The early days of the Trump Presidency are proving to be a wild ride as might be expected when a group that is long on ideology and short on experience takes charge of the very complex workings of the most powerful country in the world. After some astonishing early moves, such as bringing into question the One-China Policy that has underpinned world stability for more than 40 years, wiser counsel is prevailing, at least in some quarters. So President Trump seems to now understand that everything is not subject to transactional negotiations. Without agreement about the One-China Policy, the Chinese government simply refused to talk with President Trump. How the US and China relationship will proceed is unclear, but at least the table at which issues are discussed is back in place now that President Trump has acknowledged the One-China Policy.
In the energy space there has been a lot of talk about bringing back the fossil fuel industry to its former glory, but it is becoming clear that the levers which President Trump can pull are quite limited. Indeed as regards coal, a recent suggestion is that short of inventing a time machine, President Trump isn’t going to be able to bring coal back.
Instead President Trump has regulations that he can attack. While a Republican Government typically seeks to wind back regulations, it is pertinent to remember that regulations usually have good reason to have been put in place. Taking an axe to regulation can have risks as well as benefits.
Here I highlight a few examples of early actions that are drawing applause from the fossil fuel lobbies, but which I argue might not help the case for widespread public support for the fossil fuel industry. I suggest that times are changing, and winding back rules, that are clearly in the category of public good, might produce negative consequences to the industry that President Trump is seeking to support.
Coal and environmental pollution
The Republican party has been very vocal about repealing the Stream Protection Rule, which after many years of drafting was finally enacted in December 2016, just before President Obama left office. This is an interesting example of ideology getting ahead of reality. The regulations go all the way back to the 1977 Surface Mining Control and Reclamation Act, which tried to address environmental damage caused by mining debris and waste from coal mining getting into the water supply. There is clear evidence of detrimental health effects, especially on local (rural) communities, in particular where mountain top removal mining techniques have been used. The problem is that the language used in the 1977 Act was vague and hard to enforce. So more than 30 years later a version was hammered out to address the key issues and published on December 19, 2016.
The key things that the Stream Protection Rule requires are i) a company opening a new mine needs to prevent damage to waterways outside of the permit area (hydrologic balance), meaning more strict limitations on dumping stuff and ii) companies and regulators need a baseline assessment of what the nearby environment is like before mining starts. If you are a miner, in the past such a requirement was considered to be outrageous, but today there aren’t many people who are happy to be ignorant about the status quo before mining starts. This second aspect requires restitution after mining is completed.
As is usually the case when such regulations are drafted, probably nobody was entirely happy with the outcome, but it seemed a reasonable compromise.
Would the Stream Protection Rule have helped prevent stream damage? (yes, an outside analysis suggests 262 miles of streams would have improved water quality). Would it have impacted on employment in the coal industry? (yes, but only by loss of 124 jobs per year due to lower production; for context, since 2012 the US coal industry has shed 25,000 jobs due to automation and lower coal demand).
The point about Trump Administration antagonism to a rule that improves the lives of rural residents, is that it isn’t necessarily going to be popular. People have the vote. Indeed if the rule had led to a decline in coal production, that would be a good thing for the survivors in the industry.
Attack on the EPA
President Trump has big plans to emasculate the EPA, with proposed appointment of Scott Pruitt, a person who doesn’t believe it should continue to exist, in charge. Dismantling the EPA is going to be complicated and, because the public sees the good things that EPA regulations provide, changes will be controversial. The Obama administration sought to make the EPA reforms stick. Here is an analysis of 5 possible futures for the EPA under the Trump Administration.
More generally it is clear that many states have plans to exit coal power generation, regardless of President Trump’s plans. Cost is a big part of the exit from coal. Look no further than plans by Michigan’s largest electric utility, DTE Energy (NYSE:DTE), to retire 8 of its 9 remaining coal plants by 2030 (and not replace them). DTE Energy has already retired 3 coal plants. This story is being played out across the US.
Keystone XL and Dakota Access Pipelines
Soon after his inauguration, President Trump signed executive orders supporting construction of the Keystone XL and Dakota Access pipelines, the development of which were blocked on environmental grounds by the Obama administration.
Concerning the Keystone XL pipeline it seems that President Trump dramatically overestimated the number of jobs that would be created if this pipeline gets built.
President Trump has an unlikely ally in Canadian Prime Minister Justin Trudeau, although oil pipelines were not specifically discussed at their recent meeting.
It is interesting that key beneficiary of the Dakota Access pipeline decision by President Trump, Energy Transfer Partners, went silent after the announcement, possibly to try to avoid stirring up the protests again.
Time will tell where the pipeline story goes.
Removing disclosure concerning payments to foreign governments
After the last financial crisis, the Dodd-Frank Act was brought in to address unacceptable financial practices. The Cardin-Lugar regulations were introduced to force oil companies to disclose financial information about negotiations with foreign governments concerning acquisition of mining and drilling rights. These disclosures are required in Europe, so the regulations brought the US into line with other major markets. This makes the arguments of the US industry (including former Exxon Mobil (NYSE:XOM) CEO Rex Tillerson who is now Secretary of State) that these rules make the US industry uncompetitive, a little hard to swallow.
President Trump, by signing Resolution 41, has expunged these rules in a “gift to the American oil lobby”. President Trump described it as a big deal, which will bring back energy jobs. It is hard to see a clear connection between entrenching bad behavior with more jobs becoming available.
The above 4 examples of concrete or proposed action by the Trump administration don’t seem sufficient to generate thousands of jobs and bring back fossil fuels. What they might have done is reinvigorate those for whom exit from fossil fuels is urgent, and maybe give people who are sitting on the fence about fossil fuels a reason to rethink the issue. In other words I’m not convinced that the Trump presidency has yet found the ingredients to bring back fossil fuels.
President Trump and renewable energy
While President Trump has been noisy in his support of fossil fuels, he has gone missing in the discussion about renewable energy, other than tired clichés like the comment on wind farms that “they kill all the birds”. Here is what President Trump said about wind power after being elected, along with fact checking of his statements.
This comes at a time when politicians on both sides and a large number of companies are urging the President to support wind and solar power.
As a supporter of local jobs, President Trump may yet realize that a major source of new jobs is the renewable energy industry, with renewable industry jobs outnumbering fossil fuel industry jobs 5 to 1.
While it is too early to get a clear view of how the Trump Presidency will play out, there are some indications as to how President Trump plans to help the fossil fuel industries. It isn’t clear that this help will make much difference, but it certainly highlights some actions that are seen to encourage poor corporate behavior. It might be that by shining a light on issues like reducing environmental rules for coal pollution and disclosure of payments to foreign Governments by big oil companies, unsavory practices might be highlighted. I don’t think this is likely to be helpful. Indeed a major “success” of the Trump administration so far is that he has galvanized activist groups in a way not seen since the Vietnam war. The fossil fuel industry is challenged because its core products produce greenhouse gas emissions that are leading to dramatic climate change.
I don’t think it helps the industry to be seen as an irresponsible corporate citizen. This can only reinforce the pressure on the industry and accelerate change to a low carbon economy. Think carefully about your fossil fuel investments.
I am not a financial advisor. I am interested issues that impact on the energy transition from fossil fuels to a low carbon economy. If my commentary helps influence your investment decisions in the energy space, please consider following me.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.