America Ascendant

by Stanley B Greenberg

  But it took both of these techniques, decades of innovation, and unyielding commitment to develop a commercially viable fracking technique. Starting in the early 1980s, George P. Mitchell, a Greek immigrant and Texas entrepreneur for whom “natural gas was virtually a cause,” worked three decades and through many failed attempts to get the huge Barnett shale deposit around the Dallas–Fort Worth area to release its potential. His breakthrough method employed a combination of new 3-D seismic readings, the development of the light-sand fracking (LSF) technique, and horizontal drilling. Most thought Mitchell’s efforts had failed until 2001, when observers began to witness a surge of natural gas supply from the Barnett shale. The investors followed.8

  In 2000, 1 percent of U.S. natural gas came from shale. Then the “shale gale” occurred. By 2011, shale was 25 percent of the national natural gas supply, and within a couple of decades it could be 50 percent.9

  The shale industry boom is already producing a surge in employment in localities across the country. It employed about 150,000 people in 2010, but by 2020, it will add up to $150 billion to the U.S. economy and employ 250,000.10

  The employment benefits of these game-changing advances extend to manufacturing, construction, and transportation. McKinsey Global Institute estimates that the increase in manufacturing in industries that rely on natural gas will account for $55 billion to $85 billion of the rise in annual GDP. Petrochemical producers are expanding use of its by-products to produce plastics and petrochemicals; this could add 400,000 jobs. When you include increasing demand in construction, trade and transportation, and professional services, McKinsey estimates the expanded GDP at 2 to 4 percent points and 1.7 million permanent jobs by 2020.11

  But reaching the full potential of the energy revolution will require winning public support as it disrupts communities across the country. That means new regulations at the state and national levels to protect groundwater supplies and minimize the release of gases that worsen the global-warming problem. Former petroleum engineer and secretary of the interior Sally Jewell insists fracking “can be done safely and responsibly” though it “depends a lot on factors like well bore integrity and if you have a good cement job.” Tougher controls are necessary to keep up with the advances in the industry. Many states have already combined continued production with stricter regulation, including Colorado, Pennsylvania, Ohio, North Dakota, and North Carolina. Some eastern states, like New York and Maryland, have imposed moratoriums while assessing the public health risks and potential threat to drinking water supplies and vital habitat and fisheries.12

  At the national level, the Department of the Interior has proposed new national rules for fracking that will require proper well integrity and water management to prevent groundwater contamination. The American Petroleum Institute has fought against any federal regulations, and Republican congressmen from the traditional oil states have insisted they are unnecessary. Oil industry lawyers have partnered with Republican state attorneys general to sue the Environmental Protection Agency (EPA) and the Bureau of Land Management.

  For its part, the public largely trusts these regulators to get these issues right and believe that they, not the U.S. Congress, should set new pollution standards. Huge majorities of the public say cleaner air is a higher priority than reducing regulations on business and support a new EPA rule that would require the oil and gas industry to reduce methane emissions by 50 percent by 2020.13

  Shale gas’s growing supply, falling prices, and lower carbon emissions have disrupted the economics of America’s main source of energy, coal. Plans for 166 new coal plants were dropped over the past decade and almost half of the country’s 362 coal-fired plants have been retired. Many have been converted to gas. The economics of new nuclear power plants have also been disrupted, and solar and wind are forced to compete at a lower price point.14

  Why was George Mitchell able to continue his trial-and-error methods to shatter the shale rock and release the gas for three decades without making a profit? As a start, certain oil and mining states, such as Texas, Pennsylvania, Ohio, and North Dakota, were more relaxed about the environmental risks; and the U.S. market for natural gas is fairly open. It could not have happened, however, without Section 29 of the Windfall Profits Tax Act, enacted in 1980, which granted a federal tax production credit for drilling for unconventional natural gas. The U.S. Congress and President Jimmy Carter decided to pick winners and losers in the economy because producing this new energy was in the national interest. The expansion of renewable fuels was only possible because of the nonconventional fuels tax credit and laws passed in 2003 that extended support for unconventional natural gas and alternative fuels.15

  The other big parts of the energy story that strengthen the future economy also begin with government.

  When the Democrats swept to control of the Congress in 2006, the House Democrats passed what would become the Energy Independence and Security Act (EISA) in their first hundred hours. Signed into law by President George W. Bush in 2007, the law raised the fuel-economy standard by 40 percent. Auto companies would be required to reach 35 miles per gallon on average by 2020. It created new incentives and supported research for electric vehicles and batteries, increased efficiency requirements for appliances and lightbulbs, and extended weatherization funding to make residential buildings more energy efficient. The law also expanded the renewable fuels program and the volume of advanced biofuels from nine billion gallons in 2008 to thirty-six billion gallons in 2012. The oil industry fought against these changes, though they successfully protected their own subsidies from the Democrats who sought to demonize them.16

  After the government bailed out and rebuilt GM and Chrysler, President Obama used his leverage to get a historic agreement with the auto industry that required they meet the 35 mpg fuel-economy target by 2016. In 2011, the agreement was extended to cars and light trucks for the first time, requiring they reach 54.5 miles per gallon on average by 2025. This is a new era for cars, spurring industry innovation on a large scale.17

  Cars and trucks are responsible for the bulk of U.S. oil consumption, and between 2007 and 2011 that consumption fell 10 percent. The recession played a big part, but that does not account for the entire decline. The fuel economy of American cars rose 15 percent in five years, in part as a response to changing consumer preferences in the face of high gas prices, but even more as a response to a federal government pushing for greater efficiency. Electric cars are also an emerging part of the auto mix. In 2011, one in every twenty-five cars sold was an electric hybrid, up from one in every two hundred in 2004. This dramatic change was produced by a government that moved the goalposts and an auto industry that accepted the new norms and ultimately welcomed the challenge to innovate.18

  The elites, including myself, would have preferred to obtain these outcomes with a carbon tax or higher gas taxes and allow the market to reduce consumption, but the public was opposed to that approach, preferring regulation, standards, and quotas. In national polls, the public showed even greater support for an energy agenda that required higher auto fuel-efficiency standards, increased investment in solar, wind, and hydrogen technology, and alternative fuel sources for cars.19

  Well, the voters got their way, with pretty dramatic consequences.

  The American Recovery and Reinvestment Act, passed in Obama’s first month, included $90 billion in investments and incentives for promoting clean energy in the country. Conservatives understandably jumped on the bankruptcy of Solyndra and Abound Solar leading up to the 2012 elections, but their critique ignores the scale and sustainability of the new industry these government funds make possible. The dramatic drop in natural-gas prices has made the economic equation more difficult for renewables, but the cost of solar panels has been falling, too. The turning-point year was 2014. The cost of producing electricity from wind and solar had dropped so much by that point that it cost less than power generation from coal or natural gas in some parts of the country. The federal and state gove
rnments continue to offer a mix of tax credits and grants for wind-farm developers and for deploying solar panels, despite resistance by Republicans in Congress. More than half of the states have passed mandatory renewable portfolio or electricity standards (RPSs or RESs), and eight have passed voluntary ones. Oregon will require that 25 percent of the state’s power come from renewable sources by 2025, but New York has gone further, requiring 29 percent by 2015.20

  California has led the way, not surprisingly. More than a decade ago, it established a 20 percent statewide renewable standard for retail sales, a goal the state met. It has moved the standard to 33 percent by 2020. Perhaps most importantly, Governor Jerry Brown issued an executive order to accelerate the viability of zero-emission large cars and light-duty trucks. The governor required that automakers sell 1.5 million zero-emission cars to consumers by 2025 and that state departments raise their zero-emission vehicle purchases to 25 percent by 2020. This order was challenged by the auto companies and the oil industry, but the state standards were upheld.21

  As a result, California is home to 26 of the 122 companies in the Bloomberg Americas Clean Technology Index, and California-based clean technology companies forecast greater returns because of their commitment to R & D.22

  Renewable energy is also an appreciable part of the energy mix now, and only because the government said it should be. Leading into the elections of 2006 and 2008, Democracy Corps polls repeatedly showed voters wanting to vote for a member of Congress who “says the best way to renew our economy in the long run is to make a real investment in a new American renewable energy industry so we can create millions of good jobs that can never be outsourced while lowering the cost of energy for American families and businesses alike.”23

  As we can see, the voters’ priorities produced real results.

  The same is true for coal—the source of energy that the public is most doubtful about. The Obama administration’s Environmental Protection Agency is requiring new and existing coal-fired plants to meet stringent requirements on greenhouse gas emission. This will likely raise the costs of electricity from coal-fired plants, though projected natural gas prices are a bigger factor when it comes to marginalizing coal in America’s energy mix. “As we look out over the next two decades,” the president of Duke Energy observed, “we do not plan to build another coal plant” because shale gas “is proving to be the real deal.” The proposed regulations were nearly unimportant.24

  Conservative opponents say the government is waging “a war on coal,” and Republican Senate leader Mitch McConnell vowed “to go to war with [the president] over coal.” His U.S. Senate office worked arm in arm with the largest coal companies to rally Republican state leaders to refuse to submit any plan to cut coal-fired power plant emissions, as required by the EPA. But the politics has already turned against coal and in favor of sustainability, which is an ascendant value in the corporate world and among the new generations. It is hard to imagine government not continuing to evolve the rules in the ways that the needed revolution on climate change requires.25

  What has happened with natural gas, auto efficiency, and renewable energy has dramatically changed America’s energy position, reducing its dependence on Middle East oil and its exposure to political and economic shocks. A few years ago, half of American oil was imported, but that figure has fallen to 37 percent and is projected to fall to 25 percent in 2016. The United States will be effectively energy independent in the next couple of years, with growing pressure for it to become an energy exporter. The reduced trade deficit alone will add to the growth of the U.S. economy, reinforced by the inward investment from companies now viewing America as one of the most competitive places for manufacturing. It has also produced, according to Michael Levi, a 37 percent reduction in emissions from carbon dioxide. We hardly know all of the ways this will prove beneficial to the country.26

  This energy revolution was deeply affected by political decisions, and they will continue to shape our energy future. When it comes to energy, we are a country that picks winners and losers. It is easy to imagine that this debate between old and new energy could have resulted in the usual political dysfunction, but instead we have ended up with an “all of the above” approach, except for coal. How did we get there? Part of it is America’s greater trust of private enterprise and entrepreneurs, romance with drilling and hitting the big well, and identification with technology and support for innovation. But the revolution only happened because different kinds of politics dominated different states and the nation at different times.

  Republican pro-oil and pro-mining states from Texas and Louisiana to West Virginia and North Dakota are more willing to risk environmental damage and use a light regulatory hand. They fought to keep oil industry tax breaks and subsidies. Even after 300,000 West Virginia residents lost drinkable water because chemicals used to clean coal leaked from old and unregulated storage tanks into the Elk River, U.S. senator Joe Manchin, from West Virginia, observed, “Coal and chemicals inevitably bring risk—but that doesn’t mean they should be shut down. Cicero says, ‘To err is human.’ But you’re going to stop living because you’re afraid of making a mistake?”27

  But other states acted to shape our energy choices through regulation. California led with a regulation that requires better fuel efficiency for automobiles and demands the production and purchase of zero-emission vehicles. More than half of our states require that state utilities draw a growing percentage of their energy from renewable energy sources. These states use government to encourage clean energy development and to help create markets for clean vehicles and other technologies.

  At the national level, the U.S. government moved urgently to find domestic courses to decrease dependency on foreign oil when faced with the rise of OPEC and oil price shocks. The federal government provided tax credits that made possible the two-decade-long pursuit of natural gas trapped in shale. The Democratic takeover of Congress in 2006 and the election of President Obama produced dramatically higher fuel-efficiency standards, expanded the renewable fuel standard, and supported renewable sources of energy.

  That pluralism of political control and culture combined to produce our energy revolution. It will be hard to replicate. We are lucky that increased natural gas use also happens to be lowering carbon emissions.

  AMERICA’S IMMIGRATION REVOLUTION

  Immigration is the second most important reason America will be ascendant and the doomsayers proved wrong. Immigration is central to our character and identity, as we shall see in the next chapter, but it is also a key to America’s economic vitality, competitiveness, and growth.

  Since 1990 the world has watched a massive increase in global migration; the number of migrants rose from 154 million to 232 million in 2013. Amazingly, one in five of these migrants lives in the United States. The number of immigrants in the United States doubled from 23 million to 46 million, and America is the number one destination for migrants from a quarter of the world. No other country has anywhere near that number of foreign-born people making a life inside its borders.28

  America’s largest metropolitan areas and cities are being shaped by this accelerating wave of immigration. More than three million, roughly 37 percent, of New York City residents were born outside of the United States, and more than one-third of those residents have arrived since 2000. The foreign-born make up nearly 40 percent of the residents in Los Angeles and more than a third in San Francisco. They count for almost 60 percent of Miami’s residents and almost 30 percent of Houston’s.29

  Look at New York City. It tells the story of generations of young immigrants, many uneducated and on their own, who came here and worked in restaurants or hotels, received a green card, and moved many family members here on family-related visas; some won asylum. The city is now home to 350,200 Chinese, just behind the city’s largest immigrant group, the 380,000-person-strong Dominican population. But it is the Mexican population that has surged the most in the past decade, rising by 52 percent, to 186,00
0 people, moving them to third ahead of the Guyanese and Jamaicans. Rounding out the top ten are immigrants born in Ecuador, Haiti, Trinidad and Tobago, India, and Russia. Queens is nearly half foreign-born, and 37 percent, just under 1 million, of Brooklyn’s residents are, too.30

  The suburbs are also being reshaped by immigration, as many migrants skip the normal path of starting in the inner city. The Washington, D.C., suburbs of Fairfax and Arlington are one-quarter foreign-born. And then look at Gwinnett County, outside of Atlanta. In 1990, it was 90 percent white and home to only 8,470 Hispanics and 18,000 blacks, legacies of the area’s cotton-growing past. That was before the county was reshaped by massive construction of suburban subdivisions and shopping centers. The Hispanic population started to grow thanks to the economic boom and construction associated with the 1994 Olympic Games, and African Americans began gravitating to the suburbs, too. Then the world descended on Gwinnett, attracting immigrants from India, Vietnam, Korea, sub-Saharan Africa, and post-Soviet East European countries. By 2010, Gwinnett was home to 456,167 more residents, and the white Anglo residents fell to 49.43 percent of the population.31

  The new immigrants joined the growing diversity found in America’s metropolitan centers. Our cities are increasingly shaped by this conglomeration of African Americans, Hispanics, Chinese, Indians, Asians, and other immigrants, documented or not.

  While the national political debate is consumed with the undocumented and growing Hispanic minority, the economy is being reengineered by immigration. As we shall see, their addition to service and high-skill sectors is the most vibrant part of the economy. The Silicon Valley start-up world is a great mix of Indian, Chinese, British, Japanese, Canadian, Russian, German, French, and Israeli immigrants. Half of Silicon Valley’s engineers are foreign-born, and by one estimate 44 percent of the valley’s high-tech start-ups were founded by someone born abroad. Almost one-quarter of all new engineering and tech companies founded in this country between 2006 and 2012 had at least one owner born abroad. During that period, immigrant-founded companies in the United States produced $63 billion in sales and employed 560,000 people.32