Tuesday, May 31, 2016

Energy Policy: Trump Won't Let Facts Get in the Way of A Good Sound Bite

Donald Trump was in my home state of West Virginia recently, and he promised to bring back coal jobs: 

And West Virginia. And we’re going to get those miners back to work. I’ll tell you what. We’re going to get those miners back to work . . . 

Let me tell you, the miners in West Virginia and Pennsylvania which was so great to me last week and Ohio and all over, they’re going to start to work again. Believe me. You’re going to be proud again to be miners.

How he plans to do this is not clear, but part of it will be to attack the EPA's Clean Power Plan.  Okay, but that's a relatively recent development, and was certainly not the cause of the decline in coal production since the last production peak in 2008. The primary cause: cheap and abundant natural gas from horizontal drilling and hydraulic fracturing. 

In my former home state of North Dakota, Trump was telling voters he would rescind President Obama’s climate change rules and work to make the Keystone XL pipeline a reality to ship petroleum from Canada’s oil sands to the U.S. Gulf Coast refineries.  Further, Trump has stated that he would relax regulations that limit coal leases on federal lands and reduce hydraulic fracturing regulations on federal lands.  

It appears, then, that his plan to support the coal, oil, and natural gas industries will be to lower costs.  That should increase supply, right?  The problem for each industry, though, is that excess supply has lowered prices so much that all three areas are cutting back on activity (and jobs). Reducing governmental restrictions would lower costs even more, which is not likely to increase jobs or production in the current climate. Any such change might increase margins for existing activities, but it would not likely incentivize a change in behavior that would lead toward the state goals of increased employment. As the Financial Times recently explained:

One of the factors behind that [oil market] collapse was Saudi Arabia’s strategy of continuing to produce at high levels above 10m barrels per day, rather than cutting output to ease the glut of oil. 

More oil (or gas or coal) equals lower prices.  Lower taxes and regulations equals lower cost of exploration and production, which leads to? More oil (or gas or coal) and lower prices.  Even worse, low prices tend to encourage automation, which is particularly not good for jobs. 

One can debate whether there is value in reducing these kinds of regulations, but one needs to explain how greater supply and lower prices is going to help any of these industries in the way the policies are purporting to (or another justification is needed). But then, Trump has not explained how he intends to implement any of his promises or how any of his proposals would work.  

Newsflash: Just saying something, no matter how confidently and assertively it is said, doesn't make it true. I sure hope a majority of voters recognize this come November.   

http://lawprofessors.typepad.com/business_law/2016/05/energy-policy-trump-wont-let-facts-get-in-the-way-of-a-good-sound-bite.html

Current Affairs, International Business, Joshua P. Fershee, Law and Economics | Permalink

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