Donald Trump and American Energy: Polluting the Outlook

This story originally appeared in The Economist on November 19, 2016; click here to view. 

Mr Trump may slow but not derail America’s clean-energy transition

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IT WAS on November 16th that the International Energy Agency (IEA), an organisation that represents oil- and gas-consuming countries, announced its prediction that over the next quarter of a century renewable energy, such as wind and solar, and natural gas will hugely eclipse the traditional role that coal and oil have played in satisfying the world’s growing demand for energy (see chart). That is the base case for what it says is a powerful shift in the global energy landscape towards cleaner fuels.

The trouble is that after the projections were calculated, Donald Trump, who is both a climate sceptic and a fossil-fuel fan, was elected as America’s next president. As Fatih Birol, the IEA’s executive director, pointed out this week, no one knows what his energy policies will be. Yet he will run the world’s biggest producer and consumer of oil and natural gas.

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Many green-energy enthusiasts are bracing for the worst. Mr Trump has chided Barack Obama’s administration for trying to “kill the coal industry” and tying up oil-and-gas companies with environmental red tape. Though he supports renewables, he insists it will not be at the exclusion of dirtier forms of energy.

Whoever becomes his new secretary of the interior and his energy secretary, the incoming officials are expected to be strong advocates of further opening federal lands to oil, gas and coal production. Mr Trump has also suggested that TransCanada, an Alberta-based firm, renew an application to build the fourth phase of the Keystone XL pipeline project bringing Canadian crude across the border, which was blocked by Mr Obama last year.

On the campaign trail, he said one of his first energy priorities would be to rescind the current president’s executive actions, such as the 2013 Climate Action Plan, which aims to regulate emissions from power plants. To cap it all, he wants to pull out of last year’s Paris agreement to tackle global warming.

Though Mr Trump can unwind many domestic environmental regulations, analysts say he may find his hands tied by market forces, by the limits to federal power and by the fact that energy investments can take decades to pay, making it unwise for owners of power plants, oil-and-gas fields, and pipelines in America to dismiss the clean-energy revolution. First, his desire to open up what he says may be $50 trillion-worth of oil and gas reserves under federal lands will depend on oil prices. Even with lower regulatory costs, oil prices still need to rise well above $50 a barrel to make most drilling in America economic. Now, there is too much oil, not too little.

Low oil prices may also make the Keystone pipeline a non-starter for commercial reasons, because crude from Canada’s tar sands is fiendishly expensive to extract. Moreover, were Mr Trump to succeed in stimulating shale-gas production, his task of rescuing the coal industry would become harder. Utilities may find it cheaper to burn gas rather than coal.

Although Mr Trump can swiftly revoke Mr Obama’s executive orders, it will take him longer to tackle rules that have been laid down, such as the proposed Clean Power Plan, which is the president-elect’s main bugbear as an example of climate-related overreach. It is stuck under review in the Supreme Court, but owes its authority to the Clean Air Act, so environmental groups may sue over efforts fully to repeal it. Moreover, new rules will need to replace the old ones, which could take years.

Third, Mr Trump is unlikely to seek to repeal tax credits for wind and solar energy, which were extended last year by Congress until 2020 and 2021, respectively. As it is, costs of renewable energy are plummeting, making them increasingly able to compete against gas and coal without subsidies in a few states. As a businessman, Mr Trump would surely see it as foolish to squander a part of America’s energy bounty, however clean, that may soon be able to cover its costs. As a politician, he might also note that renewable energy now employs more people than oil and gas.