu had tasked with investigating the questions about unconventional gas development. "A safe path has been charted, but it remains to be seen whether the country will walk that path."

The panel issued a report in November 2011 that acknowledged the massive reserves of gas that could be a cleaner alternative to coal-fired power production but warned against ignoring environmental dangers. Tough critics of gas drilling complained that Chu's panel had too many ties to industry. Some in the oil and gas industry saw Chu's panel as more federal encroachment.

LNG exports

Since then, Obama has said that he supports gas development and his top deputies have expressed their support for liquefied natural gas (LNG) exports, with some hedging about the appropriate scale and pace.

Heather Zichal, deputy assistant to the president for energy and climate change, said last spring that the administration would let analytical results drive its decisions. "As a general rule of thumb, we are certainly not opposed to LNG exports," she said.

Chu suggested he would back a wait-and-see approach of permitting a small number of projects and then gauge the economic impacts. But that was before a DOE-commissioned study by NERA Economic Consultants was published in December, with the finding that any exports would be a net boon to the economy, and more exports would amount to more benefit.

DOE sits in a holding pattern on the issue that plays nicely into the timeline of a leadership change. The public has until Feb. 25 to weigh in about the NERA report. After that, DOE has said it would begin to make decisions on pending LNG projects on a case-by-case basis.

Charles Ebinger, a Brookings Institution researcher whose own study found minimal price impacts from a ramp-up in LNG exports, said the names floated for a successor to Chu are all likely to generally back exports.

"If I wanted an Energy secretary to really strongly lead the charge for ... natural gas ... then I think Dorgan would be a good choice," he said, singling out the former North Dakota senator, Byron Dorgan, whose own state has benefited enormously from new unconventional oil and gas revenues. But generally, he said, several of the likely potential candidates are Midwesterners or Westerners who look favorably on oil and gas development.

More likely than a policy direction change is a time lag, observers say.

Last week, American Petroleum Institute economist John Felmy said in a call with reporters that if Chu resigned, it could slow the decisionmaking process on export terminals. That is "a concern" for the group, he said, noting growing calls on Capitol Hill to keep natural gas at home.

The oldest pending export application has been waiting more than two years for a DOE decision on whether it can ship cargos to countries that lack a free-trade agreement with the United States, an approval necessary to make deals with big buyers in Japan and future markets like China and India. Would-be exporters have pushed DOE to move faster.

For the White House, which has watched congressional and public interest in exports slowly grow, the changeover could offer a new delay tactic, Ebinger said. "If they decide they don't want to make a decision in the White House for political reasons, imminently, they can always hide behind 'Well, we have a new Energy secretary, and they need to study the issue,'" he said.

The Sierra Club, one of the most prominent export critics, generally lauded Chu's record at DOE and said it was too soon to say whether his departure would help or hurt their campaign against hydraulic fracturing and higher gas production that could come with exports.

"Our hope is that whoever is chosen will ... put a timeout on LNG before any permitting is allowed," said Jenny Chang, a Sierra Club communications strategist.

Energy and the stimulus

Chu arrived in Washington as President Obama was placing clean energy as a cornerstone of his economic recovery plan.

Obama's vision was complex. Using the stimulus package, he wanted to fund deployment of renewable energy, hoping that this would trigger private investment. He wanted to set up factories for clean energy, hoping this would jump-start U.S. competitiveness against China and Europe. He also wanted to fund research, from basics to breakthroughs, that would give the United States the technological edge for the long run.

It fell to Chu to execute. The American Recovery and Reinvestment Act dropped $36 billion in DOE's lap, nearly 50 percent more than its annual budget.

He hired a slate of top scientists and venture capitalists, to bring cachet to DOE's efforts. He put the no-nonsense McKinsey & Co. consultant Matt Rogers in charge of implementing the Recovery Act plans.

Churning this funding, and these new ideas, and these new people, through DOE's machinery was a massive undertaking, and the many programs started at different speeds. The effort to weatherize a million homes, for instance, progressed slowly, but the Advanced Research Projects Agency-Energy's inaugural funding request left the office deluged with proposals.

When the 2010 midterm elections swept Republicans into Congress, the party decided to tear down the green agenda. They blamed Obama, and DOE, for ballooning the deficit with market-distorting and poorly selected projects. With a program so large, there was no shortage of targets, and the clean-energy narrative became convulsed with each side's story.

Clean-energy supporters responded that despite some faults, the program was working in the main and would pay off in the long run. But in late summer 2011, an iconic piece of the program, solar manufacturer Solyndra, collapsed. For the next year, Republicans would frame this company as the face of Obama's ruinous clean energy program. Jonathan Silver, a former venture capitalist who headed the loan program that funded Solyndra, was raked over the congressional coals.

Republicans never found the smoking gun they wanted: proof that Obama funded an unworthy company as a kickback for campaign contributions. But they brought to light a DOE process that, in one starkly detailed case, picked a losing technology. And they changed the framing that Obama and Chu had set: No longer was clean energy about America's chance to lead the world, but it was about how much risk the taxpayer could stomach.

"The test for America's policy makers will be whether they are willing to accept a few failures in exchange for many successes," Chu said in his farewell letter. "America's entrepreneurs and innovators who are leaders in global clean energy race understand that not every risk can -- or should -- be avoided."

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