Ecofin Podcast: Matt Breidert discusses: U.S. Election Outlook and the Impact on Energy Transition
In this edition of our Ecofin podcast, Senior Portfolio Manager Matt Breidert discusses:
- Differences between presidential candidates and how their energy policy platforms may impact recent trends
- DNC prominent themes around energy: climate change and related economic opportunities as well as specific policy pledges
- The current administration’s existing energy policy and accomplishments of stated 2016 energy goals
- Recent efforts to revive the coal industry ignored as capitalism trumps everything
- Forces outside the politics that will continue to exert influence over time
- Potential impacts on energy commodity prices following the election
- Rejoining the Paris Climate Agreement, and on day one seekinghigher ambitionsfrom nations around the world, likely directed at China
- Achieving net-zero GHG emissions at a nationallevel by 2050 (matching the EU)
- $2 Trillion in spending packageon accelerated renewable infrastructure to cut greenhouse gas emissions in the electric utility industry, with a goal to zero net carbon by 2035
So the first takeaway from such an ambitious program on energy transition, particularly achieving the 2035 zero net carbon target for utilities is: ‘how can it happen’. And the answer is likely to be ‘beware the aspiration vs the outcome’. First, to pass such a target, it would likely take both chambers of Congress to flip Democratic and then be able to survive a filibuster challenge, requiring 60 votes in the Senate. The most optimistic outlook for the Senate results fall well short of that expectation this year. Also, most utility industry insiders—including the big renewables proponents—understand a 2035 timeline to zero net carbon with a utility system already as large and advanced as the U.S. has is nearly impossible. The goal is thus likely aspirational, in part to maintain fidelity from the progressive side of the party. Nonetheless, the reality of the competitive cost position of adding more renewable resources, and the large pool of jobs in the industry already (which over 855,000 direct and indirect jobs is one of the largest pools of employment in the energy overall industry), a very substantial effort could be launched. At a minimum we would expect efforts to revive and extend expiring tax subsidies for the renewable industry. There also remains some possibility of a market-based carbon pricing scheme being enacted (but most likely with a political horsetrade on energy policy overall). We think protections from the FERC on renewable resource priority could be attempted to be addressed.
- Exiting the Paris Climate Accord
- Devolving the Federal Environmental Protection Agencyto states and limiting its overallpurpose and reach
- Abolish the ‘Clean Power Plan’
- Enacting a Presidential Permit to approveand complete the Keystone XL pipeline
- Openingfurther of public lands and outer continental shelf to fossil fuel exploration, with a cornerstone enactment recently to open the Artic Wildlife Refuge to energy lease permitting
- Reduce permitting and lease restrictions and of courseimprove timelinesfor proposed energyprojects
- Trumpdid move to remove the United Statesfrom its prior commitment to the Paris Climate Accord in 2017. The speech was attended by all the major CEO’s of the U.S. coal industry.
- Trump’s Head of the EPA is today a former coal lobbyist
- That same EPA proposed the ‘Affordable Clean Energy’ plan in 2019 intended to replace the Obama administration’s ‘Clean Power Plan’, which rather than promoting phase-outs of coal-fired capacity, promotes improving efficiency with capital investment to keep coal plants running.The plan will never adequately address the Supreme Court’s ruling that CO2 must be regulated as a pollutant, but is likely to put in place a frustration any Federal efforts to accelerate coal retirements.
- Trump’s U.S. Federal Energy Regulatory Commission directed the largest U.S. power grid operator to force state- subsidised solarand wind power resources to raise their market bids late in 2019, in an attemptto increase hours of utilisation from existingfossil resources and reshape the capacity market outcome.
- 50 coal plantshave closed since the 2016 election;dozens more are slated to close in the next 4 years
- Murray Coal, the largest private coal company in American and whose CEO is one of Donald Trump’s largest individual financial donors,filed for bankruptcy in October 2019. The Top 3 coal producers in the U.S. have all filed for bankruptcy once since 2016.
- Outputfrom renewables exceededcoal-fired electricity share in 2019,which has since accelerated duringthe COVID-19 related downturn
- Employment of coal mining represents about 50,000 today,surprisingly about flat vs 2016
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