Oil Spill's Impact: Bad for the Environment, Good for Clean Energy?

Gulf oil spillBP's (BP) Deepwater Horizon rig continues to leak 5,000 barrels -- or 210,000 gallons -- of oil into the Gulf of Mexico per day, threatening the area's fragile ecosystem and many wildlife species, including some that are already endangered, according to the U.S. Fish and Wildlife Service.

"We're dealing with a massive and potentially unprecedented environmental disaster," President Obama said Sunday.

But though the environmental impact may be devastating, the environment could benefit in at least one way: The worst-case scenario for deep-sea oil drilling makes renewable alternatives look that much better by comparison. The blogosphere is already buzzing with jokes about massive wind spills and solar spills, pointing out that with these sources, "the worst thing that happens is you stop producing electricity, not destroy entire ecosystems," says Adam Browning, executive director of solar-advocacy group Vote Solar.

A Watershed Moment?

As Ron Pernick, principal of research firm Clean Edge, puts it, the spill "has the potential to be a watershed moment" that could end up changing the way oil and other fossil fuels are developed and paving the way for cleaner energy.

While the story is still unfolding and the full extent of the damage remains unclear, the spill already has exposed some of the vulnerabilities of our reliance on oil, including ever-fluctuating prices based on accidents, military actions and many other variables, Pernick says.

"The volatility of fossil fuels is exactly what makes it untenable for our long-term energy supply -- we're one disaster away from pretty significant disruptions in pricing," he says.

Galvanizing Political Will

Awareness about the hazards of oil could, in turn, boost political support for renewables, Browning says. For example, Florida Gov. Charlie Crist is considering calling a special legislative session to discuss renewable energy and other topics after the legislature ended its regular session Friday without approving a bill that would enable utilities to buy more renewable energy.

"We've been working in Florida a long time to try to get them to move on it, and now the governor is looking at opening a special session to get them to look at renewable issues," Browning says.

The coincidental timing of several big wind announcements juxtaposed with news of the spill hasn't been lost on industry spectators either. A plan to install the first offshore wind farm in the U.S., Cape Wind on the Nantucket Sound, got the go-ahead from federal regulators last week. And Google (GOOG) on Monday announced it has invested $38.8 million in two wind farm projects in North Dakota.

Industry insiders have been hoping that large corporations would help close the renewable-energy project financing gap that has stretched in the recession, and the deal -- which marks the search giant's first direct investment in a utility renewable-energy project -- could indicate that might start to happen.

Shifting the Politics

Meanwhile, many have speculated that Obama's proposal to expand offshore drilling as part of the federal energy bill might get junked as a result of the spill, but that could have some unintended effects on clean energy as well. If the offshore drilling proposal, meant to help attract otherwise unlikely votes, has become politically impossible, the energy bill -- and with it, some key provisions supporting clean energy -- may have a slimmer chance of passing.

Some of the provisions on the table include a federal renewable electricity standard, which would require utilities to get 25% of their power from renewable sources by 2025; measures to improve transmission and make it easier for renewable projects to connect to the grid; a carbon cap-and-trade program, which would limit the amount of carbon that companies could emit and set up an auction system for these emitters to buy and sell extra carbon credits; and extensions for several important clean-energy incentives.

Many of the clean-energy incentive extensions could still materialize as riders on other bills, but the electricity standard would be hard to enact separately -- and the cap-and-trade program seems the least likely to occur even if the bill does pass, says Ed Feo, a partner at law firm Milbank, Tweed, Hadley & McCloy. Both the offshore-drilling proposals and the energy bill as a whole would seem to be in trouble after the spill, he adds.

Refocusing on Energy Costs

But there were already big question marks around whether an energy bill would pass in any case, and offshore drilling would have watered down the bill, Pernick says. The spill could end up refocusing the conversation on an energy bill that's really about clean energy, and that could be a good thing, Browning says. "It's too early to assess how this is going to impact federal legislators."

In any case, most of the support for renewables comes from states, rather than the federal government, and Browning is already seeing signs that the spill could spur state activity. California Gov. Arnold Schwarzenegger on Monday withdrew his support for additional offshore oil drilling to help fund state parks, and Florida Gov. Christ also said the idea of drilling off the coast of Florida is dead for now and called for renewed commitment to clean energy.

It's important to note that while many are calling for renewables as an alternative to offshore drilling, oil is mostly used for transportation, while solar and wind power, like natural gas, mostly generate electricity. (Florida, which gets more of its electricity from oil than any other state, is one exception to the rule.) But oil and gas prices usually rise and fall together, roughly speaking, and higher fossil-fuel electricity prices make it easier for renewable sources to compete, Feo says.

In the End, Consumers Still Pay

In general, rising fossil fuel prices are good for renewable energy, as they tend to boost share prices and make alternatives more cost-competitive. Gasoline prices have been climbing since the Gulf leak, although some analysts say the reason is more likely a psychological effect than an actual supply issue. If the spill leads to restrictions on new sources of oil and gas, such as a ban on offshore drilling, that could more significantly constrain the amount of oil and gas available and continue to boost energy prices, Feo says.

In addition, even if BP pays all of the cost of the cleanup, as promised, the billions of dollars will end up translating into higher prices somewhere, Feo adds. "I think the reality will be that the cost of this will be borne by BP, but some amount will inevitably be borne by taxpayers -- not just the [direct] cost, but also the economic impact, of a very large spill."

Of course, all of these potential advantages for clean energy amount to a thin silver lining for a big, black slick. The environmental damage is enormous, and industry insiders emphasize that they certainly don't want the spill to get worse.

"I don't wish the disaster to grow in magnitude, but it's possible that it will, and it would have a huge impact if it continues to proceed as it looks like it could," Pernick says, referencing other disasters like the Three Mile Island nuclear meltdown and the Exxon Valdez oil spill. "It has the potential to be a symbolic turning point."

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