Pragmatism and Stability in Energy Policy for the U.S. Power Sector

Energy Policy Recommendations
for the Trump Administration

This is a summary of a paper (In-Press Article Here)that will be published in the January-February 2017 issue of The Electricity Journal.

Overview
The 2016 U.S. presidential election has generated concern within the environmental community, particularly with respect to climate change, as President-elect Trump has conveyed his intent to address what he considers regulatory overreach in the U.S. energy sector and unleash an energy revolution in America (Trump, 2016a). This includes expanding U.S. oil and natural gas development, reviving the coal industry, rolling back EPA’s Clean Power Plan, and withdrawing from the Paris climate agreement (Mufson and Dennis, 2016; Schoof, 2016; Trump, 2016a). All combined, this would extract from current U.S. energy policy the core of President Obama’s climate agenda and effectively put the Obama climate legacy into hibernation—a legacy that, if elected, Hillary Clinton would have likely kept intact and expanded upon (Clinton, 2016). How this projects forward remains in question. What is clear is this: the election of Donald Trump has triggered what will be an ideological shift in energy policy. While this may bode well for upstream and midstream oil and gas sectors in the near-term the impact on the power sector is not as certain (Rapier, 2016).

Past U.S. energy policies that impacted the power generation sector were motivated by various circumstances, some domestic and some external. The Rural Electrification Act (1936) was implemented to facilitate the provision of electricity to rural areas of the U.S. The Power Plant and Industrial Fuel Use Act (1978), which prohibited the construction of new oil and natural gas baseload power plants in favor of coal plants, was a national security measure taken in response to the 1973 oil crisis but was later repealed. The Public Utilities and Regulatory Policies Act (1978), also in response to the 1973 oil crisis, was intended to promote energy efficiency and the development of domestic energy resources. The Clean Air Act Amendments (1990) were implemented to address acid rain, urban air pollution and toxic air emissions and resulted in significant technological changes and retrofits for power plants. The Energy Policy Acts of 1992 and 2005 created frameworks for wholesale power generation and the consideration of net metering by states (1992; 2005). The Energy Independence and Security Act of 2007 (2007) was, as its title indicates, focused on shifting the U.S. toward less dependence on foreign energy supplies. The Clean Power Plan, which establishes CO2 emission performance rates for power plants as a measure to ameliorate global climate change, has proven to be one of the most contentious energy-related policies as there is currently no economically viable environmental control technology available to manage CO2 (EPA Clean Power Plan, 2015). Most recently, the U.S. Senate passed the Energy Policy Modernization Act (2015), which was developed to promote conservation, improve accountability, increase America’s energy supply, improve energy infrastructure, and enhance energy efficiency in an overall effort focused on energy security.

These few examples convey the inherent dovetailing of energy and environmental policy with national security, and, in some cases, show how energy policy is oftentimes a proxy for environmental policy. They also exemplify how U.S. energy policy has evolved from a focus on U.S. domestic welfare to one that is now global in scope. While past policies faced their own political and social resistance when originally proposed, most policymakers today retrospectively support the ideologies of past policies implemented to provide electricity for all U.S. citizens, decrease dependency on foreign energy resources, and protect human health and welfare and the environment. However, energy policy designed to regulate U.S. carbon emissions for the sake of global climate welfare has generated conflict involving U.S. national interests, politics, science, the power sector and America’s leadership role in the world. While a Trump administration will focus on implementing its own ambitious energy policies, while likely diminishing President Obama’s energy and climate agenda, the realities of political and global ideologies and the inevitability of political transitions should be accounted for in order to avoid an unsustainable shift in energy policy that is short-lived and introduces more uncertainty for the U.S. power sector.

The objective of this paper is to offer policy recommendations that can help achieve President-elect Trump’s goal of unleashing an energy revolution in America, reduce U.S. and global carbon emissions in the long-term and incorporate stability and resiliency into U.S. energy policy as it pertains to the power sector. The recommendations focus on: 1) Policy correction as opposed to policy reversal, 2) Development of a middle ground of energy-environmental centrists who can sustain and advance pragmatic energy policy through political transitions, and 3) Engagement in international climate talks as necessary actions of diplomacy and leadership, independent of the administration’s position on climate change.

Summary
As President-elect Trump and his administration look to relieve the U.S. power sector from what he considers regulatory overreach and unleash America’s energy potential, it is recommended that he do so with a view towards developing a comprehensive energy policy resilient enough to withstand subsequent political transitions and to provide the power sector with a stable, more predictable investment climate. That is, complement upstream energy resource development with downstream technologies such as carbon capture and storage and nuclear power, which can serve as a long-term hedge for the power sector and limit its exposure to inevitable political changes. This will provide those in the pragmatic energy-environmental center with a strong base on which to argue for, and sustain, a policy correction—particularly if equipped with a renewed focus on nuclear power.

Also, a unilateral exit by the U.S. from international climate talks is a risky prospect with unpredictable outcomes and few, if any, upsides. Not only does it create a potential marginalization of U.S. industry as a partner in global energy infrastructure development, it isolates the U.S. from critical energy negotiations. Moreover, it creates a vacuum in global leadership with unknown geopolitical consequences and national security concerns. As such, the U.S. should remain diplomatically engaged in international climate talks independent of the administration’s position on climate change.

In summary, the following policy recommendations are offered:

  1. Focus on policy correction rather than reversal in order to incorporate resilience into a comprehensive energy policy that can stand up under political shifts and provide stability for the U.S. power sector
  2. Build a strong coalition of pragmatic energy-environmental centrists who will champion and sustain a comprehensive policy correction through subsequent administration transitions
  3. Complement any expansion of coal and natural gas development with research and development of environmental technologies to help sustain these upstream resource expansions through future administrations that may shift the focus of energy policy back to carbon emissions
  4. Promote nuclear power as the climate-neutral and politically-bipartisan energy resource that it is, incentivize the U.S. nuclear industry to expand America’s nuclear capacity, and stimulate U.S. research and development in advanced nuclear reactor designs for implementation at home and abroad
  5. Remain engaged in international climate talks as a matter of leadership, diplomacy, humanitarian efforts to alleviate poverty, and in the interest of cultivating global investment opportunities for U.S. industry, independent of the administration’s position on climate change (see figures and highlights below).

Relevant Figures Highlighting the Need to Adjust the Focus of U.S. Energy Policy

Figure 1. Comparison of CO2 emissions for the U.S., China, India and the world.tej-2017-figure-1

Figure 2. Comparison of coal consumption for the U.S., China, India and the world.tej-2017-figure-2

Figure 3. Comparison of power generation capacity (total and fossil fuel) for the U.S., China and Indiatej-2017-figure-3

Table 1. Profile of power generation in the U.S., China and India. (Data from BP Statistical Review of World Energy 2016 and the U.S. Energy Information Administration)tej-2017-table-1

These trends highlight the need to focus on those regions of the world where economic growth is occurring (China), where economic growth is about to occur (India and other developing economies), and where CO2 emissions are increasing (all developing economies). These are regions where advanced energy systems such as nuclear, high efficiency combined-cycle natural gas plants, CCS, and renewable energy can be implemented to meet complex and emerging economic and environmental needs and where carbon reduction can have the greatest climate impact (Gattie 2016b). As such, this is an opportunity for a Trump administration to redirect U.S. energy policy and global carbon reduction efforts toward emerging economies, so that U.S. strengths can be leveraged more effectively as part of a comprehensive and globally strategic energy policy. This would also provide the opportunity to renegotiate U.S. carbon reduction targets rather than walk away from them. The intent should not be to simply preclude the U.S. from reducing its own carbon emissions—something the U.S. is already doing through its power sector. Rather, the intent should be to leverage U.S. strengths of technology, innovation, industrial capacity, research and development where they can be most effective—to regions of the world where economic growth is occurring, fossil fuel consumption and emissions are increasing and poverty is prevalent.

U.S. Industry and Humanitarian Relief
Global poverty issues are energy poverty issues. Therefore, international climate talks, which are inherently energy talks, are by proxy humanitarian relief opportunities to engage the global community in energy-based efforts to alleviate poverty. Current estimates indicate that 1.2 billion people (~18% of global population) live without access to electricity and more than 2.7 billion depend on wood or some other form of biomass, including animal dung, for heating and cooking (IEA, 2016). While energy poverty is bad enough for entire communities, its impacts are particularly acute on the day-to-day lives and health of women and young girls (Oparaocha and Dutta, 2011; Habtezion, 2013). It’s estimated that in India alone 92% of rural domestic energy needs are met by women gathering firewood, crop waste and cattle dung (Habtezion, 2013). Developing countries, particularly those encumbered with energy poverty, may view these talks as opportunities to build relationships with industrialized countries sympathetic to their energy and economic challenges and willing to work with them in meeting those challenges. These countries have energy system, industrial and infrastructural needs that are fundamental to their economic development goals and they’re looking to build international partnerships with countries willing to invest in them and provide the industrial heft to help. Withdrawing from international talks risks alienating U.S. industry as some countries may seek partnerships with countries that demonstrate an abiding interest in global economic development and have remained engaged in the climate discussion. In addition, climate talks also represent an opportunity to strengthen the case for U.S. corporate tax reform. U.S. industry is up to the challenge of engaging with developing regions on developing energy infrastructure, but it needs a sensible investment climate in countries where the financial risk is high. To this end, high level diplomatic climate talks can be leveraged as opportunities to negotiate friendlier business environments for U.S. industry in developing regions and as an argument for much-needed corporate tax reform in the U.S. to stimulate investment in regions where advanced technologies are critical but the investment climate is perilous (Ramamurti and Doh, 2004; Rose-Ackerman and Tobin, 2005; Henisz and Zelner, 2010; Williams, et al., 2015; De Villa, et al., 2015).

Diplomacy and Leadership
International climate talks are energy talks, and energy talks are national security talks. As such, climate talks are discussions about world order and the projection of worldviews. Therefore, these are opportunities for the U.S. to provide global leadership and remain diplomatically engaged in an issue of common interest to 196 other countries—a hallmark of U.S. diplomacy since World War I. It isn’t incumbent on the Trump administration to agree on the extent to which climate is changing or even on the cause of climate change. But, it can agree that international climate talks are opportunities to negotiate, to project America’s ideals, and to remain strategically engaged with world leaders on what is arguably one of the most critical issues of our time—energy. Therefore, what is perhaps most concerning is that a U.S. withdrawal from international climate talks will create a global leadership vacuum. And this vacuum will be filled by countries such as Germany, China, India, Canada, Russia or other countries looking to expand their own sphere of political, economic and diplomatic influence. If the U.S. steps away from these talks, it may very well abdicate a leadership role it can never regain.

Additional References
De Villa, M.A., Rajwani, T. and Lawton, T., 2015. Market entry modes in a multipolar world: Untangling the moderating effect of the political environment. International Business Review, 24(3), pp.419-429.
Habtezion, S. 2013. Gender and Energy. United Nations Development Programme.
Henisz, W.J. and Zelner, B.A., 2010. The hidden risks in emerging markets. Harvard Business Review, 88(4).
Oparaocha, S. and Dutta, S. 2011. Gender and Energy for Sustainable Development. Current Opinion in Environmental Sustainability 3(4): 265-271.
Ramamurti, R. and Doh, J.P., 2004. Rethinking foreign infrastructure investment in developing countries. Journal of World Business, 39(2), pp.151-167.
Rose-Ackerman, S. and Tobin, J., 2005. Foreign direct investment and the business environment in developing countries: The impact of bilateral investment treaties. Yale Law & Economics Research Paper, (293).
Williams, N.J., Jaramillo, P., Taneja, J. and Ustun, T.S., 2015. Enabling private sector investment in microgrid-based rural electrification in developing countries: A review. Renewable and Sustainable Energy Reviews, 52, pp.1268-1281.

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4 thoughts on “Pragmatism and Stability in Energy Policy for the U.S. Power Sector”

  1. I havent seen a viable technology to capture CO2 and store it. It seems to me the requirement that co2 containment be leak proof is impractical. Storage which allows some leakage over time is much more practical.

    I’m also reluctant to encourage the cobstruction of nuclear power plants in third world countries. Most of them are too unstable and lack the safety culture to allow safe nuclear deployment.

    We must also take into account that fossil fuel resources are limited. Oil will run out first, then natural gas, and the last one will be coal. The only debatable point is the timing, which depends in part on the ability of new technologies to replace them. I suspect we don’t really know what those will be, but I sure hope something gets figured out.

    Like

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