What is President Obama's energy and climate agenda for his second term, and how will it shape policy coming out of Congress? During today's OnPoint, Kevin Book, managing director at ClearView Energy Partners, explains how energy will factor into the congressional agenda and the steps the president may take to overcome congressional gridlock.
Monica Trauzzi: Hello, and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Kevin Book, managing director at ClearView Energy Partners. Kevin, always nice to have you on the show.
Kevin Book: Good morning. Happy New Year.
Monica Trauzzi: Kevin, with the focus in Congress right now on the debt ceiling negotiations, how are you anticipating leadership will try to sort of leverage those discussions, leverage their political capital, to maybe get something extra out of it? And does energy factor into that? Will we see any energy plays made in these debates?
Kevin Book: Well, the broader political context is not about energy policy. There are frameworks that were drawn out to give a down payment, which could have affected certain existing tax treatment for oil and gas companies, but there were no cuts during the cliff kick the can deal that took place on New Year's. So what do you have ahead? You have cuts. And in the context of cuts, there's room for somebody say, "Well, if you want Democrats to cut on this, then Republicans are going to have to agree to cut on that." And that includes a range of existing tax treatment for oil and gas companies, all of which have been highlighted by the President as something that he wants to target. He'll probably do it again in his budget request this year. So as we go into February, that really is going to be the document that anchors some of what may be up for grabs or at least in play during the discussions ahead.
Monica Trauzzi: The 112th Congress has been called the worst in history. There was no significant action on energy, no significant measures passed. With Ron Wyden now chairman of Senate ENR, do you sense that the tone will shift, or is the problem really more on the House side, and it's just going to be more of the same?
Kevin Book: Without any reference to Chairman Wyden, I would suggest that the 112th Congress will soon go down in history as the second worst, because partisanship has elevated. And I'm not trying to be, I'm not trying to be flip here. This is serious. If you look at every level, at the state government level, things are getting more divisive. And when you ask, well, what role in this highly partisan environment will energy policy play, ordinarily, it would just hew to the regional interests of the folks who voted for what was in the ground back home, most of the time. But for two successive Presidential elections, energy has materialized as a wedge issue that candidates can use to illustrate differences between one another. Those can start to feel and become entrenched. One example I'll give you of how we may get more contentious, there's a rumor, and I don't know if it's true yet, that the Senate Energy and Natural Resources Committee will include a new investigations subcommittee. Again, when you start to talk about investigations that go beyond oversight, we're moving into the realm of some charged partisan events.
Monica Trauzzi: So following the inauguration, the president will deliver his State of the Union address, and he's already indicated that he wants to make energy and exporting energy out of the US one of the top tier issues of his second term. How do you expect energy to play into the State of the Union address, and is it all talk at this point? I mean, you're sort of indicating that nothing is going to happen in Congress, so how much power and leverage does he actually have?
Kevin Book: Well, arguably because nothing is going to happen in Congress, or not very much is going to happen, President Obama has a significant influence over the energy policy debate, and he has several ways to do it, not just by signposting where he wants to go with energy exports, and how to address in the age of adequacy, when our policy is basically about scarcity, but also the questions of who he's going to put in roles in the agencies and what signal that sends. He has an opportunity to define whether or not he thinks environmental responsibility is the first and highest purpose, or whether he wants to seize upon the opportunity to redefine the energy economy of the United States as one of its main assets in its broader economic portfolio.
Monica Trauzzi: And would you expect him to do that in his State of the Union address? Sort of lay out the plan?
Kevin Book: Well, this White House is a friend of nuance, and I would expect that you'll get both sides. The words safe and responsible will factor in for sure. The question is, what do we know right now? Do we see a retreat from the offshore? I think it's too soon to say that. Do we see an endorsement of unconventional gas production and oil production onshore? I think it may also be too soon to say that. Really, the State of the Union speech is the first of two major markers, but we'll get one slightly before that, the inaugural speech. If energy is really the big issue that the President wants to make as part of his legacy, he'll probably flag it in his inaugural address.
Monica Trauzzi: So if the intention is to become an exporter of energy, take a look at what DOE has done so far on LNG exports. Do you think that things are moving quickly enough, or does the U.S. risk falling behind the market?
Kevin Book: Well, let's look at the world. China has built or started construction of their first new reactor since the freeze. Japan has a new Prime Minister, where nuclear power is likely to turn back on. South Korea is rolling back on its reactors. Where is the destination market for LNG? Well, it's Asia. And if you ask is the United States positioned right now to capture the market before its filled by players from other countries, the answer is that delay is probably going to attenuate the success or even the viability of some of the projects on the docket right now, and delay is an absolute certainty after what happened with the study. The study is being contested broadly. The framework for evaluating new projects is still evolving, and not in any way transparent yet, by necessity, really, because the big questions that underlie all of this, what are we going to do to address our scarcity-based policy, and how do we reconfigure it for this, they haven't been answered yet. That will be the role of folks like Chairman Wyden, who will certainly be convening hearings for this purpose, but it'll also be, again, it'll be influenced a lot by the Presidential perspective as it filters through DOE. How do they address this prospect for experts? Are they moving faster or slow? And what level of certainty do they need to be able to guarantee to someone who's going to invest $10 or $12 billion that this is a good idea?
Monica Trauzzi: After Hurricane Sandy there was broad thinking that climate would be back on the map, back on the agenda. Has the fervor that sort of surrounded those talks died down? Do you expect that climate will have any play over the next couple of years? And is Hurricane Sandy just a distant memory at this point?
Kevin Book: Well, the folks who want to talk about specific weather events in the context of climate change usually say it doesn't point to climate change, but NOAA just published the data that show that we had a really warm year, the warmest in history since they've been recording it, and the weather events are increasingly likely, because of the warmth and the higher water levels. You might think that would promote climate debate, but it probably won't. In all likelihood, what you're going to get is the question of whether there's a carbon tax that can address this issue in the broader discussion of whether or not you're going to have a deficit reduction means that can pass both Houses. Probably not in the first two years of this term, but possibly in the latter two years. The short, brutal life of the carbon tax, politically speaking, ended basically last year when the White House pushed it away. The Treasury Department said, we're not proposing it yet, and haven't planned to. But I wouldn't rule out that it comes back, and with it, there is still looming climate discussion surrounding the European Emissions Trading System as it includes aviation emissions from the U.S., possibly as soon as November this year.
Monica Trauzzi: All right. We'll end it right there. A lot to watch. Thank you for coming on the show.
Kevin Book: Thanks for having me.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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