By William M. Arnold
A New Perspective On Energy
This article by Bill Arnold, professor in the practice of energy management at Rice Business, originated as an interview with Pipeline & Gas Journal, November 10, 2016. He adapted the piece from ideas in that interview for After Hours.
Deciphering a political candidate’s policies is never simple. A party’s platform may be used to give voice to supporters (especially the potentially disaffected) rather than reflect a candidate’s real intentions. Candidates can always claim that “circumstances have changed” once they are in office. Of course, it is easier to make a judgment about someone who has held office and built a track record. In the case of Donald Trump it may seem as though we are dealing with a blank sheet.
But maybe not.
In the case of President-elect Trump, his “America First” position and goal of restoring well-paid jobs provide a basis to project his actions in a number of areas. This is not a data-driven approach but is more like the scenario planning that is used widely in the energy industry. What are some plausible energy policies in a Trump administration?
Admittedly, energy was not a prominent point in the presidential debates, because voters are relatively content with low prices for gasoline, natural gas and home heating oil. The producing states may have suffered hundreds of thousands of job losses, but the rest of the country is unsympathetic. Still, energy policy is a crucial part of government, and Trump will bring a new perspective on energy. It will be in sharp contrast to the policies of the Obama administration.
The tools he will have to implement his policies include the Republican majorities in the Senate and House of Representatives. A caveat: this is never as simple as it sounds, given the increasing independence of members of Congress and the bruises inflicted over the past year. At some point there will be pushback.
Presidential appointments will put Trump’s people in senior positions throughout the bureaucracy, and not just at the Cabinet level. Trump’s team will place about 3,500 people across the administration. Several hundred require Senate confirmation, but another 3,000 are discretionary. The latter includes scores of deputy assistant secretaries in every department from defense to agriculture.
Some of Trump’s actions will be part and parcel of broader initiatives. Until being pushed aside recently, Chris Christie quietly led the transition team in consultation with Newt Gingrich and Rudy Giuliani. Undoubtedly they have compiled a long list of Obama executive orders that will be cancelled on day one.
On climate change, Trump’s supporters apparently run from skeptics to deniers. This will have a big impact for the Environmental Protection Agency, the Department of Energy, the Department of the Interior and the new administration’s response to last December’s Paris Agreement (COP-21). The administration will almost certainly:
- Clean house at EPA and energy, replacing advocates of aggressive climate policies with officials who have an agenda friendlier to fossil fuels.
- Declare an end of the Obama administration’s war on coal. Trump owes Pennsylvania and the region that gave him an Electoral College majority.
- Leave the regulation of fracking with the states.
- Open more public land to energy development.
Trump has advocated that Fortune 100 companies “come back to America” (especially bringing back profits held overseas). One fairly easy step in this process would be to encourage energy companies to invest in energy development in the U.S. instead of overseas. They already are doing that, but Trump could take some credit with supportive policies.
Trump’s political philosophy is unclear. But conservatives in his inner circle will insist that market forces, rather than executive orders and regulatory mandates, determine the allocation of coal, natural gas and nuclear for use in power plants. This is already happening. Cheap and abundant natural gas is forcing coal out of power generation, and nuclear plants are shutting in quick succession because of obsolescence and economics.
Trump’s philosophy will also show itself in his response to the Paris Agreement. Through the substitution of natural gas for coal, CO2 emissions from U.S. power plants have reached a 20-year low. Energy efficiency and related measures mean improved energy intensity in this country. By contrast, Germany’s CO2 emissions are increasing despite two decades of focus on renewables. Chancellor Angela Merkel closed about half of her country’s nuclear power plants in response to the disaster at Fukushima, with no ready backup. So Germany resorted to lignite coal.
In a Trump administration U.S. subsidies for wind and solar will be under increased scrutiny, just as costs have come down to sometimes competitive levels. Expect a vibrant debate.
The linkage between Supreme Court nominations and energy policy is most apparent in the Obama administration’s Clean Power Plan. The late Justice Antonin Scalia tipped the 5-4 vote to suspend implementation because costs were not adequately considered. It is in limbo now.
President-elect Trump’s clear position on “America First” will translate into a focus on energy security and affordability. Germans and the British pay about two times what we do for electricity and gasoline.
Low cost natural gas has given rise to tens of billions of dollars of investment in the Houston area’s petrochemical and refining industries even as the upstream industry suffers job losses and capital investment cuts.
Pipelines are the literal backbone of the American economy. They link consumers and industry to abundant North American resources. They also enable exports of natural gas and oil, supporting our balance of payments. But they are often resisted by local communities and national organizations. For safety and environmental reasons pipelines are clearly better than rail and trucking to take oil from North Dakota.
Those who try to block pipelines want to “keep it in the ground.” “It” means hydrocarbons. Advocates of this position believe that limiting infrastructure will minimize production and open more opportunities for renewables.
President-elect Trump may support the Keystone XL Pipeline, but that raises the question of whether TransCanada will want to invest now that oil prices are low and the cost of oil sands is still higher than other available sources. Was the opportunity for thousands of jobs missed or deferred?
A complex issue may be gas exports to Mexico — and not only because of other well-known political issues involving Mexico. Exports are big now and pipeline projects will grow in the medium term. This would seem to be uncontroversial for the new administration — more U.S. oil patch jobs, improved balance of payments, etc. But gas exports to Mexico might be viewed negatively if Mexico uses cheap U.S. natural gas for industrial development that competes with the U.S. heartland. There has even been talk about using this gas for LNG export facilities on Mexico’s west coast or Baja California in competition with Corpus Christi and Sabine Pass, Louisiana. This could result in calls for an export tax on natural gas.
Finally, energy will not be at the top of President Trump’s agenda. Pressing issues of national security, terrorism, restoring good jobs and replacing the Affordable Care Act will have his attention.
William Arnold is a professor in the practice of energy management at the Jones Graduate School of Business at Rice University.