Energy Policy in the New Administration

Mark Green
Posted November 13, 2020

Some initial thoughts on energy policy as we look ahead to a new administration and Congress.

First, as API President and CEO Mike Sommers said over the weekend, natural gas and oil will continue to play an important role in the United States’ continued economic recovery – recognizing that, as the leading energy sources for the U.S. economy, the two are essential for growth. Sommers:

“We congratulate and look forward to working with President-elect Biden, Vice President-elect Harris and the next Congress to support America’s economic recovery, which will be built on affordable and reliable American energy. In key battleground states and races across the country, Americans voted for U.S. energy leadership and the millions of jobs and economic benefits it provides.”

Our country needs Washington focused on economic recovery and forward-thinking about energy and climate change, factoring in how much energy will be needed when the U.S. and global economies ramp up (see API Chief Economist Dean Foreman’s post, here), while building on reductions in emissions to date and fostering innovation that will enable a safe, secure and cleaner future. To that point, our industry supports continued development and wider deployment of carbon capture, utilization and storage as a tool to further reduce emissions, which the president-elect also supports.

Energy demand will only increase (see projections from the U.S. Energy Information Administration and the International Energy Agency), and we must meet the dual challenge of supplying affordable, reliable energy while continuously lowering emissions and shrinking the industry’s environmental footprint.

Frankly, that’s where Americans are – reflected in polling this fall of voters in battleground and other key states that showed support for robust domestic production and greater energy self-sufficiency. Americans understand the importance of U.S. energy leadership in the world.

Our industry already is tackling these twin objectives: We’ve used technology and innovation to make the U.S. the world’s leading natural gas and oil producer; we’re using initiatives such as The Environmental Partnership to share best practices and technologies to reduce methane emissions; and we’ve delivered record volumes of natural gas, which has allowed the U.S. to lead the world in reducing carbon dioxide emissions since 2000.

America’s natural gas and oil companies haven’t waited for governments to act on climate—we have driven progress through technology, innovation, and constant reinvention, and we’ll support bipartisan policies that build on that progress. (7/8)

— Mike Sommers (@mj_sommers) November 7, 2020

All that said, here are a few of the energy policy areas we’ll be engaging in during the transition period, between now and Inauguration Day, and throughout next year:

Developing Federal Natural Gas and Oil Reserves

Given the projections for global energy demand in the decades to come, the United States should safely and responsibly develop its natural gas and oil resources – including those under federal control, onshore and offshore.

This is where U.S. voters are – 75% believe natural gas and oil are essential to modern life and 69% believe domestic natural gas and oil make the U.S. less reliant on foreign energy. More than seven in 10 believe natural gas and oil will be part of the U.S. energy mix two decades from now.

It’s clear Americans support safe domestic natural gas and oil production that will help keep the country growing and secure. To ensure growth and security, federal onshore and offshore reserves should be open for responsible development.

This is at odds with the president-elect’s campaign pledge to halt new leasing on federal lands and waters. As we’ve discussed (see here and here), a federal leasing ban would be a serious setback for U.S. energy.

In 2019, the federal onshore and offshore accounted for 22% of total U.S. oil production (2.67 million barrels/day) and 12% of total U.S. natural gas production (4.37 trillion cubic feet ). More than 70% of federal oil production comes from the offshore. An OnLocation analysis projects a number of negative impacts from banning new federal leasing:

• Weakened U.S. security – Imports of foreign oil would increase 2 million barrels per day. The U.S. would spend $500 billion more on energy from foreign suppliers through 2030.
• Weakened offshore production – Oil production from offshore would decrease 44% by 2030, while offshore natural gas production would fall 68%.
• Weakened economy – $700 billion cumulative decline in U.S. GDP through 2030
• Weakened jobs picture – Nearly 1 million jobs lost by 2022

Earlier this year, energy consultant Wood Mackenzie modeled various Gulf of Mexico scenarios and also found a leasing ban would have significant impacts in the next decade (dark blue line):

More analysis here from the National Ocean Industry Association. (NOIA’s Erik Milito adds that offshore oil and natural gas provides almost all of the funding for the federal Land and Water Conservation Fund, which supports state and local preservation and national park maintenance).

The point is that a policy effectively ending new federal natural gas and oil leasing, with the nation trying to regain its economic footing, would be a serious unforced error. Longer-term, such a policy could hamstring U.S. domestic oil production and could seriously harm the nation’s energy security. It also could make it harder to increase the use of renewables in U.S. power generation – given their reliance on natural gas for dependable, quick-starting fuel when the sun doesn’t shine and the wind doesn’t blow.  

Infrastructure

We’ve argued that it shouldn’t be so hard to build energy infrastructure in this country (see here and here) and that unnecessary red tape and a strategy of tying up needed projects in the courts hurts U.S. consumers, denying them a safe connection with abundant domestic natural gas and oil.

Efforts to renew the Nationwide Permit 12 program (NWP 12) – integral to all kinds of infrastructure construction, not just energy projects – and to modernize the National Environmental Protection Act (NEPA) are important steps toward responsible yet reasonable infrastructure permitting and regulatory review that will allow needed projects to go forward in a timely manner. These should not be rolled back.

Otherwise, the president-elect has said he would rescind the permit for the Keystone XL pipeline early in his administration. That would be wrongheaded, as construction agreements with U.S. contractors have been awarded representing more than 7,000 union jobs – good jobs for American workers. Canceling Keystone XL also would be a serious setback for the U.S.-Canada energy relationship and U.S. energy security and would negatively impact U.S. refineries that are configured to process heavy crude oil from Canada. Alberta Premier Jason Kenney:

“Both Canada and the U.S. need to focus on getting our economies moving again, and Keystone XL is one good way of doing that. It’s creating jobs both in the U.S. and Canada right now and we look forward to telling our positive story about how Alberta energy, and Keystone being part of it, can strengthen American energy independence, energy security, and the US economy. … The case that we will make to a Biden administration is that if they don’t purchase this heavy crude from Alberta through KXL then they have to buy it from the OPEC dictatorship of Venezuela. I think that case makes itself.”

Regulation

We’ve mentioned moves by the current administration on the NWP 12 program and NEPA. Smarter regulation also includes EPA’s proposed Benefit-Cost Rule under the Clean Air Act, which would ensure sound analyses in developing new regulations by requiring that data used for evaluating environmental, scientific and economic impacts be transparent for all stakeholders and replicable – the public should be able to understand the potential costs of the benefits a proposed regulation could deliver.

Likewise, EPA’s proposed rule on National Ambient Air Quality Standards (NAAQS) for particulate matter (PM), retaining all six of the current standards, recognizes that annual concentrations of PM_2.5 have dropped 39% since 2000, and that the U.S. has reduced emissions that can contribute to PM – with fuel switching to natural gas in the power sector playing an important role. Keeping the current PM NAAQS is supported by the absence of compelling new evidence to lower them.

In other words, the current standards are working. We’ll see whether the next administration builds on these regulatory reforms, though there’s sure to be pressure to do otherwise.

Transportation

Potential policies – renewable fuels mandates, policies that favor electric vehicles and moves to enact California-style bans on gasoline- and diesel-fueled vehicles – could impact millions of U.S. drivers.

The federal Renewable Fuels Standard (RFS) should set achievable targets for the use of ethanol in the nation’s fuel supply – targets that don’t exceed the compatibility of the U.S. vehicle fleet and refueling infrastructure.

It means respecting the fuel “blend wall,” which is the amount of ethanol that can safely be blended into the fuel supply as E10 gasoline, given current demand. Exceeding that amount could force more E15 gasoline into the marketplace, putting consumers at risk for vehicle repairs and damage to equipment not designed to use E15. Because EPA has not proposed renewable fuel volumes for 2021, the RFS could be an issue for the next administration, which also will have to set renewable fuel volumes for years beyond 2022.

Likewise, we’ll see where the administration stands on Americans’ freedom to choose the vehicles they drive in the future. This is at stake when government picks winners and losers in the transportation sector by offering tax credits, rebates and sales tax exemptions – all paid for by taxpayers – for the purchase of electric vehicles (EV). These distort the marketplace and are unfair to consumers who can’t afford or don’t want to buy an EV.

Another threat to consumer choice looms with California’s recent executive order banning the sale of new internal combustion engine vehicles by 2035 – and whether other states will follow California’s lead. Consumer preferences and fair competition should determine which vehicle technologies succeed in the marketplace, not government interventions.