 Okay, we're back. We're live. We're here on Energy in America, our show on Wednesdays at 3 o'clock Rock with Lou Pudirisi, and he is the CEO, president and CEO of Ebrink, which is an energy think tank in Washington, D.C., and that puts him very close to Congress. It puts him close to the White House. He can hear, see, smell, and otherwise sense all the stuff that's going on in Washington. We love to talk to him about what he sees and smells and hears about things in Washington these days because it's fairly unreliable or unpredictable, I should say. So we're calling this show how energy decision process has changed over the past 18 days or so. Welcome back to the show, Lou. Nice to have you here. Good to be here. Good to be here, too. So let's talk about, let's see, what do we talk about first? Let's talk about integrated energy market phenomenon. Let's talk about Mexico, which we have a little rocky road with them, and let's talk about Canada, which we also have a rocky road with. How is the energy market affected by our recent... Let's just start with the North America's over 9 million square miles. So it is a huge land mass, and it lends itself to all kinds of transportation efficiencies and solutions. So you may see big numbers in gross imports and exports, crude oil and petroleum products and natural gas, but the net numbers are quite different just because everyone's trying to solve these transportation efficiencies. So North America, U.S., Canada, and Mexico consume 22 million barrels a day of crude oil, about a quarter of the world's total consumption. But out of that 22 million, if you treated NAFTA, these three countries as a single country, as a single market, net imports are only 4 million barrels a day. Not only that, but because Mexico has undergone a massive privatization and energy reform program, U.S. exports of natural gas to Mexico are rising. There are about 4 billion cubic feet a day and expected to rise to 8 billion cubic feet a day in the next 4 to 5 years. The pipeline market in Mexico now is highly privatized and most of that gas is replacing oil-fired power generation stations like you have in Hawaii. So in a way, this North American production platform, in addition, Canadian oil sands are expected to increase by about a million barrels a day over the next 10 to 15 years. Finally, the U.S. production profile, Trump's strategy to release more production to private sector development, accelerated permitting of pipelines, more certainty in the permitting process, is likely to see U.S. production grow as well. And most analysts think that under a reasonable scenario, within the end of the decade, U.S., Canada, and Mexico combined will be a net exporter of crude oil. So the point I'm trying to make here, as the administration enters into trade negotiations with both Canada and Mexico, largely over-concerned of manufacturing disparities, let's say, and what they believe is unfair trade in manufacturing, they have to consider this energy sector, which is highly successful, and by the way, largely outside NAFTA. Many people don't realize when NAFTA was created, the Mexican energy sector was wholly owned by the Mexican government, and so was not part of the NAFTA negotiations. Okay, so what effect then will the changes in American energy policy have on this integrated market in North America? So on the one hand, we could have a very technical discussion in which modest changes are made to the structure of how manufactured entities are, you know, how they're negotiated with the tariff structure look like, or how, what adjustments we make on non-tariff barriers or labor, whatever that is. And we do this without sort of damaging Mexican pride or creating a populist uprising in Mexico. That outcome is fairly benign, could be quite positive. On the other hand, if this is done in a way I believe in which the Mexicans feel they are disrespected, let's say, or that they are really treated poorly, it could feed populist resentment in Mexico, which could upend all the reform program that has taken place there over the last few years. And that's energy reform you're talking about. It's supposed to get you to speak. There were demonstrations, not against Trump, high gasoline prices. Managing that problem is a big, big deal. So what we have then is the risk that, I mean, it's hard to say from what you say whether it'll go in one way or another direction, but it could go into uprisings and rolling back effectively of the energy reforms that have taken place over the past few years. Where does that leave us if we have an uprising and rolling back of the energy reforms in Mexico? So I think that would leave the world oil market worse off because the potential to halt the decline in oil production in Mexico would be harmed. They're ready to decline. One of the reasons they're privatizing in Mexico and bringing in foreign investment is to halt the decline in oil production. It would harm the efficiency of the production platform in North America and probably would reduce world supplies because North America would not be as efficient, which would mean higher prices. And also there's an energy security component because if North America is a prosperous energy producing platform things like sea lanes of communications, the things the Navy have to worry about are much smaller because the Western hemisphere is not so connected to the Middle East. It doesn't say the Middle East isn't important. The Pacific Rim is very important. All these things are very important, but from just the physical management, the physical flows become a lot easier. Yeah. So you mentioned though that on balance your thought was, your expectation was that energy prices, oil prices would go up over the near term or maybe the intermediate term. So I guess you're making some judgments there on how things will go in Mexico and how things will go between the Trump administration in Mexico. I'm basically an optimist and I believe they'll figure this out, that cooler heads will prevail and that Trump is largely, it's not really ideological person in my view, he's a really transactional guy. We have the Abe visit coming up in which he's likely to have a very ambitious engagement with the U.S. And two or three other things that I think people have not realized yet. In terms of U.S. energy security and the importance of Mexico-Canadian relationship, General Mattis, General Kelly and Rex Tillerson, the Secretary of Defense, the Secretary of Homeland Security and the Secretary of State are very well-breed on this top and are likely to play a central role in managing it to a productive outcome. So if that happens, then you would expect better energy policy than maybe other people might predict and therefore- Compared to what people mean by better energy policy, if you are a climate enthusiast, you don't like to see any development, you want to keep it all in the ground. If you're, the U.S., as I say, a nationalist or maybe a Steve Bannon type, you want to see the U.S. and Mexico and Canada be big producers of fossil fuels, particularly oil and gas. And that's the question, isn't it? Whether you peep it in the ground or don't. And so I'd like to explore with you that if the price of oil goes up or down that has an effect on the production of renewables and the incentives to renewable developers around the country, right now renewables are competitive, aren't they? And as a result, renewable development is happening at an acceptable rate. But is that going to change? What's the factor there? We've talked a lot about this in the past. If you're California and you can reach your grid network farther and farther afield and grab dispatchable power in Nevada or Arizona, you can probably push the envelope on renewables and, let's say, the power sector. But in Hawaii, you can't really find, if you decide to go without dispatchable power, you're going to run out of the string very quickly. So Hawaii is going to need, Hawaii can't go to California or to Idaho and say, well, you know, we've got a great renewable program. And in the dead part of the day, when our renewables aren't working, we'll just turn the switch on in Idaho. Well, that doesn't work very well in Hawaii. So I think you have a unique issue, which we've talked a lot about. And I do think, as I said before, that we really need to continue research on batteries. Batteries is the key to this renewable debate. And if we can get the battery cost down, if we can get them efficient, and so renewables are cost competitive when the sun shine. Renewables are cost competitive when the wind's blowing. It's when those things are not happening that they're not so good. Yeah. So, you know, where I'm where I get curious is, we have an administration that is clearly committed to ignoring climate change. And an administration which would like to see, you know, the traditional oil and coal fuels, you know, dominate the market, dominate energy production in the United States. And what effect does that have over the long term on renewable production that was, you know, that was in place before this election? Because there was a certain amount of it that was, Obama was trying to incentivize it. There were companies coming up. Some of them did well. Some of them did not do well. After all, this is a transformation in energy in many places, just as it has been in Hawaii is, you know, it's not without its challenges. So if you have now this policy of favoring fossil fuel and favoring coal, what does that do to an otherwise, what has been an otherwise improving market, improving development environment for renewables? So as we spoke before, let's take the power sector. In the power sector, the I would imagine the clean power plan, the CPP is defunct. It's not going to happen. But all the research shows that the clean power plan would have no effect on climate. It was basically a demonstration effect to tell the rest of the world, look, we can do this. And so this is our leadership contribution. But it's net effect on climate was immeasurable. It was too small to measure. So I think and then the second part of this debate here is, you can get a lot of people to agree that CO2 loadings are increasing. You cannot get people in the new administration to agree that they have a workable model that tells them what the implications of those CO2 loadings are on the human environment. Now, but even Governor Perry at his hearing said, well, I think there's uncertainty, but I think man is contributing. And I also think there's part of it, which is not caused by man. And there is going to be a big fight over the working of these models and everything. And my view is that should be largely aside show. If in fact renewables are cost effective in the power sector, right? Then and the real problem is we don't we don't have a solution for the intermittency. We should spend research on the immittency research. And I was going to ask you about research, you know, here in Hawaii, we have a lot of research projects having to deal with the environment. We have really hundreds of them that await funding from one source or another. And a lot of researchers are very concerned that federal funding is going to dry up on those areas of research, which are important at University of Hawaii and which have, you know, University of Hawaii has an enormous number, a really credible number of quality top quality researchers in that area. And of course, they need they need funding. And I suspect that it will come true soon enough that they don't get funding. Well, part of that research is energy funding. I mean, there's energy research and therefore requires energy funding. And I, I would imagine that the federal government, who is not in the same place as it was, will will not will not fund energy research as much. You know, you spoke about batteries, for example, we need we need research in batteries, we needed the very fringes of, you know, the technology involved, you know, right down to the atomic level. But how to, you know, do things, for example, like graphene and make that work. And this this is the key to an expansion, a long term and significant expansion of renewables on the grid. So I'm worried about that. And I wonder if you have any thoughts about that government going to continue to fund research and energy? I actually think they will continue. We're going to see some cuts. But I would, for example, there's a great program I know by encourage you to watch it on batteries, where they look at these competing research centers are in the you know, around the United States, looking at and it's all based on the utility sector, what kind of battery technology should they try? Some people are using the low tech, but very stable is more high tech. And my guess is, that's so important to the future of the grid, that the Congress is really not going to let a lot of that to be cut back dramatically. But I wouldn't be surprised to see CCS, you know, carbon capture storage, which has become very expensive. And which has become also a kind of battleground over, you know, foolish people who is, you know, too exotic. I suspect that will get cut. But we have joint projects with both the Japanese and the Saudis on CCS. So there's some international commitment. So there's always going to be limits on how much the stuff can be cut. And in addition, members of Congress have their own hobby horses there. So let's take a short break. That's Lou Pugirisi of a prank in Washington, DC. We're talking about energy in America, and how energy decision process has changed in this administration. We'll be right back. Aloha and Happy New Year. It's 2017. Please keep up with me on Power Up Hawaii, where Hawaii comes together to talk about a clean and just energy future. Please join me on Tuesdays at one o'clock. Mahalo. Hello, this is Martin Despeng. I want to get you get excited about my new show, which is humane architecture for Hawaii and beyond. We're going to broadcast on Tuesdays, 5 p.m. here on Think Tech Hawaii. Good afternoon. Howard Wigg, codegreenthinktechhawaii.com. I appear on Mondays at three o'clock and my gig is energy efficiency doing more with less. So most cost effective way that we in Hawaii are going to achieve 100% clean energy by the year 2045. I look forward to being with you. Aloha. Okay, we're back. We're live with Lou Pugirisi of E-Pring, energy policy think tank in Washington, DC, here on Energy in America. And we're talking about how national how energy research process has changed in this administration. But one of the things you mentioned before we started the show Lou was the possibility of a carbon tax. And there has been some discussion of that. What's the state of discussion? So a group of conservative economists, thought leaders, proposed today in the Wall Street Journal, including George Schultz, former secretary of state, secretary of treasury, had a Bechtel, Mancow, a well known conservative economist that the US deal with carbon, deal with climate through a tax, a carbon tax, and that the $40 a ton, which would be something like 25 cents a gallon, I think something like that, maybe less. And it would be different for coal and other other other things. And that the funds collected from this carbon tax would be refunded to the American people quarterly. And then the second part of this is in exchange for the carbon tax. All the environmental regulations, the mandates, the volumetric targets for CO2 control would be removed. So we'd have a pure market solution. This is actually a theoretical, elegant solution. It's also politically a fantasy. It's not going to happen in Washington. There is no way the Congress is going to agree to this massive shift of money unless they can get their hands on it and do something with it. It has a certain appeal because it simplifies the whole affair and focuses on one solution. Yeah, it allows the market competition in the market to seek out the cheapest solution. So it has a lot of merits, if this is your thing. I think in the interim, we're going to see the administration take a number of specific measures on the regulatory side, which are not necessarily related to climate. But I believe a lot of environmentalists would argue that it would permit development, more rapid development of fossil fuels. But by the way, it also provide more rapid development of wind energy and solar energy. The first thing they're going to do is change the way the National Environmental Policy Act treats new projects. In the Obama administration, if I was building an LNG export facility, and it was a major federal action because I used to cross federal land with a pipeline or I needed a port dredged by the Army Corps of Engineers or something, you would be required to write an environmental impact statement. But in the guidelines in the Obama administration, you would have to figure out all the upstream implications from that, like where the gas was produced to feed this facility, what happened to the dinosaurs that died, that turned into gas, so you'd have to go way back. And I think that's going to get narrow down. What the administration is going to say is, you have to just look at the immediate impacts of this facility. That's it. Second, the social cost of carbon. The government has been working on a program called the social cost of carbon. And that is a way for decision makers to calculate the climate effects of their projects, that they're approving or not approving. And that calculation in the Obama administration had a low, what we call low discount rate. That means it like a low interest rate. That means that you would get a bigger number, a bigger number in the current period if you looked at stream of benefits and costs over time. It also measured the benefits worldwide, not just in the U.S. I'm pretty sure how the Trump administration will change that, is they will use a higher discount rate, and they will only allow you to take benefits in the U.S. And then third, I think a making everything smaller as they have done in other areas. I think it's going to be either someone in the White House or someone in the administration is going to ride herd on permits. I try to provide federal primacy on projects so that they are not, they will, I think they would argue that the Obama administration left the door open for all these NIMBY initiatives, like Sue Indians and the Dakota Access Pipeline case or endless review of the Keystone XL Pipeline. I think the view from this administration is one of the reasons we have low economic growth is the regulatory state is out of control and it needs to be reined in. Those are the big changes I see in the kind of functioning of the regulatory oversight. What chance do they have a pass? It sounds like it's a pretty good chance. Those are pretty good. Now other things like if you want to promote a new regulation or probably want to get a new regulation, you have to remove two. Two for one? A mathematical test? That's cute. And it turns out that's not so easy to do as it appears because I think OMB has issued, the Office of Management Budget has issued guidance saying, well, you have to have twice, you know, if the new regulation is a billion dollars, you have to go and find two billion dollars worth of saving somewhere else by getting rid of older regulations. But these regulations are often embedded in law. They're not that easy to dig out of the system. Well, I mean, well, just make it part of an executive order. You can strike all kinds of regulations and change them overnight without any, without any problem at all. In fact, you can ignore the Administrator Procedures Act and do it instantly. Isn't that, isn't that what's happening? That's what Obama did routinely. So there's a kind of, they both do it, but you can overdo things as this recent immigration order shows. We still have a court system in this country and it's quite independent. Yes, well, we'll see what happens. That's still pending in the Ninth Circuit. You know, they had a hearing the other day and now we're going to hear from them and we're going to see exactly what the Federal District, Federal Appeals Court is made of. Of course, we're also going to see what the Supreme Court is made of. But let me, let me, let me go back to the pipeline you mentioned, Keystone. He was able to reverse what was a very problematic situation for Keystone in almost no time at all and caused the Corps of Engineers to issue a permit and almost no, how did he do that? There are two issues here. The Dakota Access Pipeline had a core issue, a 404 permit, to go under the water. And that's separate from Keystone. And that, in all fairness to energy transfer partners, they had completed the entire process when the Obama administration stepped in and said, well, the Indians are upset, the Sioux are upset. So let's sit down and talk about this a lot more. And I think the developers of that pipeline said, look, we did everything. We, we offered numerous times to engage with the Indian tribes. They refused to come. And now at the last minute, everybody wants to come and disrupt the process, right? And you know, I think there should be some, you know, some rethinking of this. I would love everyone to see a map of the U.S. with the pipelines under it. It's just, we're just covered in pipeline. So the notion that one more pipeline is going to upset the balance is just ridiculous. Now Keystone is a separate issue. Keystone, the sort of the Obama administration kind of killed that problem, project with a thousand cuts, you know, they, they stretched it out for six to seven years and then in the end, even though the State Department said the project was relatively benign in terms of climate, they needed a win before they went to Paris to negotiate the climate agreement. Keystone has come back because people forget the Canadians pre-bought the pipe and the compressors. So the incremental cost of finishing is not, is not that high, but they still have to get permission to move it through Nebraska and they don't have that yet. So the administration can do lots of things to speed along, but that project is not going to be solved for a few months. Oh, and that, and what, and that depends on Nebraska, but Nebraska is, you either have to rewrite it or condemn, I don't know how they're going to do that, but they have to work through Nebraska. Isn't, isn't there a federal preemption on such a thing? I mean why, is that any state could hold it up, yeah? There is a possibility to use a condemned condemnation, but I think Keystone does not want to do that. The Canadians don't like it. Well, it's very interesting because it says the pendulum swings, you know, arguably the Obama administration went too far one way and now maybe Trump is going too far the other. It's maybe. It depends on your point of Of course. Well, tell me, you know, how you think it is evolving? I mean, are the outlines clear yet about exactly what Trump is doing with energy or as in many other areas, do we have inconsistent messages and kind of a waiting game to see how they ultimately settle down if they do on all, not only the, you know, the general principles, but on the outline of what they plan to do in policy going forward. The first thing is the U.S. government is like the forestall. It doesn't turn on a dime and everybody's worried about, you know, always say if you have to, if you have to bet between the new political masters and the bureaucrats, always bet on the bureaucrats. They'll outlast any administration. So, you know, the ability of the new administration to turn things completely upside down overnight is actually much more limited than anyone wants to believe. So, I think what the administration can do is change the emphasis. I actually don't think they will succeed in removing two regulations for every new regulation, but I do think they will create a different environment based on Trump's view that the real cost to the country is slow economic growth and that a lot of these rules and the way our procedures work harm the capacity of the, you know, the government to grow. I mean the economy to grow and it's kind of out of his guy Steve Bannon who sees, you know, he has this kind of vision of the world that, you know, we're sort of monitored by academics and elites and that these folks are trying to get rid of all the, all the, you know, upside risk and downside risk and we sort of have to blow that up a bit in order to get the, get the risk taking and higher economic growth. And I think that discussion hasn't taken place yet. Everyone is operating on an old paradigm on how to think about Trump and how to think of, I think about the Republicans and the Democrats and I suspect Trump isn't out of that paradigm. We haven't really figured out what it is yet, but. Yeah, what an exciting time we live in or as they say in China an interesting time. Yeah, but we'll follow it, Lou. We'll keep on following it as the outlines emerge. I really appreciate your thoughts on this, all these great analyses that you have. Let's come back in two weeks and do it again.