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Economic Suicide: Dems Come Out Swinging Against Oil and Natural Gas

The Democratic presidential candidates are gearing up for a lengthy town hall event on CNN covering climate change, where they will discuss a range of plans that will entirely upend the U.S. energy sector.

In the last few months, the candidates have tried to outdo each other as they released ever more aggressive plans on energy and climate change, engaging in an arms race of sorts with trillion-dollar spending plans.

<figcaption>Bernie Sanders</figcaption>
Bernie Sanders
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There is still quite a gulf between, say, Vice President Joe Biden’s $1.7 trillion plan and Senator Bernie Sanders’ $16.3 trillion plan and everything in between. There is arguably an even greater ideological difference in the modest carbon tax proposals and R&D clean tech funding from South Bend Mayor Pete Buttigieg, which very much rely on private companies and leave existing energy markets largely untouched, and the more dramatic economic and social transformation embedded in Sen. Sanders’ plan, which, among other things, calls for publicly-owned utilities to lead the way on renewable energy.

But perhaps the most striking thing about the climate plans is where the candidates agree. The proposals range in scope, but they are undoubtedly bold visions for a clean energy transition. It was too long ago that a modest carbon tax was seen as controversial; now the baseline in the Democratic Party is a complete phase out of fossil fuels in the medium- to long-term. The Overton window has very much been moved.

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As Bloomberg noted, there are several issues that they all agree on. For instance, they will all rejoin the Paris Climate Accord, which, given the scale of the climate crisis, is child’s play. That’s the bare minimum and almost not worth mentioning, especially since it relied on voluntary commitments anyway. It was also done by the prior Democratic administration so it shouldn’t be seen as any sort of bold proposal for change.

More relevant for the oil and gas sector is the call to end subsidies for fossil fuels, which total as much as $14.7 billion annually, including deductions for intangible drilling costs; last-in, first-out accounting; master-limited partnership tax exemptions; and low-cost royalty and leasing rates on federal lands, among others. Some of this was also proposed by the Obama administration but stalled in Congress.

It may give some oil executives a bit of heartburn to see their subsidies on the chopping block, but even if passed, these measures wouldn’t fundamentally disrupt the industry.

But here is where it gets really tricky if you are an oil and gas driller. Many of the top tier candidates want to revoke the permits or otherwise block major long-distance pipelines, including Keystone XL, Dakota Access, Line 3, Line 5, and essentially any other project of this nature. This will severely damage Canada’s oil sands, which will begin to lose access to the U.S. market. Oil sands producers would only have the Pacific Ocean as their way out.

Moving on to other ambitious proposals. All of the candidates – at least all of the viable ones – have vowed to end drilling on federal lands. This was something Senator Elizabeth Warren came out with early on, and other candidates have followed suit. No new leases for offshore drilling, none for BLM land, etc. The candidates point out that to fundamentally transform the energy system, and to hit climate targets that are becoming exceedingly difficult to reach, oil and gas reserves need to be left in the ground.

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Some candidates want a ban on oil exports and a ban on fracking.

Many of them have some version of a net-zero emissions target, although the timeframes vary. That means eliminating fossil fuels from the energy system entirely, including full electrification of the transportation fleet.

While much of these ideas target fossil fuels, at the same time the candidates want to invest trillions in renewable energy, cleantech R&D, EV fleets and infrastructure, green manufacturing, and a litany of other initiatives intended to accelerate the transition off of fossil fuels.

This is by no means a comprehensive look at all the details of individual climate proposals. But the point is that the U.S. oil and gas industry would be phased out of existence. Much of the plans are hypothetical, and would require heavy lifts by the U.S. Congress. Passing legislation that overhauls huge sectors of the economy is not something the institution is known for.

But there is plenty of room for executive action, notably on major pipeline infrastructure, fracking, air regulations, and drilling on public lands. The President won’t need to turn to Congress to still upend the oil and gas industry.

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It’s telling that in the last few weeks, much has been made of the Trump administration’s regulatory rollback on methane emissions, a signature policy from the Obama administration. It’s a testament to the scope and scale of the climate proposals from the 2020 candidates that regulating methane is such an afterthought, a miniscule policy idea compared to the transformational packages on offer.


Source: OilPrice.com
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