Ep. 92: Why the Trump Administration is Rolling Back a Climate Rule that Big Oil Actually Likes
Trump's EPA recently announced that it was rolling back yet another big Obama-era climate rule. This time, the target was a rule on oil and gas emissions of methane, the powerful greenhouse gas that is the main component of natural gas. The Obama administration created the rule in 2016 and some big oil companies actually wanted the administration to keep it. But the Trump administration did away with it anyway. Why?
Host Reid Frazier talks with Tim Puko, who covers energy policy at the Wall Street Journal. He explains that there is a legal strategy at play aimed at future climate regulations.
Listen to the full episode or read the transcript below:
(this interview has been edited for clarity and length)
Why Change a Rule Big Oil Likes?
Reid Frazier: What did the initial rule say and why did the Obama administration create it?
Tim Puko: Let's start from the beginning. This came about in 2016 during President Obama's second term. There was a major push for new climate initiatives during that time. And methane was one of the top concerns. The administration had already done rules for emissions from power plants and from cars and trucks, the two biggest contributors to greenhouse gas emissions for the United States.
But there was also major concern about methane and the methane specifically coming from the oil and gas industry. Methane is an incredibly potent greenhouse gas. It accounts for about 10 percent of all emissions. The oil and gas industry had long been its largest source. Drilling, of course, has been on the rise because of fracking.
The third of the big Obama-era climate policies was wiped away.
The Obama administration targeted the oil and gas industry to try to stop those methane emissions. The core of it is a bunch of requirements that oil and gas companies check for leaks, specifically targeting methane, and repair those leaks to make sure those emissions are not seeping into the atmosphere. So all that happened in 2016.
When Trump became president, his administration started trying to get rid of it right of way. They have a negative view of pretty much all climate policy and specifically felt this one unfairly hurt the oil and gas industry.
The president has been adamant about boosting output of oil and gas and was concerned that the expense of these rules, especially for smaller and mid-sized companies, would reduce the amount that those companies are drilling all across the country. They made it a priority to roll these back. It took them awhile, but that is eventually what they did. So the third of the big Obama-era climate policies was wiped away.
Frazier: But I understand that some big oil companies didn't want the administration to do away with it. Can you explain that?
Puko: Climate is central to all this. One of the reasons that the U.S. and many other places around the world have switched to using so much natural gas is that its emissions are lower than the fuel that it replaced — coal. But there is a concern. The benefits of making that switch from coal to gas are dramatically reduced, if not wiped out totally, if there are really severe methane emissions from the oil and gas industry, from all these pipelines all across the country.
There is a concern that shipping U.S. gas abroad is going to be really hurt if the consumers elsewhere in the world don't think that the U.S. is doing a good enough job at regulating those emissions.
In the end, it becomes a bottom-line concern. The major companies have invested billions of dollars not just in producing gas, but also in export terminals and import terminals around the world. They want to take this gas and be able to ship it to whatever market is going, to pay the highest price.
Europe is one logical destination, but Europe is much more concerned about climate change than the current U.S. administration is, and has been pushing to limit Europe's consumption of fuel that is heavy on greenhouse gas emissions. There's a concern that other countries around the world will take a similar stance as climate concerns grow.
So for BP and Shell, which are based out of Europe, even Exxon, which is based in the U.S., there is a concern that shipping U.S. gas abroad is going to be really hurt if the consumers elsewhere in the world don't think that the U.S. is doing a good enough job at regulating those emissions.
Frazier: It does beg the question, if these oil companies like the rule and a majority of Americans want the government to act on climate change, why take it away?
Puko: One of the major driving forces of this administration is that it wants to help mid-sized companies and smaller companies. This is a nuance that I try to remind people of all the time. It is not necessarily a business-friendly administration. It is an administration friendly to a certain type of business. You've seen this play out in all types of policies.
If they can roll back regulations that actually help smaller companies, but might kind of hurt larger companies, that's even better for them. That's something that they want to do.
EPA administrator Andrew Wheeler, when he was speaking in Pittsburgh, he was very blunt about the fact that they see these smaller companies as core to the U.S. economy. To some degree, they have a really legitimate point. A lot of these large companies like regulation and they like complex regulation because they're the ones with the balance sheets that are big enough to pay for all this stuff.
The smaller companies have less money to do that. The Trump administration would also tell you that a lot of the innovation in fracking comes from smaller companies. So if they can roll back regulations that actually help smaller companies, but might kind of hurt larger companies, that's even better for them. That's something that they want to do.
Legal Precedent for Greenhouse Gas Regulations
Frazier: So let's talk about the long term ramifications of this rule. Is there a longer legal argument that the administration is trying to put together with reference to climate change?
Puko: So we talked about methane and why that's important. But there is a bigger game here and it ties back to other priorities that have been at the top of the administration's list. I mentioned his aversion to regulations that are based on climate change. His administration is full of people who share that philosophy.
A little bit of history to help understand how this plays out is that one of the pivotal court rulings in the history of environmental policy (and climate change policy in particular) is Massachusetts vs EPA in 2007, which said that greenhouse gas emissions are essentially air pollutants that EPA has to regulate under the Clean Air Act.
The EPA followed that up in 2009 with what we know as the Endangerment Finding ruling that, in fact, those greenhouse gases do create a danger to public welfare and public health. That ruling and that policy combined have created the precedent that the EPA should be regulating greenhouse gas emissions.
So even if Trump wants to get rid of those regulations, a huge challenge for his administration is this legal precedent. It handcuffs them in a real way where they can't just get rid of these rules without addressing that.
Frazier: So they clearly don't like climate regulation on ideological grounds, but certainly also just material grounds. It costs companies money to not pollute in that way.
Puko: Those are costs that get passed on to the consumer, too. That's also part of the fear that more climate regulation makes all forms of energy, which are cheap now, more expensive for the average consumer.
Shrinking Definition of Oil and Gas Production
Frazier: Good point. Fair enough. So they're against these climate regulations, but the law says you got to regulate this stuff because it's bad for public health. That's what the EPA does. It regulates things that are bad for public health like soot or ozone. Carbon dioxide and other greenhouse gases are part of that mix of things you got to regulate. So how are they getting around that?
Puko: They are seizing on part of the Clean Air Act that requires EPA to regulate air pollutants from industrial sources. If I can remember the exact words, that ‘either cause or contribute significantly to a danger to public health and public welfare.’ There is a thought that maybe a lot of these greenhouse gas emissions that have been on the block for regulations aren't that significant. Climate change is a global problem. Emissions come from everywhere.
I mentioned that methane emissions, on the whole, are equivalent to 10 percent of U.S. emissions. But that's not only oil and gas, depending on how you define the oil and gas sector. The oil and gas sector would claim that you should really just think about their wells, that EPA policy in the past has only thought of the oil and gas sector as oil and gas production. So they'd say that, well, in the end, oil and gas production itself only accounts for 1.2 percent of those emissions. I think the U.S. makes up about 15 percent of emissions worldwide. So if you're talking about emissions that are only one percent of 15 percent of the world's emissions, you can start shrinking the appearance of that number very quickly.
If this all sounds tough to digest, there is a lot of legal maneuvering going on here. But what they're saying is that the more that you try to regulate greenhouse gas emissions in the U.S., you're zooming in on contributors of those emissions that look smaller and smaller in the world stage, and that getting rid of any of them does not show significant improvements in a global issue.
Again, it depends on how you define the word ‘significant.’ What they're doing is trying to create a test for that. If your test goes through the logic that I just laid out, then you might get to a world where almost none of these emissions are significant and therefore there are no legal grounds for applying emissions limits on any of them. That is the thought that they're following here.
Tim Puko covers energy policy at the Wall Street Journal.
