Business Battles in the US Energy Sector

Lessons for a Clean Energy Transition

Christian Downie

• Publisher: Routledge
• Year: 2019
• ISBN:
  9780429687877
• Edition: 1
• Topic: Business
• Subtopic: Energy Industry
• Index: Business

This book is ground breaking in its study of business actors in climate and energy politics. While various studies have demonstrated the influence of business actors across multiple policy domains, this is the first to examine the behaviour of business actors in energy centric industries in the US that will be vital for achieving a clean energy transition, namely the oil, gas, coal, utility, and renewable industries.

Drawing on almost 80 interviews with senior energy executives, lobbyists, and policymakers, it asks two central questions: (i) how and why are business actors shaping energy policy contests in the US? And (ii) what are the implications for policymakers? In answering these questions, this book provides new insights about the preferences and strategies of business in the energy sector, and, significantly, it identifies strategies for policymakers seeking to regulate energy in the face of political resistance from incumbent fossil fuel industries.

This book will be of particular value to students, scholars, and policymakers working in the fields of energy, climate, and environmental politics, as well as individuals generally interested in the role that business exerts over policy processes.

1 Introduction

Stories from the US energy sector

If the world is to achieve a clean energy transition, the role of the US will be crucial. Not only does the US have enormous global influence, but it is also the largest producer of oil and gas with the largest reserves of coal on the planet. But this is not a book about the US state per se, rather it is about business actors in the US energy sector. This is because without overcoming the political resistance of incumbent fossil fuel industries, it is almost impossible to imagine an energy transition occurring. After all, if policymakers in the US and around the world are to succeed in their attempts to regulate energy and limit greenhouse gas emissions, they will not only need to overcome the resistance of industries that have generated great wealth from burning fossil fuels, but they will also need to build and expand support among renewable energy industries, such as wind and solar power.

In this context, it is important to understand business behaviour. Numerous studies have demonstrated the influence of business actors across multiple policy domains, including in environmental politics. Yet there is less literature on the behaviour of business actors in individual energy-centric industries, namely the oil, gas, coal, utility, and renewable industries (Levy and Kolk, 2002; Meckling, 2011; Skjaerseth and Skodovin, 2003; Newell and Paterson, 1998). And, few studies, if any, have examined the behaviour of business actors in individual energy-centric industries in contemporary policy contests in the US. This book seeks to redress this gap not only to improve our understanding of business behaviour in this critical sector, but also to draw out lessons for policymakers seeking to regulate these industries.

Contemporary policy contests in US energy sector provide an excellent window into business behaviour in the above industries.

* * *

On 7 January 2014, a cold, frigid day in Washington DC, oil and gas executives from around the country gathered for lunch. The occasion was an annual one, the launch of the American Petroleum Institutes’ (API) State of the Energy report. Inside the beltway, gatherings like these are a regular affair, but the API is not a regular industry association. It is arguably the most powerful industry association in the most powerful sector of the US economy, the oil and gas industry. Its more than 500 members have combined revenues in the trillions of dollars and include some of the world’s largest corporations, such as ExxonMobil, Chevron, and Shell. When the API speaks, Washington listens.

As the attendees sat down to lunch, the speaker was a familiar face, Jack Gerard, President and CEO of the API. Gerard is an old hand in Washington, having led the American Chemistry Council and the National Mining Association prior to his ascendency at the API. This was not his first State of the Energy report, but this year was different. The oil and gas industry was booming. As a result of the shale revolution, the US had overtaken Russia as the largest gas producer in the world and it was now on track to do the same for oil. There was only one problem; the export of US crude oil was banned and had been since 1975 and the OPEC oil crisis (GAO, 2014).

Many in the room were determined to change that. Jack Gerard assured them that the API would lead the charge.

We will decide if America continues its march toward global energy leadership – a once in a generation choice – or remains content to play a supporting role in the global energy market. We can erase what for decades has been America’s greatest economic vulnerability – our dependence on energy sources from other continents, particularly from less stable and friendly nations – and fundamentally alter the geopolitical landscape for decades to come, all while providing a much needed boost to our economy. But only if we get our energy policy right.

(Gerard, 2014)

The right energy policy was to put an end to the de facto ban on crude oil exports. In the months that followed, the API and its members would spend hundreds of millions of dollars making sure that happened. The API was supported by some powerful allies. The next day the US Chamber of Commerce declared its support calling for the ban to be lifted (Mundy, 2014a). Others soon joined, but not everyone was happy. Some in the industry, particularly oil refiners, believed they had much to gain from keeping crude oil on American shores. Exports, they argued, would only increase domestic oil prices and with it their costs of production. But the stage was set; many of the most powerful corporations and associations in the US had begun to mobilise to repeal a law that had been in place for 40 years.

* * *

Mike Duncan, like Jack Gerard, was another journeyman in Washington DC having made his name in the Republican Party in the 1980s and 1990s and ultimately becoming chairman of the Republican National Committee in 2007. Now he was President and CEO of the American Coalition for Clean Coal Electricity (ACCCE), an industry group formed in 2008 to promote coal. But the industry he represented was not in the same shape as oil and gas; coal was not so much booming as busting. In the US coal production is declining, the number of producing mines is declining, productive capacity is declining and the number of employees at coal mines is declining (EIA, 2016a). And thanks in part to the shale boom, its share of electricity generation has fallen from more than half in 1990 to around a third today (EIA, 2017b: 74). The problem for Mike Duncan and the coal industry was that this decline was being accelerated by what they claimed was President Obama’s ‘war on coal’. On 25 June 2013, fresh from his second inauguration, President Obama launched the latest battle in this so-called war by targeting pollution from coal-fired power plants. Unlike Jack Gerard who was advancing his troops, Mike Duncan was holding the line. A day after the announcement, Mike Duncan went to the offices of the Business Roundtable, which stand in the shadow of the United States Congress on New Jersey Avenue, to deliver his war cry. In attendance were many of the most powerful coal and utility firms in the country, including Peabody Energy and Southern Company.

Yesterday’s news on carbon regulations was a disappointment, but not a surprise. We have seen this threat coming down the road for a while, and yesterday it finally knocked on our door. The President views this as a ‘legacy’ issue. And on this point, he and I agree. But that ‘legacy’ is going to be higher energy costs, less reliable electricity, lost jobs and a shattered economy. Even before the President’s call for carbon regulations the EPA was extracting pound after pound of flesh from the coal industry.… Our industries can only endure so much. Our economy can only endure so much. The fight before us will come in two stages, one inside the Beltway and one outside. The first round will be fought here in Washington, as public comments are gathered. The second will take place at the state level, as state governments develop plans to meet the proposed standards.

(Duncan, 2013)

It was not the last time Mike Duncan would give this message. Indeed, he would deliver it again, and again, as the war on coal raged and the coal industry fought the administration. Given that coal contributes more greenhouse gas emissions than any other fossil fuel, the battles would have enormous implications for climate change.

* * *

For Rhone Resch it was a battle of a different kind. For more than a decade he had been President and CEO of the Solar Energy Industries Association (SEIA), the peak industry association for solar. Unlike Jack Gerard and Mike Duncan, Rhone Resch was not the same type of Washington journeyman, but he knew the city well enough having served at the EPA in the Clinton administration and worked for the Natural Gas Supply Association. However on 20 October 2014, Rhone Resch was far away from Washington DC, in Las Vegas, Nevada. The reason was the Solar Power International Expo, which his organisation co-hosted. On a warm Las Vegas afternoon, as he stepped out to deliver the keynote address, he was greeted by representatives from hundreds of solar firms, including some of the largest in the world. The solar industry was flourishing in the US. Solar was adding more new capacity than wind. One of the reasons was the Investment Tax Credit (ITC). Established in 2006, it reduced federal income taxes by 30 per cent for capital investments in solar systems on residential and commercial properties. Since the ITC was created, annual solar installations had grown by more than 1,600 per cent, transforming the industry from an $800 million industry in 2006 to a $15 billion one in 2014. Yet the tax credit was due to expire in 2016 and many in the industry feared the worst. The wind industry had been devastated by uncertainty over a similar tax credit the year before. As a result, the solar industry wanted to extend the ITC.

Today, I’m going to make you a promise: As sure as World War I started in 1914, if the Koch Brothers and their allies come after solar, 2014 will be the beginning of World War III. It’s not going to be easy. And, yes, we will be fighting an uphill battle every step of the way.… So today is the official kick-off of our efforts to extend the 30 per cent solar ITC past 2016. Despite the craziness in Washington, D.C., I believe we can win. But being in Vegas should also remind us that we’re facing some pretty tough odds again. Make no mistake about it. This absolutely is going to be a long, hard, uphill battle. But by sticking together – and working together – we can be successful once again, just as we were nearly a decade ago.

(Resch, 2014)

Rhone Resch’s words may have been exaggerated, but like any good general he was there to rally the troops. While the extension of the ITC may not have been a question of survival for the solar industry, its expiration would no doubt harm it, which is what many in the oil, gas, coal, and utility industries wanted. This was more than just a battle over a federal tax credit. It was also symbolic of a larger war between the new kids on the block in the renewable industries and the incumbents in the fossil fuel industries that had dominated US energy policy for the last 100 years.

* * *

As these examples show, business actors are actively engaged in policy contests across the US energy sector and there is little doubt that they are having an impact. To be sure, numerous studies have demonstrated the influence of business actors across multiple policy domains, yet less work has focussed on the domain of energy (for a review of this literature see Clapp and Meckling, 2013; Tienhaara, 2014). This is somewhat of a surprise given that business actors in the energy sector are central to the problem. In fact, recent evidence shows that just 90 companies are responsible for two-thirds of global greenhouse gas emissions and many of these operate in the US. They include Chevron, ExxonMobil, BP, Shell, ConocoPhillips, and Peabody Energy, all of which have significant US operations. Indeed, together these companies have been responsible for around 13 per cent of all global carbon dioxide and methane emissions since 1751 (Heede, 2014).

Accordingly, in this book, I ask two central questions: (i) how and why are business actors shaping energy policy contests in the US? And (ii) what are the lessons for policymakers? To answer these questions I examine the role of business actors in the oil and gas industries, coal and utility industries, and wind and solar industries across six contemporary policy contests that have taken place during the Obama administration (2009–2016). An exclusive focus on business actors enables a closer analysis of how and why business actors succeeded in exerting influence over the policy process. For example, how and why did oil and gas producers seek to lift the ban on oil exports? How did they seek to frame the contest? Did they lobby, or develop other strategies? And if so, why? Given that resistance from fossil fuels industries to regulation, including oil producers, could delay and even derail government attempts to achieve an energy transition, understanding how these actors behave is of critical importance (Hess, 2014).

Finally, in answering these questions the aim is to build on the empirical insights to identify specific strategies for policymakers seeking to overcome the political resistance of these incumbent industries, and build coalitions in support of policies that encourage the widespread deployment of clean energy, and crudely speaking, reduce the reliance on dirty energy. While the focus is on policy contests in the US, as an energy superpower what happens in the US will have a ripple effect around the world as policymakers in other nations grapple with the same task.

The energy challenge

The global challenge

The climate is changing, and the cause is greenhouse gas emissions. Since the Industrial Revolution, greenhouse gas emissions have increased every year and as a result so too has the temperature of our atmosphere and our oceans. Each of the last three decades has been warmer than any decade since 1850 (IPCC, 2014) and 2016 was the hottest year in recorded history, the third year in a row to record this mark (NASA, 2017). The impacts have been felt around the world including sea level rise, storms, droughts, fires, floods, and famines, not to mention widespread extinctions. Without action, it is projected that global average temperatures will rise by between 4°C and 5°C by the end of the century, rendering parts of the globe uninhabitable (IPCC, 2014).

To avoid the worst impacts of climate change, global temperatures must be kept ‘well below’ 2°C and ideally below 1.5°C. This is the overarching aim of the Paris Agreement, which was signed in 2015, entered into force less than 12 months later in November 2016, and has now been ratified by 178 nations (UNFCCC, 2018). This is a significant achievement given that it took almost a decade for the Kyoto Protocol to come into force, the last major climate agreement signed in 1997. To achieve this aim, parties to the Paris Agreement have completed national plans – or intended nationally determined contributions (INDCs) – that set out the actions they will take to reduce emissions, such as limiting deforestation or reducing their reliance on coal (UNFCCC, 2015). Many nations, including China, the largest emitter in the world, are on track to meet the targets set out in their INDCs (IEA, 2016b).

However, even if the Paris Agreement is fully implemented, the United Nations estimates that the world will remain on track to increase global average temperatures by 3.2°C by 2100, well above the 2°C limit scientists have warned is necessary to avoid climate catastrophe (UNEP, 2017: xviii). In order to achieve the 2°C target, global greenhouse gas emissions must peak almost immediately and decline sharply to 2100 (Figueres et al., 2017). No easy task, remembering that emissions have risen every year since the Industrial Revolution, and they continue to do so, albeit more slowly. Such is the challenge that most scenarios that seek to limit emissions to below 2°C or 1.5°C assume the deployment of negative emissions technologies. For example, scenarios often combine carbon capture and storage technologies with biomass energy, which permanently remove carbon dioxide from the atmosphere. While such technologies are technically possible, their deployment at scale is untested (Rogelj et al., 2016).

In this context the International Energy Agency (IEA) has long argued that the world needs an ‘energy revolution’, which results in a rapid transformation to a low carbon system of energy supply (IEA, 2008). As the source of more than two-thirds of global greenhouse gas emissions, it is not hard to see why transforming the energy sector will be crucial (IEA, 2015a). Yet just over 80 per cent of the world’s primary energy supply continues to be met by fossil fuels, and, strikingly, this has hardly changed in 40 years. In 2015, oil’s share was 31.7 per cent, coal 28.1 per cent and gas 21.6 per cent. Furth...

Table of contents

• Cover
• Half Title
• Series Page
• Title Page
• Copyright Page
• Table of Contents
• List of figures
• List of tables
• Preface
• Acknowledgements
• List of abbreviations
• 1 Introduction
• 2 Understanding business preferences, strategies, and influence
• 3 Exporting to the world: policy contests in the oil and gas industries
• 4 The war on coal: policy contests in the coal and utility industries
• 5 The rise of renewable power: policy contests in the wind and solar industries
• 6 Re-thinking business behaviour in the US energy sector
• 7 What should policymakers do?
• References
• Index