Most Americans support the conceptual notion of moving away from fossil fuels toward a society that runs on 100% “clean” energy. Everyone wants to leave a legacy of clean air, clean water and an otherwise idyllic society to the generations that come after us. That impulse seems to be programmed into our genes.
Once that notion is accepted, though, the question then becomes how is it possible to make this energy “transition” that has so permeated our news media over the last few years? It is one thing to do what Al Gore and others do, preaching on the evils of climate change and glories of renewables in religious terms designed to frighten the masses into accepting their apocalyptic predictions. And whose timelines always seem to shift farther out into the future every time one of those deadlines has come and gone and we are all somehow still alive and well. It is another thing to roll out massive policy proposals backed by political neophytes like Alexandria Ocasio Cortez and cynical veterans like Massachusetts Sen. Edward Markey who propose economy-killing mass changes to our ways of life with price tags of $90 trillion that we do not and never will have.
But it is another thing still to try to plan for and deal with this “transition” in ways that are possible in the real world and that actually make logical and economic sense. Move too slowly, and CO2 levels in the atmosphere rise to higher-than-necessary levels; move too quickly before truly scalable, cleaner energy alternatives really exist, and risk economic calamity with massive negative consequences for every member of society.
Critics of President Donald Trump argued that he was moving too slowly on climate change-related issues, implementing policies designed to spur America’s own oil and natural gas production in a largely-successful effort to create a higher degree of energy security. Yet, during his term, America’s carbon dioxide emissions declined further and at a more rapid pace than any other developed nation on earth on both an absolute and per capita basis.
At the same time, U.S. levels of air pollution also declined, and America’s waterways became cleaner as Trump’s Environmental Protection Agency focused on reducing actual pollution sources instead of obsessing over carbon dioxide. That all happened despite the fact that Trump pulled the United States out of participation in the Paris Climate Accords and canceled a wide array of heavy-handed, command-and-control regulatory actions by the EPA and other federal agencies.
Despite these clear positive results, the new administration of Joe Biden and Kamala Harris contends that the Trump approach was all wrong and began to take action to return the country to the centralized regulatory approach that characterized the Obama/Biden administration’s years in office. Not content to rely on Congress and the regulatory processes to undo the free market, light-handed strategy of the Trump years, the new president issued two major executive orders during his first 24 hours in office:
- One repealing the cross-border permit for the Keystone XL pipeline project; and
- Another implementing a moratorium on new oil and gas-related leasing on federal lands and waters
President Biden also moved quickly to reverse Trump’s removal of the United States from participation in the Paris Climate Accords and re-started negotiations of another deal with Iran. Both moves will have major implications related to U.S. energy policy and security.
These initial moves are just the beginning. Once the administration is fully staffed by its political appointees, we can expect renewed efforts to revive Obama/Biden-era policies like new federal regulations governing methane emissions, efforts to restrict hydraulic fracturing, and another attempt to vastly expand the EPA’s regulatory authority over the Waters of the United States.
If you are thinking that each and every one of these policy choices will have the impact of increasing the cost of energy in the United States and slowing economic growth, you are correct. But what you have to understand is that the Biden people consider those outcomes to be features of their plan, not glitches.
The climate alarmist community has long considered economic growth and the prosperity it creates to be enemies of nature. These quotes from a recent speech by Jon Erickson help to illustrate this mindset:
“The Intergovernmental Panel on Climate Change in their Fifth Assessment, have 116 mitigation scenarios with a chance of staying below the 2 degree Celsius threshold. All of those scenarios assume 2-3% GDP growth rates,” says Jon Erickson, an ecological economist at the Gund Institute for Environment in Vermont, adding that this implies doubling the global economy by somewhere around 2050.
These scenarios rely not just on switching to renewables but also on the large-scale extraction of massive volumes of carbon from the atmosphere using as-yet unproven technology, which Erickson describes as “wildly unrealistic.”
“None of those models and the IPCC community even bother simulating a scenario where the global economy contracts, stabilizes and maybe even degrows,” Erickson says. “Yet that’s probably the one realistic scenario that would significantly affect greenhouse gas emissions.”
Now, never mind that lack of economic growth inevitably leads to higher rates of unemployment, poverty and human deprivation, most severely impacting the poorest among us. To the climate activist community, that’s all fine because it means that human emissions of carbon dioxide also go down. Or at least, that’s the theory that their climate models promote.
Once you understand this central aspect of the climate alarmist mindset, their policy choices begin to make sense when considered within that context. As well, once you realize that basically 100% of Biden’s political appointees share this mindset, the policy choices already made and the even more draconian choices to come will also begin to make perfect sense when considered through the lens of that defining worldview.
This central anti-economic growth belief – which also happens to be the defining belief of the “Green New Deal” – forms the very foundation of the Biden/Harris energy agenda.
Keystone XL Pipeline – the Energy Political Football of the
One of the Democratic Party’s long-running criticisms of President Donald Trump over the past four years has centered on allegations that his conduct of foreign policy often had the impact of alienating America’s allies. On his first day in office, new President Joe Biden risked doing exactly that with his executive order canceling the cross-border permit for the northern expansion of the Keystone XL Pipeline upon assuming office.
Keystone XL has presented politicians in Washington, D.C. with a plum opportunity to play political football since the early days of the Obama/Biden administration. It is, in fact, the energy political football of the 21st century.
Former President Barack Obama and his officials spent the better part of eight years currying favor with the leftwing anti-fossil fuels lobby by going to extraordinary lengths to constantly delay the project under specious reasoning that it would harm the environment. Meanwhile, President Donald Trump was able to gain support with oil and gas industry interests by taking immediate action upon assuming office four years ago to do what he could to remove roadblocks to the project’s completion.
But despite the best efforts of Trump and his administration, the project remained incomplete as he left the office to Mr. Biden at noon on January 20. The incoming president no doubt thought that a quick cancellation of Keystone’s permit would be a low-hanging fruit means of pleasing one of his party’s most powerful constituencies, and so did most observers. But that thought process was interrupted just prior to Biden placing his signature on the dotted line when Reuters reported that the Canadian province of Alberta said it would seek damages from the U.S. should Biden follow through on his promise.
If ultimately completed, Keystone XL would benefit Alberta and its oil industry by transporting huge volumes of the heavy crude produced in the Province’s oil sands to U.S. refineries located along the Texas and Louisiana gulf coasts. Alternative means of transportation, such as moving the crude to the Pacific Coast via the Trans-Mountain Pipeline, which the Canadian government took over in 2018 at a cost of $4.5 billion, are less efficient and more costly, as well as more impacting on the environment. Obviously, the completion of Keystone XL would benefit Alberta’s economy and create additional jobs for the Province.
Faced with Keystone XL’s cancellation, Alberta Premier Jason Kenney reached out to Canadian Prime Minister Justin Trudeau to urge him to appeal to Biden immediately. “This is the 11th hour, and if this really is the top priority, as it should be, then we need the government of Canada to stand up for Canadian workers, for Canadian jobs, for the Canadian-U.S. relationship, right now,” Kenney told a news conference. Kenney also stated that his government has retained legal counsel and believes it would have a strong case under various international trade agreements, such as the USMCA, to seek damages should Biden effectively kill Keystone XL by canceling its federal permit.
In what was a futile effort to head off Biden’s decision, Keystone XL owner TC Energy said that it would go to extraordinary efforts to reduce the pipeline’s emissions footprint. As reported by the National Review, the company promised to make efforts to ensure the entire project is powered through “renewable” energy by 2030, saying it would take steps to acquire renewable power for its entire network.
TC Energy also promised to use union labor, pointing to the fact that it reached a deal with four labor unions last August to construct the northern expansion of the system into Canada. “Not only has the project itself changed significantly since it was first proposed, but Canada’s oil sands production has also changed significantly,” Canada’s ambassador to the U.S., Kirsten Hillman, said in a statement. “Innovation will continue to drive progress.”
But, the pushback from Canada fell on deaf ears for the incoming new administration, and President Biden issued his executive order within 24 hours after taking office.
The question that too few in the news media have asked the new president is, why? Why would a president who likes to portray himself as a champion of the environment move to cancel a pipeline that has pledged to turn itself into America’s first all-renewable energy interstate/international pipeline system? Other than a simple raw exercise in political power designed to impress one of the Democratic Party’s most loyal and powerful interest groups, the move makes little sense. It also shows how dominant the anti-fossil fuel lobby has become in recent years over one of that Party’s formerly powerful interest groups, organized labor.
Reacting to President Biden’s decision, Thomas Pyle, President of the American Energy Alliance, put it this way, “The Keystone pipeline is nearly completely built and an important link for North America’s economic security. The decision today to rescind the permit makes it crystal clear that Mr. Biden stands with the extreme green lobby and not average Americans.”
In a press release issued the following day, TC Energy, the owner and operator of the Keystone XL System reiterated a series of strong environmental and labor-related pledges in a last-ditch attempt to head off the looming presidential order to cancel its permit. Among those commitments were the following:
The Keystone XL System would achieve net-zero emissions in its operations by the year 2023;
- While the net-zero goal would be achieved largely through trading in renewable energy credits, the system would become fully powered by new investments in renewable energy capacity by 2030;
- A promise to “spur an investment of over $1.7 billion in communities along the Keystone XL footprint creating approximately 1.6 gigawatts of renewable electric capacity, and thousands of construction jobs in rural and Indigenous communities;”
- The company also committed to “working with union labor in the U.S. and Canada,” pointed to the fact that “Keystone XL has also signed a Memorandum of Understanding (MOU) with North America’s Building Trades Unions (NABTU) to work together on the construction of TC Energy owned or sourced renewable energy projects.”
“Since it was initially proposed more than 10 years ago, the Keystone XL project has evolved with the needs of North America, our communities and the environment,” said Richard Prior, President of Keystone XL. “We are confident that Keystone XL is not only the safest and most reliable method to transport oil to markets, but the initiatives announced today also ensures it will have the lowest environmental impact of an oil pipeline in terms of greenhouse gas emissions. Canada and the United States are among the most environmentally responsible countries in the world with some of the strictest standards for fossil fuel production.”
So, you might ask, why would a Democratic Party President move on his very first day in office to cancel such an environmentally responsible project committed to investing $1.7 billion in new energy capacity projects, one that would employ as many as 10,000 union workers to boot? It’s a valid question, but the answer is pretty obvious: Opposition to Keystone XL has been one of the main goals of the anti-fossil fuel lobby for a decade, and no promises made now will change that fact.
Yes, TC Energy has been able to build out the vast majority of the overall Keystone XL System and place it into service in the U.S., but the northern extension into Canada facilitating movement of oil sands crude into the U.S. is, for the environmental left, a bridge too far (even though, in a bit of irony, the cross-border portion of the line is already constructed and in place).
Maybe the Workers Should Learn to Code
In a statement reminiscent of Barack Obama’s famous admonition that West Virginia coal miners losing their jobs should “learn to code,” Transportation Secretary nominee Pete Buttigieg stated during his confirmation hearing the following week that union workers who have been or expected to be employed on the Keystone XL Pipeline project should simply get other jobs, saying “…we’re very eager to see those workers continue to be employed in good-paying union jobs, even if they might be different ones.”
Thus does the future cabinet member reflect the Biden/Harris administration’s indifferent attitude toward the domestic oil and gas industry in general and this key $8 billion energy infrastructure project specifically. News of the cancellation of this cross-border permit was by and large treated as sort of a business-as-usual matter, but it is, in fact, an extraordinary act of executive fiat that has few peacetime precedents in American history.
The Keystone XL project represents an overall $8 billion investment by TC Energy, the company which owns and operates the Keystone Pipeline System that moves large volumes of crude oil throughout the middle section of the United States and southern Canada. Several hundred miles of the planned 1,200 mile Keystone XL expansion have already been constructed and placed into the ground, including, ironically, the section of the line that crosses the U.S./Canadian border. Upwards of $3 billion of that overall $8 billion investment have already been committed and now represents a sunk cost at the behest of a new president, a significant precedent for any administration to set.
President Biden’s decision also placed thousands of union jobs at risk, representing $2.2 billion in lost wages. Keystone XL already employs about 2,000 workers, including members of the International Brotherhood of Electrical Workers, the United Association of Journeymen and Apprentices, the Teamsters and other major unions. All told, the plan for full construction of Keystone XL would employ as many as 10,000 union workers through its completion.
Gone in addition to those jobs will be the $1.7 billion TC Energy planned to invest in real, actual new clean energy capacity between now and 2030 to provide all of the power the Keystone XL would consume, along with the thousands of direct jobs that investment would produce. According to a fact sheet from TC Energy, which sponsored the project, indigenous communities along the pipeline’s corridor will also be hard hit, “Indigenous communities lose hundreds of millions of dollars, including more than $1 billion in intergenerational opportunities for equity ownership in KXL that will help them fight poverty and build schools, hospitals, and other essential services.”
A New Status Quo for the Pipeline Industry
Some, like Anthony Shaw, CEO and founder of Progeneration Energy, view the Biden decision as part of a new status quo in the U.S. In an email sent to me, Mr. Shaw said, “The Keystone project highlights a major change in the way we assess the viability of energy projects and final investment decisions. We used to operate under the guise that if nails had made it into the ground, a project was likely to be finished. That is simply not the case anymore, and no project is ‘too far along’ to be at risk of cancellation. Energy companies are going to have to take a deeper look at the viability of projects moving forward.”
Among those who are no doubt pleased with Biden’s decision to cancel a pipeline that would bring hundreds of thousands of barrels of heavy Canadian crude into the United States to be refined would be nations in the Middle East, along with Venezuela and Mexico, whose own heavy oil production will be purchased by U.S. refiners to fill the void. Canadian Prime Minister Justin Trudeau, however, was not pleased at all, raising the matter in a call he conducted with President Biden. The White House statement about the call said Biden acknowledged “Trudeau’s disappointment regarding the decision to rescind the permit for the Keystone XL pipeline, and reaffirmed his commitment to maintain an active bilateral dialogue and to further deepen cooperation with Canada.” That, plus $2.15 will get PM Trudeau a cup of coffee at Starbucks.
If Mr. Shaw’s vision for the future is correct, it is indeed a troubling one for the pipeline business. Certainty and consistency in the legal and regulatory arenas rank among the key factors that have made the United States such a comparatively attractive province to attract major energy investments. Biden’s fiat decision to simply strand billions of dollars of already-deployed investments in Keystone XL erodes that certainty. Green energy advocates who are celebrating this decision related to Keystone XL would be well-advised to consider that the precedent it sets could easily be applied to major solar and wind investments by future presidents.
Just as President Donald Trump focused on keeping the promises he made during his 2016 campaign, Joe Biden will go about keeping some of his own. Elections have consequences, and the cancellation of a key piece of America’s first truly all-renewable oil pipeline system will become one of the consequences of the 2020 presidential election.
Biden’s Leasing Moratorium – a Surprise to New Mexico Public Officials? Really?
Officials in the state of New Mexico professed to be taken aback by President Joe Biden’s day-one decision to impose a 60-day moratorium on all oil and gas-related leasing and permitting actions on federal lands. It is a decision that will have major ramifications on the state budgets of New Mexico and other Western states, especially given that it was almost immediately extended by the Department of Interior to last for 12 months.
In September 2018, I wrote about the half-billion-dollar windfall New Mexico had just received during the course of a single sale of oil and gas leases on federal lands in the state. Those federal leases lie in the segment of the Permian Basin that spills over from Texas into the southeastern portion of New Mexico, part of the Delaware Basin play area that has become the hottest oil play in North America since 2016.
Like other oil and gas-producing western states, vast swaths of lands in New Mexico are owned by the federal government, including heavy concentrations of the lands in the southeastern part of the state and in the northwestern corner that is home to a great deal of natural gas production. Although the state cannot collect its severance tax on production from those lands, it does enjoy a 50% share of the royalties that the federal government assesses on that production, ranging from 12.5% to 16.667% of the gross value of the oil or gas. New Mexico’s collections of that share of federal royalties and proceeds from lease sales annually outpace all the other Western states.
Some New Mexico officials who supported the Biden presidential bid jumped to try to defend themselves by saying they didn’t anticipate the new president would issue such a ban. Such protests ring rather hollow given that these officials most assuredly did understand that Biden plans to eventually move ahead with his promised fracking ban on federal lands, which would, for all intents and purposes, have the same effect. After all, virtually 100% of the drilling activity in southeast New Mexico targets the various shale formations in the Delaware Basin, and all shale wells require a frac job in order to be productive. Thus, a ban on fracking is the same thing as a ban on leasing and drilling.
New Mexico’s Democratic Governor, Michelle Lujan Grisham, said through a spokeswoman, “Certainly we all understand the critical importance of this industry to New Mexico’s bottom line and of the imperative to diversify our state economy and energy portfolio.” And that’s all fine. But the reality is that she and her administration can strive to “diversify” the state’s energy portfolio all they want, but the state will still lose hundreds of millions of dollars every year should the Biden administration succeed in shutting down her state’s oil and gas business.
To be clear: Neither the state nor the federal government collects any royalties on solar installations or wind farms. There is no severance tax to be collected from those alternative forms of energy with which to fund the state’s schools or hospitals or to sustain the free in-state college tuition program that Gov. Grisham herself established in 2019 thanks to New Mexico’s new Permian/Delaware Basin windfall. Moreover, many states actually subsidize wind and solar through tax abatements and credit programs, making them a net-negative to the state budget. Diversifying the portfolio is a noble goal, but Gov. Grisham and the New Mexico legislature will still have to find other ways to try to balance the state’s budget as required by state law.
These are just some of the actual potential costs of the Biden assault on the New Mexico oil industry. They are the things that happen in the real world, as opposed to the fantasies pushed by many politicians.
Steve Pearce, the former New Mexico congressman who now serves as Chairman of the state’s Republican Party, pointed to another certain cost of this Biden policy action. “I think we’re going to see companies choosing not to invest in New Mexico and take their jobs and drilling to Texas just three miles away,” Pearce said. “They can just scoot across the border where they don’t have federal lands.”
Pearce is absolutely correct. Big Permian drillers like Diamondback EnergyFANG, ChevronCVX, Oxy, ExxonMobilXOM and many others have lease holdings in both the New Mexico and Texas sides of the greater Permian region. It will be a fairly simple thing for them to focus most of their coming drilling programs onto the Texas side for the next four years should Biden follow through with his fracking ban or continue to further extend his leasing/permitting ban on federal lands.
With his state facing a budget crunch of its own, thanks to the impacts of the COVID-19 pandemic, Texas Governor Gregg Abbott will no doubt be only too happy to welcome the increased oil and gas activity to his state and the higher revenues it will produce. Meanwhile, the people of New Mexico, who gave President Biden a 55% margin in the 2020 election, are no doubt confused about what it was they actually voted for.
Again, elections have consequences. For New Mexico and other oil and gas producing states in the Intermountain West, the consequences of the 2020 election are only now starting to be understood.
Policies Driven by a Myopic, Purely Ideological Mindset
Now, let’s go back and re-visit President Biden’s decision to cancel the cross-border permit for the Keystone XL Pipeline one more time, and examine the potentially enormous, broad ramifications not just for pipeline operator TC Energy, but for the economy as a whole and of the industry in general in the United States.
Virtually lost in the media discussion about the decision is the fact that the president took his action to cancel this $8 billion project despite the fact that he made no finding that TC Energy was in violation of any regulation, permit or law of the United States of America. Instead, the order revokes the permit because it, in the opinion of the Biden administration, “disserves the U.S. national interest” of dealing with climate change, as laid out in the first paragraph of the order, which states, in part:
“It is, therefore, the policy of my administration to listen to the science; to improve public health and protect our environment; to ensure access to clean air and water; to limit exposure to dangerous chemicals and pesticides; to hold polluters accountable, including those who disproportionately harm communities of color and low-income communities; to reduce greenhouse gas emissions; to bolster resilience to the impacts of climate change; to restore and expand our national treasures and monuments; and to prioritize both environmental justice and the creation of the well-paying union jobs necessary to deliver on these goals.”
Thus, the president cancels an $8 billion major infrastructure project based solely on claims that Keystone XL would be bad for the environment and thus inhibit the nation’s ability to fight climate change. But such claims are, at best, misleading:
- As I detailed earlier, Keystone XL, as planned, would be the safest and most environmentally responsible interstate pipeline ever constructed in the United States. TC Energy had pledged to invest $1.7 billion in the development of major new renewable energy capacity that not only would be used by 2030 to fully power the pipeline itself but also could have been shared by communities all along the pipeline’s route. Thus, the cancellation of the permit is a net negative for the environment.
- The heavy Canadian crude that would come into America on Keystone for refining will instead be transported on rail or in trucks, both far more polluting and dangerous methods of transporting petroleum products. Without any question, a big net negative for the environment and safety.
- Because Canada lacks the necessary refining capacity and is a net exporter of crude oil, the heavy Canadian crude that won’t be coming into America by any means will instead be transported on Canada’s Trans-Mountain pipeline system. There it will move across the Rocky Mountains to the West Coast, where it will be put on ships bound mainly for China and other Asian nations whose emissions regulations over their refining industry pale in comparison to those in the U.S. Another big net negative for the environment and safety.
- The transportation of Canadian crude into the U.S. by rail lines skyrocketed by 192% between 2015 – when Barack Obama first denied TC Energy its cross-border permit – and 2019. The president’s cancellation of the cross-border permit will only make that number continue to rise.
In the short run, President Biden’s decision produces very negative consequences for TC Energy and for the environment. In the longer run, it has potentially enormous negative consequences for the entire economy.
From the initial planning phase to installing the final link of pipe, pipelines like Keystone XL represent decade-long, multi-billion dollar infrastructure projects. In order for a company and its investors to justify funding final investment decisions for long-term projects such as this one, they must place a high premium on confidence that they understand the regulatory and legal requirements they will have to meet over the full course of the project term, which in the U.S. system could span three separate presidential administrations. If Biden’s order stands, it has the effect of damaging any such level of confidence.
TC Energy had already spent more than $3 billion of its planned $8 billion investment in Keystone before Biden’s order. The company had already constructed several hundred miles of the pipeline based on its faith that the federal government of the United States of America would not renege on its word. But on his first day in office, Joe Biden did renege without making any finding of illegality or permit violation.
There is, in fact, a strong case to be made that the president canceled this major infrastructure project simply because key donors to his campaign and political party did not want it to be built. That’s a dangerous thing in this country, even for those who today are celebrating Keystone XL’s apparent demise. Because if a major project like Keystone XL can be canceled by the stroke of a president’s pen, there will now be little preventing some future president to use similarly suspect reasoning to cancel major investments made by other companies at the behest of his or her own supporters and donors.
Historically, American businesses have been able to get the big things done in large part because the U.S. legal system was stable and predictable over long periods of time and across presidential administrations. A business could fund multi-billion dollar investment decisions based on the faith that the federal government would honor permits that have been issued, even in previous administrations. President Biden’s decision on Keystone XL does that longstanding reality great harm.
But to the climate alarmist community, whose anti-economic growth mindset dominates the political appointee class of the Biden/Harris administration, this is all fine because it helps to limit the amount of carbon dioxide going into the air, at least if their faulty reasoning is to be accepted as legitimate.
This is the myopic, purely ideological mindset that produced these two executive orders and their massive implications, and it is the mindset that now stands to drive U.S. energy policy for the next four years. The consequences for the average American and the overall economy will be enormous and potentially tragic. 2024 cannot get here soon enough.
About the author: David Blackmon is the Editor of SHALE Oil & Gas Business Magazine. He previously spent 37 years in the oil and natural gas industry in a variety of roles — the last 22 years engaging in public policy issues at the state and national levels. Contact David Blackmon at [email protected]