Step on the Gas! With Oren Cass – July 12, 2015

Today we talk about five things in the news for the week of July 6, 2015:

  1. House Energy Committee Finally Talks Crude Exports
  2. Farmers Plan End Around New York’s Fracking Ban
  3. House Science Committee Hosts “Investigative Theatre” on EPA
  4. Environmental Defense Fund Shares 11 New Methane Studies
  5. Fracking Ballot Fight May Return to Colorado

And our interview is with Oren Cass, a Senior Fellow at the Manhattan Institute.

Click below to listen or find us on iTunes or Stitcher.

 

1.  House Energy Committee Finally Talks Crude Exports

On Thursday, Rep. Joe Barton (R-TX) finally got the Energy and Commerce Committee to hold a hearing on reversing the current ban on exporting crude oil.  He has been pushing to lift the ban for a long time, but the Committee has been slow to move on the issue.  At the hearing, Rep. Barton argued that there is no reason for crude oil to be the one item Americans cannot export.

The House Energy and Commerce Committee moved slowly over the last couple of years into a consensus that barriers to liquefied natural gas (LNG) exports should be removed.  Now, the Committee is looking into taking the next step with crude.  LNG exports are still somewhat restricted, but those restrictions will be hard to justify if Congress blesses crude exports.

For now, most Members, even Republicans who are generally supportive of free trade, are being cautions.  Chairman Fred Upton (R-MI), for example, said “we need to be certain that any actions taken don’t have unintended consequences that negate the benefits.”  Democrats, like Rep. Bobby Rush (D-IL) tended to go one step further into special restrictions.  He suggested that perhaps we should only export crude oil to Cuba.  The problem with that is that America has always criticized other countries for restricting energy exports.  For example, President Obama filed a trade case at the World Trade Organization (WTO) against China back in 2012, and won, because China was limiting its exports of rare earth materials that are important to the clean energy industry.  And Hillary Clinton wanted to go after OPEC countries at the WTO back in 2008 to stop them from limiting crude oil exports.

For now, the Energy and Commerce Committee is just taking baby steps towards practicing what America preaches.

2.  Farmers Plan End Around New York’s Fracking Ban

Last December, New York Governor Cuomo announced that he would be banning fracking.  The decision was based on a recommendation by Acting Department of Health Commissioner Dr. Howard Zucker, who said:

 “I think it would be reckless to proceed in New York until more authoritative research is done. I asked myself, ‘would I let my family live in a community with fracking?’ The answer is no. I therefore cannot recommend anyone else’s family to live in such a community either.

As it turns out, they did not actually ban “fracking.”  They banned, “high-volume hydraulic fracturing,” which they defined as:

High-volume hydraulic fracturing is defined as the stimulation of a well using 300,000 or more gallons of water as the base fluid for hydraulic fracturing for all stages in a well completion, regardless of whether the well is vertical or directional, including horizontal. The 300,000-gallon threshold is the sum of all water, fresh and recycled, used for all stages in a well completion. Well stimulation requiring less than 300,000 gallons of water as the base fluid for hydraulic fracturing for all stages in a well completion is not considered high-volume, and will continue to be reviewed and permitted…

So, a bunch of farmers decided they could fracture a well with propane.  This process has been used by a Canadian company called Gasfrac on about 800 wells.  That supposedly was successful, though the company is now in bankruptcy.

There is some reason to be skeptical, as the Post Star reported:

Jonathan Garrett, an analyst at Wood Mackenzie, said the economic viability of the proposal is dubious, given technological challenges of propane fracking that drive up production costs, the unproven gas reserves in New York’s part of the Marcellus Shale, and the large volume of gas flowing from Pennsylvania wells that’s driving down the price of natural gas.

Regardless, it sounds like no water means no ban.  USA Today explained:

“We are outside of the state’s ban,” Tioga Energy Partners, LLC legal counsel Adam Schultz said. “The state banned high-volume hydraulic fracturing, but that’s not what we’re doing.”  Tioga Energy Partners is the contracting company working with the Snyder Farm Group on the drilling application….

The Snyder group is a collection of five Tioga County farm families who have leased land for natural gas development. The group is seeking to develop a 53-acre natural gas well in Halsey Valley, which is in the Town of Barton, Tioga County — about 25 miles south of Ithaca and 30 miles east of Elmira.

3.  House Science Committee Hosts “Investigative Theater” on EPA

On Thursday, the House Science Committee called a hearing with Gina McCarthy, the Administrator of the Environmental Protection Agency (EPA).  It was her first trip to Capitol Hill since her Mercury and Air Toxics Standards rulemaking was struck down by the Supreme Court.  The Science Committee also has been after the agency for its “secret science,” which means relying on nonpublic data for rulemakings.  Rep. Eddie Bernice Johnson (D-TX) called the whole thing “investigative theater.”  That may be true, and Rep. Bill Johnson (R-OH) showed how theater is done.  He asked Administrator McCarthy to explain a bunch of emails from EPA staff that show a “cozy relationship” with environmental groups.  The best included an invitation from an EPA official named Michael Goo, which invited a bunch of environmentalists to “Goofest.”  This is a party at his house that was slated to include shots of liquor from an ice luge.

4.  Environmental Defense Fund (EDF) Shares 11 New Methane Studies

Inside Climate News reported on several new reports issued by the EDF last week:

The release of 11 research papers Tuesday marked another milestone in the Environmental Defense Fund’s ongoing effort to understand the natural gas industry’s carbon footprint. Overall, the studies found that emissions of methane––a greenhouse gas at least 34 times more potent than carbon dioxide––in the Texas Barnett Shale were 50 percent higher than estimated by the Environmental Protection Agency….

The scientists behind the Barnett campaign used both “top-down” methods—where emissions are measured from aircraft over a large area—and “bottom-up” methods, where emission sources such as pneumatic valves and compression stations are individually measured and tallied up. Both methods showed that a large portion of the leaks come from a relatively small number of “super-emitters.”

EDF is one of few groups that has some credibility in both the environmental community and among industry leaders, so these reports will likely be a major part of the conversation moving forward on methane regulations.  Their blog post releasing the studies offers some constructive advice.

Higher emissions from these sites are often a result of avoidable operating conditions such as equipment leaks and tank venting that are relatively easy to prevent with frequent monitoring and repair practices….

The good news is that there are many cost-effective ways to find and fix high-emitting sources. In fact, a 2014 report by ICF International found that by adopting already available technologies and operating practices, industry could cut methane emissions by 40 percent over five years for just one penny per thousand cubic feet of produced gas.

5.  Fracking Ballot Fight May Return to Colorado

The Associated Press had a story the last week, that perhaps was not breaking news, but did suggest that fracking-focused ballot initiatives could return to Colorado in 2016.

A task force convened by Colorado Gov. John Hickenlooper tried to find a compromise over who should regulate the industry — the state or local government — and to what extent. But fracking critics were bitterly disappointed when the panel suggested leaving regulatory power in state hands and avoided recommending specific health, environmental and safety rules.

“I think the fossil fuels industry won,” said Karen Dike, a member of Coloradans Against Fracking….

Frank McNulty, a Republican former state lawmaker who sponsored a pro-industry ballot measure in 2014, expects fracking opponents to turn to voters next year.  “I don’t think that it’s settled,” he said….

If opponents try to limit fracking in 2016, McNulty said he’ll fight them. He co-sponsored a 2014 ballot issue to deny oil and gas tax revenues to local governments that ban drilling, but withdrew it as part of Hickenlooper’s compromise.

Interview with Oren Cass of the Manhattan Institute (Starts at 20:18)

Oren grew up in Boston, and he first encountered energy policy as a debate topic in high school.  In college, he studied political economy and his senior project was on energy policy.  During collage, he interned at the management consulting firm Bain & Company.  He loved his summer there and returned full time after college.  At Bain, most analysts begin as generalists working on projects for different companies in all kinds of industries.  He worked on “widgets” for cars, financial services, women’s fashion, digital music, and more.  Oren says this provides young analysts with a great general business background.

Bain allows employees to take a six-month leave of absence early in their career.  Oren used his sabbatical to spend six months as a policy analyst on Mitt Romney’s 2008 Presidential campaign.  After that, Oren headed off to law school.  He says he was never looking to become a practicing lawyer, instead he focused on learning how government works and understanding important policy areas like labor law and employment law.

During his third year of law school, Oren joined Mitt Romney’s 2012 campaign and would eventually become Romney’s “Domestic Policy Director.”  The role exposed Oren to basically every major policy issue area, with a major focus on energy, health care, economic growth, education, and trade.  This was all incorporated into the campaign’s 150-page policy book.

That kind of detailed policy book is an important part of the general campaign, and Oren said Gov. Romney was especially detail oriented in establishing the policy platform.  Romney’s detailed energy policies served him well in the debates with Pres. Barack Obama.  Oren also personally participated in an energy debate with a surrogate from the Obama campaign, and that conversation was even more detailed.  After the campaign, Oren returned to Bain until April of this year when he joined the Manhattan Institute, a think tank located in New York.  There, Oren focuses on energy and antipoverty policy.

Last week, Oren released a new policy paper entitled “Step on the Gas!  How to Extend America’s Energy Advantage.”  (Skip to 40:38).  In the paper, he says it “may seem an odd time to emphasize the importance of increasing U.S. oil and gas production.”  Oren says supporters of a pro-production energy policy almost do not even know what to say, because America’s skyrocketing production gives the feeling that the benefits have already been won.  Oren thinks that attitude is a mistake.  He points out that ten years ago many argued there was no point in an aggressive energy policy because it would take ten years to come to fruition.  Energy policy has a long time horizon, and Oren argues that we need to be thinking long term even though the short term feels pretty good.

Oren makes eleven recommendations in his paper.  Number three and four are removing barriers to oil and gas exports and making it easier to build export terminals.  Interestingly, this idea did not come up at all between Gov. Romney and Pres. Obama.  In the MIT debate, Oren was asked about liquefied natural gas (LNG) exports, but he said Gov. Romney had to study the idea.

Today, Oren says the export restrictions were created to deal with a fear of energy scarcity.  These scarcity-oriented policies are not serving us well with America’s current energy abundance, however.  Oren said exports face two obstacles.  First, many Americans are locked into the idea that energy is unique and needs to be protected.  Regardless of whether that was true in the 1970s, Oren says, it is not true today.  Americans need to move past this popular suspicion to understanding that free trade in oil and gas has the same benefits as free trade in any other commodity.  The second obstacle is that many interest groups oppose exports.  This includes domestic users of oil and gas who hope to keep prices low through export restrictions.  Most environmental groups also oppose exports because it would presumably increase domestic production of energy.

One remarkable thing about the 2012 debates was that both sides seemed to agree on the basic premise.  That is, that the country should produce more energy using “all of the above” sources.  Today, however, that consensus is shifting.  There are a growing number of groups that call for either stopping fossil fuel use, or using cleaner fuels like natural gas only as a “transition” fuel towards a lower-carbon future.

Oren says that oil and gas policy must be considered in the context of other decisions.  The natural gas boom, he says, has done more to reduce carbon emissions than all of renewable energy.  Therefore, the more natural gas is produced and shared around the world, the better off the climate will be.  On oil, Americans are continuing to build gasoline-powered cars.  America is committing itself to burning oil in those cars, so America should ensure as much of that oil is produced domestically as possible.  Oren says it puts the cart before the horse to shut down oil and gas production while the world continues to commit to consuming it.  That just puts America at a disadvantage relative to the rest of the world.

Oren says that people need to understand that climate change is an international issue.  In his view, the only way to significantly reduce emissions is to introduce new technologies that are more attractive than the technologies being used today.  For the developing world to make progress without fossil fuels, we are going to need technologies that do not exist today.  Current wind and solar technologies are not sufficient.  Oren’s eleventh recommendation addresses this issue.  He says we should channel most federal oil and gas revenue into funding federal investment in energy research and development.

Current air and water regulations have the potential to slow U.S. production, in Oren’s view.  The Mercury rule struck down by the Supreme Court a few days ago came up in his 2012 debate, and opposition to Pres. Obama’s air regulations has defined Republican policy for a long time.  Oren says it is important to distinguish between traditional pollutants and climate.  The Clean Air Act has made dramatic reductions to air pollutants and that should be celebrated, but the law works as a one-way ratchet.  That is, every new power plant must be cleaner than existing powerplants.  This ever-tightening ratchet provides an incentive to keep old powerplants running, because a new powerplant would be too costly.  Oren recommends that companies be allowed to produce new powerplants under current standards, rather than always requiring higher standards for new and expanded plants.  On the climate side, Oren argues that the Clean Air Act is not an appropriate tool to address climate emissions.

Oren also recommends a number of steps to speed up the development of new energy infrastructure.  The Keystone XL pipeline was a major topic during the 2012 debates, and the Administration has still not provided an answer on the application.  Oren sees a few problems with the process.  First, many laws governing the development of infrastructure require regulators to determine whether new development is in the “public” or “national” interest.  That step is a waste of time, in his view.  He would establish in law that energy infrastructure is in the national interest.  Additionally, Oren believes the government should take responsibility for coordinating the regulatory processes.

You can check out all of Oren’s work at www.manhattan-institute.org and follow him at @oren_cass.  He says to watch for some upcoming work on realistic options to address climate emissions.