By Michael McDonald, an assistant professor of finance and a frequent consultant to companies regarding capital structure decisions and investments. Originally published at OilPrice
As the U.S. Presidential campaign starts its inevitable ramp up, one issue investors should consider is each candidate’s views on energy especially since energy policy has been consistently important in recent elections.
For all of the talk about clean energy, the reality is that U.S. carbon dioxide emissions have come down primarily as a result of shale gas and oil displacing coal. Solar power is only just now getting to the point where it is cost effective versus conventional fossil fuels, and wind power is a bit further along, but still has a ways to go before it becomes a reliable generation source. Presidential candidates, especially on the left, prefer to talk more about clean energy than the benefits of fracking, but investors need to consider both aspects of energy policy.
On the Republican side, there are so many candidates that the nuances of most individual views have been lost amongst the shuffle. Nonetheless, a few trends do stand out. For instance, from front-runner Jeb Bush on down through the pack, most of the Republican group is skeptical about the impact man-kind is having on the Earth’s climate. Just about all are in favor of the Keystone XL pipeline and presumably would be supportive of more domestic fossil fuel production in general.
There are a few differences here and there, however.
For example, as governor of Florida, Bush did support various conservation efforts such as the Florida Forever Program, which focused on acquiring and preserving environmentally significant properties.
Other Republicans have offered varying degrees of opinion and proposed action on energy policy. For instance, Scott Walker of Wisconsin has come out clearly in favor of the Keystone XL pipeline as well as fracking, but he has also expressed support for a devolved set of EPA powers. The EPA as currently constructed is a national institution, but there are also state-level equivalents throughout all 50 states. Walker is in favor of removing powers from the EPA and putting them in the hands of individual states in order to create a more customized and tailored regulatory environment by region. Walker’s view is that devolving these powers would lead to greater authority at the local level and more accountability to the residents impacted by those decisions.
Chris Christie’s views appear similar to Bush’s, but Christie has also shown a pragmatic streak when forced to deal with New Jersey Democrats and when dealing with firm’s polluting the air in his state.
Louisiana Governor Bobby Jindal represents one of the states that sees substantial benefits from oil production, so it’s probably not a surprise that he is an active proponent of the importance of fracking.
Rand Paul also supports domestic fossil fuel production, but his record in the Senate is a little more extensive and offers greater insight into his views. In particular, Paul takes an “all of the above” type approach and also supports clean energy in a market-based framework. George Pataki, Donald Trump, Macro Rubio, Rick Perry, and most of the other Republican candidates have expressed similar sentiments.
On the Democratic side, front-runner Hillary Clinton is voicing support for ethanol and especially for solar power. As a former member of the Obama team, Clinton is obviously a supporter of solar, but it is unfortunate that she appears to view the key to driving further solar growth from a demand pull rather than a supply-push perspective.
Solar power and solar panels have been around for a long time, and the government has been advocating for solar for more than a decade in one form or another. Yet solar never really caught on as a major source of energy until recently. The problem for solar advocates for much of the last decade was that consumers and businesses don’t choose energy sources based on the environment or idealism. They choose based on the cost. Solar has started to take off because enough firms got into the business and pumped up supply thus depressing panel prices. Then consumers started to get interested, especially once SolarCity and others created financing models. But solar has been very much a supply push story rather than a demand pull story. A more effective solar policy from Clinton would entail incentives to encourage R&D in solar and a plan to produce solar panels domestically. Solar panels are not labor intensive as say clothing is, and thus they should be viable U.S. products.
Clinton has also avoided taking a position on the Keystone XL project saying that: “No other presidential candidate was secretary of state when this process started, and I put together a very thorough deliberative evidence-based process to evaluate the environmental impact and other considerations of Keystone. As such, I know there is a very careful evaluation continuing and that the final decision is pending to be made by Secretary Kerry and President Obama. Very simply, the evaluation determines whether this pipeline is in our nation’s interest and I’m confident that the pipeline impacts on global greenhouse gas emissions will be a major factor in that decision, as the president has said. So I will refrain from commenting because I had a leading role in getting that process started and I think we have to let it run its course.”
Most of the other Democratic candidates don’t look like they have much of a chance given Clinton’s polling numbers, but a few do have interesting positions. Based on his past voting record, Joe Biden for example appears to be against drilling in the Arctic, which could hamper Shell’s plans in the area were he to become president. Lincoln Chafee supported past efforts to licensure for renewable energy professionals which would presumably raise costs for consumers as the measure would restrict labor supply. And perhaps most significantly for investors, Andrew Cuomo of New York banned fracking in the state. If he were to become President, it’s unlikely he could do anything about existing fracked wells, but new wells could become very difficult to drill.
Bernie Sanders, Clinton’s main rival on the left at the moment, could eventually have one of the more aggressive clean energy and anti-fossil fuel platforms, given his politics, but hasn’t offered details yet. As Senator he introduced legislation calling for a carbon tax and he opposes the Keystone XL pipeline.
Overall, while it’s too early for investors to be strategizing on how to play the Presidential election and energy investment, it is definitely worth keeping an eye on the candidates for specifics and any evolution of views on the campaign trail.
