How Obama and Congress Could Find Common Ground on Energy

THE SHALE GALE

Ironically, new U.S. fossil-fuel production could create allies for an energy deal in Washington. During Obama’s first term, a revolution in hydraulic-fracturing technology (“fracking”) unlocked vast new reserves of oil and natural gas trapped in shale, transforming the nation’s energy picture. While just five years ago it appeared that the nation faced growing dependence on foreign oil and gas, it now seems possible that North America will be the world’s biggest energy producer within a decade. The White House is supportive of fracking, because the boom could create up to 1 million jobs and because shale gas produces about 30 percent less carbon pollution than coal. Electric utilities are building power plants to run on gas, not coal, which will also slow the nation’s carbon output.

Obama’s embrace of the shale gale has united the White House and some former foes. Earlier this year, White House energy adviser Heather Zichal spoke at an event sponsored by the American Petroleum Institute, the lobbying arm of the oil industry. Halliburton, now the nation’s biggest provider of fracking services, has held multiple meetings with the White House and the State Department about how to safely expand gas fracking at home and abroad. Exxon Mobil, which is now the nation’s largest shale-gas producer, has even expressed cautious support for a carbon tax.

Democrat Byron Dorgan, the former senator from North Dakota, the state at the heart of the fracking boom, says these new alliances could result in deals that once seemed unimaginable. “It’s one thing to do it in a crisis; it’s another to do it when you have an opportunity. I think energy can be a signature achievement for this president,” says Dorgan, who is frequently mentioned as a top candidate to become Obama’s second-term Energy secretary.

COOPERATION?

As always, the question will be what kind of bill can get through Congress. Obama and the Republican-led House have been at loggerheads for the past two years, while the deadlocked Senate has become a place where even noncontroversial bills go to die. But within that stalemate, the Senate Energy and Natural Resources Committee may be a bipartisan oasis. Its incoming chairman, Democratic Sen. Ron Wyden of Oregon, is a pragmatist who gets along with the ranking Republican, Sen. Lisa Murkowski of Alaska. Their relationship bloomed during trips to each other’s states, where they visited oil-drilling and renewable-energy facilities. “Both of us have made a commitment: We want energy policy,” Murkowski says. “We share the same frustration with partisanship, and we’re making a commitment to one another that we’re going to advance some things.”

Significantly, Murkowski’s GOP colleag–ues in the lower chamber share that view. House Energy and Power Subcommittee Chairman Ed Whitfield, R-Ky., is skeptical of climate change and Environmental Protection Agency regulations, but says, “Ron Wyden is someone I can work with. I’m interested in meeting with him and talking about what we can do.” Rep. Cory Gardner, a Colorado Republican who has also emerged as a leading voice on energy policy, agrees that the two parties can find common ground. His district includes major oil and gas developments, as well as sources of renewable energy. “The mood on energy is improving,” he says. “I’m not just talking about oil and gas—I’m talking about renewable energy. We’re moving from the rhetoric of campaigning to the reality of policy.”

Meanwhile, Obama could make several high-impact moves on energy—with or without Congress. The administration will decide the fate of the controversial Keystone XL pipeline, which would bring carbon-heavy tar-sands oil from Canada to the United States. The administration will also determine whether to open up more federal waters to offshore drilling. And the Energy Department will decide in the next year whether U.S. energy companies can begin exporting natural gas. Republicans and the fossil-fuel industry are pushing hard for Obama to green-light all three proposals. It’s possible, strategists say, that he could use those decisions as chips in a broader grand bargain on energy.

Also in the offing are controversial EPA regulations to be unveiled in the coming months designed to rein in carbon, soot, and smog pollution from existing power plants. There’s no doubt that the coal industry, coal-burning utilities, and congressional Republicans will fiercely push back against those rules. The EPA regulations will also serve as a stopgap for Obama: If, despite the new postelection goodwill, Congress still fails to reach a deal on a big energy bill, he can use his executive power to roll out an aggressive suite of top-down environmental regulations—which, depending on how they’re written, could effectively freeze construction of new coal plants.

AGAINST THE CLOCK

One big obstacle is time. A second-term president has about two years to push through major legislation before the next presidential campaign begins. In addition, two huge issues are already on the docket: immigration and tax reform. A sweeping overhaul of the nation’s tax code, which could easily absorb Congress through 2014, offers the first opportunity for major energy reform. Some lawmakers will probably insert a carbon-tax swap proposal in a broader tax-reform package, although for now the carbon tax seems unlikely to succeed. Democrats will also try to end tax breaks for the oil industry while extending those for renewable energy.