Energy industry braces for Obama
The industry praises the president-elect's picks at DOE and EPA. But lawyers and regulators will largely run the show and the outlook for dirtier fuels could be quite costly.
NEW YORK (CNNMoney.com) -- Despite praising it publicly, the energy industry is wary of President-elect Barack Obama's incoming energy team which will likely call for major changes in the country's energy plan.
When Barack Obama announced his energy and environmental staff last week, the industry nearly tripped over itself lauding the new picks.
"Obama has carefully chosen an impressive team of experienced and capable leaders," wrote Tom Kuhn, head of the utility trade group Edison Electric Institute.
"Dr. Chu is an internationally renowned physicist ... acclaimed for his technical competence," the Nuclear Energy Institute's Marvin Fertel wrote about incoming Energy Secretary Steven Chu.
Even Big Oil was cordial. The American Petroleum Institute issued a statement saying it "looks forward to working with President-elect Barack Obama's appointees to develop a comprehensive, fact-based and realistic energy policy."
But unlike President Bush, Obama hasn't put a single person from the fossil fuel industry on his energy team.
Energy Secretary nominee Chu is a physicist and former Berkeley professor. Lisa Jackson, Obama's pick for the Environmental Protection Agency, and Nancy Sutley, his choice to head Council on Environmental Quality, have long resumes as regulators. And Carol Browner, tapped for the newly created office overseeing energy and climate issues, is a longtime Washington operator who Sen. James Inhofe, R-Okla., called "a proud liberal who has long-advocated an environmentalist agenda."
Everyone on the team wants to cap greenhouse gases - a costly proposition for a country that uses fossil fuel for 85% of its energy - and move to more renewable sources of fuel.
So what does the industry really think of Obama's new team, and who stands to lose the most?
The energy industry is varied, with sectors having different takes on the incoming administration.
The renewable industry will likely do well since any mandatory cap on carbon will drive up the cost of competing fuels while a federal mandate to purchase alternative power would provide a ready market.
The coal sector will likely have the hardest time with Obama's energy regulators.
Coal is cheap and abundant in the United States. It provides about 50% of the nation's electricity.
But it's dirty, emitting more carbon dioxide per unit than any other widely used fuel. Technologies to make it cleaner - such as gasifying it or capturing the carbon dioxide and burying it underground - are expensive and, in the case of capture, untested on a large scale.
Moreover, Chu has called coal his "worst nightmare" because of its heavy carbon footprint.
"The target this time around is coal," said Christopher Ruppel, an energy analyst at Execution LLC, a brokerage and research firm for institutional investors like hedge and mutual funds. "The consensus is this administration does not want any new coal plants."
Ruppel was quick to say that Obama's incoming team - despite the saber rattling from Sen. Inhofe - likely won't take drastic steps, like passing carbon restrictions that are too tight or too fast, or directing the EPA to clamp down on coal plants.
"These are very pragmatic regulators," Ruppel said. "They realize the country is in an economic crisis, and they don't want to put these industries into a tailspin."
Others think the new administration will be even more lax. The nation needs to fill a growing need for electricity and, next to conservation, coal is the cheapest option.
Throw in the sharp recession and the power of coal-state senators, and many people think the Obama administration is going to find itself with very few choices.
"In the near term, there's not going to much of a change in the energy policy of the U.S.," said Lasan Johong, a utility analyst at RBC Capital Markets. "The overwhelming concern is the economy. Everything [Obama] wants to do costs money, and that has to come out of the pocket of consumers."
With the economy weak, the coal industry remains upbeat that it will continue to play a big role in the nation's power mix.
"The important thing is to look at their policy directions, including building and maintaining jobs," said Carol Raulston, a spokeswoman for National Mining Association. "We think coal will play and important role in that."
The coal mining industry directly or indirectly employs more than 500,000 people, according to the mining association.
During the presidential campaign, it was Obama's Republican rival, John McCain, who was nuclear's big booster. McCain wanted to build 50 new plants.
Obama didn't say much on the subject - acknowledging that nuclear has a role but pointing out its high costs and waste issues.
He and his team haven't been clear about where they stand since winning the White House, but it's generally thought that they will at least not get in the way of new nuclear plants.
Officials for Obama did not immediately return a call seeking comment.
Chu is a physicist, and his most recent job was head of the Lawrence Berkeley National Lab, which got its start as one of the government's main nuclear research facilities and still does a lot of unclassified radiation and nuclear fusion research.
The nuclear industry has high hopes. It notes that Chu, along with other national energy lab heads, signed a paper last summer saying nuclear power "'must play a significant and growing role in our nation's - and the world's - energy portfolio."
The oil industry is said to be more concerned.
During the campaign, Obama promised a windfall profits tax whenever crude prices crossed $80 a barrel. And Browner, during her days as head of President Clinton's EPA, imposed costly clean air regulations on the refining industry.
"Browner was a forceful administrator," said John Kilduff, an oil analyst at MF Global in New York. "The industry was concerned then, and they will be concerned again."
But with many of the clean fuel regulations already implemented, and Browner's attention turning to coal, the oil industry may escape relatively unharmed.
Falling oil prices have, for the time being, taken windfall profits tax off the table and also dampened the calls for more domestic drilling, although Obama has said he's open to more drilling in combination with a comprehensive energy plan that moves the country away from fossil fuel.
Big Oil may suffer a few setbacks by losing some tax breaks, but they also may get to drill in more parts of the country. All in all, they seem to be out of the spotlight, for now.
If a law capping carbon dioxide emissions is passed, conservation, renewables and natural gas stand to benefit the most.
The natural gas sector will gain in the short run. It burns much cleaner than coal and can provide power on a scale that current renewable projects could not meet.
The renewables field, obviously, benefits as companies and utilities will buy clean power in an environment where they can only emit so much carbon dioxide.
And companies that focus on energy efficiency - often units of larger conglomerates like Johnson Controls, Honeywell or General Electric - are seen as playing a central role under team Obama.
Kevin Book, a senior energy analyst at the investment bank Friedman, Billings, Ramsey, said the Obama long-term energy plan has been described to him roughly as such:
- Renewables like wind and solar will begin to displace coal from the electricity generating market, with solar panels mounted on the roofs of nearly all big buildings.
- Electric cars will become widespread, and car batteries will be used to store excess electricity or as a source for more electricity when it's needed. A computerized electrical grid will handle the electric flow, drawing it from batteries to buildings, or vice versa, when needed.
- But before any of this can happen, the nation needs to become much more energy efficient.
"We're going to change how efficiently we use electricity - forever," said Book.
Probably not coincidently, it looks like a major conservation push will be the prime energy component of the stimulus plan Obama's expected to sign just after taking office.