Each year, there are a number of important issues for you to put on your agenda for the year. This year for 2015, we are looking at the Top 15 for ’15.
1) Republicans in Control – In 2014, Republicans won big victories in the Midterm Elections, winning key gubernatorial and congressional races in what many are viewing as a “wave election.” Several changes are anticipated in the new Congress, with both chambers set for Republican control. Key factors include more oversight of key Administration initiatives, notably in energy, the environment, and immigration; a return to a more traditional appropriations process; and the prospects for negotiations between the White House and Congress on key policy initiatives. Energy issues will be an important part of the in the 114th Congress. With Sen. Murkowski as Senate Energy chair and Sen. Inhofe as Senate Environment chair, both Committees will undoubtedly step up their oversight of EPA, with a particular focus on the President’s “Clean Power Plan.” Murkowski is a strong advocate of oil and natural gas development on federal lands, will work aggressively on reliability issues.
2) GHGs, Clean Power Plan – This epic battle began in full force in 2014. So much to say…but in 2015, this battle will hit it high point as the Administration tries to jump through the legal and procedural morass to finalize the regulations for both new and existing power plants. Most experts continue to say the challenges will be much more difficult, more costly and legally questionable. They also expect the timelines to slip even more than they did this year, which turned out to be an especially tough political year for the President and Democrats. A first test may be seen in in January when the Congress moves Keystone legislation, looking at what legislative amendments and/or riders may be advanced to curtail the scope and speed of the Clean Power Plan. Points of focus for States and Republican legislators include: the interim targets for emissions reductions states must meet by 2020, the impact the Clean Power Plan is likely to have on electrical reliability, and the enforceability of the Clean Power Plan in light of widespread opposition from numerous governors.
3) Falling Oil, Gas Price Impacts – The most amazing change we’ve seen in 2014 was the rapid fall of the crude price toward the end of the year, and the requisite fall of the gasoline price. SUV users and sellers have welcomed the change, saving lots per fill up and spurring truck sales, which are always an auto profit center. That cost drop has had a positive impact for consumers, but it has hurt production, especially offshore drillers who have been hit not only by the price drop but by a long-term demand slide. The implications for 2015 will be as dramatic, both from a domestic and foreign policy perspective. Here at home, the boom has brought us closer to energy independence than we have ever been since the 1970s. From an international perspective, our domestic boom and the international price drop has put significant pressure on many oil-producing countries like Iran, Venezuela, Russia and OPEC nations.
4) Ozone 2015 – One of the biggest political and policy fights of 2015 reared its head the day before Thanksgiving: the Ozone/NAAQS fight. While the low end of the range in the proposed rule (65ppb) is very troubling for industry and states, as low as background levels of ozone in many parts of the country and pushing as much as 94% of the nation out of attainment, EPA is also taking comment on 60ppb, which would be devastating for manufacturing, oil and gas production and agriculture across the country. The approach seems to be part of EPA’s typical proposing an unreasonable standard; take comment on a more unreasonable one; and claim the government is reasonable by comparison. But the Administration only has so much political capital at its disposal and it has made clear that controlling greenhouse gases is its legacy issue. It is unclear that the Administration has the bandwidth to sustain both rules. There is no doubt that many in Congress and the states will demand that the proposed ozone NAAQS be placed on a more realistic course. One thing to keep in mind with Ozone/NAAQS: Oil and gas production has been one of the only bright spots in the jobless recovery, and the range proposed for ozone may impose real, practical limitations on that production. The expense associated with the rule could reverse what economic gains we have seen recently.
5) Keystone – Is it finally time? Probably yes given the new makeup of Congress and the fact that is it one the agenda in the first week. Many question why this has become such a flash point for some environmental activists and they will turn all their focus to lobbying the Administration to stop the pipeline and veto any legislation. Last year, I expected the President to eventually accept the pipeline, but a year later and with the current Congressional change, now I’m not so sure. He probably gets more political mileage by fighting the bipartisan Congressional effort (although somewhat less bipartisan that in the last Congress). No matter the decision, it is vital to remember implementing the new GHG rules, will have a much more dramatic impact on the environment and the economy.
6) UN Climate: We’ll Always Have Paris – Among the biggest news we will face in the environmental space this year surrounds the December UN Climate meetings in Paris. There are always pivotal meetings that are turning points in the UN discussion and it seems that Paris will be one of those meetings. Already the administration is laying groundwork for negotiations with its power plant rules and individual clean energy and emissions agreements with China. After initial resistance, look for India to settle on a similar “deal” with the US this Spring. Another test for the Administration’s position will be regarding the funding requests for the $3 billion UN’s Green Climate Fund. While Congress has already hit the funding in a budget rider before it was even a line item, it will be another true test given the most of the developing world is looking to be “Shown the Money” before agreeing to anything. Look for the climate hype to really pick up the pace this summer with a grand crescendo to the December meetings.
7) Changes to RFS Coming? – Around Thanksgiving, EPA completely dropped the ball on its 2014 Renewable Fuel Standard proposal. The original law establishing the RFS set in place an increasing level of use for ethanol expressed in terms of actual volume numbers. As time has gone by, however, the actual total gasoline fuel pool has declined due to more efficient autos, more mass transit, and even electric cars. As a result, the volume number – if EPA fails to adjust it downward – will exceed 10% by volume of gasoline. But above that level, autos have significant performance issues. The ethanol folks want the continued higher growth; fuel makers and consumers are queasy about the higher numbers. There is little environmental case for higher ethanol use any more. Indeed, major enviro groups like EWG have produced studies showing the higher levels are actually worse for carbon emissions when the ethanol lifecycle is taken into account. Last year’s morass also featured the added complication of a competitive Iowa Senate race. There was little doubt among experts that the holdup in finalizing the reduced ethanol numbers were in part to assist IA Dem Senate Candidate Bruce Braley in arguing that he was keeping ethanol criticism at bay. Obviously that gambit didn’t work as Republican Joni Ernst swept to victory. So now, industries have been left with delay, market confusion, questionable legality, and just appearance of incompetence. It is likely the RFS won’t be repealed, but a wholesale revision is closer to a reality that ever. Now, Congress will be expected to once again roll up its sleeves on a bipartisan basis and amend the law to a more functioning workable approach.
8) Nuclear Over the Top – With Vermont Yankee closing down and Southern’s Vogtle springing to new life, the nuclear industry is definitely in a state of flux. The brightest shining light continues to be Southern’s Vogtle Plant, which is fighting through the challenges, some increased costs, but keeps hitting key construction milestones. This year the project crosses the point where we know it will happen. Keep a close eye on Georgia, especially now that several older coal plants are also timelined to close in a few years, which makes Vogtle that much more important. Southern has an ongoing photo timeline of activity that you can see here.
9) Crude Oil Exporting New Policy– With Senate Energy Chair Lisa Murkowski speaking out regularly and strongly on the need to move crude oil export legislation, the issue is certain to get more serious investigation this year with Republicans in Congress of both Houses. The coming year promises more studies, hearings, and proposals to change the regulations and legislation limiting the export of U.S. crude oil. And, all discussions of crude exports are controversial because they implicate producers, refiners, consumers, and environmentalists. With new market pressures calling into question a regulatory and legislative regime that was created in the 1970s, any action taken by legislators or the Department of Commerce can be easily misinterpreted .
10) SCOTUS Looking at Mercury Cost in Spring – In Spring, the Supreme Court of the US will hear arguments challenging EPA’s Mercury and Air Toxics Standards. The rule is one of a number of key administration environmental regulations that have raised the hackles of many utilities and coal companies that claim they are being singled out. Remember that compliance with MATS is required by April 2015, even though some plants can receive one-year extensions from state air regulators based on reliability needs. My colleague Jeff Holmstead, a former EPA air office head who has lots of experience with this rule, noted that the Court seems troubled that EPA refused to consider that cost of the regulation when it made a formal determination that it was “appropriate” to regulate hazardous air pollutants from power plants under the Clean Air Act. This is the sole issue that the justices will consider, but a ruling against EPA could invalidate MATS in its entirety. Challenger briefs are due next week from industry groups and State AGs like Michigan’s Bill Schuette who have lead the charge against the mercury rule. Holmstead is always ready and happy to discuss. A decision from the Supreme Court on the MATS rule is likely by the end of the Court’s term, in late June or early July 2015. Given the timing, it is possible the Court could stay implementation of the rule until a decision is reached.
11) Tax Reform Finally? – This may be the year we make a first real pitch to have serious tax reform. As he left Congress, long-time outgoing and widely-respected House Ways and Means Chair Dave Camp introduced thoughtful tax reform legislation that could be the beginning of a new effort. ON the Senate side, new/old Senate Finance Chair Orrin Hatch has also made noise about significant reform. Hatch has outlined these principles in a 340-page volume entitled Comprehensive Tax Reform for 2015 and Beyond that does a nice job describing the nature of the problems with the tax existing code. And now, Hatch and former Democratic Chair Ron Wyden launched five tax working groups to spur tax reform efforts. The next milestone to watch out for is the President’s State of the Union speech. The President must mention his desire and lay out a path forward in order for the likelihood of tax reform to be accomplished this year.
12) Offshore Wind in Deepwater – For several years now we have been saying this would be the year that the U.S. saw wind projects stand up in US or state waters. Unfortunately, our predictions have fallen short. The industry took a further hit just this week when Cape Wind, one of the furthest projects along, when the two utilities that agreed to buy 77.5% of its 468MW output cancelled their power-purchase agreements. While Rhode Island’s Deepwater Wind project is still out there, now projects in Delaware, New Jersey and Maine have all stalled, while Maryland which Never really got off the ground also faces significant headwinds. The lower natural gas price and the abundance of the shale plays in the have played a role in curbing the environment for offshore wind, but as with any nascent industry/technology, it has had growing pains that have been too much to overcome for now. Don’t write the offshore wind industry off just yet. There is still massive potential given the availability of the resources, the potential to create new manufacturing industries and need for accessible, clean energy, but the question of when has now transformed to how long will it take?
13) DOE Rules A Plenty – So we have talked about the impending Furnace rule at DOE as a part of the movement toward energy efficiency at the agency, but that is only scratching the surface of DOE’s agenda for remainder of the Obama Administration. Currently, DOE plans to rush more than 20 rules and test procedures forward on items from commercial Heating and AC units to industrial pumps to residential water heaters. Energy efficiency advocates and environmental groups have been aggressive with litigation to force DOE to increase its rulemaking pace. As well, experts think that DOE is changing its analysis and decision-making process to favor more stringent standards, all-the-while limiting the test procedures, cost modeling and transparency. Regardless, the battle over the DOE rulemaking, the sleepy step-sister of EPA rulemaking will be an important issue to watch over the next two years.
14) LNG/Coal Exports – With the crude oil export issues hitting the front policy pages of Congress, other energy export-related will also see Increased activity this year. Especially on the LNG front were there was significant movement on DOE issuing permits last year for export facilities. Look for progress on these facilities like Cove Point in Maryland, Sabine Point in Louisiana and Jordan Cove in Oregon, among several others. On the policy side, look for legislation from the new Republican Congress to speed the permit review process that was slow to get moving under the Obama Administration. The House already voted to approve legislation aimed at speeding approvals for the shipments of LNG to countries that are members of the World Trade Organization, giving DOE 30 days, once an environmental review is completed, to make a final decision on an application to export LNG. The legislation also provides an LNG applicant with expedited judicial review if DOE fails to act on approval of a project within 45 days or if the project is subject to a legal challenge. As for coal, enviros have used their anti-Keystone campaigns to rally around opposition to coal exports as well. While this issues continues to battle out, it will be a successful issue only in regions that are likely to oppose coal exports (Pacific NW). Don’t expect much traction in other places like Texas and Virginia where exports to countries in need like China, India and Germany
15) Transportation Bill/Oil Trains – This year will be an important year for transportation issues as Congress revisits major transportation legislation. After MAP-21 – passed in 2012 – expired last summer, there has been controversy over reauthorization. Look for Congress to make an effort this year to tackle the entire package, including discussions over increasing the federal gas tax, which has not been increased since 1993. It will also be an interesting year for Crude-by-Rail. DOT is busily working to finalize the new railcar safety regulations, while the oil industry and railroads continue to jockey as to how stringent the new standards should be. DOT has already missed the January 15th deadline mandated by Congress, which is not surprising given that PHMSA is still without a new Administrator. Also, PHMSA and FRA have to get their hands around the data provided by API and others questioning how fast retrofits of existing tank cars can actually get done. On top of that, the plummeting price of crude will make the cost of rail transport relatively more expensive than pipelines – the extra $5 to $10 a barrel to ship by rail over pipe is a lot easier to absorb at $100/barrel than at $50. It will be interesting to see how long-term some oil industry contracts are and whether there is a significant shift toward transport by pipe. And, obviously, any new accidents will only put more pressure on crude by rail.
As will other non-election years, 2015 will be an exciting year, and perhaps a year to finally see some energy policy progress. Let’s get going.
Frank Maisano is a Founding Partner at Bracewell Giuliani’s Policy Resolution Group