American Clean Energy and Security Act and Its Impact on West Africa
Written by Kofi Amoabin Tuesday, 02 February 2010 16:44
In June 2009, Congress passed the Waxman-Markey Act, also known as the American Clean Energy and Security (ACES) Act. This act sets limits on greenhouse gases (GHG), and could have a very serious impact on African countries dependent on revenues from the production of hydrocarbons in the future. Consequently, crude oil exporting countries would see that demand from the U.S. seriously curtailed, and the U.S. could be out of the world market as an importer of crude oil. With countries like Angola and Nigeria, and in the very near future Ghana, exporting crude oil to the U.S., ACES will certainly have an impact on the economies of these countries.
Currently, fossil fuels are the main source of energy production in the U.S. Fossil fuels are the source of GHG and this act allows the U.S. government to set mandates on GHG emissions. U.S. President Obama set reduction of GHG as part of his clean energy policy. GHG released into the atmosphere must be reduced to levels way below the levels seen in 2005. Using 2005 as the baseline, the Obama administration has set targets below the baseline. The key test will be in 2012, when U.S. companies will have to meet emission levels of 3 percent below the baseline. The other targets are GHG levels of 17 percent below the baseline by 2020, and a level 83 percent below the baseline by 2050. These targets apply to individual companies, industry groups and the various regions of the U.S.
Based on ACES Act, the U.S. government will set an amount of money which will be broken into parts and given to companies and industries as an allowance for clean energy production. Clean energy is produced from sources that do not create high levels of GHG. Companies that do not use all allotted carbon allowance can trade the credit. This creates a market for trading carbon credit, which is popularly known as cap-and-trade. The tradable carbon content of the GHG is CO2e, which stands for all the six major gases emitted. The hope is to eliminate CO2e just like SO2 (sulfur dioxide emitted from coal and petroleum), was cut back in the past by imposing standards on American companies.
By setting emission targets and caps, this means that it could be expensive for companies seeking to purchase carbon credit. The marketplace will set the price for carbon credit. Companies will be forced to move away from fossil fuels because of the tougher and much stricter GHG standards for cap-and-trade. The easy way out of cap-and-trade will be for companies to find cleaner energy. Crude oil does not qualify as a source of clean energy. A better source of energy is natural gas because it has a better carbon signature, and there are more than enough reserves in the U.S. to make it independent of calling upon other countries to fulfill their energy needs.
As an incentive for companies to pursue clean energy technologies, and to make the transition less costly, the government is going to make major investments in companies who commit to President Obama’s program to free the U.S. of foreign oil. This means Americans will have to change their way of life, especially their driving habits. The U.S. government will invest about 2 billion dollars in the automobile industry in pursuing battery technologies. Electric cars emit zero carbon dioxide into the atmosphere. The Obama administration is also investing $25 billion for auto companies to produce greener technologies. These incentives will cushion the transition to electric cars as compared to the internal fuel combustion engines currently in use, which burn hydrocarbons.
The U.S. government is demanding better carbon signatures and higher mpg from the auto companies. The government of Ghana must use the U.S. as a lead and begin pursuing and investing in green technologies, and not put its hopes on fossil fuels. For example, the Ghanaian government could expand science and technology programs to include wind and solar power. These clean energy programs will score carbon credit, because they generate clean energy and could begin generating new revenues by exporting these clean energy technologies. Ghana is blessed with infrastructure for wind and solar energy, and as a matter of fact, ACES provides funds for these programs in developing countries. In addition, the United Nations provides funds through the Nairobi Framework, for forest carbon accounting which could generate numerous jobs in Ghana if pursued.
The effect of this push to clean energy has already been felt in the U.S. economy. In the mid-to- late 1980s, the U.S. imported about 4 million barrels of oil a day. This import bill kept rising, and at the end of 2007, crude oil imports had grown to about 11 million barrels per day. Currently, imports of crude are down from their peak revenue in 2007, and the trend downward appears sustainable. On January 19, 2010, a year after President Obama’s inauguration, the spot price for the West Texas Intermediate crude oil for delivery was $79. At a price in the range of $70 to $80 per barrel of crude oil, the U.S. transferred over $500 million dollars a day to pay for its oil imports.
This transfer of assets out of the U.S. to pay the oil bill put so much pressure on the dollar and caused rising prices, which affected the pocketbook of the U.S. consumer. In addition, the oil companies passed on the cost of crude oil to the U.S. consumer. As mentioned above, in 2008, the price of crude oil rallied to over $140 a barrel, and the high cost of gas at the pump hit consumers hard. This forced the U.S. consumer to cut back and the decreased consumer spending started the worst recession since the Great Depression.
Also of interest is what happens to the price of crude oil in the future and the economies of countries that rely so much on oil exports to the U.S. Crude oil is one of the most important resources in the world today, but by 2050, crude oil could probably not attract the strong prices we see today. If this happens, it will have a devastating effect on many exporting countries, because of the lack of diversification in their macro-economies, high levels of corruption, and high levels of poverty. For example, Nigeria exports about 1 million barrels of oil to the U.S. every day. According to the U.S. State Department, oil and gas exports account for over 90 percent of Nigeria’s export revenue and around 80 percent of the total national revenue. Also, the high revenue from oil has not really benefitted Nigerians because over 100 million Nigerians live on less than two dollars a day. Angola and Equatorial Guinea, Congo, major exporters of crude oil to the U.S., have high revenues from oil and gas but high levels of poverty.
The high incidence of poverty shows that unless African countries diversify their economies away from oil and gas, the high revenues generated from just one source will not make any impact in the life of an average person. This is where Ghana, as it prepares to join the league of oil exporters, can learn from the mistakes of these countries and instead use the expected revenues to make meaningful differences in the life of Ghanaians. This means the Government of Ghana (GoG) must continue to seriously invest in agriculture, small scale manufacturing, and above all, pay attention to building its human capital.
Around the 1950s and early 1960s, Nigeria was the world’s largest producer of palm oil, and controlled over 40 percent of the worldwide export market. After the discovery of oil and gas, investment in agriculture fell behind. The leading producers of palm oil today are Indonesia and Malaysia, and, annually, these countries earn over $20 billion individually from palm oil exports. Indonesia and Malaysia also export oil. Also, over 3 million people are employed in the palm oil industry in Indonesia. Investments in agriculture have lifted rural income in Malaysia and Indonesia and have alleviated poverty. Ghana can learn from Malaysia and Indonesia and use the new revenues from oil for investments in agriculture, expansion of its non-energy private sector, and boost its education system.
Ghana is blessed with a wide array of non-traditional agricultural products, and the production of these products could be expanded to generate additional export revenue. After the expansion of production of raw agricultural products, the government must invest in small-scale manufacturing which will generate jobs. At this stage, Ghana does not have the human capital to benefit from the exploration and development of its offshore oilfields in terms of jobs.
Upstream oil and gas activities do not generally create the kind of jobs that will benefit a developing country, except that it generates the revenue and boosts gross domestic product (GDP). The jobs are usually generated from the downstream activities, especially in producing oil and gas products. For the oil and gas industries to be a major job generator for Ghana, the emphasis must be on chemical, plastic and petroleum product industries. Our universities must expand programs in manufacturing, process technologies and engineering. Having access to the raw material alone will not create jobs.
Exploration and development of offshore oil and gas requires very specialized skills that are not very common in Ghana. As a country, Ghana lacks the core competencies in offshore oil and gas exploration, so most of the jobs that will be created will end up in the hands of expatriates. The lack of capacity in the oil and gas industry is compounded by the fact that Ghanaian institutions focus on banking and finance as fields of interest instead of boosting research and funding for programs in geo-sciences, geology, engineering and electronics. For example, Halliburton will not need many Ghanaians when drilling test wells are 50 km away from the coast of Ghana, and further, how many Ghanaians at this stage can understand the electronics of submersible deep sea devices?
Recently, a lot of higher education institutions have introduced programs in oil and gas. Even the National Banking College, in Accra, is putting a program together to train bank managers for the oil and gas industry. These resources could be redirected to benefit a broader spectrum of the Ghanaian populace. Ghana should invest in trade schools that offer programs in welding, heavy-duty mechanics, undersea devices and pipeline construction, compressor design and maintenance, well logging etc. These are the areas where the jobs are and our investment dollars for building human capital should go. Ghana must build capacity in the trades where Ghanaians can get their hands dirty by working on a rig. The oil and gas industry will not need too many bankers.
Exploration and development of oil and gas do not create the jobs that Ghanaians have the skills for at this point. To combat high levels of poverty in Ghana, the new revenues, which will certainly boost GDP and make Ghanaians feel like they are prosperous, should be used for investments in agriculture, clean energy, and in building our human capital. Crude oil has actually been a curse for most countries because poverty levels have stayed the same, but corruption has grown more entrenched. These hard facts could lead to political instability as the price of oil swings up and down, and oil revenues rise and fall with the world markets. Through innovation and technology, the U.S. will eventually not rely on foreign countries for its energy needs. The concern is how this will impact the Ghanaian economy and the economies of West Africa countries as a whole.