North America has the equivalent of a new lease on life with regard to energy, as decades of declining oil & gas production drastically reversed course in the past 5 years, and petroleum liquids consumption is dropping after a long growth spurt.

This has led the US to import fewer barrels of oil from overseas – a truly amazing shift with resounding economic, political and environmental implications. At the same time, renewable energy deployment is on the rise as costs continue decreasing and creative financial instruments proliferate, profoundly impacting the power generation sector and utilities’ business models.

These unexpected developments afford the US numerous unique opportunities, both domestically and abroad. But capitalizing on the situation requires critical analysis and a mixture of market-based solutions, progressive regulations and political compromise. These are major themes in the Council on Foreign Relations’ Michael Levi’s new book, The Power Surge – Energy, Opportunity, and the Battle for America’s Future, which he recently discussed with Breaking Energy.

There is virtually unbridled enthusiasm over the oil & gas revolution currently unfolding in the US, thanks to a confluence of technology and market dynamics that facilitated economically-feasible unconventional resource development. However, regulatory changes and commodity price volatility could slow or even reverse the upwardly-trending production numbers many are so excited about.

“The biggest threats to these trends are not regulations, per se, but provisions that could put entire areas off limits to development,” Levi told Breaking Energy. “This can happen because regulations are too weak, which encourages people to do stupid things and create backlash over the entire industry.” An example of this ‘bad actor’ syndrome would be companies not adhering to industry best practices when completing cement jobs on unconventional wells, resulting in otherwise-avoidable environmental contamination.

“I’d be surprised to see draconian regulations come out of EPA. I won’t speculate on what EPA will say, but there is likely to be a push for greater disclosure, which is good,” said Levi. The EPA is scheduled to release a major study on the potential impacts of hydraulic fracturing on water resources in 2014. “We need some basic level of national performance because if things go bad in one region, the fallout could cascade across the country,” he said. There is much debate about whether unconventional oil & gas development should be regulated at the state or federal level.

“The other risk is market-based. For oil, if the most aggressive efficiency projections are right and you have massive supply increases at the same time people are buying less oil, then prices crash, which would hurt,” many operators, contractors and suppliers, said Levi.

Regarding climate change mitigation, Levi says fossil fuel scarcity is not going to get us there. “It doesn’t solve our climate problem – there is enough fossil fuel to do serious climate damage and this was true before current output boom. We need policy, technology and market developments. As long as energy sources don’t pay for all the [climate] damage they cause, we won’t get the clean energy solution deployment that we need.”

The US is famous for lacking a cohesive, long-term energy policy, but policy plays an important role in effectively capitalizing on America’s current energy opportunities, Levi argues in his book. “We can bring more coherence, but the first thing we need is to get past some of the partisanship and help people understand what the real trade-offs are. Second, we need to get a grasp on what these changes mean for our energy future – we need to start by moving forward on small policies both sides can support, maybe that’s using oil and gas money to fund clean energy, or it’s improved permitting for power transmission, pipelines etc. We need to start small before we go bigger. People don’t remember what it’s like to do cooperative work on energy like we did in 2005 and 2007, or when the presidential campaign in 2008 had two candidates who were arguing over which of their cap-and-trade plans was better,” Levi said.

“People need to get a grip and see some things are not so scary.”