Impacts of Near-Term State and Federal Energy Policies Related to climate

With the election of Donald Trump, federal and state energy policies may sharply diverge in the near future. Some states, such as New York and California, are trying to reduce carbon emissions, while President-elect Trump appears to have other priorities.  Trump’s campaign proposals are preliminary, but a few general directions are clear. Here is how those divergent strategies and transition plans may impact energy policy.

A major focus of the Obama Administration had been to replace coal with a mix of natural gas, renewables, and energy efficiency. The primary federal effort to that end was the Clean Power Plan (CPP) now being contested in a federal court. The plan could be rejected by the Supreme Court, especially if the current vacancy is filled by an unsympathetic justice.  However, even if CPP is struck down, various other established federal regulations already limit coal use. Currently, low and future natural gas prices make it the preferred power plant fuel, regardless of environmental regulations.  Possible easing of rules restricting the production of natural gas on federal lands or by fracking will only extend the current price advantage of natural gas.

On the state level, New York’s Clean Energy Standard seeks to source 50% of the State’s power from renewables by 2030, with almost all the remaining coming from nuclear and gas-fired plants. The nuclear component of the plan was recently called into question when three upstate nuclear facilities (Ginna, Nine Mile Point, and Fitzpatrick) notified the New York Independent System Operator (NYISO) of their intention to shut down at the end of their fuel cycles. This was due to low energy prices resulting from low natural gas prices. To avoid that possibility, New York created a new subsidy – Zero Emission Credits (ZECs) – to reward nuclear’s ability to make power without carbon emissions. All load-serving entities (LSE) including utilities would annually buy about half a billion dollars (opponents claim more) of ZECs from plant owners for at least six years. That cost would be added to bills.

That could boost electric rates by an average of $0.003/kWh, although some believe it may be higher.  That translates to a ~2% increase in the average Con Edison commercial rate or about as much as a typical annual rate increase. On the positive side, the increased supply will only depress wholesale electricity prices.  Several lawsuits are underway to block or modify the ZEC plan, with the resolution not likely until early 2017.

Nobody has a crystal ball when it comes to what a Trump administration may seek to do, but extrapolating from campaign statements, any or all of the following may be in the cards:

• Cutting existing and proposed federal energy regulations including those related to federal land use for extraction
• Halting or rolling back pending energy efficiency standards
• Accelerating the phase-out of tax credits for wind and solar resources
• A new Carbon Control Credit to keep more coal plants running
• Increasing the cost of natural gas to make it less competitive with coal by instituting a tax on wastewater disposal from fracking
• Taxing oil imports from nations such as the Middle East, Venezuela, and Russia

Other programs include:

• Reducing fuel oil demand by replacing it with natural gas
• Building/extending gas pipelines also fits into Trump’s infrastructure and jobs promotion plan
• Pushing U.S production of electric vehicles
• Resurrecting the Keystone XL pipeline and push other pipelines

To boost our domestic natural gas and oil resources, he may:

• Open federal lands and offshore areas to drilling
• Accelerate approvals of liquefied natural gas (LNG) export terminals thus improving the trade balance while using natural gas as a strategic trade weapon against some nations

Some of Trump's plans can also positively impact climate change. His administration could support efforts that focus on business and jobs via infrastructure upgrades that also cut carbon:

• Providing tax breaks for replacing aging gas distribution systems that leak methane
• Building large incinerators to convert waste to energy, while reducing landfills that emit methane
• Expanding power transmission lines to improve access to power from Midwest wind and fossil energy.

Other possible changes that could affect the energy landscape include:

• Rescinding the recent Paris accord on carbon emissions (although some feel that could take several years)
• Relaxing/eliminating financial regulations (e.g., Dodd-Frank) to expand trading of energy commodities
• Raising interest rates that push up energy stock prices while limiting renewables heavily dependent on low rates for their capital intensive projects
• Shifting federal research and development (R&D) support from renewables to carbon capture systems and fossil fuel opportunities.

Depending on how they are financed, some options may decrease average wholesale pricing, while others boost price volatility and alter the balance between fixed and variable energy charges. Whatever happens, future energy purchasing strategies will require a sharper pencil to successfully navigate those changes.