Energy Security with the Energy Evolution - The Path to 2050 Will (Hopefully) be More Inclusive

Originally published for customers March 4, 2022.

What’s the issue?

From the Russian invasion of Ukraine, to a Supreme Court argument over the federal government’s authority to regulate power plant emissions, to a Senate hearing yesterday about the future of gas infrastructure projects in this country — the events of the past two weeks have brightly and tragically illuminated the complex intersection of issues facing our energy future.

Why does it matter?

The road to 2050 is bound to be a bumpy one. Arriving at a clean and secure energy destination will require unified problem solving and governing. These events have brought home why we, at Arbo, are motivated by our purpose to support America’s energy independence and are committed to contribute to a future of robust energy infrastructure that provides secure, reliable, affordable, and cleaner energy to everyone.

What’s our view?

A giant first step would be to accept that there must be a balance between using the energy available to us now that is accessible, affordable, and reliable and evolving to energy sources that are lower in carbon emissions necessary to fight climate change. Any and all forms of energy must rely on infrastructure and predictable regulatory regimes. For the energy evolution to succeed, it has to have the broadest base of support possible to survive future uncertainties — both political and environmental.

 


 

Arbo is a veteran-owned business founded seven years ago with a mission to provide data, software, and industry expertise to energy market participants to support their commercial decisions. We believe in America’s energy independence and are committed to our purpose to contribute to a future of robust energy infrastructure that provides secure, reliable, affordable, and cleaner energy to everyone.

We learned a lot by supporting the past decade’s enormous gas infrastructure build, which had a major impact on our country’s dramatic reduction in greenhouse gas emissions. The most important, yet under-emphasized, lesson is that it isn’t just the innovation, capital, and entrepreneurial spirit that was critical to success. Whether building gas infrastructure or renewable and power infrastructure, core to the past and future is having functioning government policies, predictable regulatory reviews, and judicious and expedient oversight by courts.

America has the good fortune of freedom to engage in vigorous internal disputes about how best to evolve our energy infrastructure between now and mid-century. But divisive partisanship is preventing progress and costing precious time. The events of the past two weeks have brightly and tragically illuminated the complex intersection of issues facing our energy future.

From the Russian invasion of Ukraine, to a Supreme Court argument over the federal government’s authority to regulate power plant emissions, to a spirited Senate hearing yesterday about the future of gas infrastructure projects in this country — all of these events of the past two weeks make it clear that the road to 2050 is bound to be a bumpy one. Arriving at a clean and secure energy destination will require unified problem solving and governing.

A giant first step would be to accept that there must be a balance between using the energy available to us now that is accessible, affordable, and reliable and evolving to energy sources that are lower in carbon emissions necessary to fight climate change. Any and all forms of energy must rely on infrastructure and predictable regulatory regimes. Whether it is offshore wind farms, oil leases, pipeline projects or renewable electric transmission lines, the owners and operators of these assets must have a consistent legal and regulatory framework for review. We’ve seen the alternative here and abroad, which leads to stranded assets, most frequently after years of delay, and death by a thousand cuts. Flipping between extreme positions from one Congress to the next, or one president to the next, means that nothing will get done.

For the energy evolution to succeed, it has to have the broadest base of support possible to survive future uncertainties — both political and environmental.

 

Energy Evolution

The term energy “transition” implies something is being left behind. However, successfully addressing climate change requires an “all of the above” approach — an evolution — that relies not only on paradigm shifts but also incremental improvements to all sources of energy.

The world events we are witnessing show that energy policy is interrelated with almost every aspect of our lives. Politicians who oversimplify this reality do so at their own risk or the risk of those they represent. In the U.S. this oversimplification and ignoring of data is occurring at the extremes of both parties. For example, the “climate deniers” blamed the blackout last winter in Texas entirely on wind and solar, even while the governor of Texas was attempting to hoard the falling gas production for use just within his state. Senators representing the Northeast are erroneously blaming the high natural gas prices in their region on natural gas exports and LNG when, in fact, it is the region’s prior infrastructure decisions to rely on increasing levels of natural gas for electric generation while simultaneously blocking the pipelines needed to access the abundantly available gas just one state away in Pennsylvania.

 

Legal and Regulatory Certainty is Essential for All Infrastructure

Reality distortions like the above examples allow both parties to call for extreme measures whenever they take control in a state, at a regulatory agency, in the courts, in Congress or of the presidency. As we discussed in ArView Alert: West Virginia v. EPA (SCOTUS), the Supreme Court just this week heard an argument in a case that exemplifies the harm this flip-flopping can cause. The Obama administration could not get Congress to pass a bill authorizing it to essentially force coal-fired power plants to close, so it attempted to achieve that goal through regulation. Republican-led states sued to block that effort and convinced a conservative Supreme Court to stay the Obama plan. The Trump administration then adopted a rule that was so limited Democratic-controlled states sued to block it. The power companies subject to the regulation argued with the EPA and urged the court to allow continued EPA regulation, arguing that to do otherwise would be highly disruptive to the economy. We will not know until June what the Supreme Court will do, but it is highly likely to limit the EPA’s ability to regulate carbon dioxide emissions from power plants in a way that will bring about the harms the power plants are worried about.

Similarly, as we discussed in FERC’s New Rule on GHG Ignores the Precedent It Relied On, FERC recently adopted a new policy that will require a full environmental impact statement to be prepared for every pipeline project simply to analyze the downstream GHG impacts from a project. This followed four years of Republican control of FERC during which the opposite extreme was taken. The Republican-led FERC refused to examine the downstream GHG impacts at all, including refusing to even ask the applicants for information about the intended end-uses to avoid court decisions directing consideration of the GHG impacts from the end-use if the end-use was known. FERC’s new policy was the subject of a contentious Senate oversight hearing this week in which even the Democratic chairman of the committee accused the Democratic majority at FERC of swinging “the pendulum far too far to the left. Doing so exacerbates the polarization of your agency, undermines long-term regulatory certainty and ability of industry to plan and invest.”

 

The Road Ahead Will Be Bumpy

As the Russian invasion of Ukraine has made clear, there will be changes in the political environment that require a refocusing of priorities. The European Union is expected to release next week a revised energy plan that will focus less on environmental factors and more on energy security. Here in this country, our changes may not be as violent but they can be no less dramatic as control in Congress or the presidency swings from one party to the other. It would be in both parties' interest to work together to establish a system with bipartisan support for the regulatory review of energy infrastructure.

 

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As any offshore wind farm developer, LNG terminal owner or pipeline developer will tell you, these projects cannot be permitted and completed during a two-year Congressional term or even during a four-year presidential term. If we can not promise developers a consistent regulatory regime, nothing will get built and the energy evolution simply will not occur and our environment and energy security will continue to be harmed.

This should not be an acceptable result for either party in this country and we remain hopeful that something will be done to change the current dynamic.

Our Managing Director of Research, Gary Kruse, will be discussing some of these issues on the radio show In the Oil Patch, broadcast Sunday evening on KTHR in Houston and available also wherever you listen to podcasts.

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