According to RBC’s Head of Global Commodity Strategy, Helima Croft (subscription required), “Joe Biden’s energy agenda would likely be pragmatic, by Democratic Party standards, with no wholesale assault on the traditional fossil fuel sector.” She notes that a Biden presidency would be a sharp departure from the Trump presidency on energy policy, but the shift away from fossil fuels may not be as seismic as some in the Democratic Party wish or the public anticipates. She also noted that there is no call for banning U.S. energy exports or fracking.
Biden’s “Clean Energy Standard”
Unfortunately, Ms. Croft is in la-la land. Biden’s so-called “clean energy standard” would eliminate the 62 percent of U.S. electricity generated by fossil fuels, primarily natural gas and coal over the next 15 years, increasing electricity prices for consumers, and costing taxpayers $2 trillion—to start! Wood Mackenzie estimates the cost of full decarbonization of the U.S. power grid to be $4.5 trillion, given the current state of technology. That cost would amount to $35,000 per household or about $2,500 per year over the 14 year period that Biden would have to implement the action should he get elected and take office in 2021.
Clearly, Biden’s $2 trillion will not go very far, particularly since it is also supposed to fund energy efficiency improvements in buildings, more hybrid and electric vehicles and charging stations, an increase in public transportation including high-speed rail, and research and development in advanced nuclear power and carbon capture and sequestration systems. That figure does not include the implied costs of economic dislocation, lost jobs and industries, which might be forced to move offshore to countries with less expensive and more reliable energy—those costs would have to be discovered along the way.
Natural gas, wind, and solar are now the most common new generation fuels, but it took decades of renewable energy mandates and government spending on renewables research, tax breaks, and other subsidies to help make wind and solar technology reach this point. Even so, capacity factors for wind and solar power are half or less than what they are for coal, natural gas, and nuclear power, making the amount of generation from wind and solar capacity less than 10 percent of our generation today. For Biden to change the 62 percent of the generation currently from fossil fuels into renewable energy sources will cost far more than he states he will spend on his “clean energy” standard and other goals in the building and transportation sectors and cost American families thousands of dollars needlessly, if it even can be accomplished.
Biden’s $2 trillion climate plan should remind Americans of the failed program by the Obama-Biden Administration that produced bankruptcies of renewable companies such as Solyndra, which left taxpayers liable for $535 million in federal guarantees.
Biden and Harris on Fracking
Further, both Biden and Harris have stated that they would ban fracking. Biden indicated that he would ban new hydraulic fracturing in his debate with Bernie Sanders in March 2020, although he would not admit to that declaration when campaigning in Pennsylvania this year. Also, in September 2019 during a CNN town hall event, Kamala Harris said “There is no question I am in favor of banning fracking.” Fracking accounts for about 80 percent of our abundant and low cost natural gas, used for heating, cooking, generating electricity and in numerous industrial processes.
Continuing to allow hydraulic fracturing in U.S. shale basins also requires maintaining the ability to drill, produce, and transport oil and natural gas, which would include streamlining the siting and permitting of pipelines and accelerating research and development that offers the potential to double wellfield productivity. But, Biden’s climate change plan proclaims “that every federal infrastructure investment should reduce climate pollution” and would require “any federal permitting decision to consider the effects of greenhouse gas emissions and climate change.”
The statement above is an indication that Biden would make it difficult for developers to obtain federal permits to build fossil fuel infrastructure such as pipelines, forcing them to use more expensive, less safe and more environmentally hazardous surface transportation, which has already been permitted. It also calls into questions new infrastructure investments such as airports, highways, bridges, and other transportation assets.
To slow the permitting process, Biden could require onerous and lengthy reviews to evaluate whether a project’s economic impact is outweighed by its potential emissions impact, i.e., he could make the process so burdensome and expensive for pipeline developers that they cancel the project. A spokeswoman for a group supporting Biden’s candidacy, for example, recently said this about a cancelled New Hampshire gas pipeline: “Prevent new infrastructure from being built is a win in itself.” This approach should be contrasted with China’s plan. China recently formed a $56 billion conglomerate to build and operate the country’s growing natural gas pipeline system.
As proof of Biden’s intentions, he has committed to rescinding President Trump’s permit allowing the Keystone XL oil pipeline to cross the Canadian border into the United States. This is despite the fact that moving oil by pipeline produces 42 percent fewer emissions than transporting oil by rail, which is how the oil is being transported in lieu of Keystone XL. Since 2008, the use of rail to ship oil had increased by a factor of 50, adding $5 to $10 per barrel in additional cost and greater environmental and safety risks.
Ban on New Drilling on Public Lands
Biden has pledged to stop new drilling on federal lands and waters, which would have severe consequences for the nation’s oil and natural gas industry. A federal ban on drilling would hamper oil and gas production across much of New Mexico, North Dakota and Wyoming—three of the nation’s largest oil and gas producing states, as well as offshore in the Gulf of Mexico, which produces 2.3 million barrels of oil and gas per day. For perspective, the U.S. owns 2.46 billion acres of subsurface mineral estate between its onshore and offshore public lands, which is larger than the entire landmass of the United States. All of this would be off limits to oil and gas exploration, leasing, and potential development.
A drilling ban on federal lands and waters could cost the oil and gas industry up to 1 million jobs nationally by 2022. Offshore jobs in Texas could fall to 39,000 by 2040—down from 147,000 jobs in 2019. Revenues from oil and gas royalties, which are shared with the states, also would fall as drilling permits and leases expire. Oil and gas royalties from federal property totaled $9.3 billion in 2019, including more than $1 billion from offshore drilling in the Gulf of Mexico. In vast, largely rural western states where federal lands are concentrated, the loss of those revenues means less money for roads, bridges, schools, and senior centers.
As a result, some firms are trying to secure as many federal permits as possible before November. Devon Energy, with about 20 percent of its acreage on federal land, is working to get drilling permits approved, targeting over 550 new permits by this autumn, covering 75 percent of its most prospective federal acreage. Federal permits are eligible for two-year extensions—usually a routine process under any administration—and the environmental assessments that underlie those permits are good for a period of five years.
Concho Resources, with about 20 percent of its acreage on federal land, has enough permits on its federal land in New Mexico for another 1 to 2 years of drilling. But, its planning includes the ability to shift capital to other acreage in its portfolio without significant impact to its capital efficiency.
Ending for Fossil Fuel Subsidies
Joe Biden recommitted to ending fossil fuel subsidies despite the Democratic National Committee having removed language calling for an end to those subsidies from a draft document on August 17. The DNC, Biden, and Harris have opposed fossil fuel subsidies in the past. And, in fact, On August 19, the policy director for the Biden campaign, Stef Feldman, tweeted that the candidate remained committed to ending fossil fuel subsidies.
As our blog noted, what these politicians see as “subsidies” for fossil fuels are actually commonplace business tax deductions that are mostly available to small independent oil and natural gas producers, which produce 83 percent of our domestic oil and 90 percent of our domestic natural gas. One of the tax deductions is provided to all U.S. manufacturing firms, not just oil and gas producers, while many of the others are for typical business deductions in the tax code akin to research and development costs available to all industries. These deductions have parallels for other businesses in other industries.
Biden’s positions on oil and natural gas have been all over the map, seemingly changing depending upon his audience. For example, in Pennsylvania—which fracking has turned into a major energy producer and which has become re-industrialized after decades of manufacturing decline—he said he would not ban fracking, despite his agreeing to do just that when he debated Bernie Sanders. And, to make matters worse, his running mate has also agreed to ban fracking. Biden-Harris could easily change back to their original proposals once elected. Clearly, if Biden gets elected, the energy industry will feel the impact and so will consumers and taxpayers. With the addition of California Senator Kamala Harris to the ticket with Joe Biden, the Democratic Party has carved its anti-oil and gas credentials into stone for 2020.