Regulatory Whiplash

3 Dec 2020 12:09 PM | Anonymous member (Administrator)

The views expressed in this article are those of the author and they do not necessarily reflect the position of the NCAC-USAEE or its Board Members

December 3, 2020

Regulatory Whiplash, by Jonathan Chanis

U.S. energy policy over the last dozen years, under both Democratic and Republican administrations, has been a series of jerks and jolts that have given consumers and industry regulatory whiplash. Unfortunately, we may have another traumatic round of it coming with the new Biden administration. 

The last comprehensive, bipartisan energy legislation enacted in the United States was in 2005.   The Energy Policy Act (EPA) was a wide ranging bill affecting electricity generation and transmission; it established the Renewable Fuels (ethanol) standards for gasoline; it provided tax incentives for energy production and efficiency; it established new statutory standards for energy efficiency, and; it encouraged fossil fuel production on federal lands by lowering royalties and increasing federal lands access.  While the Act had critics from both sides of the political spectrum,  it passed with a measure of bipartisan support: 249 votes in the House of Representatives, including 41 from Democrats, and 85 votes in the Senate, including 35 from Democrats. 

After 2005, and particularly since the second Obama administration, national energy policy has rarely experienced bipartisanship and it has careened between policies focused primarily on climate change and alternative energy promotion and those emphasizing fossil fuel production.

After President Barak Obama came to office in 2009, the Democrats had a 79 seat majority in the House and a 16 seat majority in the Senate.  The Administration spent two years crafting and promoting what was supposed to be signature legislation on a carbon emissions cap and trading bill. The 2010 legislation squeaked through the House by 7 votes, but never even made it to floor of the Senate for a vote. Whether it was the impact of the 2008 Global Financial Crisis, or just the unstoppable growth of deep ideological divisions in the country, energy policy was becoming a “wedge” political issue defining American tribal identities.

After the failure of the cap and trade bill, the Obama Administration became especially reliant on non-legislative measures for enacting energy policy.  As Obama said at Georgetown University in 2013, climate change “…does not pause for partisan gridlock.  It demands our attention now.  And this is my plan….” Expansive and highly partisan agency rulemaking, frequent executive orders, and other administrative tactics came to characterize much of the administration’s energy policy strategy. Both the updating of the Corporate Average Fuel Efficiency (CAFE) rule and the Clean Power Plan typify this.

The CAFE experience is particularly illustrative, since it shows how outgoing administrations try to jam through regulatory action they hope will stifle the next administration’s ability to change a policy.  On January 13, 2017, seven days before Donald Trump’s inauguration, the Environmental Protection Agency (EPA) made the final determination locking in stricter CAFE standards. Many in, and associated with, the automotive industry thought that such action did not properly account for their interest and that it violated an agreement the industry made with the Administration in 2012.   Consequently, some of them worked with the incoming Trump administration to overturn the new, “midnight” rule.  (That the Trump administration went much farther in revising the rule than those agitating for the change wanted is just one of the ironies of the request.) 

The fact that there were, and still are, so many rules and actions for the Trump administration to overturn illustrates just how many non-legislative, highly partisan Obama actions drove policy. By some counts, the Trump administration has overturned over 125 Obama energy and environmental rules and policies.  Now many Democratic partisans have produced lists of actions that can be taken without Republican cooperation, and Biden legal team members are already planning for the “dismemberment” of Trump administration energy and environmental policies through non-legislative means. 

While President-Elect Joe Biden’s future plans for energy regulation are not yet known, some of the items being promoted by Democrat supporters include:

·         A ban on new federal leasing on public lands and waters

·         A drilling moratorium in the Arctic National Wildlife Refuge

·         “Aggressive” methane pollution limits on new and existing oil and gas wells

·         Revoking (i.e., tightening) Trump administration off-shore safety and pollution regulations

·         Establishing a “climate test” for new and existing pipeline construction and modernization, essentially killing the Keystone XL Pipeline expansion, closing the already operating Dakota Access Pipeline, and not allowing the construction/ modernization of Line 3 in Minnesota

·         Raising the social cost of carbon value used in  federal regulatory cost/benefit calculations

·         Reimpose tighter CAFE standards for light duty vehicles

·         Using the National Emergencies Act to ban petroleum and natural gas exports

·         Mandate greater climate change related information disclosure from corporations

·         Eliminating import tariffs on solar panels

·         Changes/extensions to wind and solar tax credits

·         Changes/extensions to electric vehicle tax credits

·         Construction and subsidization of a national electric vehicle charging infrastructure 

·         Creation of a National Development Bank complete with money printing to finance and administer green projects

[The sources for this list can be found below.]

As a group of advocates said : “The plan we’ve just outlined, again, can be pursued with or without formal legislation [Should legislation] not happen…the nation does not have the luxury of waiting…before tackling its most urgent and indeed ‘existentially’ compelling needs.” In other words, they are telling the Biden administration to act just as the Obama and Trump administrations acted, i.e., force their policies on an uncompromising, but still very large minority.

The point of the criticism is not that any of the proposed policy actions by themselves are good or bad.  Indeed, some of the proposals are very sensible.  However, the point is that this is an incredibly counter-productive, if not dangerous way to make energy policy.  First, on a micro level, this type of action guarantees a long-drawn-out struggle over implementation.  Indeed, many industry groups  and state attorney generals are already preparing to challenge the new administration’s actions in court.   Even if a Biden administration is less sloppy in its rulemaking than the Trump administration, many non-legislative actions will be tied up in the courts for years, and a good number may be rejected for overreaching.   Second, the administration may misjudge the degree of support it has even among its own constituencies. The CAFE fiasco is a prime example of this and we are still dealing with its consequences. 

On the macro level, another term of head-snapping policy reversals only minimally reduces business uncertainty, and it will discourage investment or misallocate investment. The 2020 election was a repudiation of Donald Trump, not of his energy platform.  The down ballot success of Republicans, including in state elections, is evidence of this.  The specter of a 2022 or even a 2024 election reversal will hang over any overly assertive Biden administration actions, and it will undermine a non-subsidized industry embrace of the agenda.

A political mandate is supposed to signal that a government has broad support for its proposed policies.  In an election with over 160 million participants, a victory by 6 million votes, while historically impressive, is not really a broad mandate for either side’s agenda.  In actuality, it just tells us how deep is the division in the country.

An outcome that allows a majority to force its will on a minority has been called the “tyranny of the majority.”  People have been writing about this since at least Plato and Aristotle.  James Madison, in Federalist # 51, even thought that he had designed a system resistant to such malady. We are now testing Madison’s design. Joe Biden, Mitch McConnell, our destiny is in your hands.

Other Sources:

Since the sources for the possible Biden Administration action were too many to include in a single hyperlink, they are listed below.

Bloomberg Green. 41 Things Biden should do Firs on Climate. Bloomberg News. Nov. 12, 2020.

Bloomberg, Michael. “Biden Big Climate Opportunity.” Bloomberg News. Nov. 11, 2020.

Cohen, Ilana. “Biden Has Promised to Kill the Keystone XL Pipeline. Activists Hope He’ll Nix Dakota Access, Too.” Inside Climate News.  Nov 24, 2020.

Davenport, Coral. “Here’s How Biden Plans to Move Fast With a ‘Climate Administration'.” The New York Times. Nov. 17, 2020.

Friedman, Lisa. “9 Things the Biden Administration Could Do Quickly on the Environment.” The New York Times. Nov. 9, 2020.

Gordon, Meghan, et. al. “Results show deeper divide on energy issues, tough path for tackling climate.” S&P Global. Nov. 4, 2020.

Gustin, Georgina. “With Biden’s Win, Climate Activists See New Potential But Say They’ll ‘Push Where We Need to Push’.” Inside Climate News. Nov. 8, 2020.

Lashof, Dan.  “Top 10 Priorities for President Biden to Tackle the Climate Crisis. World Resources Institute. November, 2020.

Lavelle, Marianne. “Trump Rolled Back 100+ Environmental Rules. Biden May Focus on Undoing Five of the Biggest Ones. Inside Climate News. Nov 16, 2020.

Otterbein, Holly. No Senate? No problem, progressive group tells Biden.” POLITICO. Nov. 18, 2020.

Profeta, Tim and Christy Goldfuss (Co Chairs). “Transition Recommendations for Climate Governance and Action.” Climate 21 Project. November, 2020.

Ramonas, Andrew. “Biden SEC Likely to Push More Climate, Diversity Disclosures.” Bloomberg Law.  Nov 12, 2020.

The #ClimatePresident Action Plan. “10 Steps for the Next Administration's First 10 Days.” accessed Nov 13, 2020.

Tollefson, Jeff. “Can Joe Biden make good on his revolutionary climate agenda.” Nature. Nov. 25, 2020.

JONATHAN CHANIS has worked in investment management, emerging markets finance, and commodities trading for over 25 years. Currently he manages New Tide Asset Management, a company focused on global and resource trading. He previously worked at Citigroup and Caxton Associates where he traded energy and emerging market equities, and commodities and currencies. He has taught graduate and undergraduate courses on political economy, public policy, international politics, energy security and other subjects at several higher education institutions including Columbia University. Jonathan also is a Board Member of NCAC-USAEE.

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