Democrats Threaten Energy Rollback
Markets might get jittery as bids by Biden, Sanders, and Warren to restrict fossil fuels move a bit closer to reality.
A host of candidates for the U.S. Democratic presidential nomination have been bandying about radical energy and environmental policies for months, including a ban on hydraulic fracturing. Now that the primary season is entering its crucial phase with Super Tuesday voting in 14 states, those dreamy plans are suddenly looking a whole lot more real.
The three leading Democratic candidates—Vermont Sen. Bernie Sanders, former Vice President Joe Biden, and Massachusetts Sen. Elizabeth Warren—all propose vigorous federal action to limit or even roll back production of oil and natural gas. Viewing the increased production of fossil fuels as being at odds with the fight against climate change, all three have called for production limits ranging from the more modest, like Biden’s plan to ban Arctic oil drilling and boost regulations on fracking, to the more aggressive, like that of Sanders and Warren, who both back a ban on fracking and an end to fossil fuel leases on federal land.
In the crosshairs in particular is the fracking boom that in a little over a decade turned the United States from the world’s biggest oil importer into the world’s biggest oil and gas producer, which gave the United States both an edge in curbing greenhouse gas emissions by using cleaner-burning gas and a newfound heft on the international stage.
For Democrats, even Biden, the new sentiment for restrictions is a stark departure from the middle-of-the-road energy policies of the Obama administration—which at the time Republicans attacked as too radical.
“It is jaw-dropping to see how far these candidates have shifted from [former President Barack] Obama’s all-of-the-above approach to energy,” said Bob McNally, the head of Rapidan Energy Group, a consultancy. Particularly surprising, he said, is the animosity toward the use of natural gas, a cleaner-burning fossil fuel that displaced coal and helped lower U.S. greenhouse gas emissions, but which now is vilified in most Democratic energy proposals.
“If oil is Nazi Germany, gas is Fascist Italy—it’s not quite as bad as Hitler, but it’s in league with the enemy,” McNally said. Tallying up the different proposals on the table—from bans on fracking to offshore drilling, and tougher scrutiny of oil and gas investments, McNally said the oil and gas industry is bracing for a potential regulatory onslaught. “If a Democrat wins, we’re going to see a Tet Offensive against the oil and gas industry the likes of which we’ve never seen before,” he said.
Oil and stock markets (when not getting hammered by coronavirus) have so far been blase about the prospects of a radical, structural change in U.S. energy policy, but with the ascendance of Bernie Sanders and the uniformity of Democratic energy proposals among all major remaining candidates, that might be starting to change, said Kevin Book, the co-founder and managing director of ClearView Energy Partners, an energy consultancy.
“None of the Democrats, from an energy-production point of view, are moderate,” he said. “I think the market should start to price things in on Wednesday,” after the Super Tuesday primary results start to lay out the stakes of a nearly binary choice for president this fall.
Politically, such energy policies make plenty of sense for Democrats. Many progressive activists oppose greater oil and gas production because it entrenches the dominance of fossil fuels that are the biggest contributors to climate change. And many oppose fracking in particular because of environmental concerns including groundwater contamination, methane emissions, and even the greater risk of earthquakes.
Progressives who advocate “keep it in the ground” policies toward fossil fuels are actively clamoring for a more aggressive stance from the next president—not a continued push to out-drill Russia and Saudi Arabia—and galvanizing those kinds of voters will be crucial to Democratic hopes this fall.
“This election takes place during a crucial inflection point for climate action,” said May Boeve, the executive director of 350 Action, a climate advocacy group, in a rare double endorsement Monday of both Sanders and Warren. “We need a president who will fight against the fossil fuel industry that is standing in the way of progress.”
And since the overwhelming majority of U.S. oil and gas production is concentrated in states that voted for President Donald Trump in 2016 and will almost certainly vote Republican again, there is little on the electoral map for aggressive Democrats to lose, Book said, though such policies could make Pennsylvania an even tougher state for Democrats to win.
One thing that will be almost impossible for any Democratic president to do is ban fracking outright, as Warren and Sanders have promised, including on private land that makes up the vast majority of the shale patch. That would be exceedingly difficult without a change in U.S. law, which would require Democrats to sweep both houses of Congress as well as the White House, and for any plan to survive inevitable legal challenges in federal courts packed with Trump nominees.
But when it comes to restrictive energy policies, any future Democratic president still has lots of ways to limit U.S. oil and gas production—at least on federal lands, which account for about 20 percent of oil output and 14 percent of gas. The next White House could take steps to end or slow down fossil fuel leasing, slow down or stop fracking there, and even shut down offshore oil production.
“You can’t ban fracking without Congress,” said Jason Bordoff, a former Obama energy and climate advisor and the founding director of the Center on Global Energy Policy at Columbia University. “But you can throw a lot of sand in the gears with regulations that raise costs.”
Book figures a Sanders or Warren-style brake on federal oil and gas activities could knock off more than 600,000 barrels a day of U.S. oil production (out of a total of about 11.8 million barrels a day) and roughly 5 billion cubic feet a day of natural gas output, out of a total of about 92 billion cubic feet per day.
Banning fracking on federal lands or other steps to limit fossil fuels wouldn’t even necessarily require a lengthy and cumbersome rules change. The next president could simply issue more restrictive guidance to federal agencies, or apply environmental rules more rigorously, or simply decide that the economic cost of greenhouse gas emissions is higher than the Trump administration has determined, which would enable all sorts of environmental restrictions.
The next administration could even—taking a page from Trump’s playbook when he used a supposed border emergency to raid the Pentagon budget to build his wall on the U.S.-Mexican border—declare a climate emergency to invoke all sorts of broad economic authorities. That would enable the next administration to potentially shut down exports of crude oil and gas, stop offshore oil and gas production, and maybe even halt the shipment of oil and gas by pipelines, Book said. (ClearView last fall published an exhaustive analysis of different ways the next president could seek to ban or curtail oil and gas production.)
A bigger question is whether such policies would be in the U.S. interest. Thanks to the fracking boom and the explosive growth of U.S. natural gas production, coal has been steadily pushed out of the electricity mix and replaced with natural gas. That has made the United States—first under the Obama administration, but even under the Trump administration—one of the countries that has most reduced greenhouse gas emissions in the energy sector.
But that initial fracking boom that reduced emissions has given way in the last couple of years to more progress thanks to renewable energy. “What has been true for the last decade may not be true for the next decade,” Bordoff said.
Opponents of fossil fuels argue that to really fight climate change and kickstart a wholesale energy transition, the time for interim solutions like natural gas is over. That’s why they’d hope to see any fracking ban coupled with more aggressive policies to promote renewable energy, electric vehicles, and other parts of a greener economy as part of a crash decadelong program to wean the United States off dirtier forms of energy. Biden, Sanders, and especially Warren have all proposed different mixes of federal support for clean energy, such as renewable energy, electric cars, and battery storage.
“The concern about natural gas on the left reflects the growing understanding about methane leakage, the fact that renewables have gotten a lot cheaper, and the dwindling time frame we have to make progress on the climate,” Bordoff said.
The problem is that, despite decades of investment in renewables and other clean energy, the United States and the world’s voracious appetite for energy is still overwhelmingly supplied by fossil fuels, including oil and gas. Despite Democratic talk of a “Green New Deal,” it’s not at all clear how, how soon, or at what cost greener technologies could replace such a central component of the world’s biggest economy.
“People just sort of think that with national will, or a New Deal, or a Manhattan Project, that we can achieve an energy transition in a matter of years, if not a decade,” McNally said. “I think it’s complete lunacy. There is nothing in history to suggest that. The marvel of this whole discussion is its delusional quality.”
The U.S. energy boom had another big side effect beyond lower emissions: It dramatically ramped up America’s geopolitical heft. Greater production of oil thanks to the fracking boom enabled the Obama administration and later the Trump administration to levy severe oil sanctions on Iran—sanctions that would have been unthinkable before the energy boom because they would have spiked global oil prices. Likewise, greater U.S. production has enabled a much more aggressive stance toward countries like Venezuela.
U.S. natural gas production and exports, too, have given the United States fresh geoeconomic tools. Tankers with U.S. gas can help wean Europe off of reliance on Russian gas, and all the additional gas sloshing around the market makes it easier for Washington take aim at big Russian energy projects, like the controversial Nord Stream 2 pipeline to Germany.
In other words, the fracking-fueled U.S. energy boom both gave the United States new ways to blunt one of the Kremlin’s favorite economic weapons and, by flooding the market, helped drain the coffers of petrostates such as Russia, Iran, and Venezuela.
Those newfound geopolitical benefits could be at risk if Democratic proposals are carried out. But many Democrats, such as the Sanders campaign, are happy to dial back what they see as an excessive abuse of U.S. financial and sanctions might, anyway.
“The shale revolution has been a game changer from a geopolitical standpoint,” Bordoff said. “If U.S. oil and gas output suddenly collapsed and imports rose, that would weaken the United States geopolitically, and benefit countries around the world that don’t always have U.S. interests at heart.”