Julian Spector is a former editorial fellow at CityLab, where he covers climate change, energy, and clean tech.
Congress traded oil exports for renewable incentives, and it's probably a net win for the environment.
After an acrimonious year, Democrats and Republicans in the U.S. Congress just passed a $1.1 trillion spending bill with strong bipartisan support. That’s because, in the spirit of compromise (or maybe holiday gift-giving), it’s got a little something for everyone. When it comes to energy policy, for instance, Republicans got their wish to end a ban on U.S. crude oil exports, and Democrats in exchange secured extended tax credits for solar and wind energy.
So was that a good deal for the environment, especially on the heels of the landmark agreement in Paris to curb global carbon emissions?
The crude export ban
First let’s take a closer look at the crude export ban. This went into effect in the closing days of 1975, when (Republican) President Gerald Ford signed the Energy Policy and Conservation Act. The U.S. had been rocked by soaring fuel prices following the Arab oil embargo in 1973, so the idea was to protect against that by keeping American oil in America. What’s important to note, though, is the ban only stopped exports of crude oil. Refined petroleum products like gasoline and diesel remained fair game. The ban really just required that oil drilled in America be refined in America.
The U.S. consumes a lot of oil, and still imports a lot on top of its homegrown product, so domestic producers haven’t had to struggle to find customers. But crude oil comes in many different varieties, which call for different refineries. The ban limited oil producers to the available American refineries, which is nice if you’re a refiner, but not the most efficient design for a market. Lifting the ban lets oil companies access a global menu of refineries.
Over the long run, ending the ban could marginally increase incentives to produce crude in the U.S., says Phil Levy, senior fellow on the global economy at the Chicago Council on Global Affairs and former senior economist for trade on President George W. Bush’s Council of Economic Advisers. But he notes that the oil in question was already being consumed.
“If your goal was to minimize the consumption of fossil fuels, to limit environmental impact, implementing a crude export ban would have been a very weak, roundabout, and ineffective way to meet that goal,” he tells CityLab. “If you want to do something like that, you need to do something like a carbon tax or cap and trade—things that really broadly affect the price, not that affect the relative bargaining power of crude producers versus refiners.”
Environmentalists can note the incongruity if President Obama applauds the Paris climate deal one week and signs a bill to open up oil exports the next. That isn’t in keeping with the supply-oriented “keep it in the ground” strategy that has been gaining steam since the killing of the Keystone XL Pipeline in November.
The U.S. government, though, doesn’t practice “keep it in the ground” in regards to fossil fuels. It actively leases mineral rights to companies to extract them. As The New Yorker reports, federal policies governing massive coal deposits in the Powder River Basin of Wyoming and Montana amount to billions of dollars in subsidies to coal companies each year. The Department of the Interior could cut back on these leases and likely do a lot more to deter new drilling than a ban on crude exports ever did.
The renewables incentives
The export ban was just one side of the bargain. Lifting the ban will ultimately be negative for the earth, says David Goldston, director of government affairs at environmental nonprofit Natural Resources Defense Council, but other components of the bill amount to “big wins for the environment.”
In particular, he tells CityLab, the compromise eliminated legislative attempts by Congressional Republicans to undercut Obama’s climate change agenda and secured tax incentives for renewable energy for another five years. That’s significant because it gives solar and wind producers much more certainty about what kind of financial support they can expect, and because it nurtures those young industries until the Clean Power Plan goes into effect. The CPP requires every state to submit a final plan in 2018 to cut carbon pollution from energy production, and those plans could include incentives for renewable energy installations.
The spending deal, then, eliminates a policy that was never meant as an environmental regulation, in exchange for concrete policies to expand zero-carbon energy for the U.S. It’s too early to know exactly what a world with crude exports from the U.S. will look like, but ensuring that U.S. oil got refined in the U.S. hardly defended the climate from fossil fuels. If renewables producers use their incentives to the fullest, this bill could prove a net positive for a cleaner energy future.