Policies Come And Policies Go, But The Market Is In The Driver’s Seat

Emily Pickrell, UH Energy Scholar

Dramatic changes in energy policy have become signature moves for an incoming administration. 

Former President Donald Trump began his term by issuing presidential approval of the Keystone XL pipeline, a contentious project that had not received go-ahead approval under Obama. Under Biden, Keystone XL is back off the list.

Trump also made much fanfare of his support of coal, loosening up coal emissions standards in 2019 that had been established in the Obama administration. The U.S. Court of Appeals for the D.C. Circuit struck down the Trump rule on his last day in office, and Biden is expected to enact an even stricter rule.

This same back-and-forth is also true of fuel efficiency: In 2020, Trump moved to weaken the fuel efficiency standards established by Obama, lowering the annual required efficiency increase for car manufacturers from 5% to 1.5%. Biden has already told his agencies to review the Trump decision.

Yet while these politically-motivated moves appear to be driving our energy policy, lurching first one way, then another, energy researchers say the reality is that markets and emerging technologies are both pushing towards a carbon-free future, regardless of U.S. domestic energy policy.

“That whiplash of trying to switch back and forth on these policies – it generates a lot of fanfare, but in the meantime, the market moves on to where the opportunities are,” said Ramanan Krishnamoorti, a chemical engineer and chief energy officer at the University of Houston.

Take coal, for example. The continued decline of the coal industry, despite former President Trump’s efforts to help out by loosening environmental regulations, well illustrates the limitations of government intervention. The sector lost 12,000 jobs and 10% market share during the Trump administration, a result of fierce competition from cheap natural gas prices and from solar and wind power’s emerging viability as an inexpensive, clean alternative.

“A trajectory set in that had to do with the marketplace and not regulations,” Krishnamoorti said. “The market said coal is no longer competitive.”

Biden’s decision to officially revoke the presidential permit for the Keystone XL pipeline has likewise been praised by environmentalists as moving the country closer to a fossil free future.

“This is a massive movement victory of a 10+ year fight thanks to millions of people demanding an end to fossil fuels, and a signal that Biden is following through on his promises to protect people and planet,” environmental group Common Dreams wrote in a January 20, 2021 reaction to Biden’s decision. 

Yet how influential is such a big ticket political moves in helping the U.S. become less of a carbon emitter? Not so much, according to Ed Hirs, an energy economist at the University of Houston.

“Unless you cut off the supplies all the way around the world, you are not going to cut U.S. consumption of oil,” Hirs said, noting that the Canadian crude will instead by transported by rail, which has more environmental hazards. “What we don’t buy from Canada, we will just import from Mexico, from Venezuela, from Saudi Arabia, rather than from our friend and ally, Canada.”

It’s a good example of a policy being credited for something – in this case, reducing reliance on fossil fuels – when it does no such thing.

Fuel efficiency standards have also undergone this same tug-of-war in the last five years. Under President Obama, new fuel standards were established that mandated a five percent annual increase in efficiency. In 2020, Trump’s Environmental Protection Agency rolled back the standard, replacing it with a 1.5 percent increase.

And while Biden’s new administration has not officially announced yet another change to this policy, it has made it clear that fuel efficiency – and a transition to electric cars – will be one of its highest priorities.

Incoming Transportation Secretary Pete Buttigieg talked about the importance of the market in driving this fuel-efficient behavior in his recent confirmation hearing, acknowledging that the transportation sector is the biggest contributor of US sectors to greenhouse gases.

“American companies, American workers, should be leading the way, and producing, for example, electric vehicles and the most efficient vehicles on the road, and we need to do everything we can to support that, as part of a partnership with other agencies in the administration,” Buttigieg said.

The market has been quick to indicate that it is ready to fill this gap.

General Motors
GM
has already announced that it plans to sell only zero-emission cars and trucks by 2035. It’s the kind of news that could never come in response to Biden – rather, it is the end product of an industry that has spent the last five years working on where it sees the future, which is electric.

“Everyone in industry understood that this was a brief interlude, that the Trump administration was trying to give consumers a break in the march to a low-carbon future,” Hirs said. “The industry soldiered on, developing carbon capture and electric vehicle technologies. It is not that they faced headwinds in the Trump administration, it is now that they have some tailwinds.”

It’s a good reminder that while policy can encourage change, politicians can and will come and go. More important is the way the energy transition itself is already building its own momentum, and it’s markets and innovation that will be the deciding factor on how that transition occurs.

Emily Pickrell is a veteran energy reporter, with more than 12 years of experience covering everything from oil fields to industrial water policy to the latest on Mexican climate change laws. Emily has reported on energy issues from around the U.S., Mexico and the United Kingdom. Prior to journalism, Emily worked as a policy analyst for the U.S. Government Accountability Office and as an auditor for the international aid organization, CARE. 

UH Energy is the University of Houston’s hub for energy education, research and technology incubation, working to shape the energy future and forge new business approaches in the energy industry.