A view from Canada: North American hydrocarbons and the 2020 Presidential election—what hangs in the balance
Editor’s note: This op-ed piece reflects the author’s views solely, and should not be construed necessarily as an endorsement of these views by World Oil.
A future Biden administration—along with Democratic control of both the House and Senate of the U.S. Congress—will be enormously problematic for the North American hydrocarbon production sector, and, in turn, for the North American economy. No one in the industry, and those that still finance it, should think otherwise.
Trump is better for the industry. Regardless of either victorious candidate, any chance of balanced and proportionate climate and energy policy will be extremely difficult to salvage—but we have a better chance with incumbent President Trump. It must be fought for, both within Congress, and, as importantly, across all media and in national public debate.
Former Vice President Joe Biden has embraced the aspiration of net zero emissions by 2050, but doubts remain whether he truly appreciates the implications of such a fundamental transformation of the economy’s most essential energy systems, including what the actual net cost to current and future generations will be. We have yet to see an articulation of the level of carbon pricing equivalent that will be required to achieve such an objective.
Without transparency or intellectual honesty, we are left with the fatuous invocation of “green jobs” that Biden appears to assume will magically appear to resolve all doubts as to the real costs that will be incurred. It needs to be acknowledged that constraining potential global temperature increase to no more than 1.5o C could potentially be significantly more costly as a matter of risk mitigation versus other policy alternatives, such as uniform carbon pricing across developed economies coupled with adaptation investment.
As a concrete policy objective, Biden has committed to the decarbonization of the U.S. power generation sector by 2035. How this would be achieved is still unknown, but one can expect that it will follow the model that California has chosen: total reliance on only wind, solar, hydro and still-to-be-perfected storage technology, but no nuclear or fossil fuels. Still, in this regard, there is no recognition that such an objective will require billions of dollars to be spent, to replace existing power generation infrastructure, well before the end of normal-course economic life. Without any specifics on whether the inherent intermittency of such exclusive reliance on renewables can be achieved at any reasonable cost, it is presumed that this objective will be entrenched in legislation at some point in the course of the first two years of a Biden presidency.
The Biden climate and energy plan eschews carbon pricing as a major policy instrument. Instead, he makes clear his intention to spend up to $2 trillion over the next four years, to accelerate decarbonization of the U.S. energy systems. This would range from power generation to transportation, to heating of housing and commercial infrastructure, in the form of direct investment, direct subsidies and fiscal support. But to date, none of this has been put into the context of what carbon price would be required to justify such investments. This comes as no surprise, highlighting a fundamental preference for intervention and regulation over reliance on markets.
Fracing’s future. While a ban on fracing will not mean an immediate disruption of existing fracing operations by federal action, no one should assume a Biden presidency will facilitate any incremental fracing activity. Quite frankly, it is difficult to believe that any fracing activity would ever occur, given the fundamental policy objectives.
These are a potential future administration and Congress that are antithetically opposed to the hydrocarbon production industry. They are prepared to be very ruthless in their implementation of this agenda.
Sadly, the North American hydrocarbon production industry essentially acquiesced to de facto climate denialism, and the nearly four years of Trump’s presidency have not advanced at the federal level a credible and proportionate climate and energy policy. Notwithstanding the value of its tax reform and deregulation initiatives, the Trump administration potentially leaves the industry more vulnerable than ever before to the extremes of climate policy that could be served up by a successful Biden administration.
The hydrocarbon industry has to resist. But that can only be done by first accepting unequivocally that climate change is a risk that has to dealt with. De facto denialism is no longer an option, and credible policy must be advocated in lieu of what is being proposed by Joe Biden and the Democrats. This policy has to engage both Congress and across all media. And, surely, it must be based on a uniform national carbon tax as the pre-eminent carbon policy instrument while also appropriately conditioned to account for considerations of competitiveness and affordability. But above all, the policy must include a carbon tax that is transparent, so that the cost of dealing with the climate risk is transparent, and not buried in a web of regulations, subsidies and mandates.
Such policy advocacy also should apply if Trump is re-elected. De facto climate denialism is not reasonable for the industry to devolve to again.
DENNIS MCCONAGHY is a retired TC Energy executive and author on energy-climate policy in Canada. His most recent book, Breakdown: The Pipeline Debate and the Threat to Canada’s Future, won the Donner Prize this year for Best Public Policy Book by a Canadian author.
