Bureaucrats are remaking the energy economy, not necessarily for the better
The Obama administration is determined to transform the energy economy in its last year in office, and now the White House is calling in reinforcements from our neighbors to the north. Last week, President Barack Obama made a joint announcement with Canadian Prime Minister Justin Trudeau that the two countries will cooperate on the newest phase of greenhouse-gas-emissions reductions: oil and gas operations.
The initiative is part of a strategy to satisfy promises the president has made on the international stage. At the 2015 Paris Climate Conference, the president committed the United States to reduce its greenhouse-gas emissions by 26 to 28 percent below 2005 levels. With all the existing and proposed regulations combined – including rules for fuel economy, power plants, landfill standards, energy-conservation requirements and government-energy-management commitments – we’re still roughly a third short.
Now, in a separate joint agreement with Canada, the president has pledged to reduce oil and gas emissions 40 to 45 percent below 2012 levels by 2025.
Methane emissions account for 10 percent of annual domestic greenhouse-gas emissions. Nearly a third of that methane comes from oil and natural-gas systems, through the industrial processes that get these fuels from the ground to the end user. This new regulatory effort targets that narrow wedge of emissions and, if successful, would reduce total domestic greenhouse-gas emissions by 1 percent.
To be clear, there’s room for improvement. Methane is the largest emissions source for the industry, accounting for more than 80 percent of all greenhouse-gas emissions from oil and natural-gas systems. That’s a problem for the industry. Methane is the primary component of natural gas and is a useful fuel. Losing methane to the atmosphere doesn’t just contribute to greenhouse gas emissions; it represents lost profits for the industry.
The Environmental Protection Agency has started the process to develop regulations for these existing systems, after having proposed parallel regulations for new sources last September. If that proposed rule is any indication, the EPA will issue technology requirements that the industry must deploy as part of its well operations. The industry has responded that the rule will make it more expensive to develop resources; extending that regulatory umbrella to existing operations is sure to do the same.
But the industry keeps making progress. Innovations in areas like detection technology, well-completion techniques, and tank and storage components continue to help the industry see more profits and emit less methane to the environment. Even in the face of stubbornly low prices for oil and gas, the industry keeps innovating new solutions to reduce its emissions profile.
That might be the point. Oil and gas development in North America has transformed the global energy economy, shrunk the power of OPEC, checked Russian aggression, ignited economic growth and opportunities in the developing world, improved the energy security of our trading partners and helped bring about bigger reductions in greenhouse-gas emissions than any federally imposed regulation or mandate. Our oil and gas industry is the most sophisticated on the planet.
Cutting-edge investment can’t continue if the administration keeps finding ways to increase costs. Prices for oil and gas are too low to sustain the kind of reinvestment needed to keep these improvements coming. If bureaucrats continue to burden the industry with new regulations and odd fees like the president’s proposed $10.25 tax per barrel of oil, we might lose out on further gains.
If the administration wants to pursue emissions reduction on behalf of eager environmental interests, the fossil-energy abundance created by the recent boom is at best an inconvenience. Government involvement in the energy sector has reached the point at which bureaucratic decisions – not the market – determine the fate of technologies, fuels and customer preferences. To make current alternatives to fossil energy more attractive means making those fossil fuels more expensive. The true result here is a less efficient and productive oil and gas sector at the very time that it’s creating jobs and securing the energy future.
If the administration were more serious about reducing greenhouse-gas emissions than it is about reshaping the energy economy, it would identify the lowest-cost emissions and tackle those first. Instead, the administration is putting belts and suspenders on emissions-control policy, imposing a complex regulatory structure and technology mandates on a multitude of industries, with a particularly exacting focus on coal, oil and fracked natural gas.
This isn’t an emissions-control strategy; it’s an arrogant plan to make the energy economy conform to the political vision of an ambitious environmental movement.
