8 Responses to Under Obama, Dark Days Seen Ahead For Fossil Fuels
WASHINGTON -(Dow Jones)- Under President-elect Sen. Barack Obama, D-Ill., the fossil fuels industry may face “dark days ahead,” while alternative energy sectors are likely to flourish.
[Note to trillion-dollar fossil fuel industry: Waaaaah!]
Although it will take years to engineer and implement, an Obama administration energy and environment policy marks a tectonic shift for the nation. He would move the U.S. away from petroleum as its primary energy source and towards renewable energy, advanced biofuels, efficiency and low greenhouse-gas-emitting technologies.
Sen. Obama’s lynchpin policy is a climate change bill that would cap emissions such as carbon dioxide and auction greenhouse gas credits to encourage a fundamental transition away from high emitting industries to low-carbon alternatives. Obama said such a policy would be more aggressive than any other cap-and-trade system proposed.
As part of that policy shift, renewable energy, natural gas, plug-in hybrid vehicles, and advanced electricity transmission are forecast to receive a major boost. Sen. Obama has proposed using $150 billion from the emissions auction to fund such low-carbon alternatives over the next decade.
And to begin cutting emissions, the president-elect is targeting the fossil fuel industry. Companies such as ExxonMobil (XOM), ConocoPhillips (COP) and Chevron Corp. ( CVX) say they’re concerned about returning to policies enacted in the 1970s, including Sen. Obama’s proposals for a windfall profits tax and market intervention such as tapping the Strategic Petroleum Reserve.
“It’s pretty clear that if we repeat those mistakes again, we’re going to see some pretty dark days ahead,” said outgoing American Petroleum Institute president Red Cavaney.
Obama shifted his stance on offshore oil and gas drilling in the Outer Continental Shelf under pressure from $145 a barrel oil prices and $4 a gallon gasoline. But he’s largely against extensive new domestic petroleum production. Congressional Democrats could reinstate at least parts of a moratorium on such offshore drilling that expired at the end of September.
With oil prices falling to more than half levels seen in July, there will likely be less political opposition to a new ban. Some Capitol Hill watchers say the moratorium is likely to cover 50 miles off the coast and won’t include revenue sharing for the states.
The oil industry says for oil companies to tap domestic production quickly it needs access closer to the shore, and sharing the wealth is necessary to get state approval for exploration off their coasts.
It’s unlikely Obama will use all of his new presidential political capital to try and force a contentious greenhouse gas bill through Congress.
Actually, I’ll take that bet, minus the words “all of.”
But the president-elect is expected to start working piecemeal towards a climate change bill early in his tenure. A federal renewable energy mandate is a central piece of his policy to ax man- made contributions to global warming. Obama wants reductions of 25% by 2025, with a 10% standard achieved early in the next decade. A similar mandate has passed in the House, though it narrowly failed in the Senate. Democrats picked up several seats in the Senate, and with that, “the RPS is almost a certainty,” said Dave Hamilton, Sierra Club director of its Global Warming and Energy Program.
Southern utility companies, including Duke Energy Corp. (DUK) and Southern Co. (SO), have lobbied against a federal renewable portfolio standard, though some encourage state mandates.
Wind turbine manufacturers such as GE Energy, a unit of the General Electric Co. (GE), India’s Suzlon Energy (532667.BY) and Denmark’s Vestas Wind Systems ( VWS.OS), as well as solar firms such as Norway’s Renewable Energy Corp. ASA ( REC.OS), and U.S.-headquartered First Solar Inc. (FSLR) and Evergreen Solar Inc. (ESLR) would benefit under a renewable portfolio standard.
Sen. Obama – as well as Senate Majority Leader Harry Reid, D-Nev., and House Speaker Nancy Pelosi, D-Calif. – believe spurring the renewable industry would help the country recover from its current economic crisis.
The coal-fired power generation sector, one of the biggest emitters of greenhouse gases, will likely find the investment climate more difficult under stricter environmental regulations.
Longer-term, the president-elect said he plans to funnel federal money to pay for carbon capture and sequestration technology.
The coal industry, however, is concerned that Obama’s pursuit of stringent greenhouse gas laws could strangle the industry. Obama has said his cap-and- trade bill would encourage carbon capture and sequestration for coal-fired power plants. Yet he admits that without such technology, new construction of traditional coal-fired power plants
could face bankruptcy.
The National Mining Association, whose members include Peabody Energy Corp. ( BTU) and Consol Energy (CNX), said it feared Obama’s climate change policy could destroy the U.S. coal industry, “break(ing) America’s energy backbone.”
One of the real questions is how quickly Obama and congressional Democrats can move the country swiftly away from petroleum and coal use without damaging the economy. Obama contends a transition to a lower carbon economy will create up to 5 million jobs.
But it will also raise manufacturing, transportation, and material costs because of higher energy prices and put U.S. goods and services at a competitive disadvantage to economies that lack similar emission standards, such as China, India, Russia or the South American and Middle Eastern countries.
It’s also questionable whether the president-elect could pass climate change policy early in his tenure amid a focus on rescuing the U.S. economy from a deep recession.
Not questionable at all. Climate legislation wouldn’t kick in until a few years after the recession is over, in any case.
As the oil and coal industries may see their market share of energy production fall, the biofuels, natural gas and nuclear industries could grow.
For the biofuels market, next-generation fuels such as cellulosic and algae- based ethanol and biodiesel will benefit under Obama’s energy and environment policies.
Democrats have also warmed to the natural gas industry. The fuel emits half the greenhouse gas pollution that coal producers when conventionally burned, and the U.S. has massive domestic sources that wouldn’t require a major change in the sector’s transportation infrastructure.
Many Democratic leaders, including Obama, are open to proposals to convert a large portion of the nation’s vehicle fleet to run on natural gas.
And though Obama would try to change the current waste storage policy, a long- term expansion of the nuclear power industry is seen as essential to meet the climate change goals propounded by the President-elect.