President Obama has gained a second term in which a shale gas and oil boom seems likely to write a new chapter in America's energy future with or without help from a politically fractured Washington, D.C.
If past precedents hold, Obama will have two years, or possibly less, to try to impart a new direction on energy and climate policies before Congress turns its attention to the 2016 presidential race.
Energy experts and advocates on both sides of the contest between Obama and Republican candidate Mitt Romney agree that the most direct impact of the president's re-election will be a continued tightening by the Obama administration on environmental rules affecting coal-fired power generation, which Romney had opposed. The hot button on this agenda would be a new move by U.S. EPA to regulate carbon dioxide emissions from new power plants, a cutting edge on any Obama response to global warming.
"If President Obama wins re-election, Congressional partisan deadlock could enable the White House to continue prosecuting energy policy through regulation and administrative action, with only the courts as a check on that agenda," noted ClearView Energy Partners in a pre-election analysis.
"Governor Romney had been clear about wanting to take away EPA's authority to regulate carbon dioxide," said Reid Detchon, executive director of the Energy Futures Coalition, a Washington-based clean energy advocacy group. "I feel confident that EPA will continue along those lines."
Diana Furchtgott-Roth, a senior fellow at the conservative Manhattan Institute and former chief of staff for President George W. Bush's Council of Economic Advisers, said she anticipates more environmental regulation for coal-fired power plants and shale gas production.
But the return of a Republican-controlled House also means that Obama's pitch for continued federal support for wind and solar power, and biomass energy development, faces high barriers.
"You are going to have the same opposition" in the next Congress to Obama's clean energy standard, which seeks to double by 2035 the share of U.S. electricity coming from renewable energy, nuclear power, efficient natural gas turbines and carbon-free coal, "if that can be perfected," said a well-placed congressional aide. What's the current outlook? "Not a chance," this staffer said.
Conservatives are not ready to back off opposition to Obama's belief that federal subsidies and support are required to achieve cleaner energy sources and more energy conservation, said Furchtgott-Roth, author of a book slamming these Obama initiatives.
First stop: fiscal cliff
What a re-elected Obama may do with energy and climate challenges is obscured by expectations of a momentous struggle with Congress over taxes, deficits and the federal debt, beginning with a congressional lame-duck debate over the expiring George W. Bush administration tax cuts -- the "fiscal cliff" that the president and Congress will hit at year's end.
"I think it's likely we will go over the cliff, at least for a while," said Mark Zandi, chief economist of Moody's Analytics. "I don't know that we can generate the political will to generate a deal, without that," he said.
The Treasury Department has flexibility in postponing for some time the increases in withholding taxes that would be required if the Bush cuts do expire. Federal agencies can ease the shock of enforced budget cuts for a time, if a deadlock results, Zandi noted.
"But I'm sure the economy will start struggling" if a tax and spending stalemate is drawn out. "People are going to get really nervous," he said. "And as you approach the [federal] debt ceiling in February, then it will really get hairy." He remains optimistic, however, that a solution will be found at some point next year, and then the economy will gain traction and the demand for energy will pick up, moving into 2014.
The economic gains from shale gas and oil production could be an important part of such a rebound.
How Obama's second-term EPA will treat the expanding shale gas industry is not clear, experts said. In the campaign, Obama saluted the potential benefits of plentiful, cheap natural gas from shale but said his administration would insist that horizontal drilling and hydraulic fracturing be done safely. Regulation of the water-intensive industrial process of extracting oil and gas from deep U.S. reservoirs is predominantly in state hands, but EPA could step in through regulation of methane emissions or water quality rules at production sites. How that line is drawn could be one of the most important decisions of the president's second term.
"If shale gas lives halfway up to the expectations that are being built for it, then energy prices should remain relatively low," Zandi said. "That's a real plus for the U.S. economy."
Zandi said shale gas development "is one environmental disaster away from being shut down for a long time. The industry has to be very, very careful to see that doesn't happen." But if U.S. unconventional oil and gas development continues unabated, and the production lives up to the hope, "its economics are overwhelming."
While experts expect natural gas prices to rise in the next few years, they are likely to put continued pressure on coal-fired power generation, nuclear plants and renewable power, accelerating a shift away from coal's energy role, many analysts conclude.
The promise of abundant shale gas could have profound economic consequences if Obama seizes the opportunities, said Fadel Gheit, a managing director and senior energy analyst at Oppenheimer & Co. "We can gasify coal. We can take natural gas and convert it into a transportation fuel. You could take $100 billion from defense over the next 10 years and convert every public vehicle in the country to natural gas," he said.
"If there is a national energy policy, parallel to national security policy, this would get top priority," he said. But Gheit said he is pessimistic that a consensus can be wrought. "The country does not have a national energy policy, which is really shameful."
Mark Bloomfield, president of the American Council for Capital Formation, sees a possibility that the struggle over budget and deficit issues may open a door to wide-ranging tax reform in which tax benefits for energy development could be cut as part of a deal to reduce overall business taxes.
In that case, he said, "I think everything is on the table, given the fiscal cliff, given the fiscal imbalances and the political and economic demand to do something." Obama campaigned to strip away incentives for conventional oil and gas production, which are calculated at about $4 billion a year. Romney would have retained them. Energy taxes would enter the debate because of the fiscal and energy policy consequences, Bloomfield said.
Action on Keystone XL, climate?
Last night, after it became clear that Obama's campaign had delivered most of the major swing states and he had been re-elected, the American Petroleum Institute urged Obama to support more domestic production. API, in concert with the U.S. Chamber of Commerce, sought to intertwine their national campaigns for expanding oil and gas development with the hot debate between Obama and Romney over who had the better plan for creating jobs.
That often came in the form of sharp criticism of the Obama administration's restrictions on opening more public lands for exploration -- alongside efforts to reinforce a Republican line that the Obama White House is no friend of oil and gas, despite a domestic drilling boom that has helped slash U.S. energy imports in the past four years.
But in a prepared statement released around 2 a.m. EST, API President and CEO Jack Gerard declared energy "the big winner in this election."
"Right off the bat," Gerard said, the president should greenlight the Keystone XL oil pipeline expansion from Canada's oil sands to the American Midwest. Obama "can acknowledge" the supremacy of states in regulating oil and gas production, Gerard said, "and avoid the temptation to impose duplicative and unnecessary regulations on hydraulic fracturing."
In the final stretch of Election 2012, Hurricane Sandy injected the forgotten political issue, climate change, back into the mix.
Last night, major environmental groups sent out messages to media and supporters urging White House action to combat global warming in the aftermath of Sandy, which left millions of people without electricity and tens of thousands without shelter. Yet a response in the form of federal policy that forces the electricity and industrial sectors to cut their heat-trapping carbon dioxide emissions remains a political hotbed.
One thing is off the table: Obama's re-election keeps in place his administration's requirement that average fuel economy requirements continue to rise. In 2007, Congress and the George W. Bush administration raised the CAFE (corporate average fuel economy) standards for light-duty vehicles to 35 mpg in 2020. The Obama standard pushed that to 50 mpg by 2025.
Putting a price on industrial emissions remains the challenge, as Republican opponents retake their seats in the House and Senate.
Nat Keohane, vice president of the Environmental Defense Fund, calculates that a price of $20 a ton imposed on carbon emissions, either through a tax or an auction of carbon emission allowances, would raise $100 billion and give a powerful push to energy conservation and efficiency gains.
Branko Terzic, executive director of the Deloitte Center for Energy Solutions, said Hurricane Sandy may have tipped public attitudes toward climate change, creating an opportunity for Obama to return to an issue that dominated the first year of his presidency and then disappeared, as Senate Republicans lined up to block the House-passed cap-and-trade legislation.
"When Congress comes back, there will probably be a push to revisit the global warming issue, particularly if we have a severe winter," he said. "That will bring up the whole issue of carbon and where we get our electric power from."
The devastation to the electric power distribution network in New Jersey and New York during Hurricane Sandy will put the condition of the power grid back in a spotlight, Terzic added.
"There has been significant public criticism of a 'do nothing' Congress," he said. Neither Obama or Republican leaders will want to repeat that performance, he said.
"I don't think there will be any big climate action in the Senate immediately," Detchon said. "But there may be an opportunity post-Sandy to rethink the energy/climate nexus politically and to come forward with a new set of proposals to encourage investment, enhance energy independence and develop renewable energy -- not just at utility scale, but at the individual scale."
In the next few months, the Obama administration will release a new assessment of the climate threat, Detchon said. Will Obama take this as a opportunity to raise the climate issue anew and take the discussion to the public as well as Congress, he asked.
"At the right moment, clear presidential leadership on this is essential," Detchon said.
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