How will President-elect Trump change the dynamic of the policy discussion on climate and energy in Washington? Who are the biggest energy winners and losers heading into the transition? During today's OnPoint, Kevin Book, managing director at ClearView Energy Partners, discusses the energy and environment landscape on the heels of Donald Trump's stunning election.
Monica Trauzzi: Hello, and welcome to OnPoint. I'm Monica Trauzzi. With me today is Kevin Book, managing director at ClearView Energy Partners. Kevin, it's very nice to have you here back on the show.
Kevin Book: So great to be back, Monica.
Monica Trauzzi: Thanks, Kevin. So the energy and environment landscape: It is on the cusp of a 180 as we have Donald Trump coming in, a new administration in January. Who are the biggest energy winners coming out of the elections this week?
Kevin Book: Well, I think the fossil energy value chain is the clear winner, from extraction to the midstream especially, but also downstream processing. A deregulatory agenda, although we don't know exactly what it involves details-wise, is going to be good because that's where a lot of the regulation that would have come out of the next phase of greenhouse gas emissions reductions was headed. It was going to the fossil energy sector, specifically to oil and gas at the upstream, and then probably also to refineries at the downstream. Now that's not going to happen.
Monica Trauzzi: We saw a lot of market volatility on Tuesday night heading into Wednesday. Ultimately, what will energy markets look like under a Trump administration, and specifically, what is oil going to look like?
Kevin Book: Well, oil production being liberalized in the U.S. doesn't necessarily improve the state of energy markets for those who want them to appreciate and perhaps even tighten up. On the other hand, the relaxation of Obama-era controls is going to be a slow roll relative to other production gains that have come into the market from OPEC itself, outpacing previous expectations and continuing to flood the market before they cut.
In terms of the power markets, that's where the biggest surprise may show up. It's actually oversupplied right now. Christine Tezak, my colleague, constantly points out that CPP was the predator that was going to tighten up supply and raise prices on the grid. Kill the predator and you're going to have low prices for the enduring future.
Monica Trauzzi: So this is the beginning of the end for the CPP.
Kevin Book: Well, the CPP doesn't look like it's going to go well no matter what happens at this point. Even if the CPP prevails through all of the various permutations which bring it out of the Supreme Court intact in an indeterminate future, enforcement discretion gives an incoming Trump administration the ability to light-foot its way around significant emissions cuts. It can approve more lenient state implementation plans, and they can go light on enforcement if states miss their targets. So it doesn't look like it's going to bite.
Monica Trauzzi: But a lot of states are already acting and well beyond the targets that are in the CPP, so will we see the action just shift to the states and the states will continue to act on climate?
Kevin Book: States' actions have been driving a lot of the renewables installations and a lot of the other green energy agenda for most of the last 10 years. It's not as though CPP was a big catalyst for green buildout, and the emissions reductions that have happened from coal to gas switching have happened for market reasons. So really, when you get right down to it, taking away CPP doesn't really take away anything but a backstop to what was already happening.
Monica Trauzzi: Obama's climate legacy goes beyond just the CPP. How aggressive do you think Trump will be in dismantling that legacy?
Kevin Book: We break out that climate legacy into essentially five points: CPP and the endangerment finding we've already discussed, Paris a big part of it, and also international liaisons with Mexico and Canada. Those are still very fragile and subject to change. Social cost of carbon is a mechanism for justifying regulation — probably gone. The vocabulary of crisis, calling it carbon pollution, maybe technically still true under the Clean Air Act, maybe not the words we're expecting to hear from the next president. And finally, not to be overlooked, the National Environmental Policy Act guidance, greenhouse gas emissions guidance for infrastructure projects, very big hook for future lawsuits — gone. That's a big change.
Monica Trauzzi: So I want to go back to the international climate negotiations. Do you think that the momentum that's there right now will put pressure on Trump to stay in the game there? Or is the U.S. just not gonna meet its targets?
Kevin Book: Proponents of the Paris process have argued that naming and shaming would've been a serious enforcement mechanism in the absence of biting constraints and actual enforcement, and maybe that's true. Maybe the world stage and a world of Twitter is a different place than diplomacy in sort of the traditional war and finance world. But that's not exactly what we expected even before this happened. We didn't expect Paris to actually bite for at least a couple of cycles, until there were enough bought in that you could afford to start risking shutting some people out if they weren't part of the program. Now that you have the U.S. potentially defecting from its commitments, there's even less incentive for a lot of the late joiners and the uneasy to commit to long-term cuts. And so this has real potential to negate the long-term buy-in strategy that was the core of Paris.
Monica Trauzzi: The conservative clean energy movement, it really began to have a voice during this election cycle, but it's in no way dominating. Do you anticipate it will gain strength or that it will sort of go away over the next four years?
Kevin Book: An open question. There are some real issues that are happening in the world that have nothing to do with what's happening here in Washington. Seas will rise no matter who's in the White House if they're rising for scientific reasons, and that discussion doesn't go away just because a regulatory agenda shifts. On the other hand, the conservative climate movement, which has reared its head a couple of different times, hasn't been incredibly successful because it needs a catalyst. What the conservative climate movement was calling for is what we would refer to as a better answer than no, essentially political survival for Republicans because Democrats were driving the agenda and calling the shots. Well, they're not driving the agenda and they're not calling the shots, so the debate is going to have to be on the merits, not on political defensibility.
Monica Trauzzi: Is KXL back on the map?
Kevin Book: KXL is back on the map, and actually southbound pipelines out of the western Canada sedimentary basin probably the good news story for Canadians, even if Justin Trudeau wasn't celebrating. And bottom line: You actually probably aren't going to see a bigger piece of the action for the American people, probably more showmanship on Trump's part than serious policy commitment. Hard to know what that would've constituted anyway.
Monica Trauzzi: Trump spoke quite a bit on the campaign trail about bringing jobs back to coal country. Coal is not really seen as a viable investment, though, and the market is certainly shifting more towards renewables and natural gas. So can he make good on the promises that he made? How is he gonna handle the coal situation?
Kevin Book: Regulation didn't kill coal. Regulation made coal's death more painful. When you get right down to what happened, it was driven by market forces, natural gas prices among them, and also renewables being subsidized and encouraged to the detriment of all fossil resources on the grid, especially again in this time of oversupply. However, some coal mining issues were created by the Obama administration that Trump could resolve. MSHA inspections interrupting profitable, continuous operation in underground mines — that could change. Guidance — conductivity guidance, and for that matter the stream protection rule, probably going to change under the Trump administration, differentially better for the eastern producers. A moratorium on leasing in the Powder River Basin, probably going to change. Those things are incremental. They don't change the market; they change the way the market feels.
Monica Trauzzi: All right, a lot to watch over the next few months and four years. Thank you so much for coming on the show.
Kevin Book: Thanks again for having me.
Monica Trauzzi: Nice to see you. And thanks for watching. We'll see you back here tomorrow.
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