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Magazine 24
An Energy
Policy Preview of President Obama’s Second Term
President Obama’s win last night means four more years of ever-more
damaging regulation and ever-increasing difficulties in developing our
oil, coal, and natural gas resources. President Obama announced his
intentions to drive up energy costs in order to reduce energy
consumption before he was elected and there is no reason to suspect
that he will change course now.
The one difference between now and four years ago is that the House of
Representatives is controlled by Republicans, instead of a Democratic
House that gave President Obama tens of billions of dollars in
subsidies and passed a cap-and-trade bill during his first two years in
office. Therefore, it is unlikely that President Obama will be able to
advance the more draconian aspects of his energy agenda through
Congress, and instead, will be pursued through administrative
regulation.
Within a few days, we can expect the EPA and other agencies to start
issuing the regulations they have been withholding until after the
election. These regulations will drive up the price of oil, coal, and
natural gas by making their exploration, production, transportation and
consumption more costly and uncertain. Because of the Obama
administration’s regulatory agenda, Americans should expect to pay more
at the pump, more for electricity, and more to heat their homes.
The Obama Administration’s Energy Regulatory Agenda
New Source Performance Standards for Greenhouse Gas Emissions from New
Fossil-Fuel Power Plants. EPA released the proposed rule in March, but
has not issued the final rule. EPA insiders claim that more than 50 EPA
staff are working feverishly on the rule to finalize it in the coming
days.[1] The rule bans new coal-fired power plants that do not capture
carbon dioxide emissions, and since it is cost-prohibitive to capture
those emissions, this is effectively a ban on new coal-fired power
plants. Earlier drafts of this rule included references to the same
regulation applying to existing coal-fired power plants. EPA claims
that the rule is not meant to regulate existing plants, but that
argument is not on solid legal footing and current plants could be
regulated when they seek to comply with other rules such as the Mercury
and Air Toxics Standards.
Greenhouse Gas Standards for Existing Power Plants and Refineries. EPA
has been in negotiations with environmental special interest groups to
create deadlines for greenhouse gas emission regulations for existing
power plants and refineries. President Obama’s victory means that EPA
and environmental groups will come to an agreement, but time for such
an agreement does not appear to be of the essence.
Ozone National Ambient Air Quality Standards. In 2008, the Bush
administration tightened ozone regulations. The Obama administration
wants to tighten them further. EPA has looked at tightening the
standards, but regulations come at a steep price. It could cost 7.3
million jobs and $90 billion a year by 2020. According to the New York
Times, President Obama decided to hold off on this regulation until
after the 2012 presidential election, which displeased some of his
strongest supporters in organizations opposed to the use of
conventional energy sources. It is likely EPA will propose these new
ozone regulations in the next couple months.[2]
Tier 3 Motor Vehicle Emission and Fuel Standards. These “Tier 3”
standards would regulate gasoline and the emission control systems on
vehicles. EPA has expressed a desire to lower the allowable amount of
sulfur in gasoline even further than the existing Tier 2 regulation.
According to the best available study,[3] just a single component of
the new Tier 3 proposal would impose upfront compliance costs of almost
$10 billion on gasoline refiners, and cause a permanent increase in
refining costs of 6 to 9 cents per gallon of gasoline.[4] EPA insiders
say that the Tier 3 is near the back of the line behind the
court-mandated regulations, but these rules will likely be issued over
the next few months.
Coal Combustion Residuals (Coal Ash). The Obama administration is
considering classifying coal ash as a hazardous waste. The most
significant problem with doing so is that currently millions of tons of
coal ash are recycled every year and used for a variety of purposes
including Portland cement, kitchen cabinets, and wallboard. This rule
also increases the cost of using coal to produce electricity. The Obama
administration will likely issue this rule sometime in the next few
months.
National Emission Standard for Hazardous Air Pollutants for Industrial,
Commercial, and Institutional Boilers (Boiler MACT). This rule
regulates air emissions from more than 200,000 industrial boilers and
process heaters around the country. According to EPA, the 2010 version
of this rule had an upfront cost of $9.5 billion and an annual cost of
$2.9 billion. Boiler MACT has had a complex regulatory history, but the
White House has had the final rule since May 17. Therefore, it is very
likely EPA will announce a final rule before the end of the year.[5]
Cement MACT. EPA proposed a rule to regulate air emissions from cement
plants in June. The previous rule has been litigated and it is very
likely the new rule will be finalized by the end of the year.
Bureau of Land Management’s Hydraulic Fracturing Regulations. Currently
groundwater and activities that affect groundwater are regulated by the
individual states, even for activities on federal land. BLM will
finalize regulations to regulate hydraulic fracturing on federal and
Indian lands managed by the federal government—despite state
groundwater regulations—in the coming months. This rule is estimated to
result in economic costs between $1.4 and $1.6 billion each year.
National Ambient Air Quality Standards for Particulate Matter (PM 2.5).
This summer EPA agreed with environmentalists to finalize a new NAAQS
for PM 2.5 by December 14th.
Renewable Fuels Waiver. Several states petitioned EPA to waive the
renewable fuels standard due to the severe drought and smaller corn
crop in much of the country. EPA postponed a decision until after the
election indicating that EPA would likely not grant the waiver.
Cellulosic Ethanol Mandate. Despite the fact that only 20,000 gallons
of cellulosic ethanol have been produced this year, EPA will continue
to mandate that millions of gallons of ethanol are mixed in gasoline.
In previous years, when biofuel wasn’t being commercially produced, EPA
still imposed millions in fines on the refining industry for failing to
meet the mandate to use the non-existent biofuel. In 2013, the amount
of cellulosic biofuel required to be blended into the fuel supply is 1
billion gallons of fuel—a far cry from this year’s paltry 20,000
gallons.
Other Federal Policies
Subsidies. One key feature of the Obama administration’s energy policy
is providing large subsidies to unaffordable and unreliable energy
sources. Under the Obama administration, wind energy subsidies
increased by 947%, solar subsidies increased 534%, and biomass
subsidies increased a whopping 1731%. Much of this money was in the
Stimulus and is now gone. One program that remains is the wind
production tax credit (PTC). The wind PTC expires at the end of the
year and the Obama administration will fight to keep this subsidy. A
one-year extension of the wind PTC is estimated to cost $12.1 billion.
Carbon taxes. During President Obama’s second term, we anticipate the
administration will make a serious effort to impose a carbon tax in
order to generate the additional revenues necessary to sustain the
massive projected increases in entitlement spending. This is simply a
version the “cap and tax” exercise pursued by the administration in its
first two years, in that it serves to raise costs to consumers of
energy products and those products made with them.
Onshore leasing of federal lands for energy production. The Obama
administration will continue to offer few lands for oil, gas, and coal
development and they will continue their slowdown of issuance.
Offshore leasing. Like federal leasing onshore, the Obama
administration will continue its implicit moratorium on opening new
lands for oil and gas development. Specifically, under the
administration’s offshore drilling plan for the next five years, 85
percent of the Outer Continental Shelf—which holds 86 billion barrels
of oil—will be off-limits to energy production.
Alaska. The Obama administration will continue its token leasing in the
National Petroleum Reserve-Alaska (NPR-A), half of which it closed off
this year. These lands were originally set aside as part of the “Naval
Petroleum Reserve” specifically to produce petroleum. The Obama
administration will impose additional barriers to Shell’s drilling in
the Chukchi and Beaufort Seas.
Keystone XL. The Obama administration will likely continue to stall in
approving the Keystone XL pipeline
Sweetheart Legal Settlements
A second Obama Administration can be expected to enter into more
“sweetheart lawsuits.” In these lawsuits, organizations that support
the administration’s agenda to reduce availability of affordable
reliable domestic energy sue friendly agencies in order to achieve
out-of-court settlements that meet both groups’ goals, without the
usual scrutiny of the judicial system. This phenomenon, known as the
“sue and settle” approach to changing regulation and administration of
law, is particularly pernicious in that it skirts the proper separation
of powers among the branches of government, including congressional
intent, administrative procedure and judicial scrutiny. Much damage can
be done to the Rule of Law and economic liberty as a consequence of
these suits and organizations and the media must be ever vigilant to
protect the constitutional prerogatives threatened by such shortcuts of
the limits to government.
Cabinet Positions and Personnel
Department of Interior. There is a decent possibility that Secretary
Salazar will remain at Interior. A second term with Salazar will see
much of the same—suppression of oil, coal, and natural gas production
on federal lands and continued promotion of renewables. If Salazar were
to leave, possible replacements include deputy secretary David Hayes,
former Colorado Gov. Bill Ritter, outgoing Washington Gov. Chris
Gregoire, and Washington gubernatorial candidate Jay Inslee (if he
loses his election). All of these potential candidates are strong
supporters of increased subsidies and help for renewable energy.
Department of Energy. Secretary Chu is expected to depart his post at
the Department Energy. The Nobel Prize-winning physicist was never a
great fit in the political world, especially after the bankruptcies and
investigations from the DOE’s loan programs. President Obama will
likely tap a more politically savvy second term Secretary of Energy.
Possible candidates include former North Dakota Sen. Byron Dorgan,
former Michigan Gov. Jennifer Granholm, Center for American Progress
President John Podesta, Duke Energy CEO Jim Rogers, Connecticut
Department of Energy and Environmental Protection Commissioner Daniel
Esty. These candidates all have been heavily involved with subsidizing
energy.
Environmental Protection Agency. It is rumored that Lisa Jackson will
depart her post at EPA. If Jackson were to leave, one possible
replacement could be Deputy Administrator Bob Perciasepe, a career
staffer. Another option would be California Air Resources Board
Chairwoman Mary Nichols, but her confirmation hearings would be long
and bloody. Another possibility is assistant administrator for EPA’s
Office of Air and Radiation, Gina McCarthy, who was a senior
environmental official in Massachusetts for Gov. Romney. Former
Pennsylvania environment secretary and former Clinton Council on
Environmental Quality director, Kathleen McGinty, would be another
possibility.
Department of Defense. We cannot speculate on whether Secretary of the
Navy Ray Mabus will stay or go, but we expect the Department to
continue its “green energy” boondoggles such as buying exotic biofuels
at $27-a-gallon fuel to power the “great green fleet.”
Congress
America voted for the status quo and that’s what it will get in
Congress. Republicans will continue to control the House and Democrats
will continue to control the Senate. A divided Congress will help keep
the Obama administration in check with respect to comprehensive energy
legislation. However, there is a possibility that in order to do
“something,” Congress could pass a hodgepodge of mandates and
subsidies, combined with a modest attempt at increasing production on
federal lands.
House Natural Resources Committee
The chairmanship of the Natural Resources Committee could change
depending on the chairmanship of the Rules Committee. If Rep. Hastings
is tapped to helm the Rules Committee, Rep. Bishop is a likely
replacement at the Natural Resources Committee. Rep. Hastings has been
a defender and promoter of domestic energy production and Rep. Bishop
will have similar priorities. Because Bishop is from a public lands
state, there would like be some additional emphasis on public lands and
empowering states to make more of the decisions, even on federal lands.
House Energy and Commerce Committee
Rep. Upton will continue as chairman of Energy and Commerce. Some
conservatives were concerned with the selection of Rep. Upton, but he
has been a stalwart defender of free markets and energy production to
date.
House Oversight and Government Reform Committee
Rep. Issa will retain the chairmanship of the Oversight Committee.
Under Issa, the committee has actively worked to hold the Obama
administration accountable on key issues like the Section 1703 loan
guarantee program that funded Solyndra, the Department of Labor’s
manipulation of “green jobs” data, CAFE standards, and the faulty
assumptions behind the administration’s rhetoric on oil reserves.
House Science, Space and Technology Committee
House Science and Technology, which has held a series of hearings on
the dubious science behind the many EPA regulations that would affect
the energy sector, will have a new chairman in the next Congress.
Current chairman Ralph Hall is term limited, leaving prior committee
chairmen Jim Sensenbrenner and Lamar Smith as potential successors.
Senate Energy and Natural Resources Committee
Sen. Wyden will likely become the Chairman of the Committee, replacing
the retiring Sen. Bingaman with Sen. Murkowski as the ranking member.
The Energy and Natural Resources Committee has long been politically
moderate and with Wyden and Murkowski at the helm, it is expected to
remain that way.
Senate Environment and Public Works Committee
Sen. Boxer will retain the chairwomanship of the Committee, but Sen.
Inhofe is term limited as the ranking member. Sen. Inhofe has been a
tireless advocate for free market energy policies and he will be missed
as the ranking member. Sen. David Vitter is next in line. He has a
strong record supporting offshore energy development.
The States
Michigan’s 25×25 Constitutional Amendment. This election did not
feature many energy issues at the state level, but the most important
one was the attempt to enshrine a 25 percent renewable mandate in
Michigan’s constitution by 2025. This constitutional amendment was
defeated nearly 2 to 1 because Michiganders didn’t want to pay more for
their electricity and putting a renewable mandate in the state
constitution was a step too far.
Source: Institute for Energy Research
Read this and other articles at Mail Magazine 24
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