Budget bill would lift ban on crude exports and incentivize renewables

Months of bickering results in $1.1 trillion package to fund most of what the federal government does.

 

As the months-long negotiations over the federal budget neared their climax, Senate Democratic leader Harry Reid sent out a tweet. After all that wrangling, the hang-up was about two issues, each important to the energy future of the American West. “We have 2 paths,” piped Reid’s Twitter feed in the waning hours of the budget negotiations Tuesday. Negotiators could “pair” the GOP demand to lift the ban on exporting crude oil with incentives Democrats want for renewable power that would “reduce carbon emissions.” Or they could go without both.

As it happened, Republicans walked away with an end to a 40-year ban on the export of crude oil. In exchange, Democrats won five-year extensions of key subsidies for wind and solar energy. (Democrats also secured three years of funding for the Land and Water Conservation Fund, a widely popular conservation program, which, as HCN has reported, Congress let expire this fall.)

Wind farm near Palm Springs, California.
Chris Goldberg, CC/Flickr

The fact that the crude export ban and renewable energy benefits were so central to negotiations over a $1.1 trillion bill to fund much of the federal government shows the prominence of energy issues for both political parties. It also reveals the influence the oil industry still wields over Republicans and some Democrats from petroleum states, despite the new international climate change agreement adopted by 195 countries in Paris just days before.

The House and Senate are expected to approve the package when they vote on it as early as Friday. But not everyone was pleased. Rep. Raul Grijalva, D-Arizona, says the lifting of the export ban in exchange for renewable energy incentives was not a good deal for his side or the environment. What Republicans and the fossil fuel industry won was a permanent policy change to benefit a dirty fuel. By contrast, Democrats won only five years of incentives for clean energy. “This deal gives oil drillers an enormous policy win that does our economy no good and threatens the climate progress made in Paris,” Grijalva said. “This was not crafted to help the nation; it was crafted to help well-connected political donors.”

The Chembulk New York leaving Le Havre Harbor, France.
Rennett Stowe, CC/Flickr

At least in the short run, it’s not clear that the export ban would have a big impact on pump prices, climate change or Western petroleum producers. World oil prices currently are so low that it wouldn’t make sense for American producers to ship much of their oil, some analysts say. Light sweet crude is selling for less in Northwest Europe than in the U.S. Gulf Coast. Plus it costs $3 per barrel to ship to Europe. “Spending three dollars in order to lose money is not something sane people do,” Michael Levi, an energy and environment expert at the Council on Foreign Relations think tank, writes.

But over the long-term, both supporters and opponents say lifting the ban will create new markets for oil producers in the West. Opponents argue that there will be a big environmental cost of that additional drilling, while supporters point to the economic benefit in terms of jobs and revenue. Analysis by IHS, an industry research firm, projects lifting the ban would result in growth in jobs and revenue in several Western states, including California, Montana, Colorado, New Mexico and Arizona.

Lifting the ban will add U.S. crude to international markets, which may swell supplies and reduce international oil prices. U.S. pump prices, which are tied to international oil prices, may drop as well, as HCN has reported. Cheaper gasoline could encourage people to drive more in the U.S. and abroad, which would increase greenhouse gas emissions.

But incentives for wind and solar in the budget bill could reduce greenhouse gases by making renewable power more competitive with other sources of electricity. Renewable power developers say the budget deal offers encouragement to install new projects before the tax benefits disappear. “I think this will enable significant additional development of renewable energy. It changes the financial viability of certain projects,” says Bill Miller, president and CEO of Power Company of Wyoming. Miller’s company could benefit directly because, as HCN has reported, it’s planning to build the massive Chokecherry and Sierra Madre wind farm on a patchwork of private and federal land in Wyoming.

By expanding the tax credits for five years and setting a schedule to phase them out, the deal would free renewable power developers from a boom and bust cycle that has long hampered their industry. In the past, Congress has frequently let renewable tax credits expire or renewed them at the last minute for just one more year. This unpredictability has discouraged investors.

Before the agreement was announced, analysts predicted a big burst of solar installations in the U.S. next year, followed by a big drop in 2017 after the investment tax credit expired.  Those analysts quickly revised their projections on Wednesday, predicting continued growth in solar installations in the U.S. and globally through 2017. “The result of the extension to the solar ITC is not just good news for the U.S. solar market, but is a net positive for the global solar industry as a whole,” IHS solar energy analysts wrote. The Solar Energy Industries Association estimates the extensions could translate into 140,000 new solar industry jobs.

Perhaps as consequential for conservation in the West is what the budget package does not include. The measure lacks scores of anti-environmental riders that Republicans had wanted, among them provisions requiring the U.S. Fish and Wildlife Service to delist the gray wolf under the Endangered Species Act and another to restrict the Environmental Protection Agency from using federal dollars to implement its new rule to protect wetlands and streams. 

In the budget negotiation, the clearest winner among conservation programs would be the Land and Water Conservation Fund, which would be funded at $450 million, nearly $150 million more than the previous year. Supporters say they will keep pressing to get Congress to fully fund the program and to make it permanent. “I will keep fighting to make the program permanent,” said Sen. Tom Udall, D-NM, “so it can finally live up to its potential.”

Elizabeth Shogren is HCN's DC correspondent.