Photographer: Andrey Rudakov/Bloomberg

Tom Steyer’s 12(a) drilling gambit with Obama

December 15, 2016 Mark Drajem  & Ari Natter

The First Word Energy team draws on Bloomberg’s worldwide resources to cover all aspects of energy policy. Learn how Bloomberg Government can help your energy lobbying or policy analysis—contact Peter Hsu at yhsu24@bloomberg.net or 202-416-3035.

President Barack Obama could make a decision within days on whether he will use 24 words of a 1953 law to permanently restrict oil development in broad swaths of U.S. Atlantic and Arctic waters.

Tom Steyer and other environmental allies of Obama have been encouraging the president to go big and bold in his final weeks in office using provision 12(a) of the Outer Continental Shelf Lands Act to permanently withdraw both oceans from future oil and gas leasing. In the past, that provision has been reserved for protecting smaller, specific areas: coral reefs, walrus feeding grounds, and, just last Friday in response to Alaska Natives’ requests, about 40,000 square miles near Nome and St. Lawrence Island.

Unlike the five-year offshore leasing plan plan, the 12(a) provision offers the promise of more permanent protection. And after months of laying the groundwork, environmentalists have spent the last few days rolling out even more evidence in favor of yanking the territory, including an NRDC study illustrating how an oil spill in Arctic waters could spread for hundreds of miles and a letter delivered to Obama on Tuesday from tens of thousands of businesses asking Obama to block drilling in the Atlantic.

Jennifer Dlouhy wrote the full story on this last May. Oil drillers, of course, oppose this idea. But, the idea also divides environmental groups and officials within the administration. The idea for it is straightforward enough: If Obama wants to safeguard Arctic and Atlantic waters — and keep the oil there in the ground — this could be a durable way to do it.

But there’s a risk, too. Environmental groups have garnered allies in coastal residents, Republican local officials and some business groups (tourism in the Southeast, for example), by taking specific and reasonable positions, not emphasizing a broad “keep-it-in-the ground” approach. Using the broad approach could also endanger the very tool environmentalists are now asking Obama to use, critics worry: The Republican Congress could eliminate the provision altogether. And the lifespan of any last-minute Obama withdrawal could be in doubt for years.

President-elect Donald Trump could try to rescind any Obama executive order making withdrawals under the provision, and though he might eventually be overturned by federal courts, it could take years to reach that decision. That’s because a Trump reversal could only be tested in court when there is direct, imminent harm from that action, for example when previously removed waters are targeted for sale or put on the auction block.

Before Obama, there were only three 12(a) designations issued. Obama’s in the “bucket list” phase of his presidency, so anything is possible, but this is looking doubtful for the law-professor-in-chief.

Counseling

Those pesky questions from Team Trump to the Department of Energy about who took part in climate talks and the development of the Social Cost of Carbon? Turns out it was all just a misunderstanding. “The questionnaire was not authorized or part of our standard protocol,” a Trump transition official told the Washington Post. “The person who sent it has been properly counseled.”

OK, then.

Trump Digs Coal?

Remember that applause line from the campaign? We do. And, if you’ve been paying close attention it’s pretty clear that coal has quietly tumbled in prominence with the picks for the Trump cabinet. We have an oil man at State; a Texas governor with wind and oil cred for Energy and an Oklahoma fracking backer for EPA. Rep. Ryan Zinke, the reported pick to be Interior secretary, has said he opposes Obama’s ban on new federal coal leases, but beyond that sounds more focused on preserving federal lands.

On Eagles Wings

Donald Trump fretted during his first major energy policy speech that wind power was “killing all the eagles.” Yesterday, the Obama administration finalized a rule that will quadruple the number of federally protected bald and golden eagles that can be killed or injured by wind turbines or other projects.

The Interior Department’s eagle “take” rule allows companies to apply for 30-year permits to kill or injure more than 4,000 eagles, a move that could also benefit operators of high voltage transmission lines and those in the oil or natural gas sectors.

This hasn’t come up as a likely policy change from the incoming Fish & Wildlife leadership, but, given the concern from Trump about this specific area, it wouldn’t be out of the realm of possibility for FWS to revisit it.

Election Autopsy

Jay Faison looked back at the $4 million ClearPath Action Fund spent on this past election and found that it worked: 12 of the 15 campaigns increased votes for the Republican candidate, the group said in a memo discussed at a meeting this week. “Clean energy views of Republicans helped candidates improve their standing as ‘independent thinkers’ by 2.7%,” Faison said in the memo.

Zinke and Teddy

According to a 2015 story in the Flathead Beacon, Zinke identifies with one specific strain of the Republican Party:

“I’m a Teddy Roosevelt Republican,” Zinke, who owns a Toyota Prius, said. “We live in Montana for a reason, because we enjoy clean water, clean air and the outdoors. But it has to be about multiple use and not single use. I think we have lost our way in a lot of ways. We can mine and drill and still be responsible stewards of the land we cherish. Coal, oil and natural gas are going to be part of our energy picture for a long time and there is no doubt when it comes to energy that Montana has an important role to play.”

Carbon Costs

Putting a dollar value on the cost of carbon may be the biggest fight that few outside of our faithful readers have thought about. Discount rates? Global benefits? Equilibrium climate sensitivity? These are all wonky items, and things that people savvy enough to have gone into software development or gene mapping could safely avoid.

We wrote this week about how this could become Trump’s secret weapon to reverse Obama’s climate rules. My colleagues Matthew Philips, Jennifer Dlouhy and I have a piece in Businessweek this week about the issue, as well. One thing I hadn’t known until we did the story was that the White House economists were calculating the costs out to the year 2300. That is, well, a long time from now.

Daniel Simmons of the American Energy Association, told Dlouhy that these kinds of three century ahead assumptions are inherently ridiculous: What if in the early 1700s “the king had one of his smart clerks do a projection of what they thought America’s economy would be, and the damages from the American revolution,” he said. “It sounds absurd — and it should.”

Ethanol’s Costs

One of the items on the House Freedom Caucus’ list of the 228 regulations that should be eliminated was the Renewable Fuel Standard. The conservative House group is joined by an unlikely ally today, as the National Wildlife Federation issues a report on the unintended consequences of the ethanol mandate. The impact of the RFS on prairie, wetlands and forests converted into farmland is hotly debated, but the wildlife group argues it has led to 7 million acres these types of open lands into fields: “This destruction occurred despite language in the law meant to prohibit this type of land conversion, thanks in large part to the government’s refusal to enforce the provision,” the report, set for release today, says.

The Resistance

Janet McIntyre has heard Trump praise fracking and the jobs it’s created. She’s living the other side of the story, Alex Nussbaum reports:

Now McIntyre and others on the front lines of the fracking debate are getting support from an Environmental Protection Agency report, released Tuesday, that says drilling can harm groundwater. The report, quickly denounced by the industry, comes as Trump’s naming of a fossil-fuel champion to lead the EPA has activists despairing. They’re vowing to turn to the states and the courts to fight a technology they blame for water pollution, earthquakes and climate-warming methane emissions.

For drillers, Trump is a hero, unchaining an overregulated industry. To anti-fracking activists, he is “the absolute nightmare,” said Karen Feridun, a co-founder of the group Pennsylvanians Against Fracking. “A lot of people are depressed. They know we have our work cut out for us.”

In a study published in November by the journal Science of the Total Environment, researchers said a review of 1,850 water samples from Pennsylvania and elsewhere found elevated levels of some chemicals near fracking sites. None were present at hazardous levels, but the results indicated drilling could be affecting water quality, said the scientists from Columbia University in New York, Rutgers University in New Jersey and the University of Pennsylvania.

Also today

  • EIA said proved reserves of oil and natural gas fell in 2015, because of lower prices. Reserves of oil fell 11.8% to 35.2 billion barrels, while gas reserves are down nearly 17%, it said.
  • The House clerk published the office list and phone numbers for the members of the 115th Congress. It’s here.
  • Donald Trump Jr. played a role in the choice of Ryan Zinke for Interior Secretary, according to Politico.

Quote of the Day

“The biggest thing Perry did on energy was to try to fast-track 11 coal plants,” said Jim Marston, the Texas head of the Environmental Defense Fund. “And I think everybody in Texas ought to be glad that Perry’s plan failed.”

Chart of the Day

Renewable energy doesn’t have to mean higher costs. Example #1: Texas.

The big wind build-out in Texas was spurred by a $7 billion transmission project that produced profitable investment opportunities, Rob Barnett of Bloomberg Intelligence writes. As more wind comes online, it displaces coal and gas and compresses peak margins. Even a hot 2016 reached weekly prices of only $60 a megawatt hour, far below previous highs. Average prices have fallen steadily for three years, he says.

ERCOT announced yesterday that wind generation will increase by 10,000 MW and utility solar by 7,000 MW. Texas now has by far the biggest wind fleet of any state, 19,000 megawatts.

Of course, we care about Texas because former governor Rick Perry was picked to be the next Energy Secretary. Michael Webber and Sheril Kirshenbaum argue that Perry was a “clean energy governor,” and so “offers a reason for hope”:

Here’s where Rick Perry played an important role. As wind power expanded, it overwhelmed the capacity of the transmission lines responsible for bringing the energy from wind farms in the western part of the state and the panhandle to cities such as Dallas and Houston. And this restricted the number of wind farms that could be built.

Governor Perry stepped in as part of a coalition of urban Democrats, who like wind for its environmental benefits, and rural Republicans, who like wind for its rural economic benefits. Texas invested $7 billion in new transmission infrastructure to connect more than 18,000 megawatts of remote wind power to the grid.

Outside the Beltway

Miner Reborn as a Gas Driller Still Waiting to Split From Coal
For all its talk about quitting coal and becoming a pure natural gas explorer, Consol Energy Inc. still has a majority stake in three Pennsylvania mines to get rid of. The Canonsburg, Pennsylvania-based company has been working to transform itself into a gas driller for several years, capitalizing on surging production of the heating fuel in nearby shale formations. But it wasn’t until a year ago that Consol’s gas business was big enough to completely part ways with coal. The only thing holding it back from getting rid of its stake now? Weaker capital markets.

Exxon Names Darren Woods as New CEO to Replace Rex Tillerson
Exxon Mobil Corp. named Darren Woods, the heir apparent who built the company’s refineries into profit centers, to succeed Rex Tillerson as chairman and chief executive officer, effective Jan. 1. Woods, the company’s refining boss since 2012, was elevated after President-elect Donald Trump picked Tillerson to become U.S. Secretary of State, the Irving, Texas-based oil explorer said in a statement Wednesday. Even if Tillerson doesn’t become America’s top diplomat — three Republican senators have expressed misgivings about his nomination — he was due to leave no later than March when he reaches Exxon’s mandatory retirement age.

U.S. Seeking to Ease Delays Linking Power Generators to Grid
U.S. energy regulators are set to look at the lengthy delays faced by power plants and wind turbines when trying to connect to the nation’s power-line systems, Jonathan Crawford reports. Developers can wait years and accrue unexpected costs while waiting for approval from regional power grid operators to connect and start feeding electricity onto power lines, according to the American Wind Energy Association. The wait has forced some to drop projects altogether, it said. FERC plans to examine the issue at a monthly meeting in Washington on Thursday, according to a notice of its agenda released beforehand. The agency declined to elaborate.

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