US energy policy: Reading Donald Trump's dirty mind
ONES TO WATCH 2017 | With a preference for fossil fuels and a pledge to revitalise the coal sector, what impact will President Trump have on renewables in 2017, asks Richard A Kessler
The solar and wind industries don’t know what to expect from Donald Trump. The US president-elect took office on 20 January with no evident ideology or political direction, no precise blueprint for governing and little interest in the details of public policy. He says his main adviser on all issues will be himself — including on energy and climate change.
Both sectors want certain, predictable policy signals to guide them over the next four years. Instead, they are trying to make sense of Trump’s constantly evolving attitudes, myriad self-contradictions and freewheeling leadership style, in which he operates on gut instinct and forms his views largely through intuition, rather than deep analysis.
No presidential election winner in modern America has acted, talked or thought so differently than conventional politicians of his era. “We are in a unique and uncertain time,” Tom Kiernan, chief executive of the American Wind Energy Association, told a recent conference.
Trump’s stunning election win came as analysts forecast record solar and wind investments through 2021. GTM Research expects PV capacity will almost quadruple to 118GW by then, with wind installations rising from 76GW at the end of September to 115GW. The big caveat in what otherwise would be a bullish outlook for both energy sources is Trump.
He openly prefers fossil fuels, whose development he believes is the key to the US becoming an energy superpower — self-sufficient and a major exporter of crude oil, natural gas and their derivatives. He wants to use the additional revenue to help fund modernisation of the nation’s public infrastructure, and also aims to revitalise the coal industry.
The question is whether he will discriminate against cleaner sources either through the executive branch, or by working with the Republican majorities in both houses of Congress.
Trump has yet to clarify his position on renewable energy, having been on all sides of the issue. His America First Energy Plan barely mentions solar and wind, but says he will remove federal bureaucracy so “we can pursue all forms of energy. This includes... wind and solar energy — but not to the exclusion of other energy”.
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He dismisses solar as a poor investment, claiming the payback period is too long, and has long been critical of wind turbines, which he says are uneconomic and ugly-looking killers of millions of birds — especially those due to be built near his golf course in Scotland. Trump has also falsely claimed the industry was contributing to the US trade deficit by importing all of its turbines from Germany and Japan.
The president-elect has said he doesn’t want to subsidise wind, prompting concern he may target the investment and production tax credits (ITC and PTC), the primary financial incentives that drive development of solar and wind, respectively. Protecting them has been the top priority for both sectors since the new Congress convened in early January.
PTC and ITC
Analysts say any move by Trump to dilute or scrap the PTC and/or ITC ahead of schedule would be a tough sell to most lawmakers. The last renewal in late 2015 — for five years with a phase-down — was part of a massive bill that involved dozens of tax breaks across the economy popular with both parties. Republicans agreed to the extensions in exchange for lifting a 40-year ban on crude oil exports.
“Members of Congress on both sides believe that once you put something in the tax code, you shouldn’t in the next year totally change it,” says Christopher Mansour, vice-president of federal affairs at the Solar Energy Industries Association. “I think it unlikely they would have a separate piece of legislation that says, ‘We’re going to single out the ITC and you guys are going to get eliminated tomorrow’.”
Republican senator Charles Grassley of Iowa, who authored the legislation in 1992 that created the PTC and chairs the Senate Finance Committee that holds sway over tax policy, warned Trump to keep his hands off. “If he wants to do away with it, he’ll have to get a bill through Congress, and he’ll do it over my dead body,” he said.
The PTC pays $23/MWh, adjusted for inflation, for wind energy sent to the grid. Projects that qualify in 2016 will obtain the full benefit if on line by the end of 2020; falling to 80% ($18.40) in 2017, 60% ($13.80) in 2018 and 40% ($9.20) in 2019 (if in commercial operation by the end of 2021, 2022 and 2023, respectively).
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Solar projects eligible for the 30% ITC must begin construction by the end of 2019. In 2020, it will decline to 26% and in 2021 to 22%, before dropping to a permanent 10% in 2022.
Analysts say Trump won’t want to antagonise Republican lawmakers unnecessarily because they could block or water down some of his signature campaign promises. For example, he will need Congress to authorise spending to build a controversial wall along sections of the border with Mexico to keep out illegal immigrants.
He also needs Senate approval for 1,200 top-level executive appointees across the federal government, including his many controversial picks for cabinet positions.
Analysts believe it is unlikely that Trump would bypass legislators by ordering the Treasury Department to impose less favourable eligibility criteria for the tax credits. Presidents rarely involve themselves in minutiae of tax law, legal experts tell Recharge.
And an abrupt change in the rules would not only put at risk billions of dollars of private investment for future projects, but also factory and installation jobs nationwide.
Trump made blue-collar jobs a focal point of his campaign, and wind and solar are creating them faster than almost any other industry. They pay better than the national average and most can’t be outsourced. Trump, officials suggest, is ignorant about the enormous positive impact renewable energy has had on the economy.
“There is, for us, a fundamental opportunity if not an unprecedented need for us to educate the president-elect and his team about the fundamental strengths, the benefits, the importance of wind energy to consumers around the country, to rural America, to jobs and economic development in this country,” says Kiernan.
Helping fossil fuels
Rather than spend political capital and time to undermine the ITC and PTC, Trump will probably focus on coal and natural gas. “To me they are going to weigh on the playing field to make it easier for fossil fuels, rather than make it more difficult for renewables. That seems to be the way it is adding up,” says Angela Anderson, director of the climate and energy programme at the Union of Concerned Scientists.
On the international stage, he initially threatened to withdraw the US from the Paris Agreement, but later said he has an “open mind” about it. The US can give notice and exit without penalties in four years, or much sooner if it withdraws from the UN Framework Convention on Climate Change.
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At home, he wants to undo President Barack Obama’s climate regulations, dilute and/or rescind certain other environmental rules, facilitate access to resource-rich public lands and permits for pipeline infrastructure.
Trump says that Obama regulatory policies amount to “death by a thousand cuts” and he vows to end the Environment Protection Agency’s (EPA’s) “totalitarian tactics”.
His most visible target is the Clean Power Plan (CPP), Obama’s landmark effort to set a national limit on carbon pollution from existing power plants. It requires a 32% reduction in their emissions by 2030 (below 2005 levels) and every state to come up with a plan for doing so. Due to take effect in 2022, a federal appeals court blocked implementation while it heard legal arguments for and against it.
Trump has not said how he intends to attack the CPP. He has multiple options. The most likely is to ask the court, if it hasn’t issued a ruling by 20 January, to remand the rule back to his EPA, which would rewrite and eviscerate it.
Another is for the EPA to not seriously enforce it and water down compliance by states that oppose it. His administration could also decline to defend the CPP to see if it dies in court. If upheld, Trump has the option of instructing the EPA to write a new, weaker rule — a 12- to 18-month process. In the interim, he can appoint a sympathetic justice to fill a vacancy on the US Supreme Court, and see if a majority could strike the CPP down on a federal appeal.
Whatever fix Trump chooses using executive action, it could prove temporary, as his successor could rewrite EPA rules just as he intends. For a permanent solution, he would need Congress to enact legislation that precludes the EPA from regulating greenhouse gases. It’s unclear if all Senate Republicans would support amending the Clean Air Act or some other legislative manoeuvre.
But the CPP may be a moot point. Bloomberg New Energy Finance (BNEF) believes the US power sector will achieve the CPP’s decarbonisation goals regardless, based on market forces if the ITC and PTC remain in place, natural gas remains cheap, renewable and power storage technology costs keep declining, and electricity demand growth remains weak. The Sierra Club environmental group suggests compliance could occur as early as next year and certainly before 2021.
Neutralising the CPP would save utilities billions of dollars in compliance expense and allow some older power plants to remain open. Likewise, scrapping other environmental rules would reduce costs to explore, recover and transport coal and natural gas, making them more price-competitive with solar and wind in some states.
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Yet despite an improved bottom line, gas companies would be wary about boosting production to levels that Trump envisages, as this would depress prices and make some operations uneconomic. Ironically, more abundant supply of cleaner gas would lead utilities to burn more of it and less coal — a trend that is expected to continue.
“I don’t know anybody who is buying new coal plants,” says Mansour. “Utility executives and state officials realise that if not Trump’s administration, then the next one will regulate carbon.”
Likewise, corporate America will continue to decarbonise. “Regardless of what Trump does, we plan to keep buying more solar and wind energy,” says Kenneth Davies, director of renewable energy at Microsoft.
Trump’s desire to open millions of hectares of federal offshore and onshore lands to fossil-fuel development may not produce the bonanza he hopes, at least anytime soon, analysts say. Companies will probably be cautious due to pressure from environmental groups and shareholders, and a need to sustain the public trust.
Elsewhere, his still-vague proposal to significantly cut corporate tax rates would, if enacted, reduce the need for write-offs through tax-equity investments — a key source of capital for wind and solar developers. BNEF estimates that projects will require $56.2bn in capital during his first term. If he wants, Trump could also slash funding for federal research and development of alternative technologies, while maintaining or increasing it for fossil fuels.
A big unknown is whether Trump can work with his own party in Congress. Republican lawmakers aren’t going to give free rein to Trump, who as chief executive of his own company was accustomed to getting what he wanted and having the final word. They also answer to voters and view themselves as shrewd negotiators. This could create a combustible situation and limit what he wants to accomplish.
Some Trump backers suggest his views on renewable energy are not set in stone.
“I don’t think he is going to attack renewables. A lot of times with him being new to the political process he will make statements and after he does further research he may start to backtrack,” says Debbi Dooley, president of Conservatives for Energy Freedom and the pro-solar Green Tea Coalition. “As a conservative, I changed my mind when I investigated the facts. I think you will see Mr Trump go through a transformation with solar and clean energy.”
Others believe his administration will encourage states to facilitate adoption of a more decentralised electricity power structure, partly for national security reasons. This could potentially unleash distributed generation if enough regulatory barriers are removed.
Trump is also said to be open to federal investment in long-distance, high-voltage transmission lines that would carry energy from all sources. This would help ease a bottleneck that the wind industry says is limiting access to some of the country’s best resource areas.
ONES TO WATCH is Recharge’s exclusive series of insights into the trends, policies, companies and individuals that will shape wind and solar in 2017. The full series can be read online here