Will Energy Trump Environment in Washington?

The election of Donald J. Trump as fourty-fifth President of the United States, along with a one hundred and fifteenth Congress in which Republicans control both the House of Representatives and the Senate, signals a change in the direction of U.S. energy and environmental policies. What will this mean for the United States’ largest foreign energy supplier, Canada?

First impressions seem positive for the energy sector. Trump has granted a presidential permit for the Keystone XL pipeline. He has named former Texas Governor Rick Perry as his nominee to become Secretary of Energy; Perry is well-known in Calgary and a strong supporter of oil and gas development by conventional and unconventional means. And Trump has chosen Oklahoma Attorney General Scott Pruitt as his nominee to head the Environmental Protection Agency (EPA); Pruitt has led multi-state lawsuits against EPA regulations that infringe on state prerogatives and block economic development. Pruitt may seek to withdraw the EPA Clean Power Plan, or discontinue defending it in court.

"Trump has chosen Oklahoma Attorney General Scott Pruitt as his nominee to head the Environmental Protection Agency."

“Trump has chosen Oklahoma Attorney General Scott Pruitt as his nominee to head the Environmental Protection Agency.”

Moreover, Trump has been critical of the Paris Agreement negotiated as part of the United Nations Conference on Climate Change. By submitting the Paris Agreement to the Senate for ratification as a treaty (where it would almost certainly fail) the new Trump administration could reset global climate action, since without the United States meeting its Paris commitments, major developing countries such as China and India would not be expected to act.

The Obama administration planned to achieve substantial reductions in U.S. carbon emissions largely through regulation, including the EPA Clean Power Plan, rather than legislation. This approach is vulnerable because the Trump administration can issue new regulations, or opt not to enforce existing regulations (following a precedent set by the Obama administration on immigration policy and same sex marriages).

One rule that is especially vulnerable is the 54.5 miles per gallon fuel economy standard for motor vehicle manufacturers to meet by 2025. In a striking example of U.S.-Canada regulatory cooperation, this standard was introduced simultaneously by the United States and Canada in a coordinated effort in 2015. Facilitating this rulemaking in the United States was a cooperative effort between the EPA (which is empowered to regulate air quality, and therefore vehicle emissions) and the Department of Transportation (which has authority over vehicle standards). Congress granted the Department of Transportation statutory authority to develop fuel saving standards for vehicles provided that there was no adverse effect on safety; that authority expires in 2017, and if Congress fails to renew the statute, the 54.5 mpg target could become nonbinding in the United States, presenting Canada with a dilemma.

The uncertain future of fuel economy standards in Canada if the U.S. abandons them is an example of a larger issue: the decoupling of U.S.-Canada regulatory cooperation efforts. In December, the Obama administration issued a ban on offshore oil drilling for parts of the Arctic and Atlantic Oceans in a coordinated effort with the Trudeau government. United States’ officials argued that these bans would be nearly impossible for the Trump administration to alter, in part because they were part of a joint initiative with Canada. Yet as the crisis in the European Union illustrates, regulations that are not subject to democratic accountability threaten to undermine support for international cooperation. Canada cannot risk future cooperation with the United States by holding the line on unpopular Obama administration “midnight regulations” passed in the final weeks of Obama’s term of office.

"The uncertain future of fuel economy standards in Canada if the U.S. abandons them is an example of a larger issue."

“The uncertain future of fuel economy standards in Canada if the U.S. abandons them is an example of a larger issue.”

Still, the Trudeau government will be tempted to defend the Obama legacy in the Trump era. The Trudeau government is intellectually and politically more closely aligned with Obama than Trump, as are many Canadians. The EPA Clean Power Plan included important benefits for Canada, such as the designation of imported or domestically generated hydroelectricity as an acceptable substitute for electricity generated by coal for U.S. states. And Canadian auto sector expertise in light-weighting was helping vehicle manufacturers adapt to the 54.5 mpg standard.

The Trudeau government must adapt, however reluctantly, to the change in Washington. Neither defiance nor despair will serve the Canadian national interest well. Instead, four opportunities may give Canada a way to navigate the change and stay ahead of other global competitors.

First, the improved prospects for the Keystone XL project notwithstanding, it is more important than ever for Canadian energy resources to gain access to tidewater via new pipeline infrastructure. The enthusiasm for oil and gas in the Trump administration suggests more U.S. production and less demand for imported energy, continuing a trend that has shrunk Canadian energy exports. Canada needs alternative markets that it can only reach by sea.

Second, there will be a number of promising energy and environmental technologies at risk of losing federal and state research funding and support that was readily available during the Obama years. Ottawa and nimble provincial governments could provide a home for orphaned innovation at Canadian universities and in Canadian labs. Not all of these projects will succeed, but many would welcome the chance to continue their work in Canada, with potential benefits for the Canadian economy.

"It is more important than ever for Canadian energy resources to gain access to tidewater via new pipeline infrastructure."

“It is more important than ever for Canadian energy resources to gain access to tidewater via new pipeline infrastructure.”

Third, policymakers in both countries ought to take note of the populist discontent with elite policymaking that helped bring Trump to the White House. It should not be dismissed as mere racism or ignorance; many of Trump’s voters are baby boomers who were in their forties and fifties when NAFTA took effect in 1994. At that time, Washington and Ottawa pledged adjustment assistance to help workers who lost jobs due to trade liberalization; neither government delivered very well, and many individuals suffered and blamed NAFTA and opposed trade liberalization as a result. Yet eliminating barriers to trade had enormous economic benefits for both countries overall – clearly a case of the greater good for the greatest number, right?

From an economic perspective, yes; from a social justice perspective, no, because some of each country’s most vulnerable workers paid a disproportionate price for the gains the rest enjoyed.

Environmental policies face a similar challenge. Energy demand for most households is inelastic in the short term. If new LED light bulb standards raise the price of a bulb from 50 cents to five dollars, and gas taxes raise the cost of filling up a car, for many that comes out of household income displacing discretionary expenditures on things like vacations or school tuition, or maybe the grocery budget. Yes, new appliances or even a new car could pay for themselves in energy savings over the medium term if you can afford the upfront capital expenditure and short term input price increases, but for working families on a tight budget, this isn’t realistic.

The Trump administration has pledged to renegotiate NAFTA, and seek a new approach on environmental policy. Canadian policymakers could argue for retaining the original goals of these policies while making the policies themselves fairer to vulnerable citizens. Such an approach has the potential to appeal to Trump, and to make progress on trade and the environment more politically and economically sustainable.

This is a first step toward seizing a fourth opportunity for Canada: keeping the United States engaged with global efforts that date back to the end of World War II. A nationalist, mercantilist United States would undermine the postwar economic order that has helped Canada to prosper. As leaders in other capitals fret and explore second-best options with China or Russia, the Trudeau government is in what may be the best position to study and understand what is driving the United States to question the world order it has fostered. Particularly with climate change, global action without the United States is doomed to failure; rather than give up, Canada should step up, and work to bridge the gap between the United States and its allies.

"The Trudeau government is in what may be the best position to study and understand what is driving the United States to question the world order it has fostered."

“The Trudeau government is in what may be the best position to study and understand what is driving the United States to question the world order it has fostered.”

Energy may trump environment in Washington for a time, but Canadian diplomacy has a strong hand to play, and can take a few tricks in 2017 if it plays that hand well.

Christopher Sands is Senior Research Professor and Director of the Center for Canadian Studies at the Johns Hopkins University School of Advanced International Studies, the G. Robert Ross Distinguished Visiting Professor in the College of Business and Economics at Western Washington University, and a nonresident Senior Associate of the Center for Strategic and International Studies.