A better deal

With the good usually comes the bad. As reported here last week, much good has occurred for the oil and gas business in the first 18 months of Donald Trump’s presidency. Most of it results from relaxation of a regulatory squeeze applied by the prior administration.

While good elements of Trump’s energy program far outnumber the other kind, the bad ones fit a troubling pattern.

Committed to RFS

Trump, for example, is too committed to the Renewable Fuel Standard, a statutory monstrosity enacted for reasons no longer valid. Grain ethanol has a firm share of the vehicle fuel market and won’t lose it if mandates cease. But the ethanol industry forever wants more and cares little about the injustice of regulation with which compliance can be impossible. Last month, the Trump administration signaled its readiness to answer ethanol-industry complaints about waivers from blending requirements for small refiners by making refiners without waivers make up the difference. Earlier this year, against objections from engine manufacturers and oil groups worried about misfuelling, it approved year-round sales of gasoline containing 15 vol % ethanol.

This is part of the pattern. Trump helps his backers. By trying to help ethanol interests and troubled refiners at the same time, his administration turns the RFS into a political daisy chain instead of fixing it.

The administration also wants to insulate the nuclear and coal businesses from markets. The Department of Energy last fall asked the Federal Energy Regulatory Commission to restructure electricity rates to help coal and nuclear plants facing retirement. FERC declined. Now, the DOE proposes to make grid operators buy electricity from distressed coal and nuclear plants at administered prices.

The other part of the pattern is the deal-making with which the Trump administration frames its many initiatives. Market manipulations favoring for the ethanol, coal, and nuclear industries fulfill campaign promises, which are political deals. Trump keeps his campaign promises.

To the oil and gas industry’s peril, he conducts foreign policy the same way. Trump makes clear that his blitz of tariffs aims at pressuring other countries into trade deals favorable to the US. But the brinksmanship provokes retaliation, which raises prices of steel the industry needs and probably will close markets for exported oil. It also creates the threat of an economy-wrecking trade war. This is a dangerous way to drive a deal.

Trump’s penchant for deal-making will bear on one of his early triumphs—not necessarily for the worse. When he set in motion procedures for withdrawal from the Paris Climate Agreement, the president held open the possibility of renegotiation. Leaders of other countries probably don’t welcome the prospect. Many of them win domestic political points from shaming the US for its climatological heresy. And while the US refuses to participate, they have a scapegoat for failure to meet their own goals.

If negotiation did somehow reopen, two possibilities would emerge—one bad for the industry and one good. The bad one would be minor adjustments giving the administration an excuse to reconnect with the Paris Agreement. Trump then would face pressure to reimpose much of the overregulation of energy he commendably has reversed.

The constructive option would be genuine renegotiation hospitable to basic questions. One question that needs an airing is the agreement’s premise: that greenhouse-gas emissions can be calibrated to globally averaged temperature with precision sufficient for effective policy-making. Another question would address the Paris Agreement’s politically unsustainable approach: Assume the worst; demand sacrifice; hope it works.

Policy needs better

Policy-making for energy and climate need better than it lately has received. Genuine renegotiation of the Paris Agreement, heedful of all sides in the scientific debate, would represent improvement. Token renegotiation, undertaken to score a deal, would promise only higher energy costs.

In a country forced by its president to contemplate the economic pain of trade war, no one should welcome a deal like that.