By Ethan Zindler
Head of Americas
Bloomberg New Energy Finance
A year ago, I used this space to reflect on the election of Donald J Trump as President.
For many, including me, the shock was still fresh as we watched Trump take the oath of office that damp day here in Washington, the wounds opened during a deeply dispiriting 2016 campaign still very raw.
And yet, at least as far as clean energy was concerned, I wasn’t entirely pessimistic. There was the fact that renewables were coming into their own on price-competitiveness while the sheer volume of cheap gas in the U.S. would continue to put coal out of business. Zero-carbon and lower-carbon sources of energy enjoyed support on both sides of the political aisle, with powerful Republican champions still roaming Capitol Hill.
Finally, there was the distinct possibility that once Trump actually was president he would take a more realpolitik view of the world. He’d recognize the benefits these technologies contribute to the U.S. economy and the importance for the U.S to remain competitive in them longer term. At the end of the day, Business Man Trump would fundamentally be practical.
Don’t get me wrong; I didn’t expect him to have an epiphany on climate change. But it seemed logical that once he examined things just a bit, he’d recognize that clean energy – renewables, electric vehicles, and other technologies – along with natural gas, represent a fundamentally “good deal” for the U.S. And, at the end of the day, wasn’t that what the author of the Art of the Deal liked best of all?
Finally, if all else failed, Trump’s daughter Ivanka seemed like both an influential and moderating force. Surely, she’d talk some sense into him.
Taking stock
A year into the Trump Epoch, where do we stand? For renewables, the halcyon days of Obama support are clearly a distant memory. Nonetheless the direst predictions have not come to pass.
Did Trump have a change of heart on clean energy? Based on both his comments and actions, it doesn’t appear so. The president has sought to withdraw the U.S. from the Paris Agreement. His Department of Energy playbook was at least partly written by coal mining firm (and Trump campaign ally) Murray Energy. His Environmental Protection Agency has rescinded the Clean Power Plan and excised taxpayer-funded climate data from the agency’s web site.
No, at least so far, the saving grace for clean energy has not been a merciful Trump. Rather, it’s been a confluence of forces. First, there has been the hard and clever work of clean energy lobbyists and their allies on Capitol Hill, including some Republicans. Second, there has been the administration’s apparently greater interest in supporting coal (“beautiful clean coal”, as the President called it recently). This has not always equated with efforts to take down clean energy. Finally, there have at times over the past last year been clear instances when the administration simply lacked the competence to implement certain policies that could have inflicted maximum damage on renewables, energy efficiency, or advanced transportation.
This inability to get things done at times has manifested itself as simple naivety, most notably from the man at the very top. In February 2017, for instance, Trump marveled without a hint of irony that, “Nobody knew that health care could be so complicated.” To which, all of Washington inwardly screamed: Nobody except anybody who has ever given the topic even five minutes of undivided attention!
Trump’s lieutenants, while less obviously naive, have demonstrated similar inability to pull the right levers at the right moments. And again, for this, the clean energy sector should be eternally grateful. Given that the White House and both chambers of Congress are controlled by the President’s party, 2017 could have been much, much worse for clean energy.
Swings and misses
Last spring, Trump’s Energy Secretary Rick Perry kindly joined us at our Future of Energy Summit in New York. The administration had just sent to Congress a proposed federal budget that would have decimated funding for a variety of clean energy programs at the Department of Energy, including those supporting research and development into new technologies. At the Summit, Perry said that “the American people want to have a budget that’s under control,” later adding, “I know what’s important; we will prioritize.”
As it turned out, the President’s budget was dead on arrival on Capitol Hill, despite Republican control of both the House of Representatives and Senate. That in and of itself was hardly unusual. Congress is generally assertive when it comes to writing budgets. But we are now in February 2018, more than one third through the current fiscal year, and the administration and Republican Congress have failed to pass any budget. The upshot: as of the first week of February, DOE funding continued at Obama administration levels with no meaningful cuts made.
Meanwhile, the larger budget melodrama continues with a second potential government shutdown now looming. A more effective White House would have coordinated with Capitol Hill to pass a budget reflecting its priorities by now – with some DOE clean energy programs surely axed. (Undeterred, the administration is apparently crafting another draconian budget for FY 2018, which starts in October, Bloomberg reports. And as of February 8, serious efforts do appear underway to break the impasse).
Then there was Perry’s effort to rescue the U.S. coal-fired power fleet and, in turn, a specific portion of the mining industry that supplies it. At the Summit, Perry said the DOE needed to produce a study to examine how “politically driven policies – driven primarily by hostility toward coal – threaten the reliability and the stability of the greatest electrical grid in the world.”
Never mind the fact that there is no shortage of such studies, or that the Federal Energy Regulatory Commission (FERC) had been holding public meetings on the matter for the past several years. Never mind that there exists a utility-funded entity known as the North American Electric Reliability Corporation whose mission statement is to “assure the reliability and security of the bulk power system in North America.”
While Perry’s proposed study sent tongues wagging, the ultimate product was a relatively sober white paper that reiterated what anyone closely following U.S. power already knew – cheap gas and, to a lesser degree, renewables are accelerating the retirement of an aging coal-fired fleet. As my BNEF colleagues wrote at the time: “The report could be called unnecessary, but the conclusions that it made were reasonable and defensible, though some were indeterminate.”
End of story, right? If Perry had really wanted to tank renewables, surely the report would have indicted wind and solar for wreaking haywire on the grid. In fact though, the study was just the beginning of the saga. In September, Perry submitted to FERC a Notice of Public Rulemaking (NOPR) asking the commission to implement a rule that would force U.S. regional power market operators to reward baseload coal and nuclear plants for their “reliability” attributes. The premise: potential periods of extreme cold in the U.S. meant that coal-fired plants that kept 90-day supplies on site deserved some form of above-market compensation.
FERC is a relatively low-key entity governed by five commissioners who serve five-year terms apiece. When vacancies arise, the president appoints commissioners and, by happenstance, Trump had been able to appoint four. Perry presumably assumed the deck had been stacked in his favor.
This proved to be a gross miscalculation. Ultimately, all five commissioners, including its three Republicans, said “nope” to Perry’s NOPR. A deliberative body used to scrutinizing technical material in excruciating detail, FERC was in no way swayed by Perry’s paper-thin argument that the grid’s reliability is being threatened by variable renewable power sources.
After the vote, Perry claimed his “proposal initiated a national debate on the resiliency of our electric system.” (As if on cue, the U.S. went into a deep freeze across the Midwest, Northeast, and even the South. Over two weeks, the U.S. power grid functioned admirably with renewables contributing their share. The only real hiccup: a nuclear plant outage in New England caused by a downed transmission line.)
The budget and NOPR fights were really the undercards ahead of Washington’s main event in 2017: the fight over tax reform. While various state and federal policies are important to wind, solar, and electric vehicles, tax credits are their lifeblood. So as the tax bill debate approached, clean energy lobbyists prepared to play serious defense.
As they feared, the first major version of the final bill passed by the House of Representative would have gutted the wind, solar, and electric-vehicle tax credits. The Senate then produced a version of the bill far friendlier to clean energy. Given that both chambers must ultimately pass the same legislation, attention turned to a “conference committee” that was to meet privately to iron out the differences.
It was at this moment that the Trump administration could have intervened to insist that the clean energy tax credits get eliminated. There is no evidence they ever made such an effort. What is clear, however, is that the bill that emerged from conference was far closer to the Senate version of the bill — with the credits largely intact. While the ultimate law does contain some quirks that will make financing of renewables more challenging, it could have been far, far worse. Meanwhile, a key tax credit to support the ailing U.S. nuclear industry did not make the final cut of the bill. Once again, clean energy largely dodged a bullet.
Finally, there was the highly publicized fight over imposing new trade penalties on foreign-produced PV cells. The politics on this one were particularly complex as they involved larger questions about the overall U.S.-China trade relationship. Suniva and Solarworld, the companies that petitioned for the tariffs, argued that U.S.-based cell makers had been unfairly harmed by cut-rate equipment from abroad. Given the near non-existence of cell-making on U.S. soil, the vast majority of the country’s solar industry vehemently opposed tariffs. Such penalties would boost solar costs in the U.S. and choke a fast-growing industry, they argued.
The decision on what, if any, penalties to impose fell entirely to Trump and his U.S. Trade Representative Robert Lighthizer. Ultimately, the tariffs Trump unveiled were far weaker than those the petitioners had sought (clients can read more here and here). And once all their various loopholes have been exploited, they might even have no impact at all. On this one, it’s not entirely clear what the administration had in mind, but if the intention was to somehow harm U.S. solar, and advantage coal or other sources of generation, the White House whiffed again.
What’s to come
As the disclaimer in retail investment goes, “past results are no guarantee of future performance.” Much the same could be said of clean energy policy-making. While 2017 was a highly eventful year for renewables and EVs in Washington that ultimately left the sector relatively unscathed, further successes are hardly assured.
The fights to come could potentially be quite technical and well below the general public’s radar. For instance, renewables opponents and some utilities are lobbying Congress to preclude solar developers from using the Public Utilities Regulatory Policies Act (PURPA), which among other things requires utilities to buy energy from small power producers if they can underprice incumbent generation. FERC will continue to examine grid-reliability issues as it did before Perry arrived on the scene, but will do so on its own terms and time line.
Most notably, a titanic fight is brewing between Trump’s EPA and California over the corporate average fuel efficiency (CAFE) standards for cars and light trucks. The EPA has put the brakes on standards Barack Obama sought to finalize on his way out the door in January 2017. In his January 30 State of the Union address, Trump boasted that he and his team had “halted government mandates that crippled America’s autoworkers — so we can get the Motor City revving its engines once again.”
“Many car companies are now building and expanding plants in the United States — something we have not seen for decades. Chrysler is moving a major plant from Mexico to Michigan; Toyota and Mazda are opening up a plant in Alabama,” said Trump. “Soon, plants will be opening up all over the country.”
California has long had a waiver to implement more rigorous requirements than the federal government, and 13 like-minded states have adopted the California rules. Between them, these 14 states (plus the District of Columbia) account for approximately half the cars on U.S. roads, and given that automakers want to comply with only one set of U.S. rules, California sets national policy de facto. And as my colleagues have discussed, maintaining CAFE as currently written is critically important to future electric vehicle sales in the U.S. (Clients can read more here.)
EPA Administrator Scott Pruitt has hinted he may remove the California waiver so that he can water down the efficiency standards for the entire U.S. That in turn would prompt “a war with many states lining up with California”, California Air Resources Board Chair Mary Nichols said at the Bloomberg New Energy Finance Future of Mobility Summit in Palo Alto on February 1. (By “war” she means the mother of all lawsuits.)
Finally, there is Trump’s enduring love for “beautiful clean coal”. Thus far, the president has delivered precious little relief to his constituents in West Virginia, Ohio, and Pennsylvania coal country, and this year operators plan to retire another 13GW of coal-fired plants. The administration has touted a small uptick in mining jobs in 2017 but as we will show in our soon-to-be released 2018 U.S. Factbook, coal consumed in U.S. power plants in 2017 dropped 3% and the outlook for 2018 remains bleak.
The simplest means for helping U.S. coal would be to reward it directly via the tax code, just as renewables are rewarded with tax credits. Such an effort could be underway on Capitol Hill via the “tax extenders” bill currently under consideration before the Senate Finance Committee.
Aside from the specific fights to come, the broader concern for clean energy advocates should be that team Trump might in 2018 actually start to get the hang of governing. This might include filling top policy-making positions that were vacant through much of 2017. Moreover, it could mean learning how to effectively promulgate regulations or twist arms on Capitol Hill.
That said, with 2018 being an election year, the clock is actually now ticking for all sides. Democrats appear poised to take back control of the House of Representatives in November, and have an outside chance of taking the Senate as well. Either scenario could make for a miserable 2019 for Trump as Democrats would surely intensify investigations of his administration and block any serious Trump legislation.
To some degree then, it’s now or never for Trump to lend a hand to coal country or to de-regulate vehicle sales. Whether such efforts would definitively hurt clean energy remains to be seen. Equally unclear is whether the administration in 2018 will have the personnel, smarts, and collaboration skills it lacked in 2017 to actually get what it wants done.
Even by Washington standards, these are weird and volatile times. Given the peculiar political climate, clean energy advocates would be wise not to rest on their laurels. The only thing for certain: Trump and team will keep things interesting in 2018.