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Wenyuan Wu

Wenyuan Wu

I am a doctoral candidate in International Studies at the University of Miami. I previously served as a Distinguished Research Fellow at the university's Center…

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Why Trump’s Energy Plan Isn’t Waterproof

Oil worker

On August 8, 2016, America’s Republican presidential candidate Donald Trump gave what was billed as a major economic policy speech in Detroit. In it, he laid out his plans for jump-starting the U.S. economy, spurring job growth, and distributing economic benefits to working-class Americans. The speech highlighted an isolationist plan for the nation’s energy industry alongside many other proposed tax cuts and deregulation, revisiting the vision of “An America First Energy Plan” Trump first coined in North Dakota in May.

The Trump campaign’s energy plan blatantly defies established market principles, but it also challenges years of multilateral efforts in combating global warming and global trends toward clean energy and diversified energy structures. Instead, the plan would promote a deliberate overreliance on coal and petroleum.

In essence, Trump’s energy scheme is characterized by three prongs—market-led extractivism, job-promising nationalist sentiment, and selective economic autarky. The first tenet reflects the candidate’s alignment with conservative Republican norms backed by powerful oil interests. It includes calls for reviving the Keystone XL pipeline, lifting coal industry restrictions, augmenting shale resources, and scrapping regulations on the oil and gas industry. In this energy plan, Trump promises to explore America’s untapped oil and gas reserves (worth $50 trillion, by his own estimation) as well as coal reserves three times richer than Russia’s.

The second element feeds into the Trump campaign’s political promises, combining the idea of an energy renaissance with job security and blue-collar wage increases. The last tenet, which stands in stark contrast to his own party’s traditional defense of free trade, nonetheless plays into the profound fear and resentment of many voters left behind in a globalized world. Stoking that antagonism, Trump loudly proclaims that American energy independence and terminating trade agreements with “hostile” oil-producing countries would resolve the pressures they face.

Those promises, while appealing to Rust Belt voters, could not be more wrong.

A fossil fuel-focused extractivist energy regime, like the one Trump is proposing, runs counter to the prevailing market dynamics now respected by major oil producers, especially those striving to diversify shrinking revenue streams away from petroleum rents. Global crude oil prices have fallen from about $115 per barrel in June 2014 to under $35 by the end of February 2016.

Responding to the volatility of the global oil market, many oil-producing countries have started to explore alternative energy sources, a process that began even before the recent price downturn. Since the inauguration of the Camisea project in 2005, for example, Peru has become a major natural gas exporter in South America. Although still a fossil fuel, natural gas is considered to be cleaner than other fuels; it only produces about half the amount of carbon dioxide emitted by coal. Critically, the Peruvian government is committed to balancing its energy production matrix equally among petroleum, renewables, and natural gas. Related: Expert Commentary: Is Crude Set To Drop?

Brazil, Latin America’s largest oil producer, has also sought to diversify its energy profile by adding ethanol to its mass fuel production over the past four decades. Today, the country is the worlds’ second largest ethanol producer and consumer, having created the world’s first sustainable biofuel economy. Nearly half of the country’s energy comes from renewable sources (mainly sugarcane ethanol) and the entire sugarcane agro-industrial system generates gross revenues totaling more than US $86 billion annually (accounting for approximately 4% of the Brazilian economy). The market competitiveness of ethanol fuel has been conscientiously enhanced through the use of new agricultural technologies, complemented by government subsidies. In February 2015, several Brazilian states increased the state tax for gasoline goods and services while reducing taxes for ethanol. Meanwhile, the Brazilian government authorized an increase in the ethanol blend in gasoline from 25 to 27 percent.

Non-discriminatory energy policies and blanket deregulation, as the Trump plan proposes, would leave still-emerging renewables unable to compete with traditional fuels on cost. By subsidizing renewable energies, governments can help the renewable sector take off and ultimately outcompete fossil fuels on the market.

Perhaps the most striking case for diversification comes from the world’s largest oil exporter in both quantity and monetary value: Saudi Arabia. Realizing that declining oil revenues cannot sustain their generous social safety net, the Saudi leadership plans to reduce the country’s oil addiction by privatizing the national oil company, Saudi Aramco, relaxing restrictions on FDI and deepening trade relations with longtime partners, including the United States and the United Kingdom. Looking beyond the international consulting and retail brands with locations in cities like Riyadh (Saks Fifth Avenue and Harvey Nichols, for example), Saudi officials are now aggressively courting outside capital in industries like petrochemicals and infrastructure. Responding to low oil prices and massive domestic consumption, the Saudi government also pledges to production of 9,500 megawatts of renewable energy to diversify its energy market. Related: The Best Way To Unlock Canada’s Crude Exports

That other prominent energy producers are using government levies to incentivize emerging clean energy industries only demonstrates how common sense is lacking from the Trump campaign’s energy plans. This idiosyncrasy is reflected by the candidate’s choice of economic advisors, a team made up of billionaires and investors whose energy considerations revolve around short-term profitability calculations instead of sustainable yardsticks. Trump’s all male, 13-member economic advisory team consists of mostly business moguls in real estate and financial sectors. Among them is Mr. Harold Hamm, an Oklahoma oil magnate and energy advisor to 2012 Republican presidential candidate Mitt Romney, whose energy plan proposed expanding energy production, streamlining regulatory processes, accelerating the Keystone pipeline, and prioritizing conventional energy sources (oil and coal) over renewables based on economic competitiveness.

Tellingly, Trump’s plan to reinvigorate both the natural gas industry and coal production at the same time is self-defeating. Given the abundance of price-sensitive alternatives on the energy market, promoting one outdated source (like coal) would inevitability crowd out other sources (like natural gas), creating unhealthy competition, over-supply and negative externalities that cannot be corrected for by the market. In addition, U.S. government support for cheap shale gas in the national fuel mix is a primary culprit behind the shuttering of American coal plants in the first place. That rapid shift toward natural gas, aside from pushing the coal industry into decline, is helping the U.S. meet emission targets and reduce pollution. A possible comparison can be found in Chile, where the overproduction of solar energy is hurting power companies amidst global price downturns, a problem compounded by limited local transmission infrastructure.

Aside from the environmental costs supported by an overwhelming science literature on global warming, a pro-hydrocarbons energy regime will have devastating consequences for the country’s economic health and social capital. The underlying line question is simple: who will benefit from Trump’s hydro-carbon heavy energy plan? Certainly not his working class supporters. Hydrocarbons are capital-intensive, with only limited job opportunities and little spillover effect. To add icing to the cake, Trump’s ideology of closing down economic borders would further hurt the average citizen. An autarkic economy with unrealistic promises of energy self-sufficiency cannot sustain itself; instead, it would fail to deliver enough sustainable jobs as extractive developments crowd out other economic activities and inflate living costs. To put it simply, Trump’s less well-heeled supporters are effectively voting against their own interests.

By Wenyuan Wu for Oilprice.com

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  • Oilracle on August 28 2016 said:
    "Aside from the environmental costs supported by an overwhelming science literature on global warming"

    Taxing CO2 is based on a fraud. The science was hijacked. Climate always changes and the Sun is the far, far stronger contributor than anything else, e.g. volcano ashes.
  • A on August 29 2016 said:
    While your statements here seem scholastically sound, I don't believe your knowledge has the benefit of being firmly rooted in experience. Since you are a doctoral candidate, please allow me to give you a few topics to review before you publish your next article.

    Firstly, while it pains me to speak about the concept of global warming, because I am sure I will receive several points of backlash here; it is a farce, at best. While I am sure you will disagree with my position on the subject, I would simply ask you to do your own research on the issue before a return comment. For the purposes of efficiency, I will simply say this. Changing the method in which data is recorded in the middle of a scientific experiment, while performing core sample testing, and then publishing the skewed data without a disclaimer of that distortion is, at best, unethical. If you do not know what I am referencing, you will need to read the published journal, and look for the notation concerning where the temperature data came from for the last 75 years of their core sample tests.

    Secondly, while the idea of renewable energy offers students, such as yourself, an exciting outlet for the principles of engineering you are eager to practice, it really does not "hold water" financially. The costs for energy production for large commercial scale plants are roughly these, Nuclear - ¢2.1 / Kwh, Coal - ¢3.2 / Kwh, Natural Gas - ¢4.51 / Kwh, Wind Power - ¢7 / Kwh, Solar - ¢12.2 / Kwh. I know this will go against your academic understanding of energy production, but here again, I encourage you to do your own research. If you do not know what I am referencing, you will need to read about life-cycle costs, particularly concerning the cost of inverters in a Photovoltaic or PV systems. Additionally, solar panels these days are made mostly from, you guessed it, plastic, a derivative of petroleum.

    As the American public seems to be allergic to the words Nuclear Power, and the American northeast is one of the richest coal deposits in the world, it would make engineering and economic sense for the United States and an energy conscious presidential candidate to push for coal energy. Moreover, this is especially true when viewing the recent advancements in clean coal, and the fact that 38% of the energy produced in the U.S. comes from coal-fired plants. If you propose to shut down those plants and expend a huge capital cost towards another type of energy power production, that is another discussion.

    So far as petroleum consumption in the U.S. is concerned, excluding the natural gas mentioned above, the vast majority is used for gasoline and heating oil production, followed by plastic and jet fuel production, then pharmaceutical, asphalt and lubricant production. If you can tell me what the U.S. can do with less of or without, then oil consumption can certainly be reduced. Otherwise it is only going to grow.

    I am sure you will take the opportunity here to point out that Americans use their cars too much. There again, I will ask you to do your own research, and look farther into the numbers. Gasoline usage in the U.S. is due primarily to two things. Number one, points of necessity in the U.S. are spread out. Most people live more than a mile from a grocery store, and people just aren't going to hand-carry a week’s worth of groceries more than a mile, if they have a car. Additionally, most people live more than 10 miles from their jobs, and the vast majority of people just aren't going to walk, or bike, that far every day, if they have a car. Number two, consider engineering practicality. The amount of energy is 114,000 BTUs / gallon of gasoline, 129,500 BTUs / gallon of Diesel, and 6,732 BTUs / gallon of Natural Gas. In other words, gasoline and diesel are more compact and travel-friendly than natural gas. I will say, with the new advances in Lithium Battery Technology, electric is getting close; but it is not there yet. The vast majority of people have to consider the cost of energy in doing what is necessary in their everyday lives, and the majority are always going to choose whatever is the most cost efficient and convenient for themselves. That’s simply human nature.
  • A on August 29 2016 said:
    Thirdly, let’s consider the points of your blue collar jobs and energy isolationism stance. As Warren Buffett said, when he was asked about the secret to his success, “Buy low. Sell high.” I think you will agree that the oil industry, as with most others, is cyclical. Further, at this point in time, this is the cheapest oil has been in a decade. If oil and coal consumption are not going away anytime soon, would it then not make sense for the U.S. to invest heavily in coal and petroleum now, while prices are depressed? Keep in mind, two of the American industries hardest hit in recent months are coal and petroleum. As such, well- and mine-service companies will do work at bargain rates right now. Additionally, the vast majority of the cost incurred for petroleum and ore is in getting to the product. Once these types of resources have been tapped into, they can be plugged, and brought to market when the high prices have returned. While economic globalism and economic isolationism have their own merits, which I am sure others here would love to delve into more deeply, I am going to attempt to stay away from the subject entirely; and say the following. If you have something against people living in the “Rust Belt”, or believe a globalist stance makes more sense economically, then bring in British Petroleum or China National Offshore to do the digging. Either way, the result will be the same. The U.S. will have more resources to tap when the time is right.

    Fourthly, as for the rest of your article, I will again encourage you to do your own homework, but will aid you in your research with the following. It is true that Brazil is investing heavily in ethanol, but here are a couple of important questions to which I highly recommend that you seek the answers before formulating your final opinion on where the U.S. should do likewise. Why is Brazil using sugar cane and not corn; and why does the U.S. not grow more sugar cane? You also site Brazil's other renewable energy efforts, but I doubt you know they consist mostly of hydroelectric and wood-burning power production. If you want to educate yourself on these points, research how many hydroelectric dams Brazil has to use to keep the lights on, how many rivers Brazil has, and if translating that equation into the U.S. power production is feasible. Spoiler alert, it's not.

    Lastly, I applaud your academic pursuit of a doctorate, and further still, your willingness to speak out on what you think and have learned. I know it is not easy to collect your thoughts and publish a coherent article, only to have people throw rotten eggs and cabbage at your ideas. I am not writing this response to discourage you from your efforts, but rather, to encourage your endeavor. Listen to all sides, discern upon what everyone is basing their positions, do your own homework, and don't just parrot back what others say. Finally, keep every bit of that passion you have about this subject, because keeping the lights on is everyone's problem.

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