Current and Future Pathways for U.S. Energy (and Environmental) Policy

Transcription

1 BEIJING BRUSSELS CHICAGO DALLAS FRANKFURT GENEVA HONG KONG HOUSTON LONDON LOS ANGELES NEW YORK PALO ALTO SAN FRANCISCO SHANGHAI SINGAPORE SYDNEY TOKYO WASHINGTON, D.C. Current and Future Pathways for U.S. Energy (and Environmental) Policy The Automotive & Fleet Leasing Association 2012 Annual Meeting San Antonio, Texas September 11, 2012 Timothy K. Webster (202) ;

2 Agenda Energy Policy Pressures State of Petroleum, Natural Gas, and Electricity Mobile Source Regulatory Initiatives Impacting Energy Fuel economy standards Emission standards Renewable fuels State standards Other Pressure Points Take Aways 2

3 3 Energy Policy

4 Now: 83% of Energy Consumption is Fossil Fuels Renewable 8.2% 2010 total U.S. energy use = 98.0 quadrillion Btu Primary energy demand by fuel Nuclear 8.6% Petroleum 36.7% Electricity Commercial 14.3% Primary energy demand by sector Electricity Industrial 10.4% Industrial 20.4% Coal 21.3% Natural gas 25.2% Source: EIA, Annual Energy Review Electricity Residential 15.6% Residential and Commercial 11.2% Transportation 28.1%

5 Future: Slow Grown, Increased Efficiency U.S. primary energy consumption quadrillion Btu per year History % 1% 25% Shares of total U.S. energy Projections Renewables (excluding liquid biofuels) Liquid biofuels Natural gas 11% 4% 26% 9% 21% Nuclear Coal 9% 20% 37% Oil and other liquids 32% 5 Source: EIA, Annual Energy Outlook 2012

6 What s Driving Energy Consumption? EIA reports that first quarter CO2 emissions from energy use fell to lowest level since 1992 What are the drivers? Decline in heating demand due to mild winter Decline in coal consumption due to low natural gas prices Decline in gasoline demand Conclusion market forces and weather can play a large role Comparative pricing between energy alternatives Significant weather impacts (e.g. ongoing drought) 6

7 7 The Petroleum Update

8 Imports Down; Natural Gas and Biofuels Up U.S. liquid fuels supply million barrels per day History 2010 Projections 5% Biofuels including imports 10% 36% Natural gas plant liquids 12% 15% Petroleum production 36% Liquids from coal 1% 49% Net petroleum imports 36% 8 Source: EIA, Annual Energy Outlook 2012

9 Reliance On Imports Drops Significantly U.S. liquid fuel supply million barrels per day History Projections Consumption Net petroleum imports 60% 49% 36% Domestic supply 9 Source: EIA, Annual Energy Outlook 2012

10 Wide Range of Potential Future Oil Prices annual average price of light low sulfur (LLS) crude oil real 2010 dollars per barrel History 2010 Projections High Oil Price AEO2012 Reference Low Oil Price 10 Source: EIA, Annual Energy Outlook 2012

11 Wide Range of Potential Future Oil Prices annual average price of light low sulfur (LLS) crude oil real 2010 dollars per barrel History 2010 Projections High Oil Price AEO2012 Reference Low Oil Price 11 Source: EIA, Annual Energy Outlook 2012

12 12 The Natural Gas Update

13 The Shale Gas Revolution Major driver of changes in stationary source energy consumption Contributor to current low prices of natural gas Important to domestic energy and environmental policy Many environmental and community concerns 13

14 Major Increase In Shale Gas Production U.S. dry gas production trillion cubic feet per year History 2010 Projections 23% Shale gas 49% 2% 26% 9% 9% 10% 21% Tight gas Non-associated offshore Coalbed methane Associated with oil Non-associated onshore Alaska 1% 22% 7% 6% 6% 9% 14 Source: EIA, Annual Energy Outlook 2012

15 U.S. Poised to Become Net Exporter of Natural Gas 30 U.S. dry gas trillion cubic feet per year History 2010 Projections Consumption Domestic supply Net imports Source: EIA, Annual Energy Outlook

16 16 Wide Range of Future Natural Gas Prices

17 But Transportation Use of Natural Gas Will Remain Small U.S. dry gas consumption trillion cubic feet per year History Projections 31% 34% Electric power 33% 32% Industrial* 13% 14% Commercial 3% 3% Transportation** 21% 17% Residential *Includes combined heat-and-power and lease and plant fuel. **Includes pipeline fuel. Source: EIA, Annual Energy Outlook

18 18 The Electricity Update

19 Growth of Electricity Generation Continues to Slow percent growth (3-year rolling average) History 2010 Period Annual Growth 1950s s s s s Projections Source: EIA, Annual Energy Outlook 2012

20 Move to Lower Carbon Options electricity net generation trillion kilowatthours per year 2010 Natural gas 28% 24% 10% Renewables 15% 20% Nuclear 18% Oil and other liquids 45% 1% Coal 38% 1% 20 Source: EIA, Annual Energy Outlook 2012

21 Major Increase In Renewables non-hydropower renewable generation billion kilowatthours per year 2010 Advanced biofuels cogeneration Power sector Biomass Industrial CHP Wind Solar Geothermal Waste 21 Source: EIA, Annual Energy Outlook 2012

22 22 Greenhouse Gas Regulation

23 GHG Primer Contributors to domestic GHG emissions --EPA % of CO2 is from the transportation sector --EPA 2010 Fuel CO2 emissions by fuel type (kilograms per million Btu) --EPA 2010 Bituminous coal Petroleum coke Kg CO2/ mmbtu Natural gas 53.0 Gasoline 70.1 Biodiesel 73.8 Ethanol

24 Transportation Energy Consumption By Type of Vehicle U.S. transportation energy consumption million barrels per day oil equivalent History 2010 Projections 18% Heavy-duty vehicles 66% Light-duty vehicles 2% 9% 5% Air Marine Rail 24 Source: EIA, Annual Energy Outlook 2012

25 GHG Roadmap Petition for regulation of CO2 emissions from cars Denial by EPA Denial by the D.C. Circuit Reversed by the Supreme Court CO2 is a pollutant LDVR Endangerment Rule Heavy-Duty Vehicle Rule LDVR2 Challenges denied by D.C. Circuit Supreme Court? D.C. Circuit Challenge Pending Challenge? 25

26 EPA GHG Rules Endangerment Finding Rule Final Rule - December 15, 2009 Light-Duty Vehicle Rule Standards MY Final Rule May 2010 Combined EPA/NHTSA standards Light-Duty Vehicle Rule Standards 2 MY Final Rule August 2012 Average fleet standard of 54.5 mpg MY16: 35.5 mpg MY25 vehicle would emit ½ GHGs of MY10 Medium & Heavy-Duty Truck/Engine Standards MY Final Rule September 2011 Combined EPA/NHTSA standards Fuel Economy CO 2 26

27 LDVR2 What if today s models were built in 2025? Model 2012 mpg 2025 mpg* Honda Fit 27 city/33 highway 61.1 Ford Fusion (non hybrid) 22/ Chrysler /27 (3.6 L 5-spd) 48 Ford Escape (4WD) 21/28 (2.5 L auto 6-spd) 47.5 Nissan Murano 18/ Toyota Sienna (2WD) Chevy Silverado (4WD) * EPA estimates; city/highway not specified 27 19/24 (2.7 L) /18 (4.3L 4-spd) 33

28 LDVR2 (cont.) No standards yet for time traveling DeLoreans 28

29 U.S. light car and truck sales millions 20 Gasoline-only Vehicles Without Hybrid Technologies Decline As A Share Of New Vehicle Sales Gasoline-only vehicles without hybrid technologies E85 flex fuel Mild hybrid electric Diesel Hybrid electric Plug-in hybrid and all-electric Gaseous and fuel cell Source: EIA, Annual Energy Outlook

30 Energy-Related CO 2 Emissions Don t Return to Pre- Recession Levels for at Least 25 Years billion metric tons carbon dioxide History Projections Energy-related CO 2 emissions % change from % -3.2% 30 Source: EIA, Annual Energy Outlook 2012 Early Release

31 Congressional Action to Address GHGs Prospects have steadily diminished, mid-2009 to the present American Clean Energy and Security Act (Waxman-Markey) Passed U.S. House June 26, 2009 American Clean Energy Leadership Act (Bingaman) Passed Senate Energy & Natural Resources Committee July 16, 2009 Clean Energy Jobs and American Power Act (Boxer-Kerry) Introduced September 30, 2009 Kerry-Graham-Lieberman bill Graham abandoned process April 2010; bill never acted on Cap and trade now seems moribund Attempts at targeted bills (utility only, RPS only) as well as bills going in the other direction (e.g., Rockefeller bill to slow or stop EPA action) may continue 31

32 32 Renewable Fuels

33 Renewable Fuel Standard ( RFS ) Established in 2005 Energy Policy Act and revised Energy Independence and Security Act of 2007 Mandates sale of significant volumes of four types of renewable fuels: renewable fuel, advanced biofuel, cellulosic biofuel, and biomass-based diesel To qualify, fuels must have low lifecycle greenhouse gas emissions, which include all emissions related to production of the fuel Sets minimum volume requirements for blending renewable fuels with gasoline and diesel fuel Total volume increasing from 9 billion gallons (2008) to 36 billion gallons (2022) Minimum volume requirements for specific fuel categories EPA approval of renewable fuels based on life cycle analysis Creation of Renewable Identification Number (RIN) trading program Monetary penalties for failing to meet fuel blending targets EPA adopts a rule each year that requires refiners to sell specified percentages of each fuel type 33

34 Biofuels fall short of the RFS target in 2022, but exceed 36 billion gallons by the early 2030s billions ethanol-equivalent gallons Legislated RFS in 2022 Biodiesel Net imports Other Advanced Cellulosic biofuels AEO2011 AEO2012 Corn ethanol Sources: EIA, Annual Energy Outlook 2012 and EIA, Annual Energy Outlook

35 Corn Ethanol and Drought 43% of U.S. corn crop used to make sufficient ethanol to meet RFS requirements Severe drought creating conflict between ethanol production and other uses Corn production projected to decrease by 15% or more Corn futures prices increased by 35% over summer $0.22 drop in crush spread between corn and ethanol prices Pressure on EPA to waive the RFS standard 35 Industry States Delaware, Maryland, North Carolina, Arkansas request waiver House of Representatives letter from 165 members

36 RIN Fraud Renewable fuel producers generate renewable identification numbers (RINs) that are transferred with fuel or sold on open market Rodney Hailey, Clean Green Fuels, LLC Convicted in June, 2012 of selling 32 million fraudulent RINs for more than $9 million Several additional companies charged with RIN fraud Enforcement actions possible throughout supply chain Efforts to prevent RIN fraud EPA revising program to prevent RIN fraud Energy and Commerce Committee hearings National Biodiesel Board task force 36

37 37 E-15

38 EPA Approval of E-15 Gasoline All Fuel Additives Must Be Approved by EPA (CAA Section 211 EPA Issued Two Partial Waivers Allowing E-15 for MY 2001 and Newer Vehicles Concern: Corrosivity of Ethanol May Damage Engines Necessary to Meet Renewable Fuel Standard? 38

39 EPA Conditions for E-15 Approval Prohibition on use of E-15 in engines not covered by waiver Fuel pump warning labels required for all retail facilities selling E-15 Requires specific product transfer documents to ensure E-15 is handled safely E-15 sellers must conduct surveys to ensure that retail facilities comply with labeling and other safety requirements 39

40 Grocery Manufacturers of America v. EPA Diverse coalition of trade associations challenged EPA waiver decisions in D.C. Circuit Manufacturers Petroleum producers and refiners Food products industry Bases for Legal Challenge EPA lacks authority to issue partial waivers Vehicles using E-15 cannot meet emissions standards D.C. Circuit dismissed challenge due to lack of standing (but was sympathetic on merits) Appeal? 40

41 41 Other Standards

42 The Rise of Selective Catalytic Reduction In 2001, EPA issued new tailpipe emission standards for medium and heavy duty diesel engines One major change was a 90%+ decrease in emissions of nitrogen oxides (NOx), which contribute to the formation of ground-level ozone (smog). Manufacturers were given until MY2010 to fully develop and implement reduction technology 42

43 SCR and DEF Technology used at power plants uses a catalyst together with ammonia or urea to reduce excess NOx to nitrogen and water Called selective catalytic reduction (SCR) Turned out to be the only technology that worked for diesel engines Requires both a catalyst and a supply of diesel exhaust fluid Metered into the exhaust at a rate of about 2% of fuel consumption 43

44 Is DEF Here to Stay? One manufacturer Navistar, Inc. challenged virtually every aspect of the use of SCR Lawsuits against EPA and CARB Navistar had invested in a competing technology based on exhaust gas recirculation Worked well but could not meet the standard Navistar lost a major court case, Mack Trucks v. EPA, in May 2012 Navistar subsequently dropped all of its challenges to SCR and announced that it would adopt that technology 44

45 45 State Regulations

46 California Mobile Source Regulation California can set its own standards under the CAA CARB independently certifies engines sold in California Other states can and do follow California s regulations For example, 14 other states adopted California s MY vehicle emission standards (the LEV II) to varying degrees: Maine, Vermont, Massachusetts, Connecticut, Rhode Island, New York, New Jersey, Pennsylvania, Delaware, Maryland, New Mexico, Arizona, Oregon, and Washington LEV III Sets fleet emission standards for cars, light- and medium-duty vehicles Lower PM standards than LEV II Zero evaporative emissions for cars/light-duty; lower standards for medium-duty vehicles Fuel economy same as EPA MY standards with additional regulations for CO2, CH4, and N2O Similar technology incentive and credit system as EPA 46

47 California Mobile Source Regulation Advanced Clean Cars program Applies to MY15-25 cars sold in California Reduces smog-forming pollutants by 75%; will be classified as super ultra-low-emission vehicles (near 0 emissions) by 2025 Reduces GHGs by 34% in 2025 Emission decreases will be mostly from electric and hydrogen cars 47

48 Alternative Fuels Infrastructure California Clean Fuels Outlet Regulation Market for low emission vehicles (LEVs) impeded by lack of fueling infrastructure Lack of fueling infrastructure could threaten ability to achieve goals for LEV production California Clean Fuels Outlets Owners and Lessors of retail gasoline outlets required to install and maintain alternative fuel outlets Regulatory trigger (20,000 vehicles) has not been met 2012 Proposal would shift regulatory obligation to gasoline refiners and importers 48

49 49 Other Pressures on Energy

50 Selective Stationary Source Regulations Name Effective New Sources GHG Prevention of Significant Deterioration and Title V Permitting Cross-State Air Pollution Rule 1/2/2011 Yes No 1/1/2012 stayed Yes Existing Sources Yes Mercury Air Toxics Rule 4/16/2012 Yes Yes Proposed GHG New Source Performance Standards National Ambient Air Quality Standards At time of proposal (3/12) Upcoming PM, SO2, and Ozone revisions Yes, at time of proposal Yes, following final rule 50

51 Petroleum Bottleneck Petroleum Bottleneck in Cushing, Oklahoma Changes in Domestic Oil Supplies Canadian Oil Sands Bakken and Williston Shale Oil Pipeline infrastructure not prepared for increased North American supply Low prices in Midwest; high prices in Gulf of Mexico Industry Responses TransCanada Keystone Gulf Coast Project Enbridge & Enterprise Reversal of Seaway Oil Pipeline 51

52 Crude Supply & Refinery Capacity: Disparate Impacts Little investment in increased refining capacity over past 30 years Significant reduction in East Coast refining capacity Changes in crude oil composition leading to reduced profitability Refining capacity may be reduced by 50% Potential for significant localized price increases Increased crude oil supply in Midwest leading to improved profitability 8.7% increase in gasoline prices in Bay Area after fire at Chevron refinery 52

53 Energy Subsidies Subsidy/government investment expect less government support Serious budget and deficit issues Significant political support for subsidy phase-outs Examples Volumetric Ethanol Excise Tax Credit (VEETC) phased out Wind production tax credit scheduled to expire by 2013 Obama wants to extend Romney wants to end Solyndra fallout 53

54 Role of the Election Pre-election regulatory calm in Washington, D.C. Are major changes coming November 6 th? 54

55 Take Aways Fuel economy standards are being ratcheted up to reduce domestic greenhouse gas emissions from both cars and trucks Significant increases in domestic natural gas production are driving the increased use of natural gas for energy production, but petroleum is still the king of the road The push for renewable fuels and alternative fuel vehicles is strong, but is tempered by demand and an other constraints Multiple layers of federal and state regulation are creating an increasingly complicated regulatory landscape for vehicle and engine manufacturers The election may significantly alter the executive branch s approach to environmental regulation, but don t expect Congress to make dramatic changes 55

56 Questions Timothy K. Webster Sidley Austin LLP 1501 K Street, N.W. Washington, D.C (phone) (fax) twebster@sidley.com 56