Fossil Fuel Industry – Law Street

The Impact of Environmental Regulations on the Energy Market

Kyle Downey — Mon, 27 Feb 2017 14:00:07 +0000

"Moon Rise Behind the San Gorgonio Pass Wind Farm" courtesy of Chuck Coker; License: (CC BY-ND 2.0)

One of Donald Trump’s first moves as president was announcing his plan for the imminent repeal of 75 percent of federal regulations. In a previous article, we went over the creation of the Environmental Protection Agency and the ways in which federal environmental regulations affected business growth, outsourcing, and public health costs. Reviews of environmental regulations show that they have saved trillions of dollars in public heath costs while having a modest effect on American business, which has continued to grow and thrive since the creation of the Clean Air Act and Clean Water Act. Removing environmental regulations will likely not be the deciding factor that enables manufacturing to return to America but it could seriously endanger our water and air, especially for poor and at-risk communities.

But the question of what effect regulations have on the energy market itself has been a hot topic of debate lately. Conservative interests have argued for some time that environmental regulations place serious handicaps on fossil fuels and unfairly favor renewables, and the Obama Administration’s Clean Power Plan has come under a storm of criticism for strengthening this dynamic. Read on to learn about federal energy policy and environmental regulations to see how they have historically impacted different energy industries and examine what the Clean Power Plan would have done in contrast to what Trump’s proposed policies will likely do.

Regulations and the Energy Market: Renewables vs. Fossil Fuels

A central objection to environmental regulations is that they unfairly skew the energy market. They place countless handicaps on fossil fuel companies and allow renewables full freedom to prosper, unfairly impacting business throughout the country. It is very true that the energy market is subject to unfair business handicaps, but those that are in place overwhelmingly favor fossil fuel companies rather than hinder their success. Much of this dates back to the Energy Policy Act of 2005, which determined subsidies for different energy sources. The law allocated $5.6 billion in incentives for the gas, oil, and coal industries, $4.5 billion for renewable and alternative energy sources and $3 billion in electricity incentives that largely addressed nuclear power (another $1.3 billion went to energy efficiency and conservation research and development, which mostly applied to fossil fuel production). This $4.5 billion may seem substantial and it did, in fact, bring forth the creation of critical incentives, such as solar tax credits. However, a review of the 2007 budget shows that more than two-thirds of all these renewable subsidies went to ethanol and biofuels. Only a little over a billion dollars went directly into America’s three dominant clean energy sources: solar, wind, and hydropower.

While direct funding and incentives are slanted toward fossil fuels, the real imbalance comes in the form of large-scale post-tax subsidies for fossil fuels that involve the costs of the externalities they create in the form of environmental damage and public health effects. Globally, the subsidy imbalance is extremely dramatic: worldwide about $120 billion in pre-tax subsidies goes to renewables and $523 billion goes to fossil fuels. But when you add post-tax subsidies, the IMF calculates that the fossil fuel industry received a staggering $4.2 trillion in subsidies in 2011. The United States is the world’s top producer of gas and petroleum and it’s a stretch of the imagination to claim that those industries are getting marginalized or cut an unfair deal.

The first part of this series explained the regulations that were placed on power plants for emissions and dumping, which represented a relatively small industry cost (especially compared to the massive public health savings generated by those regulations) and did nothing to stop the growth of the fossil fuel industry. For the most part, renewable energy systems don’t deal with regulations that affect emissions and toxic dumping because they don’t create waste streams through energy production. However, this doesn’t mean that renewables are given a free ride to prosper in the energy market; they are subject to extensive regulatory processes as well despite the fact that they do not have the same adverse impact on public health. The installation of a wind turbine, for instance, requires permits from a vast number of different regulatory authorities, and if even one of the required organizations doesn’t grant a permit then a project can be killed.

A great deal of attention has been called to the potential damage renewables can inflict on wildlife (the most common narrative is that wind turbines kill birds), despite the fact that fossil fuels do much greater damage to wildlife, and protected species regulations are often used to oppose renewable projects. Renewable energy systems can and have been repeatedly shut down mid-project for causing even minor habitat damage. The $2.2 billion BrightSource Solar Farm in the Mojave Desert, the largest solar facility ever to be built in the United States, was almost completely abandoned because of the death of a single endangered desert tortoise.

Fossil fuel companies must deal with some land and water regulations as well, but they also have access to a variety of unique legislative loopholes that allow them to dodge critical regulations and benefit from the tax code–in effect, giving them permission to pollute so that their business may thrive. The most dramatic example of this is the “Halliburton loophole,” which gives hydraulic fracturing companies special permission to inject hazardous chemicals underground, in what would normally be a direct violation of the Safe Drinking Water Act of 1974. These benefits extend to the basic permitting processes that different energy companies must go through as well: fossil fuel companies generally have a streamlined permitting process, are given the cheapest land leasing rates, and must provide no strategy or evaluation of environmental safety.

In California, for instance, a solar farm project can require a three-year permitting process that requires millions of dollars. Comparatively, a fossil fuel company needs only a one-page declaration of intent and can begin construction almost immediately. Furthermore, the Bureau of Land Management values the land it leases to oil and gas companies at a rate set almost a century ago, meaning these companies pay incredibly low prices when utilizing federal land (costing $30 billion in federal revenue over the last 30 years for undervalued land) while the BLM requires renewables to pay modern land leasing rates. The idea that the fossil fuel industry is unfairly suppressed by regulation is a myth; the fossil fuel industry already has access to numerous regulatory loopholes and subsidy benefits. The environmental regulations that are in place aren’t suffocating growth, they’re providing critical protection for our public health against industries with high pollution potential.

Regulations and the Energy Market: The Coal Industry

The fossil fuel source that does face serious decline is coal, which the Clean Power Plan specifically targeted as the most dangerous energy source in use, both for climate change and for public health. One of Trump’s favorite mantras during his campaign was that regulations have destroyed the coal industry and taken away countless jobs from Americans in the process. Historically, no such pattern has been observable; the coal industry prospered under environmental regulations for decades and has suffered so much in recent years largely because of competition with the massive spike in domestic natural gas production and usage. This makes President Trump’s claim that he will boost both coal and gas production–which are two directly competing industries–particularly confusing. Critics of environmental regulations generally point to the implementation of the Mining Safety and Health Administration’s 2014 Respirable Coal Mine Dust Rule, which decreased acceptable concentrations of coal dust per cubic meter from 2 grams to 1.5 grams and required regular air samplings to be taken. This legislation has been a hot topic among the anti-regulation community and coal advocates have complained that maintaining such low levels are unfairly difficult at existing output levels.

Image courtesy of Greg Goebel; License: (CC BY-SA 2.0).

However, it’s worth noting that the rule was put in place in 2014, long after American business made the decision to favor natural gas and long after the initial downturn of the coal industry. It’s also true that the rule addresses very legitimate health concerns and when evaluating the efficacy of a regulation it is important to compare the health benefits to the cost savings that would disappear if the rule were rescinded. A staggering 76,000 miners have died from black lung over the last 50 years. Over the same time frame, the government has had to pay out $45 billion in federal compensation to affected workers and their families. The law is also directly targeted at mining crews with Part 90 miners–workers who have already been diagnosed with a respiratory illness. The rule sought to protect the most at-risk population of workers and if the coal industry is to have a productive workforce then it has a responsibility to ensure the health and survival of that workforce. Estimated annualized compliance costs were about $28.1 million at a 7 percent discount rate, with the majority of compliance costs coming from tech purchases for the newly required Continuous Personal Dust Monitors. This number may seem huge but it only represents about 0.13 percent of the coal industry’s annual earnings of $20.2 billion and less than a third of the $1 billion our nation pays out each year in federal compensation to sick and dying miners.

As an energy source, natural gas simply provides more energy for a lower cost, making it unlikely that coal will experience a serious resurgence in the United States. The coal industry survived and grew under the Clean Air Act, and the industry was on its way out long before the Respirable Coal Mine Dust Rule came into effect. While it’s highly likely that the Clean Power Plan would deal a deathblow to the industry, increasing funds to gas as Trump plans will accomplish the same thing only just at a slower rate.

Repealing pollution regulations like safeguards and filter requirements and removing coal mine dust restrictions wouldn’t make the changes necessary to revive the weakening business, not as long as gas is abundant and comparatively cheap. Removing these regulations would, however, make the coal production and disposal process more dangerous for the environment and miners would be the first group to experience the health consequences.

Obama vs. Trump

The Clean Power Plan issued new carbon emissions reductions standards for each state and would have required the states to independently create a plan to meet their target goals. The result would have been a huge increase in clean, renewable energy production. Coal would have been hit the hardest by this as the worst polluter, although the natural gas industry would more easily be able to improve efficiency rates and meet the new standards. The CPP actually encourages the increased use of gas, as long as it’s primarily a replacement for coal.

The nature of this policy aligns with public opinion as well. About 65 percent of the population favors stricter emissions regulations, about 70 to 75 percent of Americans want to see increased renewable energy, and only about 30 percent want to see more coal. However, the coal industry represents 174,000 jobs, including extraction, transportation, and production and it is unfair to cut off employment without generating new opportunities, even if those lost jobs had high health risks.

However, the Clean Power Plan has a strong focus on creating jobs in renewable energy and pollution control industries. The traditional conservative narrative claims that fossil fuels create employment and clean energy policies stifle it, but the reality is actually the reverse; renewables can be a vital catalyst for job growth and actually create more jobs than fossil fuels. One powerful example of the over-inflated projections of fossil fuel employment opportunities is happening right now, with President Trump advancing the Dakota Access Pipeline and Keystone XL Pipeline. The Keystone Pipeline, in particular, has come under a media firestorm after it was revealed that the project would only create 35 permanent jobs. Like most construction projects, the vast majority of jobs related to the pipeline will be temporary positions, including some that will only last for a few months or “spillover jobs” that take place in another industry.

The entire clean energy sector employed 8.1 million workers as of 2015 and growth in the sector has also moved at a rate 12 times faster than overall job growth. In 2014 there were 7.7 million clean energy jobs worldwide and by the end of 2015, that number had grown to about 8.1 million. The related job creation is also remarkable when compared to fossil fuels–a million dollars of spending on renewable energy and energy efficiency will create 13 jobs. That same million dollars only creates 6 jobs within the fossil fuel industry. These are good jobs for middle-class Americans as well, paying on average 13 percent higher than median wages. Many of the jobs that are created by renewable energy involve manufacturing, which would align with President Trump’s vow to revitalize the American manufacturing industry. However, unlike fossil fuels, positions in the renewable energy industry don’t endanger the health of the workers who support them. Hillary Clinton’s ambitious Clean Power Challenge would have expanded upon Obama’s CPP and would have increased renewables through competitive grants, tax incentives, and market-based incentives and created a flux of new jobs in the process. Such efforts would have also meant opening up the industry of offshore wind, a massive and untapped source of domestic energy and employment.

“Keystone XL Pipeline Protest at White House” courtesy of Tar Sand Action; License: (CC BY 2.0)

Critics of the Clean Power Plan claimed that it unfairly supported renewables and made it impossible for fossil fuels to thrive. It’s more accurate to say that it would have leveled the playing field, not skewed it in favor of renewables. Fossil fuels would still be disproportionately subsidized and would still play a huge role in American energy. What the CPP would have done is act as a major catalyst for an increase in clean energy use that America needs to combat climate change, establish energy independence, protect our public health and national lands, while creating new jobs for Americans.

Conclusion

It’s a political myth that the fossil fuel industry is unfairly regulated in the United States. America produces more gas and petroleum than any country on earth, subsidizes the fossil fuel industry with billions more than goes to renewables, and gives oil and gas companies fast-track access to land at the cheapest possible rates. The Clean Power Plan was a chance to increase clean, domestic renewable energy across the nation. Without the plan, the state renewable energy goals will be rendered non-binding and the progress of renewables will move at a much slower rate. Over the next four years, America will continue to be dependent on fossil fuels as the Trump Administration works to open up federal lands for drilling and fracking and peel back regulations allowing the oil and gas industry to freely pollute.

Will a Donald Trump presidency destroy the renewable energy industry? No, because the president doesn’t truly have control over the free market. Trump can seriously slow down renewable progress, but even if the Clean Power Plan is reversed, 29 states still have Renewable Target Portfolios established and another eight have created non-binding goals for themselves. The renewable energy industry has grown dramatically and will continue to receive bipartisan support in the places where it is cost efficient and useful. Red states such as Idaho, the Dakotas, and Texas have all made serious commitments to renewables because they have high renewable energy potential and investing in solar and wind simply makes economic sense. Technological improvements, especially within the field of energy storage, are increasingly raising the value of renewable energy systems and boosting growth within the private sector. In terms of coal, it will be difficult, and maybe even impossible, to bring the coal industry back to its previous rates of production as long as natural gas thrives in the United States.

However, climate change worsens every year and we don’t really have the luxury of waiting for things to move slowly. With Trump in power not only will much of Obama’s work be undone, we will also lose out on one of our last chances as a nation to try and combat climate change.

Kyle Downey

Kyle Downey is an Environmental Issues Specialist for Law Street Media. He graduated from Skidmore College with a Bachelor’s degree in Environmental Studies. His main passions are environmentalism and social justice. Contact Kyle at Staff@LawStreetMedia.com.

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The Mystery of Wind Energy in Texas

Kyle Downey — Mon, 11 Apr 2016 00:21:39 +0000

"Sweetwater" courtesy of [BBC World Service]

When discussing the clean energy revolution, the southern American states are rarely mentioned as progressive leaders. Texas in particular has a longstanding reputation for supporting the interests of the fossil fuel industry. Texas politicians fiercely deny the scientific validity of climate change and the state is home to the headquarters of some of the world’s largest oil and gas companies, such as Exxon Mobile and ConocoPhillips.

However, the Lone Star State actually has a greater Installed Wind Capacity than any other state in the United States. How did this paradox occur?

The Wind Capital of the United States

The proliferation of wind energy in Texas is a relatively recent phenomenon. In 2001, Texas received only 1 percent of its energy from wind. Only 15 years later, wind provides almost 10 percent of the state’s energy and powers over 3.6 million homes. Throughout the state there are 17,713 MW of installed wind capacity; to demonstrate the significance of this number, the second place state, Idaho, only has 6,212 MW and the 3rd place state, California, only has 6,108 MW. The irony behind these numbers is that areas such as California and the North Eastern states have all made political commitments to pursue renewable energy installations, yet they trail far behind one of the most fossil fuel friendly states in the nation when it comes to wind energy. The governor of Texas, Greg Abbott, and both of its senators, Ted Cruz and John Cornyn, all deny climate change, along with 16 of the state’s 36 congressional representatives. The state has also historically been heavily dependent on the fossil fuel industry; in 2014 Texas was the leading producer of crude oil and natural gas.

The Evolution of Renewables in Texas

The policy shift in Texas toward wind can be traced back to 1999 when the state legislature narrowly passed the first Renewable Electricity Standard. To the surprise of many, wind energy turned out to be a reliable and affordable source of electricity in the areas where it was first implemented. Following the success of their first law, the legislature updated it in 2005 to dramatically increase renewables throughout the state. The 2005 Renewable Electricity Standard forced the Public Utility Commission to create Competition Renewable Energy Zones (CREZ), which designated areas in the wind heavy, rural north of Texas for wind farms to be built. The CREZ also created a fund to build gigantic transmission lines connecting these wind farms to the highly populated urban areas of lower Eastern Texas.

To better understand the success of wind, it may be helpful to look at why other renewables, such as solar and hydro, haven’t gained anywhere near as much traction. One of the biggest problems with renewable energy is that it has difficulties matching energy demand. Hydroelectricity will provide fairly consistent power day and night, but solar can only generate electricity during the day, meaning solar panels stop being able to provide energy when the sun goes down. The ideal solution to this may come from advances in energy storage systems, but as of now most battery systems are underdeveloped and simply not capable of handling the amount of energy that would need to be stored for a highly populated area.

The power output of a wind turbine depends completely on the strength of the wind as it blows throughout the day–although its highest output is generally at night–which can be a serious problem in regions with lower wind potential and more fluctuating wind patterns. However, the geographically even terrain of rural Texas (along with the entire vertical band in the center of the United States) has some of the highest wind potential in the entire nation, making wind farms a highly effective technology for the state. While the northeastern states and California have all made political commitments to renewables and are all actively interested in wind energy, their placement on the more mountainous edges of the country means that they have dramatically less access to wind potential.

Interestingly enough, if you look just beyond the U.S. coasts there’s incredibly high potential for offshore wind energy. There has in fact been a growing interest in offshore wind in recent years, especially in the coastal northeastern states, but as of yet there hasn’t been a single offshore wind farm successfully implemented in the United States. This is due to offshore wind’s exceptionally high costs and difficult permitting process, along with high levels of community opposition, especially from beachfront property owners and fisherman.

An unfortunate fact of renewable technology is that its performance is largely dependent on where you want to install its source. While other states may be committed to the environment, (or at least to domestically available energy and protection from future CO2 regulations) it will generally be more cost effective to install wind turbines in the geographical center of the United States than on the outskirts. The 1999 and 2005 Renewable Electricity Standards have been opposed a number of times over the years by fossil fuel interests. A notable example is the Heartland Institute and the American Legislative Exchange Council’s 2013 Electricity Freedom Act, a model bill circulated among state legislators seeking to scale back renewable energy standards in every state. However, a majority of Texas state legislators have voted against these attacks for 16 years, arguing that the wind has created a reliable domestic source of energy, lowered utility rates, and created jobs throughout the state.

“Iowa Wind Turbines” courtesy of Theodore Scott via Flickr

Regulatory Barriers to Renewables

It’s also important to understand that implementing renewable energy is rarely as easy as being a pro-clean energy state. Texas is in a unique situation when it comes to its energy infrastructure and, as a result, it faces fewer technical barriers than the rest of the U.S. when it comes to renewables. The U.S. energy grid is split into three different sections: the Eastern Interconnection, the Western Interconnection, and the Texas Interconnection. The Eastern and Western Interconnections each cover about half of the country as divided by the Rocky Mountains, and each connects the states on its respective side with transmission cables that span entire regions. However, the Texas Interconnection was built completely isolated from the rest of the country. The vast majority of the state has its own grid, called the Energy Reliability Council of Texas, or ERCOT, while the upper panhandle and El Paso have their own, smaller grid operators.

The independent nature of the Texas Interconnection is part of a long-standing battle to achieve independence from federal regulations. The 1935 Federal Power Act gave the Federal Power Commission regulatory oversight over all interstate electricity sales, so Texas avoided these regulations by designing its grid so that none of the power lines crossed state boundaries. While Texas does currently have two connections to the Eastern Grid and three connections to the Mexican grid, ERCOT has to this day managed to remain outside of Federal regulation.

This has a significant impact on the development and growth of energy within the state. Because the other 47 mainland states all exist on larger interconnections, each must undergo highly complex permitting systems if they desire to build a wind farm. A project will need to obtain permits from their municipal and state governments, but also from a number of outside entities. Those entities include its region’s Independent System Operator, the Federal Energy Regulatory Commission, the Environmental Protection Agency, the Bureau of Land Management, the United States Forest Service, the Interstate Highway System, the Department of Transportation, the Federal Aviation Administration–which is concerned with any structure over 200 feet tall that might obstruct planes–and many, many more. There are countless additional permits that any given project may also need to obtain based on its proximity to a wetland, the protected environment of a certain species, a national park or other form of federally owned land, or if the turbines could in some way interfere with the migratory patterns of birds.

Because the Texan grid is independent of the rest of the country, developers can avoid many of these national regulatory obstacles. Furthermore, even within the state, the permitting process is extremely streamlined. State environmental organizations, such as the Texas Parks and Wildlife Department, do not have oversight on wind farm projects that they would in other states. State, county, and local governments also have no regulatory power when it comes to wind siting; only the landowner and the developer are allowed to make a decision about where a wind farm is built. Texas’s incredibly deregulated electrical market makes it much easier to build a wind farm within the state than anywhere else in the country.

“All Texas” courtesy of Kevin Dooley via Flickr

The Current Political Context

In April 2015, the Texas senate voted 21 to 20 on Senate Bill 931 to end the state’s Renewable Energy Portfolio, both removing the state’s target Renewable Energy Goal and ending the Competitive Energy Zone initiative. The bill is currently pending in the state House of Representatives where a final decision will be made on Texas’ Renewable Energy Portfolio. While many environmentalists see the vote as a major loss to the clean energy movement, Texas is already firmly set on its path toward increasing wind energy. The 1999 and 2005 Renewable Electricity Standards have allowed the industry to grow so dramatically that Texas has far surpassed its original renewable energy goal of 500 MW by 2025 and all of the transmission lines connecting cities to wind farms have already been constructed, making the Senate Bill 931 a largely symbolic victory for fossil fuel companies.

On December 20, 2015, wind turbines generated a record high of 40 percent of Texas’s energy for 17 hours of the day during a low-pressure wind front. This milestone not only indicates the extreme potential of wind within the region but also proves that the newly built transmission lines are capable of handling almost an entire day’s worth of wind energy without malfunction, contrary to the arguments of many fossil fuel advocates.

If Senate Bill 931 becomes law then it may have some impact on future state support of the wind industry; it also comes at an inconvenient time when Texas may have to further reduce its CO2 emissions under Obama’s Clean Power Plan. However, renewables are currently projected to continue to grow in Texas regardless of state support. Currently, wind energy projects constitute 70 percent of all new energy capacity in the state and ERCOT projects that wind will generate another 8600 MW by 2024. As of now, it looks like Texas will continue to remain a major player in the wind energy industry.

Conclusion

Texas has managed to become the nation’s leader in wind energy for two main reasons. The first of these reasons is that the center of America has incredibly high wind potential and Texas reaps the benefits of this in the northern section of the state. The second major reason is that there are fewer regulatory obstacles to building a wind farm in Texas than in the rest of the country, both because Texas exists on its own grid and because the state’s public agencies have very little control over private development. Despite the fact that Texas is led by many politicians who publicly oppose climate change and the fact that the state contributes a huge share of U.S. fossil fuel production, renewable energy still prospers in Texas because it is available, cheap, and easy to implement. While the proliferation of renewables in Texas is certainly positive, the fact that this success is reliant on an unorthodox combination of factors also puts into focus how difficult it is for the rest of the U.S., even for openly pro-environmental states, to achieve the same degree of success.