Photographer: Luke Sharrett/Bloomberg

Trump’s secret weapon to reverse Obama on climate

December 12, 2016 Mark Drajem

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.

If this all holds, the oil business is going to be well represented in the administration of President-elect Donald Trump. Exxon’s Rex Tillerson at State. Texas’ Rick Perry at Energy. Oklahoma’s Scott Pruitt at the EPA.

Each of these candidates has deep, long-lasting ties to the industry. Each can rattle off the benefits of the U.S. production boom without a moments delay. And each is going to bring that bone-deep understanding to their job. What exactly that will mean for policy, will not always be straightforward. We discuss one aspect below in a section about the always entertaining Social Cost of Carbon.

But here’s one other thing to think about:

Much is being made in the initial news stories about Tillerson’s ties to Russia. But, Tillerson is also an evangelist for fracking, horizontal drilling and U.S. production. And the U.S. fracking boom is not something beloved in Russia; Russian media has invested a lot of time investigating problems blamed on fracking. Low prices brought about by the U.S. shale gale is bad news for Moscow — and this talk at the Council on Foreign Relations in 2012 shows that Tillerson has a nuanced view of the foreign policy impacts of the U.S. production boom.

For more on how success in Russia helped make Tillerson’s career, see Joe Carroll’s story.

Oops

Former Texas Gov. Rick Perry is Trump’s top choice to head the Energy Department, Jennifer Jacobs and Jennifer Dlouhy reported. Two Democratic senators from energy-producing states — Heidi Heitkamp of North Dakota and Joe Manchin of West Virginia — are also in the mix, along with Ray Washburne, a Dallas investor and former chairman of the Republican National Committee, according to people familiar with his decision making. (Heitkamp also in the mix for Agriculture. Ahem.)

Jay Martin Cohen, a retired Rear Admiral of the U.S. Navy, is said to be Trump’s choice for under secretary for nuclear security, a position within the Energy Department.

ANWR Returns

As one of the top Republicans in the House, Cathy McMorris Rodgers, voted to open the Arctic National Wildlife Refuge to oil drilling, and supported efforts to expand offshore drilling. Now, as Trump’s likely choice to head the Interior Department, McMorris Rodgers would be in charge of those issues which are crucial to the oil and gas industry.

Under the Obama administration, the Interior Department has sought to further block the prospect of oil and gas drilling in ANWR, by making all of ANWR a wilderness area, a move that automatically classifies the land as a wildness study area and thereby off limits to oil and gas exploration. By some estimates ANWR contains nearly 15 billion barrels of economically recoverable oil.

The Trump administration could likely undo that, but undoing a ban on drilling there would take an act of Congress. Congress is gearing up to do just that, Alaska Rep. Don Young said in an interview earlier this month. “It’s a number one priority,” he said.

Happy First Birthday, Paris!

What a difference a year makes. It was a year ago today that negotiators from 195 nations endorsed the Paris accord. The climate deal was hailed by President Obama as a “turning point for the world.” But in the U.S. Republican critics such as Senate Majority Leader Mitch McConnell warned that Obama was making promises he couldn’t keep, because the linchpin of the U.S. pledge was a plan that is “likely illegal” — and Congress had already voted to reject.

With Donald Trump’s election — and the selections he has made since winning — it’s now clear McConnell was right.

Perhaps nothing makes the case more starkly than the appointment of Chris Horner of the Competitive Enterprise Institute to the EPA transition team. At CEI Horner both authored books on the risks of climate policies — Red Hot Lies: How Global Warming Alarmists Use Threats, Fraud and Deception to Keep You Misinformed — and used lawsuits to get at the e-mail communications of EPA leaders and climate scientists. It was CEI’s lawsuit that led to the ruckus over former EPA head Lisa Jackson’s private government e-mail account, which was under the name Richard Windsor.

Myron Ebell, the director of CEI’s energy and environment center and head of Trump’s EPA transition, has been the group’s affable, bespectacled advocate. In his soft-spoken way he makes climate science sound somewhat silly. Horner, a lawyer by training, is the group’s designated attack dog.

Interestingly, climate change is one difference between Trump and Tillerson.

Trump told Fox News yesterday that “nobody really knows” if climate change is real. As Exxon’s CEO, Tillerson has said climate change is happening, and Exxon has endorsed a carbon tax. Activists say that’s a ruse, but don’t be so sure: A carbon tax that’s not steep would give the advantage to natural gas over coal, and Exxon is trying to sell a bunch of natural gas after buying XTO. Tillerson said at the 2012 talk:

“Natural gas obviously brings with it a number of quality-of-life environmental benefits because it is a relatively clean-burning fuel. It has a CO2 footprint, but it has no particulates. It has none of the other emissions elements that are of concern to public health that other forms of power-generation fuels do have: coal, fuel oil, others.”

Still, he’s far from a “climate alarmist’:

“If you take a — what I would call a reasonable scientific approach to that, we believe those consequences are manageable.

“They do require us to begin to exert — or spend more policy effort on adaptation. What do you want to do if we think the future has sea level rising four inches, six inches? Where are the impacted areas, and what do you want to do to adapt to that?”

Houston, We Have a Problem

Just as Donald Trump was telling a Louisiana audience on Friday that he was going to greenlight a bunch of new pipelines and refineries, FERC told Veresen Inc. that it wouldn’t reconsider its application for a $5.3 billion natural gas export terminal in Oregon. FERC had turned it down in March, saying the developers hadn’t demonstrated the benefits outweigh the adverse effects on landowners. On Friday it said it wouldn’t reconsider that.

Dakota Access

Judge James Boasberg said at a status conference Friday that the next hearing date on Energy Transfer Partners Dakota Access project “most likely” will occur in early February, after ordering the Army Corps to respond by Jan. 6 to the company’s motion for summary judgment. The company wants the court to overturn the Army Corps decision not to grant an easement for it to build under Lake Oahe. The company argued in court that every week of delay is costing it $20 million.

Boasberg noted, of course, that the incoming administration could “make any or all of this mute.” ClearView Energy Partners, in a research note published after the court proceeding, said the pipeline “may have a good chance of having its motion for summary judgment granted.” That means it could be in service by April or May.

Quote of the Day

“He’s in charge of, I guess the largest company in the world. He’s in charge of a- an oil company that’s pretty much double the size of his next serious competitor. It’s been a company that’s been unbelievably managed. And to me, a great advantage is he knows many of the players, and he knows them well. He does massive deals in Russia. He does massive deals for the company — not for himself — for the company,” Trump said, describing why Tillerson would be a good choice for Secretary of State.

Bonus Quote

“We haven’t had refineries built in decades, right? We’re going to have refineries built again,” President-elect Donald Trump said in Louisiana on Friday.

Pruitt’s Achilles Heal

The initial news reports about the selection of Scott Pruitt to head the EPA focused on his opposition to Obama’s Clean Power Plan. But the Oklahoma AG has also dubbed the Renewable Fuel Standard as “unworkable,” and that may complicate his confirmation.

Criticizing the RFS is the norm in oil-producing states like Oklahoma; it’s very different thing for corn-belt lawmakers. We already heard from Sen. Heidi Heitkamp on her “serious concerns” on his “record of opposing” the RFS. Now we have a vote he will really need: Sen. Joni Ernst, the Iowa Republican. The Quad City Times reports she wants him to pledge to “follow the original congressional intentions” of the RFS law.

The Predictor

The final version of EPA’s hydraulic fracturing study could — at long last — be out this week. EPA’s draft concluded that there was no “widespread, systemic” impact on water pollution from fracking, but the agency’s scientific advisers criticized this finding. We predict EPA will excise that broad conclusion, and instead hue more closely to what its research determined: there were specific cases of pollution but broad generalizations of the risks need further investigation.

Trump Team Memo’s Hidden Gem

Catherine Traywick’s scoop that Trump’s transition team was seeking to identify staff members involved in promoting President Obama’s climate agenda deserves to be readand re-read. It’s a fascinating look inside the nuts and bolts of this very unique transition.

In a section about the Social Cost of Carbon, one set of questions stood out to us: “Did DOE pick the discount rates to be used with the IAMs? What was DOE’s opinion on the proper discount rates used with the IAMs? What was DOE’s opinion on the proper equilibrium climate sensitivity?”

OK, this is super wonky. But it deserves a bit of pondering. Many of the advocates close to the transition are saying the incoming administration should pull carbon regulation up by the roots, and overturn EPA’s endangerment finding that CO2 is a pollutant and needs to be regulated under the Clean Air Act. Doing so would seemingly lead to the reversal of many rules, including the Clean Power Plan. But, that’s also both a radical move and one that would be challenged in court.

Another possibility would be for Trump’s wonks to review the calculations for the Social Cost of Carbon, which is used by agencies across the government in determining whether measures to curb carbon emissions are worthwhile. The 2010 version from the Obama White House set a range of values for the price, which would increase over time. This is important because a greater climate benefit would justify regulations that cost more, e.g. tighter caps on emissions from power plants.

The Obama administration updated its calculations in 2013, but the analysis has come under continual criticism from business groups and Republicans in Congress. (In fact, it has also been criticized by environmental groups for being too weak.) Here’s the thing: Figuring out what the accurate current cost should be for a unique, long-term risk is not a straightforward task.

When Obama’s team did it “we tried to make decisions and assumption behind a veil of ignorance,” University of Chicago economist Michael Greenstone, who was in the administration then, told me. But one thing that couldn’t be hidden was the impact of the discount rate, which is basically establishing how much more to value immediate income compared to what is possible in the future. OMB used different discount rates — 5%, 3%, 2.5% — to get a range of values, and then did some kind of funky averaging.

For a sense of how big a deal this is: According to the 2013 report, in 2020 the SCC using a 5% discount rate is $12; using a 2.5% rate it’s $65.

If that all sounds convoluted and complicated, well, it is. And that’s how this relates to the Trump team. They could come, announce a reevaluation of the SCC, and then put the range at 5% — or 7%. That would turn a price that’s pushing broad changes in everything from microwave ovens to coal leasing decisions to one that would have practically little or no impact on policy. A 7% discount rate, which has been used by EPA for other regulatory analysis, could actually lead to a *negative* carbon cost.

Oh, and the discount rate is just one way the SCC could be reconfigured. (See the question above about climate sensitivity.)

This change to the SCC makes sense for another reason. Listen to Trump discussing climate change with the New York Times: “It also depends on how much it’s going to cost our companies.” Lowering the SCC means lowering the costs to companies, such as power producers and refineries.

Addendum

Greenstone, the University of Chicago economist, says recent research shows the SCC should be increased, not cut. Science is showing increased risks of catastrophe, and so “if you view climate mitigation as a hedge against that coming true, that might push you to have lower discount rates.”

And whatever changes Trump makes will be challenged in court; his lawyers will have to show the changes were not “arbitrary and capricious.”

Also today

  • With the selection of Gary Cohn as the chief White House economic adviser, his team’s wealth now surpasses $12 billion, making it the richest such collection in history.
  • Energy Secretary Ernest Moniz is set to discuss how nuclear plants and renewable energy can work together at the Glover Park Group offices tomorrow afternoon.
  • These ten “Trump Democrats” in the Senate will face the voters in 2018.
  • Rep. Greg Walden is keeping House E&C staff members including Mike Bloomquist as deputy staff director and Karen Christian as general counsel.

Chart of the Day

In a document obtained by Bloomberg, Trump’s transition team asked the Energy Department how it can help keep nuclear reactors “operating as part of the nation’s infrastructure” and what it could do to prevent the shutdown of plants. Advisers also asked the agency whether there were any statutory restrictions in resuming work on Yucca Mountain, a proposed federal depository for nuclear waste in Nevada that was abandoned by the Obama administration.

Mark Chediak has the story here of the questions Trump’s team was asking about saving nukes.

So what does the nuclear industry say it needs? This past July the Nuclear Energy Institute submitted its white paper to the Energy Department about the woes facing reactors, and what could be done to help them. It says DOE should prepare to expand its loan guarantee program in order to get a new generation of nuclear reactors built. Overhaul and boost a federal cost-sharing program for small-modular reactors. (NEI has said FERC needs to revamp its rules for capacity auctions to help existing nuclear plants; it’s not clear what role Energy could play.)

Outside the Beltway

Shale Drillers Fire Up Largest Number of New Oil Rigs Since 2015
Explorers rushed back to the shale patch with the largest weekly addition of oil rigs since July 2015 as they assess how much they can grow next year after expected production cuts from OPEC. Rigs targeting crude in the U.S. rose by 21 to 498, according to Baker Hughes Inc. data reported Friday. After two years of declines, rigs hit bottom in May at 316. Shale drillers have since added 182 rigs, restoring activity to levels last seen in January.

America’s Natural Gas Surplus May Evaporate by the New Year
America’s glut of natural gas that’s lasted for over a year may disappear before January.
Gas stockpiles may slip below average for the first time since May 2015 by the end of the month, Phil Flynn, senior market analyst at Price Futures Group in Chicago, said by phone. That as bitter cold forecast to sweep across the northern U.S. in December is seen stoking record demand to heat homes and businesses.