John Podesta: Democrats will have to ‘pick their shots’ on energy


Two things to start: More good vaccine news and markets are buoyant. Saudi Aramco, the world’s most valuable oil company, wants to sell billions of dollars worth of bonds to shore up its balance sheet and keep paying its hefty dividend. A sign the kingdom isn’t too confident about oil prices?

An interview with John Podesta, a Washington insider who ran the Clinton White House and advised Barack Obama’s, is our first note. He weighs in on what Joe Biden can and can’t do on energy without a Senate majority.

Donald Trump’s largely symbolic effort to open up the Arctic for more drilling is our second note.

Do not miss the stunning climate graphic of the week, showing record temperatures in Siberia.

Thanks for reading. Please get in touch at energy.source@ft.com. You can sign up for the newsletter here. — Derek

Podesta weighs in on Biden’s energy plans

Without a commanding majority in the US Senate, Joe Biden will have to scale back clean energy ambitions, believes John Podesta, a former White House chief of staff who has been tipped to take the role of “climate tsar” in the new administration.

But Mr Biden still has the capacity to make “significant progress” using tools including measures embedded in the Clean Air Act, executive orders and newly empowered federal agencies.

“The number will obviously be scaled back,” Mr Podesta said in an interview, referring to the president-elect’s $2tn plan to revolutionise the American energy system.

“They’ll be able to get half of that . . . They’ll have to pick their shots in the Congress,” he said.

Mr Biden’s victory in the presidential election this month saw a majority of voters back a candidate who pledged to rejoin the Paris climate pact, decarbonise American electricity by 2035, achieve economy-wide net-zero emissions by 2050, crack down on methane pollution and start a “transition from the oil industry”.

But without a Senate majority (unless they can split the upper chamber by winning two seats in Georgia next month), his Democratic party will need to get crafty.

Mr Podesta, a veteran Washington operator who served as President Clinton’s chief of staff and counselor to President Obama, said Senate Republicans would be hostile to a sweeping plan involving big spending — but may support smaller changes.

“The minute Joe Biden takes the oath of office they will all become deficit hawks again,” he said of Congressional Republicans who have endorsed President Trump’s expansion of the federal balance sheet. The $2tn would not pass through Congress.

John Podesta said Joe Biden would have to “scale back” his climate spending ambitions.  © AP

What might the GOP support?

The list includes:

  • Strengthening of renewable tax credits. “They’re popular with parts of the Republican caucus,” Mr Podesta said.

  • More spending on energy and climate research and development. Senate GOP members had never really supported Mr Trump’s proposed R&D cuts, according to Mr Podesta.

  • Funding for international climate efforts — even Republican Senate leader Mitch McConnell may support this.

  • Republican moderates Mitt Romney, Susan Collins and Lisa Murkowski may back other new climate measures. “Murkowski accepts that climate change is an issue . . . even if she wants to drill every square mile of Alaska,” Mr Podesta said.

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What can Mr Biden do without Congress?

The new administration could immediately approve some offshore wind permits left unsigned by Mr Trump, including Iberdrola’s proposed 800MW facility off Massachusetts. “There’s financing available and the north-east governors all want it,” he said.

Appointments to federal bodies including the Federal Energy Regulatory Commission (Ferc), Federal Emergency Management Agency, the Environmental Protection Agency, and Department of Energy will be critical, he said. Ferc in particular could make a friendlier regime to promote installation of new electricity dispatch and transmission capacity. Alongside tax credits, this would set the sector “on its way to carbon-free power by 2035”.

On transport, the biggest source of US emissions, Mr Biden could raise fuel-economy standards. Endorsing California’s Clean Air Act waiver — blocked by Mr Trump — allowing it to set its own tailpipe standards would, given the state’s market power, compel equivalent changes from automakers and other states.

Who will run all this?

It isn’t a task for the Department of Energy or EPA. Co-ordination from the West Wing is essential, said Mr Podesta.

“There are so many moving parts. It’s got to be White House. It’s got to have a direct line to the president. It needs resources and it needs a plan and people need to be held accountable to the plan.”

But Mr Podesta doesn’t want the job, he insisted — “I’m too long in the tooth”.

Who are his other candidates? Brian Deese, a former Obama adviser now running Blackrock’s sustainable investing; Ali Zaidi, chair of climate policy for New York Governor Andrew Cuomo; Jake Sullivan, a former Hillary Clinton adviser; and Gina McCarthy, former head of the EPA and now running the National Resources Defense Council. Arun Majumdar, a clean energy expert and academic already involved in the transition, may fit at the DoE.

Energy and voters

Even in the House of Representatives, where Democrats have the majority, the party’s moderates and liberals are at odds over whether ideas like the Green New Deal backed by Bernie Sanders and Alexandria Ocasio-Cortez imperilled the party’s chances in oil and gas states.

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Meanwhile, Democrats are under pressure to start promoting a green revolution at the 2022 midterm elections.

“We’ve got to get on the front foot and say we have to tackle this climate issue. There are millions of jobs that can be created in innovation and business development . . . Net zero is net zero . . . That’s a big task but the alternative is a world of chaos,” Mr Podesta said.

(Derek Brower)

ANWR drilling: Any takers?

The Trump administration is pushing ahead with controversial plans to open up Alaska’s Arctic National Wildlife Refuge to oil drilling. The move, in the dying days of the president’s term in office, is symbolic and, in ES’s view, unlikely to stir much interest.

The Department of the Interior will today issue a “call for nominations”, inviting oil companies to apply for leases in the ecologically sensitive reserve.

Environmentalists, who have long campaigned to keep ANWR off limits to drillers, are cross. But they should save their energy. Oil companies are not queueing up to drill in ANWR. There are simply too many risks involved.

Financial risk

First, take the (sizeable) cost of Arctic oil exploration. Set that against the widespread availability of crude resources elsewhere — including in the Lower 48 states — in an era when investors are also demanding restraint from oil producers after years of profligacy.

“CFOs attuned to investor demands for capital discipline and chastened by lenders’ unwillingness to back Arctic development might not rush in,” said Kevin Book, managing partner at Clearview Energy Partners.

While the leases themselves may be relatively cheap, there are other factors at play . . . 

ANWR is home to migrating birds, polar bears, caribou and other wildlife, with little human activity. © AP

PR risk

With oil companies under growing environmental pressure, drilling in one of the world’s most pristine natural environments would not be a good look.

“I think whoever goes in there now is going to suffer in its public relations aspect if they are seen as despoiling ‘the last best place’, if you will, in the United States,” Carl Tobias, a law professor at the University of Richmond, Virginia, told ES.

Political risk

Last, but not least, is President-elect Joe Biden, who opposes the idea.

Stopping lease sales outright might be tricky for Mr Biden without a Senate majority. (Existing legislation mandates one lease sale by the end of next year and another by the end of 2024.)

But he can stall the process. “‘Slow’ can function much like ‘no’ on a present-value basis, particularly during an era of low demand and high investor expectations for capital discipline,” said Mr Book.

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Mr Biden could issue an executive order to halt further development in ANWR pending an extensive review of the process. If leases still went ahead, the administration could further complicate the permitting process to slow things down. This could all be challenged in court, but it would be a lengthy and costly legal slog.

“It does seem like the lamest of efforts by the lamest duck of presidents and my sense is that Biden will halt anything like this as soon as he takes office,” said Prof Tobias.

(Myles McCormick)

Data Drill

Rising coronavirus case numbers in Europe and North America are keeping people at home again. Data from Bernstein Research show road travel this month has fallen back to levels last seen in June. Air travel’s recovery has stalled since August. For oil producers — along with virtually every other sector — the vaccine rollout can’t come quick enough.

Line chart of Percentage change versus January showing Road travel slides as virus cases surge again

Power Points

  • Must-read deep dive into the crisis facing mass transit systems in New York and beyond as coronavirus destroys revenues.

  • British Prime Minister Boris Johnson will lay out plans for a “green industrial revolution” to tackle climate change.

  • The logic of BP’s near 20 per cent stake in Russia’s Rosneft is becoming less clear, Lex argues.

  • Investors have urged companies including Anglo American, BMW, EDF and Lufthansa to include climate change risks in their financial statements.

Endnote

Joe Biden last week named review teams for several US government agencies, including the Department of Energy, Department of the Interior and Environmental Protection Agency.

These groups are tasked with organising smooth transitions ahead of the president-elect’s inauguration. So the personnel involved are telling.

  1. Less oily background: Unlike Donald Trump’s staff at interior and energy, Mr Biden’s transition teams are not drawn from the oil and gas sector (hat tip to our friends at Politico for highlighting this). Instead they come from academia, activism and clean energy.

  2. Return of Team Obama: The review teams are stacked with former Obama administration staff, who will be adept at negotiating agency bureaucracies. That suggests Mr Biden will waste no time in restoring policies — on everything from methane leaks to air and water cleanliness — that were rolled back by the current administration.

Energy Source is a twice-weekly energy newsletter from the Financial Times. Its editors are Derek Brower and Myles McCormick, with contributions from David Sheppard, Anjli Raval, Leslie Hook and Nathalie Thomas in London, and Gregory Meyer in New York.



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