The Fuse

Presidential Dialogue Neglects Transportation and Energy Security Priorities

by Matt Piotrowski | April 26, 2016

Besides a few comments here and there, candidates running for the presidency in 2016 haven’t talked much about energy on the campaign trail. Fighting terrorism, trade, the economy, and the environment have been discussed at length, but energy policy has largely stayed on the sidelines. “Energy policy has always been subordinate to foreign policy, economic policy, and environmental policy,” said Frank Verrastro of the Center for Strategic & International Studies (CSIS), speaking at his organization’s event Tuesday on U.S. energy policy in the 2016 election.

And there’s a reasonable explanation for energy not being a hot topic in this election cycle—consumers are now receiving a huge boon from low prices for oil and gas.

Currently, candidates “are not defining issues because of low prices… but over time they will not be able to get away with it,” said Karen Harbert of the Chamber of Commerce at the CSIS event. “[Energy] is not part of their campaigns but it will be part of their agenda.”

“Energy policy has always been subordinate to foreign policy, economic policy, and environmental policy.”

The rise in domestic supplies from hydraulic fracturing and the reduction in demand thanks to improvements in fuel economy, which are set to continue to rise in the coming years, have completely altered the outlook in global energy markets, given the U.S. economy an unexpected stimulus, and enhanced the country’s energy security. By contrast, during the election cycles of 2008 and 2012, the situations were different: Oil prices were above $100 per barrel, creating anxiety among politicians and sharply reducing disposable income for consumers. The swift change in the energy landscape has occurred mostly because of technology and innovation in the private sector, rather than bold policy initiatives.

“Industry has been transformative and policy has been incremental,” said Harbert.

Current surplus won’t last forever

The current environment, however, could be a mirage, providing just short-term relief from longer-term risks, making sound energy policy even more important. Fracking and fuel efficiency standards will not be enough to achieve true energy security. Low oil prices will not last forever. Because of large cuts in upstream investment during the current downturn, supply and demand fundamentals will eventually rebalance and possibly at some point move into a deficit. The International Energy Agency (IEA), in its long-term forecast last year, pegged prices at $80 in 2020, up almost 80 percent from current levels.

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If there is one constant over time among voters is that they prefer conservation over increasing production as the top solution for tackling the country’s energy problems. The “drill, baby, drill” thinking picked up steam at the end of last decade and the beginning of this one, but the trend has seen a strong shift back to preferring conservation.

“The U.S. will continue, even in this period of abundance, to be part of an interdependent market for energy. That is an economic fact… and that is a policy fact as well.”

While Americans say they prefer the conservation road, motorists have started purchasing less fuel-efficient vehicles during the price downturn and gasoline demand has ticked higher and is expected to reach record levels this year—indicating that lower prices could exacerbate energy security problems for the longer term as complacency has set in. At the same time, U.S. crude output has fallen by .7 mbd from its peak of 9.7 mbd a year ago and U.S. crude imports are back on the rise.

“Although we are producing more at home, energy security is about diversity of supply,” said Mark Brownstein of the Environmental Defense Fund at the CSIS event. “The U.S. will continue, even in this period of abundance, to be part of an interdependent market for energy. That is an economic fact… and that is a policy fact as well.”

Top candidates mostly mum on energy

The two leading candidates of each party have not put forth a comprehensive energy plan, providing only soundbites instead. The Republican frontrunner Donald Trump has said, in an off-the-cuff remark, that he would consider halting buying oil from Saudi Arabia unless the Kingdom helped in fighting the Islamic State. It’s not clear how he would achieve this objective, and it would likely be counterproductive to the U.S. economic and energy interests, given that some 14 percent of the country’s crude imports come from the Saudis. Democratic frontrunner Hillary Clinton’s biggest energy statement came in regards to regulation of fracking: “By the time we get through all of my conditions, I do not think there will be many places in America where fracking will continue to take place.” But her comments overestimate presidential authority on restricting fracking, since activity is regulated mostly at the state level. Her rival Bernie Sanders from Vermont has gone further, saying that fracking should be banned altogether.

Tisha Schuller, a strategic advisor for Natural Gas Initiative, noted at the CSIS event that the debate around energy matters has become too polarized. She didn’t mention Sanders by name but said that making absolute statements such as the need to ban all fracking anywhere is counterproductive. There are some who are more “interested in the fight than the solution” and that steps forward will be “messy and require trade-offs,” she said.

A broader energy and transportation dialogue needed

There needs to be a broader discussion about the future of fuel economy standards, the modernization of infrastructure, how to best reform the Strategic Petroleum Reserve (SPR), diversity in the transportation sector, and regulation of drilling and access to reserves.

While fuel economy standards will not be enough to solve all energy security issues, it is important that they keep moving forward. The next administration will conduct a mid-term review next year of the ambitious 2025 mandate that would continue to boost average fuel economy. With gasoline consumption on the rise while prices at the pump are low, continued tightening of fuel economy is important to keep demand in check, give relief to consumers, drive incentive for innovation in transport, and lower dependence on oil. “CAFE is incremental but transformative and revolutionary over time,” said Jonathan Rubin of the U.S. Transportation Research Board of the National Academies at CSIS.

With gasoline consumption on the rise while prices at the pump are low, continued tightening of fuel economy is important to keep demand in check, give relief to consumers, drive incentive for innovation in transport, and lower dependence on oil.

The next administration’s term will occur alongside more rapid advancements in the transportation sector, with the growth of autonomous vehicles set to take off. It’s important that regulation of autonomous vehicles is streamlined through the National Highway Traffic Safety Administration (NHTSA) so there is not an inconsistent and conflicting patchwork of local, municipal and county laws that hampers efforts to accelerate AV technology. Diversity in the transportation fleet through vehicle electrification is another long-term transportation issue that needs attention. With more than 90 percent of the transportation sector reliant on oil, it is important the government supports extending tax credits for plug-in hybrids and electric vehicles, since price stickers of alternative vehicles are higher than traditional cars and trucks but will save fuel costs over the long term, and ultimately cut demand for oil. The electrification of the car feet and the integration of autonomous vehicles “raise real fundamental policy questions that we need to address now,” said Jason Miller, the Special Assistant to the President for Economic Policy, who added that patchwork of regulations for AVs would “clearly be sub-optimal.”

SPR and drilling regulation

While the U.S. has transitioned from an extended period of energy scarcity to the current situation of abundance, policy makers are unsure how to proceed in today’s environment. They did take an important step forward last year with removing the longstanding ban on crude exports, a relic from the 1970s.

The SPR may also seem like a relic to some now that the U.S. market is saturated, but the reserve provides an important cushion against supply outages and undermines the incentive for petro states to use their own oil production as a political weapon. With prices low and the country less vulnerable to outages on the global market, policy makers last year agreed to sell barrels from the SPR as part of a budget deal. This could be a dangerous first step if the SPR remains on the table as a “cookie jar” for lawmakers to draw from to raise funds. Besides being used for funding purposes, the SPR is also in the midst of being upgraded and modernized, and the next president will oversee the changes in the SPR and the politics of the reserve.

Finally, there’s the fight over access to drilling and regulation of methane. The industry has been frustrated by the Obama administration’s push to control methane emissions—the EPA is expected to announce another new rule this week—and its opposition to some areas of offshore drilling, with the most recent being his flip-flop on opening the Atlantic Coast. These actions, according to industry, go against his “all-of-the-above” energy strategy.

To solve energy problems, it takes a long-term plan and not strategies that are convenient for one presidential term.

It’s important that government rules don’t inhibit the industry but they also take into account safety and environmental matters such as air and water quality for local communities. Schuller pointed out that “expectations of communities have changed forever” when it comes to access to energy supplies and there will “always” be protesters when planning for fossil fuel development. For the next administration, whether it will roll back Obama’s actions or continue with his philosophy of tight regulation and limited drilling will be a key question mark.

Long-term strategies needed

To solve energy problems, it takes a long-term plan and not strategies that are convenient for one presidential term. Reducing dependence on oil requires an expansive vision. It’s important the next president takes prudent efforts to manage today’s supply abundance well, and not get in the way of new technologies in both transport and drilling. We’ve been lucky this decade with improving fuel economy and a sharp uptick in supplies from fracking. But that doesn’t mean we can rely on them solely for the long haul.

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