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U.S. Energy Under Trump

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  • President-Elect Trump and his appointees plan a major policy and regulatory shift for energy, focusing more on economic benefits and less on environmental impacts.
  • Obama-era regulations most at risk of roll-back are those justified mainly on climate concerns not shared by Mr. Trump and his team.
  • Emissions are still likely to fall in the next four years as shale and renewable energy output grow.

Next week’s presidential inauguration will trigger the biggest policy and regulatory shift for the US energy industry in at least ten years. That’s how long it has been since energy policy was set by a Republican president and Congress. Donald Trump is a different kind of Republican, though, and his goal does not seem to be a return to scarcity and high energy prices. What should we expect, instead?

To gauge how sharply the energy polices of the incoming Trump administration will diverge from those of the last eight years, we need to understand what motivates both leaders. The Obama administration’s approach was driven by a deep, shared conviction that climate change is the most important challenge the US–and world–faces. The cost of energy and its impact on the economy became secondary concerns, subordinated by the belief that the added cost of climate policies would be offset in whole or part by the benefits of the green investment they unleashed–remember “green jobs“?

We saw this in President Obama’s first year in office. Amid a deep recession he worked with Congress to attempt to limit greenhouse gas emissions by means of an economy-wide cap-and-trade system, on which he had campaigned. The House of Representatives passed the Waxman-Markey bill (HR.2454), a veritable dog’s breakfast of economic distortions. Yet despite a filibuster-proof majority in the Senate in 2009, Waxman-Markey and every subsequent cap-and-trade bill died there.

That failure set in motion the agenda that the Obama administration has pursued ever since, to achieve via regulations the emissions reductions it could not deliver through comprehensive climate legislation. Last year’s publication of the EPA’s final Clean Power Plan was a key component of an effort that seems set to continue until just before Inauguration Day.

The transformation of energy regulations under President Obama was dramatic enough that a transition to any Republican administration would be a big change. The transition now in prospect will be even more jarring. Mr. Trump’s rhetoric and his choices for key administration positions point to a concerted effort to unravel as many of the Obama-era regulations affecting energy as possible. That isn’t just based on philosophical differences over regulation and markets. For President-Elect Trump the economy and jobs are paramount, so the Obama energy regulations must look like an unjustifiable threat to the fossil fuel supplies that still meet 81% of the nation’s energy needs.

Despite that, it is unlikely the new administration will go out of its way to target renewable energy or the tax credits that have driven its growth to date. Renewables are becoming increasingly popular with conservatives. However, because Mr. Trump sees climate change as, at best, a secondary issue that may not be amenable to human intervention, his administration’s won’t put renewables on a pedestal as the Obama administration has done.

The biggest challenge for renewable energy may come from tax reform intended to make US companies and factories more competitive globally and shrink the incentive for them to relocate to lower-tax countries. This appears to be a high priority for the new White House and Congress, and one on which they broadly agree. If corporate tax rates drop, the value of the tax credits renewables enjoy is likely to fall, too, making wind, solar and other such projects less attractive and less competitive.

It remains to be seen how many of the Obama energy regulations can be rolled back. The most recent regulations might be averted through legislation like the Midnight Rules Relief Act, or the REINS Act, both of which would update the Congressional Review Act, a rarely used 1990s law intended to limit what presidents could impose by last-minute executive actions. Other regulations may eventually stand or fall as the courts rule. The stakes are high, particularly for regulations affecting the production of oil and gas from shale by means of hydraulic fracturing and horizontal drilling.

Energy independence was a touchstone of Mr. Trump’s candidacy. Despite his campaign’s focus on coal, it is fracking, as hydraulic fracturing is more commonly known, that holds the key to achieving that goal in the foreseeable future. It has been the main driver of the growth in US energy production since 2010.

The latest long-term forecast from the US Energy Information Administration (EIA) puts energy independence within reach–in the sense of the US becoming a net exporter of energy–by 2026 or sooner. However, the recent flurry of regulations affecting such things as drilling on federal land, and putting large portions of US waters off-limits for offshore drilling would not have been part of that projection. As EIA Administrator Adam Sieminski remarked at a briefing on the forecast, “If you had policy that changed relative to hydraulic fracturing, it would make a big, big difference to everything that’s in here.”

That’s a key point, because most past notions of energy independence assumed that energy prices would have to be very high to promote lots of efficiency and conservation and stimulate large amounts of expensive new supply. The shale revolution changed that.

However, the global context is also changing. OPEC is attempting to reassert its control over the oil market, with help from non-OPEC countries like Russia. Two years of low oil prices shrank global oil and gas investment budgets by around a trillion dollars, and the International Energy Agency has warned of coming oil price spikes as a result. Forestalling tighter US regulations on fracking and offshore drilling increases the chances that US supplies could grow by enough to balance shortfalls elsewhere and avert much higher prices at the gas pump.

Energy infrastructure is likely to be another focus of the new administration, because the economic and competitive benefits of abundant energy will be diluted if, for example, Marcellus and Utica shale gas or Bakken and Permian Basin shale oil have to be exported because domestic customers don’t have access to them.

That suggests an early effort to reverse decisions by the current administration to block the construction of various pipelines, starting with the Keystone XL pipeline and more recently the Dakota Access Pipeline. That will force new confrontations with activists and environmental organizations that have raised their game to a new level in the last eight years.

Such opposition would likely intensify if the new administration sought to withdraw the US from the Paris climate agreement, which recently went into effect, or submitted it for review by the US Senate as a treaty. But it’s not clear that a big change in direction would require leaving Paris.

The US commitments at Paris, like those of the other signatories, were voluntary and non-binding. For that matter, recent shifts in US energy consumption and especially electricity generation have put the US in a good position to meet its initial Paris goals with little or no additional effort, as noted by outgoing Energy Secretary Moniz. The Paris Agreement will only become a major point of contention if President Trump chooses to make it one.

In his list of the top energy stories of 2016, fellow blogger Robert Rapier rated the election of Donald Trump ahead of the OPEC deal and many other important events of the year, based on its likely impact on “every segment of the US energy industry.” In retrospect that was equally true of Barack Obama’s election in 2008. The shift we are about to experience on energy will be that much sharper, because President Obama and President-Elect Trump both set out to make big changes to the status quo for energy, in opposite directions. We shouldn’t miss one important difference, however.

The course that Barack Obama’s administration followed on energy was largely predictable from the start, because it was based on openly and deeply held beliefs about energy and the environment. Donald Trump’s well-known preference for deals over dogma sets up the prospect of some big surprises, in addition to what we can already anticipate.

Photo Credit: Michael Vadon via Flickr

Original Post

Geoffrey Styles's picture

Thank Geoffrey for the Post!

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Bob Meinetz's picture
Bob Meinetz on January 16, 2017

Geoffrey, your “deals over dogma” characterization of the preferences of Donald Trump vs. Obama’s deeply-held beliefs is an interesting way to equate climate change to dogma – one with which, I believe, most respectable scientists the world over would take issue.

With Donald Trump’s frankly idiotic statement ascribing climate change to a Chinese hoax, we can effectively cut his mic (or Twitter account) if we expected any nuanced evaluation of environmental issues. We can count on our mercurial President-Elect to follow through on threats and intimidation – he has threatened to back out of Paris; it will be done. A more-apropos characterization of his preferences would be “Deals Über Alles”, in many of which he will apparently have a personal hand via his surrogate-profiteer sons. Trump will not be “focusing more” on economic benefits than the environment but completely thereon.

And your adoption of API’s euphemism for fossil fuels as “energy” is duly noted. It serves to effectively exclude the zero-carbon contribution of renewables and nuclear – of course, that’s the point. The rest of us should be looking at both to start to undo the climate damage fossils have already done, and continue to do.

Hops Gegangen's picture
Hops Gegangen on January 16, 2017

Well said.

Sean OM's picture
Sean OM on January 16, 2017

In other words, you are saying he isn’t going to change the policy at all?

Obama’s only real change to the policy was to stimulate competition in the marketplace. Our losers are Oil, Gas and Coal, everytime the prices skyrocket, it tanks our economy. It has happened twice. Obama just bundled up a few changes altogether to see if we lower the competitive price of renewable energy, but it was also bundled with infrastructure changes from the bush energy plan, and grid expansion.

It was a shotgun approach so all technologies were evaluated for cost effectiveness and required investor money. The projects were placed where we wanted new electric infrastructure and capacity. If they failed, we at least got some much needed infrastructure.

Now Mexico is having auctions with winning bids averaging 33/mwh for renewable projects. You can’t build a NG plant and sell for less then that. In the US, solar is around 40/mwh in some places already. The prices for solar are starting to creep into wind energy range. Then you have batteries that will also drop further in price, which make storage and EVs more cost competitive.

I think what you are hoping for is a last gasp for the FF industry, but I am highly skeptical. Obama didn’t shut down the gas, oil or coal industry, he just asked them to improve, which coal refused to do. US oil was priced out of the market. NG experienced booming growth under Obama.

Renewable energy added a -ton- of jobs. solar is over 200k alone.

Jesper Antonsson's picture
Jesper Antonsson on January 17, 2017

Now Mexico is having auctions with winning bids averaging 33/mwh for renewable projects.

For like 2019 delivery, so betting on further cost erosion until then. Pegged to the dollar, probably also includes free land and grid connections, for instance.

Renewable energy added a -ton- of jobs. solar is over 200k alone.

That’s very bad, actually. Less jobs is better.

Geoffrey Styles's picture
Geoffrey Styles on January 17, 2017

Bob,
When I refer to “energy”, I mean energy of all types, even though as I note fossil still dominates our mix.

As for dogma, I was actually thinking of political dogma here; Trump’s views don’t fit neatly into any of the standard Republican or Democratic buckets we’re use to. However, if you want to think of it in climate terms, dogma begins where reasoned debate ends. When we start talking about belief vs. denial, surely that’s dogma. Trump seems to operate on a different axis altogether.

Geoffrey Styles's picture
Geoffrey Styles on January 17, 2017

“Less jobs is better.” Unless of course it’s your job that’s less.

Big picture, you’re spot on. All modern energy is capital-, rather than labor-intensive. We could maximize the number of workers in the energy sector as China has done for decades. However, productivity would plummet. We should want the smallest energy sector that meets the needs of the other 93% or so of the economy, where the real jobs action is, and should be.

Mark Heslep's picture
Mark Heslep on January 17, 2017

Less jobs is better.

Fewer jobs per unit energy produced is better for productivity, as in the long term higher productivity is the only factor that raises income. Transfer of net jobs from one type of energy production to another is another issue.

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