A year into the Trump presidency is a good time to take a look at how well his actions in American energy policy have lived up to his campaign rhetoric.
Trump ran as an “all of the above” supporter for the range of domestic energy options. He supported fracking, controversial pipeline development, oil drilling (offshore and on public lands), renewable energy (most specifically biofuels) and an equal footing for coal and nuclear for electricity generation. So far, he has generally delivered (or worked toward) his platform.
The Obama administration talked a good game on supporting U.S. energy development, and certainly accepted credit for the economic benefits that occurred due to the fracking revolution while simultaneously working to stunt—if not derail—those developments. It is not controversial to say that fossil fuels did not have a friend in the White House. On the other hand, extremist environmental groups and alternative energy companies never had a better friend in the White House.
The Trump administration is most certainly a fan of fossil fuels, but while working to reverse some of the Obama administration’s most onerous regulatory and policy actions, it still supports renewables (even wind and solar), though not at levels seen previously.
For example, the recent tax reform bill still supports tax credit offsets for electric vehicles, wind and solar. Under previous legislation the wind and solar tax credits will be phased out by 2020 and 2022 respectively. As part of his broader trade policy (and initiated by a failed U.S. solar panel manufacturer) a tariff of 30% will be applied to foreign-produced solar panels.
Where electric vehicles are concerned, the $7,500 vehicle tax credit is still in place. That begins a phase out when the manufacturer reaches 200,000 vehicles sold. Fuels Institute Director John Eichberger stated in a previous FMN interview how the loss of that credit would have been critical to the progress of electric vehicles. “I think that would have been catastrophic—not for Tesla,” he said. “For your Model S customer $7,500—who cares? But your Model 3, your Nissan Leaf your Chevy Volt—for those guys that $7,500 is a deal breaker. The economics are critical.”
Where carbon reduction is concerned, the Trump administration has taken not just a step, but a leap back from Obama-era policies. For example, he withdrew the U.S. from Obama’s non-treaty Paris Accords (COP21).
As noted in a previous Policy Brief, Trump’s rationale for pulling out of the agreement mirrored common themes from the campaign. In his speech on June 1, he noted that the accord would be costly to the U.S. economy, citing an impact of 2.7 million lost jobs by 2025, including 440,000 manufacturing jobs, as reported by the National Economic Research Associates (NERA). In addition, the same study predicted that by 2040, paper production would be down by 12%, cement by 23%, iron and steel by 38%, coal by 86% and natural gas by 31%.
“The cost to the economy at this time would be close to $3 trillion in lost gross domestic product (GDP) and 6.5 million industrial jobs, while households would have $7,000 less income and, in many cases, much worse than that,” Trump said.
Trump also fell back on another campaign mainstay: that this accord was poorly negotiated. Most of the treaty’s impact would be felt by the developed Western nations—the U.S. at the forefront—which by and large are already green in their production and use of energy.
A related effort was the Trump administration’s decision to rescind the Clean Power Plan—the Obama Administration’s primary tool to force drastic adjustments to the current energy infrastructure. As previously covered in several Policy Briefs, the Clean Power Plan aimed to reduce carbon dioxide emissions by 32% from 2005 levels by 2030. It basically provided a framework to move power generation away from coal to renewables with the support of natural gas as a bridge fuel.
From a procedural standpoint, the Trump administration can’t simply cancel the rule. The path of least resistance involves basically rewriting and replacing the rule.
“The Obama administration pushed the bounds of their authority so far with the CPP that the Supreme Court issued a historic stay of the rule, preventing its devastating effects to be imposed on the American people while the rule is being challenged in court,” said EPA Administrator Scott Pruitt. “We are committed to righting the wrongs of the Obama administration by cleaning the regulatory slate. Any replacement rule will be done carefully, properly, and with humility, by listening to all those affected by the rule.”
There is some speculation that the Trump administration will not introduce, or perhaps just “slow walk” any replacement. There should be no speculation over environmental groups fighting this in court.
“Trump can’t reverse our clean energy and climate progress with the stroke of a pen, and we’ll fight him and Scott Pruitt in the courts, in the streets, and at the state and local level across America to protect the health of every community,” said Sierra Club Executive Director Michael Brune.
Another target for the Trump administration is the 2016 Transportation Clean Air Rule. This requires set two- or four-year emission reduction targets. The goal is to leverage states into prioritizing mass transit or zero-emission solutions instead of automobiles burning gasoline or diesel. An attempt to repeal this rule ran into legal hurdles and it remains in effect. However, the administration is looking to rewrite the rule.
The U.S. EPA has long been heavy on environmental activism over economic impact at the staff level and the eight years of the Obama administration only amplified that (though many of these staffers are leaving the agency under its new leadership).
While proponents of the most aggressive and economically destructive climate change policies say the “science is settled,” that is demonstrably false, even among groups of scientists that actively support the impact of human influences.
For example, a recent study from the University of Exeter published in Nature journal still supported global warming but noted that it’s not likely to be worst-case scenario extreme. There have been a number of other studies that promote this position from scientists that are not generally skeptical about human influence. Some even posit that global warming would be net beneficial to society. While most still note a need for remedial action, if the outcome of climate change is not the most destructive scenarios imaginable, does the solution have to be the most destructive economically?
EPA Administrator Scott Pruitt plans on having an open assessment of current climate science featuring experts from all sides of the issue. As noted there are more than a few credible scientific voices that provide alternative outlooks for what is primarily influencing climate change (human or natural, cyclical process) or the severity of that change if humans are the drivers.
Also linked to carbon policy are the CAFE standards. Trump was approached by automakers to review the current Corporate Average Fuel Economy standards. The latest Obama-era rules set fuel economy goals of 35.5 mpg by 2016 and 54.5 mpg on cars and light-duty trucks by model year 2025. Automakers claimed the process was rushed to get stringent requirements in place before the change of administration. They also note it was more in tune to pre-fracking fuel prices and consumer habits.
Mitch Bainwol, President & CEO, Auto Alliance, stated the following: “Auto manufacturing is highly competitive, so seldom do the world’s automakers come together. But they did in February, when 18 automakers wrote President Trump. They were united in their support for putting ‘the process back on track’ without predetermining any outcome. Checking prior assumptions against new market realities. Driven by current data.
“President Trump agreed, and now we will get back to work with EPA, National Highway Transportation Safety Administration (NHTSA), California Air Resources Board (CARB) and other stakeholders in carefully determining how we can improve mileage and reduce carbon emissions while preserving vehicle safety, auto jobs and affordable new cars and trucks.”
Other Obama legislative initiatives of interest to the industry have been opposed by Trump but are still proceeding due to the fact that they made it through the EPA rulemaking process and have enhanced legal protection.
The EPA’s 2015 ozone rule, previously covered in several Policy Briefs, set a ground ozone level of 70 parts per billion (ppb) just 7 years after it was set to 75 ppb. It is estimated that one third of the counties in the U.S. would become non-attainment areas, including some nature preserves with little to no human activity. The impact on manufacturing in non-attainment areas is expected to be significant in the billions- to trillion-dollar range. For the fuels industry, it means more reformulated gasoline requirements and Reid vapor pressure (RVP) issues in those areas.
The Obama administration claimed this would be offset by health improvements, specifically as related to the “asthma epidemic,” though the science on that linkage is sketchy at best. The need for the reduction is also questionable as ozone levels are dropping and the 2015 rule in many ways overlaps the previous 2008 requirements that have not been universally met.
“Evidence shows that ambient ozone levels are declining. Implementing both the 2008 and 2015 standards creates unnecessary complexity and inefficiency, in addition to needlessly burdening the states and businesses with potentially enormous costs to implement dual standards and competing timelines,” stated Howard J. Feldman, American Petroleum Institute’s (API’s) senior director for regulatory and scientific affairs.
After initially attempting to delay the rule for a year, a lawsuit push from 16 progressive state attorneys general saw the Trump EPA commit to allowing the rule to proceed.
“The EPA’s hasty retreat shows that public health and environmental organizations and 16 states across the country were right: the agency had no legal basis for delaying implementation of the 2015 smog standard,” said Seth Johnson, an attorney with Earthjustice. “Implementing the safer 2015 smog standard will mean cleaner air and healthier people, particularly for those most vulnerable to ozone, like children, people with asthma and the elderly.”
However, citing complexities in the rule, EPA has been slow to identify the new non-attainment areas. This delay has been met with 14 lawsuits this December from the same pool of states.
The Trump administration is currently committed to the Renewable Fuel Standard, much to the disappointment of API that would like to see the RFS severely limited if not repealed.
One RFS issue of note was a less political and more inter-industry move to change the point of obligation from importers and refiners to fuel marketers. This was supported by some refiners and opposed by the range of industry associations from NACS and SIGMA to API. EPA did not end up making the change, although some observers expressed concerns that Trump supporter and refinery owner Carl Icahn might have influence over the decision.
The more political decisions hinged on the biofuel volume obligations which can be seen as a metric on the administrative support or disapproval of biofuels. The Republican Party has not been a natural friend of the RFS (outside of those representing farm states) and especially small government conservatives like Senator Ted Cruz.
Trump is said to have personally intervened to minimize initial rollback efforts at EPA. It’s been reported that EPA was considering across the board volume reductions and including exported renewable fuel volumes as part of the domestic totals.
By and large, the administration has supported corn ethanol.
“ACE members are very pleased that the statutory 15-billion-gallon volume for conventional biofuel will be maintained in 2018 and that EPA is increasing the advanced biofuel volume to 4.29 billion gallons,” said Brian Jennings, CEO of the American Coalition for Ethanol. “This represents a modest step in the right direction for the RFS in 2018. Beyond sending a generally positive signal to the rural economy, increased blending targets also reassure retailers that it makes sense to offer E15 and flex fuels to their customers.”
Not so much for cellulosic ethanol.
“While the 288 million gallons of cellulosic biofuel EPA is calling for in 2018 is a small increase from the volume proposed earlier this year, it is disappointing. The 2018 volume represents a decrease from the 2017 cellulosic biofuel level of 311 million gallons,” Jennings said. “We firmly believe the technology exists to increase cellulosic biofuel targets.”
Biodiesel producers were also less pleased, though you could argue it’s a glass half full/half empty situation. While the volumes for 2018 and 2019 showed no significant cuts, they showed no significant increases either.
EPA announced requirements of 4.29 billion gallons of advanced biofuels for 2018 and 2.1 billion gallons of biomass-based diesel again for 2019. The July proposal recommended only 4.24 billion gallons of advanced biofuels and 2.1 billion gallons of biomass-based diesel—a reduction and a flatline, respectively, from last year’s standards.
“EPA Administrator Pruitt has disappointed the biodiesel industry for failing to respond to our repeated calls for growth. These flat volumes will harm Americans across several job-creating sectors—be they farmers, grease collectors, crushers, biodiesel producers or truckers—as well as consumers,” said Doug Whitehead, chief operating officer of the National Biodiesel Board. “Nevertheless, we can’t thank our members and our biodiesel champions at the state and federal levels enough for their tireless advocacy and education efforts. We’ll continue to work with the administration to right this wrong for future volumes.”
The $1 biodiesel tax credit, which expired in 2016 and is supported by a range of industry associations, has yet to be renewed. However, that fight continues aggressively in Washington.
Drill Baby Drill
Initial Trump efforts delay the Obama methane rule, focused on capturing methane that is currently flared at many well sites, have encountered legislative challenges. The goal is to eventually review and revise the rule.
More success was found with the repeal of the Obama administration’s rule on hydraulic fracturing, which set separate and more stringent requirements for sites on federal and tribal lands compared to those required for state and private lands.
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On the proactive side (vs. reacting to previous regulations) was the opening of the Alaska’s Arctic National Wildlife Refuge to oil development as part of the major tax overhaul. This is an issue that has been bubbling for decades. Opponents paint a picture of vast devastation and imperiled caribou migrations. Proponents argue that the well footprint is minimal and that long-used technologies (Alaskan oil development is a mature and largely environmentally successful operation) greatly reduce such concerns.
On January 4 the Trump administration announced it was significantly expanding the offshore continental shelf to oil exploration and production. This includes areas in the Northeast and off California that have been blocked for decades.
FMN columnist and former Gulf CEO Joe Petrowski noted a number of reasons why this is important in a recent article. In a nutshell though: “While shale oil has been a game changer, it’s downside is a steep decline curve once production starts, so access to offshore will keep the U.S. crude production curve ascending for the foreseeable future.”
States have considerable sway over activities offshore (especially the first three miles) and certainly over shore-based touchpoints for offshore operations. States with considerable beach-focused tourism, like Florida, are not big fans of potential oil spills. Florida has raised objections and been given an exemption. As might be expected, California and some of the Northeast states are not warm to the idea for both tourism objections and ideological reasons.
It should be pointed out that oil production requires investment and the price of oil largely drives those investments. Current oil prices are low and fracking promises to put a cap on them for the foreseeable future. With that in mind, production will likely move slower than in pre-fracking days and focus initially on the cheapest oil to develop.
Where pipeline logistics concerned, the Keystone XL pipeline and the Dakota Access Pipeline have both been approved after being held up by the Obama administration under pressure from the environmental base. As usual, there are lawsuits filed by environmental groups. There is also some uncertainty over the Keystone XL pipeline after the deal, with lower oil prices and a leftist leadership in Canada.