By Jim Krane
For the US energy sector, a Trump presidency portends less regulation for fossil fuels and a retreat from reducing carbon emissions to fight climate change.
Trump’s big campaign promises, however, were short on policy insights and his selection of energy advisers remains unknown.
Trump’s statements promoting domestic energy are a perennial theme in US politics, echoing those of every U.S. president since Jimmy Carter, who made the first presidential vow to cut US dependence on foreign oil.
As Carter and every predecessor learned, however, market forces account for most of what happens in the U.S. energy sector. Whether the president likes it or not, energy companies take most of their marching orders from pricing signals coming from outside the United States.
For oil and gas, friendly policies aren’t nearly as welcome as higher prices.
Coal and the Supreme Court
The most momentous Trump-era energy policy may well be made by the Supreme Court. Trump has the unusual privilege of appointing a new justice as one of his first acts as president, filling the seat that has been vacant since February.
A more conservative Supreme Court puts Obama’s key climate effort, the Clean Power Plan, in jeopardy. The plan is the centerpiece of the U.S. pledge made at the 2015 Paris summit to reduce carbon dioxide emissions by 30 percent below 2005 levels by 2030. The plan’s emissions thresholds would force states to phase out aging and less-efficient coal-fired plants.
Doing away with Obama’s CPP appears to be Trump’s idea of a favor to the coal industry. But would it work?
Even if the CPP is quashed, a rebound in coal’s fortunes or US carbon emissions is far from inevitable. Obama’s regulations merely reinforced a trend, encouraging the ongoing replacement of old and uncompetitive coal plants with new and efficient natural gas-fired plants. Since natural gas emits roughly half the carbon as coal relative to its energy content, the CPP would have probably only served as a regulatory hedge against a coal revival. Emissions were already trending down.
Our research suggests natural gas will stay cheap regardless of CPP’s fate. Gas should retain its economic advantage over coal and increase its share of the US power generation market.
Even if gas prices rise, a coal rebound in America still looks unlikely, given the strong prospect of some future climate action. The coal sector is beset by myriad bankruptcies. Most major banks refuse to lend to coal projects, and insurance companies are moving in a similar direction. Coal has simply become too risky.
Tough love for renewables
Elsewhere in the U.S. electric power market, gas could get a leg up on competition with wind and solar. A Republican-controlled Congress will probably decline to renew the Production Tax Credit for wind and the Investment Tax Credit for solar, allowing both to phase out as intended over the next few years.
Under current legislation, wind projects receive a 20 percent reduction in their tax credit every year until the credit reaches zero in 2020. The tax benefit for solar is designed to ramp down in similar fashion until 2021, although 10 percent of the solar credit is supposed to remain in force.
Shale and oil sands on the upswing?
In the American shale patch, buffeted by the onset of low prices in 2014, the Republican sweep suggests that producers can at least expect a few years of industry-friendly regulation.
This endangers a second fragile Obama legacy: his effort to reduce the venting of climate-warming methane during oil and gas production. The EPA tightened methane rules in May, forcing oil and gas producers to upgrade equipment and intensify monitoring for leaks. States have sued to block the rules, and the oil and gas lobby would love to see them dismantled.
Trump’s appointees in the Department of Energy and Federal Energy Regulatory Commission will probably also be more supportive of pipeline construction, while continuing the Obama administration’s approvals for construction of plants that export liquefied natural gas, or LNG.
The undoing of a third Obama legacy – the rejection of the Keystone XL pipeline – could also result in a big increase in U.S. carbon emissions.
The Keystone aimed to ferry crude oil from the Canadian oil sands to the cluster of refineries on the U.S. Gulf Coast. Obama denied developers a permit based on the high carbon content of oil sands crude, which emits almost a fifth more CO2 than the average US crude slate.
Trump has declared that Keystone should be revived. If that happens, the US vehicle fleet could see an increase in the average level of carbon dioxide emitted per gallon of gasoline and diesel.
But once again, the reality of low global oil prices has made a strong case against investments in the high-cost oil sands, and, by extension, for the Keystone pipeline.
Trump has also spoken in favor of nuclear power, one of the few zero-carbon sources of reliable baseload electricity. Enthusiasm for nuclear will doubtless be tempered by the availability of cheaper substitutes, again starting with gas.
Any revival of America’s nuclear generation sector would take more than a decade, extending far beyond a Trump presidency. But encouragement of nuclear, even by extending the operating lives of existing plants, could improve the U.S. carbon footprint.
Overall, however, it is hard to predict how the next administration will act on energy. Trump and his advisers may well leave some things alone, based on existing judicial rulings or the prospect of court battles with the environmental lobby.
The fact remains that the US energy sector is made up of thousands of private companies that operate on market signals that have little to do with policy made in Washington. For oil and gas producers, and increasingly for carbon regulation and electricity investment, state-level policies are what matters.
And when it comes to the laws of energy supply and demand, Trump, like other US presidents, will find himself without much influence.
Jim Krane is the Wallace S. Wilson Fellow for Energy Studies at Rice University’s Baker Institute. Follow him on Twitter on @jimkrane