By: John Auers
Energy policy certainly wasn’t at the top of the agenda at last week’s Republican Convention and likely will not grab headlines this week in Philadelphia either (although Crazy Bernie did take some time demonizing oil companies in his speech last night). However, the major party candidates have had a lot to say in the past about the subject and appear to have vastly different views regarding the petroleum industry. Because of these differences, the results of the November 2016 election could have major impacts on all segments of the oil business. It is not only what happens at the top of the ticket that will matter, either. It looks as if the Republicans will see a serious challenge for their Senate majority, and if things go very poorly, maybe even the House. Certainly, our crystal ball isn’t any clearer than anyone else’s on what will happen in November, or for that matter, what will happen next after the election. We will, however, attempt to lay out the key issues at stake for oil companies (particularly refiners) and our thoughts on how the candidates and their parties might address those issues. The only thing we know for sure was aptly expressed by Sam Cooke back in 1964 – “But I know a change is gonna come, oh yes it will.”
Campaign Promises vs. Real Changes
Translating what politicians say in the heat of a campaign to get elected vs. what the real policy changes they will enact is a very difficult task. It’s made even more difficult by the presence of such a “wild card” as Donald Trump. Whereas most candidates for President, like Hillary, have had a long career in politics, and a corresponding history of policy positions, The Donald has no such legacy. Even in this campaign, he has taken a multitude of positions, while using only broad, unspecific language with regards to energy policy. Even Hillary, despite her many years in the public arena, has taken a wide range of positions, a prominent example of this was when she was for the Keystone Pipeline (as Secretary of State), before she was against the Keystone Pipeline. It is worth noting that Presidents often generate major surprises when it comes to policy. Certainly the most notable, recent example for the petroleum industry was the removal of oil export restrictions, a development which no one foresaw coming under an Obama administration.
Where They (Might) Stand on Key Issues
Despite the uncertainty regarding their positions on specific energy policy issues (based on their public statements), it is tempting to label Trump as “pro-oil” and Hillary “anti-oil.” The latter designation is a difficult call considering the amount of money oil companies have donated to the Clinton Foundation over the years. But even these general labels (in some instances, self-given) they are somewhat meaningless without further context. To provide that context, we will attempt to prophesy what the candidates might do on several high profile initiatives, which are likely to come across their desks in the next four years.
General Global Warming/Carbon Policy
This is one area where The Donald has been almost as outspoken on as “building a wall” and “bombing the hell out of ISIS.” He has pledged to “cancel the Paris Climate Agreement and stop all payment of U.S. dollars to U.N. global warming programs.” He has also said there is no reason to institute “job-killing cap-and-trade,” impose a carbon tax, or to keep supporting alternatives such as wind and solar with government subsidies.
Hillary, on the other hand, has paid all kinds of lip service to the need to stop global warming. At the National Clean Summit in September 2014, she said that climate change is “the most consequential, urgent, sweeping collection of challenges” faced by the nation and the world. She has raged against “climate deniers” on multiple occasions, and professed strong support for the Paris Agreement, even specifying that her policies will “lead the world” in combatting climate change by decreasing U.S. GHG emissions by 30% from 2005 levels. For all that bluster, Hillary has not spelled out any specifics on how she intends to accomplish this, making a point in this year’s campaign to steer clear of calling for a carbon tax or cap-and-trade program (which is included in the Democratic platform and was also prominent in her 2007-2008 campaign). Whether she ultimately pushes hard for an anti-carbon policy if she is elected is hard to tell, and will probably hinge on how badly she needs to energize/pacify Bernie voters to get her over the top (which is becoming more and more of a necessity after the WikiLeaks disclosures).
Taxes and Regulations
The Donald has been pretty clear that he wants to reduce taxes and regulations on the U.S. oil industry. He has pushed a pro-oil growth agenda that would roll back many of the Obama administration’s greenhouse gas initiatives, and has labeled the EPA a “disgrace,” saying he would cut funding significantly. Trump has often spoken about cutting corporate taxes overall, and also talked about “leveling the playing field” for oil vs. alternatives regarding tax policy.
Conversely, Hillary has made numerous proclamations about making oil companies “pay their fair share” in taxes and advocating removing “tax loopholes”, although specifics are slim. In her 2008 campaign, she advocated for a windfall profits tax on big oil and removal of specific tax credits associated with oil production, but hasn’t mentioned that this time around. She has labeled herself as being “green” when it comes to the environment, but again no specifics. Despite this, we believe it is likely that a Clinton presidency would generally follow in the footsteps of the Obama administration in pushing a relatively aggressive EPA regulatory stance towards oil companies – upstream, midstream and downstream.
Renewable Fuel Programs
While Mr. Trump has repeatedly expressed his love for petroleum, he has also gone on record in support of biofuels. Back in January, he declared “if elected president, I would make sure the EPA ensured biofuel blend levels match the statutory level set by Congress in the RFS.” He further went on to say “As president, I would encourage regulators to end restrictions that keep higher blends of ethanol and biofuel from being sold. We are with you, folks. We’ve been with you since day one.” Now all this could be taken with a grain of salt, as he was speaking to an Iowa crowd prior to the primary in that state. Although he has said very little on the subject since then, his running mate, Indiana governor Mike Pence, has been a vocal ethanol supporter and we believe it is likely that a Trump administration would be very supportive of the RFS program, perhaps even in a stronger way than Obama. There is one caveat to this view, however, as ND Rep. Kevin Cramer has been a key advisor to Trump on energy policy, and he is a well-known advocate of ending the RFS program by 2022.
Unlike The Donald, Hillary can’t claim to ethanol proponents that “we’ve been with you since day one.” In fact, during her early years in the US Senate, serving New York, Clinton was a staunch opponent of corn ethanol mandates. Together with her Democratic colleagues from California, Boxer and Feinstein, she penned a letter in 2002 when RFS measures were first being considered stating that they would add “an astonishing new anti-consumer government mandate — that every U.S. refiner must use an ever-increasing volume of ethanol.” In all, Clinton voted against ethanol 17 times while she was in the Senate. But running for President and having to win the Iowa primary made her change her tune drastically. During her first campaign in 2008, she told an Iowa audience that the U.S. needs to “dramatically increase biofuel production.” She backed up those words with a plan to grow renewable fuel mandates to 60 billion gallons by 2030 (from the 36 billion in 2022 in the current law). She expressed similar support for biofuel mandates before this year’s Iowa primary and although she has been pretty quiet on the subject since, we believe it is safe to predict that Hillary would be a strong supporter of continued or even expanded biofuel mandates.
CAFE Standards
The Corporate Average Fuel Economy (CAFE) auto efficiency program could potentially be a key factor driving gasoline demand down over the next several years. It is currently in a mid-term evaluation process. A draft Technical Assessment Report (TAR) was recently issued jointly by the EPA, California Air Resources Board (CARB) and the National Highway Traffic Safety Administration (NHTSA) as the first step in the process. The draft will be a key input into NHTSA’s final rulemaking, likely in 2018 (depending on EPA final determination). This rulemaking will ultimately set the CAFE standards for 2022 through 2025.
We’re not aware that The Donald has said anything about the CAFE program or even that he knows any more about it than the nuclear triad. While Hillary has frequently said she was in favor of energy efficiency (who isn’t?), she has also said nothing specific about her views on CAFE standards. In the end, whoever each of them appoints to the EPA and NHTSA will be key in where the program proceeds post-2022. In that context, given The Donald’s general disdain for regulation and Hillary’s proclivities towards more regulation, it would seem that a Trump presidency would make it more likely that those rules will be relaxed post-2022. We will discuss this subject in more detail as well as what was said in the TAR in an upcoming blog.
Other Issues
The Donald has made it clear that he loves oil and fracking and wants to open more federal lands to petroleum exploration and production. The recent news that he is considering legendary oil producer, Harold Hamm as his Energy Secretary only reinforces that position. He has been a strong proponent of the Keystone Pipeline and would likely approve it early in his administration (if not even on the first day). He doesn’t say much about refining specifically, but loves U.S. manufacturing, and we would expect that he would be generally supportive of what is probably the most competitive manufacturing industry in the U.S. Specifics are lacking, as they are in most of Mr. Trump’s policy proclamations, but it certainly does appear that he is generally pro-oil and pro-industry. One problematic position of his is a trade policy which seems protectionist; not good news for an industry which has recently grown to be the largest exporter of refined products in the world.
In some ways, Hillary’s positions with regards to the oil industry are even harder to read than Mr. Trumps. She hass come out against the Keystone Pipeline and is likely to stick to that position, but as Secretary of State seemed to be supportive of Keystone. She has also been a bit “wishy washy” on other petroleum-related issues. While pushing for more green alternatives, she notably also called for a summer gas tax holiday in her 2008 campaign (although we haven’t heard anything about that recently). Overall, Hillary positioned herself as “greener” and more anti-oil in 2008 than she has this time around, but she’s certainly been known to change positions quickly, and is being pressured to move left by Bernie’s supporters.
The Final Word
So who will win and what will they do? It certainly depends on who you ask (and when). Trump seems to have actually taken a small lead in some of the polls since the Republican convention, but most of the pundits and oddsmakers are still favoring Hillary, some in a big way. One thing to consider is not only who wins the Presidential sweepstakes, but also what happens in the Congressional elections. If Trump wins, it is very likely that Republicans maintain control of both houses. Although that seems to indicate that his proposals would have a good chance of becoming law, Trump is not the typical party guy and the Republicans could very well be as much of an opposition force as the Democrats. With a lot of Republican ticket splitting possible, a Hillary win would still likely result in the Republicans maintaining control of at least the House and very probably the Senate. If by some chance the Trump campaign implodes and takes down ballot Republicans with him, a Clinton administration could possibly be in the position where their party controls of all the arms of the federal government. In such a case, the oil industry will need to hope that their past contributions to the Clinton Foundation carry at least some weight with Hillary, because we know Tom Steyer’s millions will. In the end, we know “A Change is Gonna Come” when it comes to U.S. energy policy, we just don’t know what that change will be, and likely won’t till well after we know who won the elections.
Turner, Mason & Company is continually monitoring developments in the global petroleum markets and assessing how they will impact the industry. Changes in energy policies and regulations are a major part of our analysis, and we utilize this to both assist individual clients and develop multi-client reports. Last week, we released our latest Crude and Refined Products Outlook in which we discussed (in greater detail) the potential policy implications of the 2016 election. For more information about this publication or studies and other consulting services TM&C can provide, please visit our website or give us a call.