As Donald Trump says the UK should scrap the EPL and windfarms here are my tips for US energy policy

Writing my review of 2024 got me thinking about the link between energy and economy. Cheap energy is positive for economies while expensive energy is negative – that is not in question, and is why policy-makers are at pains to claim that renewables are “cheap”: people will not want expensive energy even if there may be other benefits such as climate change avoidance.

US President Elect Donald Trump believes in cheap energy and that the US should maximise its abundant fossil fuel resources, and in particular oil and gas: “drill, baby, drill!”. And indeed, drilling has prompted economic and industrial revival in the US, and turned the country from a net importer to net exporter of energy, generating significant wealth for the nation.

As Mr Trump advises the UK that it is “making a very big mistake. Open up the North Sea. Get rid of windmills!” here are my top five energy policy recommendations for the new Administration.

Enact the Jones Act LNG waiver

But there is one area in which the US consistently fails to optimise its natural resources: the Jones Act. The Jones Act is a federal law that regulates maritime commerce in the United States. It requires goods shipped between US ports to be transported on ships that are built, owned, and operated by US citizens or permanent residents. The snag is that there are no Jones Act compliant LNG tankers in operation, so states such as New England which are not part of any natural gas pipeline network, are unable to receive US gas. If they want to use gas it is cheaper for them to import foreign LNG than it is to try to procure US gas. Not only that, but foreign LNG tankers are unable to load at two different LNG terminals since at the second terminal some boil-off may be vented and this is deemed to be an “shipment” and is therefore prohibited.

Back in 2019 during Mr Trump’s first term his staffers suggested a ten-year waiver should be granted to allow the trans-shipment of LNG between US ports using non-US tankers. The ship-building lobby went into gear, strongly opposing the measure, and it was never passed. More recently Mr Trump appears to be supportive of retaining the Jones Act, but this does not mean that the LNG waiver was a bad idea. Indeed, the absence of any efforts to build LNG tankers in the US gives lie to the claims of the ship-building lobby that the measure would harm US jobs. There are no US jobs that are engaged in the manufacture of LNG tankers, so this waiver would have no impact on domestic employment (LNG tankers have been built in the US in the past but all were for export markets. More recently Venture Global has begun to acquire its own fleet of LNG carriers, but again for export and the tankers were built overseas.)

If Mr Trump is serious about building the US economy on the back of its cheap shale resources, he should start by making sure that the US can make full use of its own gas before exporting it to other countries. A narrow Jones Act waiver for the purposes of allowing US LNG to be shipped between US ports using any available LNG tankers would be a great way of doing this.

Lift the LNG permitting pause

In January 2024, the Biden Administration announced temporary “pause” on pending decisions on exports of LNG to non-FTA countries until the Department of Energy (“DOE”) could update the underlying analyses for authorisations – the frameworks the DOE was using were around five years old and did not contain “the latest assessment of the impact of greenhouse gas emissions” and had out-dated assessments of the demand for US gas exports and the cost impact on Americans. A federal judge blocked the move in July, but the Administration appealed, and in November, asked the appeals court to set aside the decision.

The pause, and a report commissioned to justify it, have been widely criticised. In response, the US Chamber of Commerce supported a study by S&P Global which had the following findings:

The US LNG industry is critical to both the world’s energy needs and the US economy:

• US$ 408 billion in GDP contribution since 2016, supporting an average of 273,000 direct, indirect and induced US jobs
• Larger revenues than US corn and soybean exports, roughly double US movie and TV related exports and half of US semiconductor exports since 2023
• #1 global supplier meeting the world’s energy needs including replacing almost half of lost Russian gas into Europe

US LNG industry growth is expected to double its US economic footprint to 2040:

• US$ 1.3 trillion in GDP contribution supporting an average of 495,000 direct, indirect and induced US jobs
• US$ 2.5 trillion in revenues for US businesses, over US$ 900 billion in expenditures, US$ 165 billion in tax revenue, and US$ 250 income per year per household
• Annual US LNG exports equal energy needs to heat more than 80% European Union households for a year
• LNG exports and feedgas double and drive incremental crude and NGLs volume, supporting domestic manufacturing amongst other demand

Regulatory and legal uncertainty, beyond potential lifting of the LNG “pause”, is putting growth at risk

• Over US$ 250 billion in lost GDP growth and an average of >100,000 direct, indirect and induced US jobs at risk
• 40% of US LNG growth is at risk in the US LNG ‘Extended Halt’ Scenario, which assumes no new pre-final investment decision US LNG capacity or halted US LNG capacity is developed
• 85% of the resulting global energy gap would be replaced by fossil fuels from non-US sources, led by alternative LNG and coal
• Unlocking the halted US LNG would negligibly impact household natural gas costs (<1%)

Mt Trump has indicated he intends to lift the pause irrespective of the court’s decision. He should – it makes no sense and is inconsistent with his stated energy and economic objectives.

Implement a “pause” to off-shore wind (and possibly all renewable energy) subsidies

Various states, including Republican states such as Texas, have been developing significant renewable energy projects, including wind. Most Texan windfarms are inland, but there is increasing interest in going off-shore with plans across the US for 40 GW of wind projects in the Atlantic Ocean by 2040, despite the fact that as of June 2024 there were only four off-shore windfarms in the US with a combined capacity of under 250 MW.

But the Gulf of Mexico is not an obvious place to build a windfarm – under normal conditions, wind speeds are low, and then there are hurricanes. A 2023 tender saw very little interest with just one bid received.

“The business case in the Gulf of Mexico for offshore wind is very vague, and very uncertain. It doesn’t really make a lot of sense,”
– Chelsea Jean-Michel, wind analyst at BloombergNEF

The northeast Atlantic coast has more potential, but the question remains whether the technology can ever be made to make sense. Very few off-shore windfarms have been built without subsidy – in the UK, subsidies are rising not falling. And the full system costs of renewables are very, very expensive as this analysis demonstrates – countries with higher amounts of wind and solar in their generation mix have higher end user electricity prices than those that don’t. Consumers in Germany, the UK, Spain, and Denmark, all of which increasingly rely on wind and solar, have some of the world’s most expensive electricity, adversely impacting their industrial competitiveness and harming households.

A peer-reviewed study of Germany and Texas shows that solar and wind are many times more expensive than fossil fuels. The paper describes very well why the oft-quoted Levelised Cost of Energy (“LCOE”) measure fails to reflect this:

“The LCOE describe the costs of generating electricity. However, the function of supply in electricity markets is not to generate electricity but to provide a specified amount of electricity to a specific place at a particular time,”
– Robert Idel, Rice University Baker Institute for Public Policy

If Mr Trump is serious about want to build the US economy on the back of cheap energy, he needs to think twice about the use of expensive renewables, or at least the use of tax-payer funds through subsidies to build them (if the market wants to waste its own money then that’s OK in a capitalist society).

Explore ways of accelerating nuclear permitting

Big tech has been all over nuclear lately, looking for reliable, clean electricity with 24/7/365 availability. Nuclear power fits the bill very well, and many of these firms are interested in the use of small modular reactors (“SMRs”) to power their AI needs. But as with most other Western nations, US nuclear permitting is a slow process. Even the process of re-permitting closed facilities is proving slow – while Holtec has the disadvantage of never having had a licence to operate nuclear power station hindering its efforts at Palisades, Constellation should have no such issues with re-opening Three Mile Island Unit 1. A decision on Palisades is expected by the end of July.

The nuclear picture in the US is more positive than the UK in terms of motivation for new nuclear, but the recent track record on delivery is no better. Westinghouse had huge difficulties delivering its Vogtle project, not least because of significant design changes required by regulators (much like those required at Hinkley Point C) which added costs and delays. Small Modular Reactors have been slow to take off with NuScale, like Rolls Royce in the UK, failing to make progress.

I have come to believe that SMRs, while great in theory, will be harder to deliver in practice. The boiling water reactor (“BWR”) design being built in Canada by GE and Hitachi may be the way forwaed. It borrows from previous boiling water designs, but is smaller than most which historically operated commercially, and has been designed with passive rather than active safety features intended to simplify the structure and lower costs. Most other SMR developers are focusing on pressurised water reactors (“PWRs”) – regulators are more familiar with PWRs and PRW supply chains are more developed than those for BWRs. If GE and Hitachi can make this work it will be a big step forwards, and may persuade others to adopt the BWR approach.

However, the priority both in the US and Europe needs to be for GW-scale reactors, and in most places there is a need for more generating capacity, particularly as existing reactors age and need replacing, and existing fossil generators also age (the UK gas fleet in particular is getting old). But it will be very difficult to accelerate large nuclear projects if regulators keep insisting on often superfluous design changes. Arguments that nuclear is expensive fall down when the full, all-in-cost to the consumer is considered:

There needs to be a focus of speeding up permitting and lowering costs, not by compromising safety, but by taking a pragmatic, risk-based approach. For example, ALARP / ALARA drive regulators to require developers to reduce worker radiation exposure despite the fact that these exposure levels are well within safe parameters. At my visit to Torness I was told that plant staff receive higher doses of radiation walking through the car park due to cosmic rays than inside the plant itself (and the evidence suggests the fear of radiation is over-blown). The bias should be towards avoiding rather than requiring design changes, and they should only be mandated if there is a tangible safety benefit – making something that is already safe safer should not be a priorty unless it is genuinely cost-effective.

The incoming Trump Administration should direct the Nuclear Regulatory Commission (“NRC”) to examine its processes with a view to streamlining them, and instruct other regulators to take greater account of wider strategic priorities such as cheap, reliable, low carbon energy in their decision-making. With China and Russia pouring money into the nuclear power sector and trying to dominate fuel supply chains, the US has an opportunity to re-establish itself as a global leader in nuclear power and its associated supply chains. This is both economically sound and good for national security, and should be a priority for Mr Trump’s energy policy.

Cancel unpopular electric car mandates

The question of the electric car mandate is an interesting one for Mr Trump given his close association with Tesla founder Elon Musk. In March 2024, the Biden Administration implemented a rule that would require 67% of new light-duty vehicles and 46% of medium-duty vehicles to be electric by 2032. 56% of all new vehicles would be electric by 2032, at least 13% plug-in hybrid or partially electric, and only 29% would be traditional combustion engine vehicles.

However, these mandates do not align with consumer demand – electric-vehicle purchases are expected to account for around 8% of new cars in the US in 2024. The change was intended to be driven by US$ 7,500 federal tax credits created in the Inflation Reduction Act, for people who buy EVs. Mr Trump has said he wants to repeal this tax credit.

Outgoing President Joe Biden is trying to make it difficult for Mr Trump to remove or water down the mandate by granting a waiver to the state of California which will empower the state to set its own, more ambitions vehicle emissions rules. Such waivers are difficult and time consuming to remove meaning that car manufacturers could be forced to ensure 43% of the cars and light trucks it sells in California and its companion states are electric, however this is only slightly above the current share of EVs have of the new car market in the state, although that share has seen some falls this year. Overall, interest in EVs is falling in the US and elsewhere.

There are also concerns about the presence of Chinese-made batteries and other components in the EV supply chains. The US has imposed export controls on computer chips and China responded with restrictions on exports of graphite to the US which is essential for the manufacture of EV batteries. 80% of the world’s graphite is produced in China so this will be a problem for US car-makers. The US is also implementing measures to restrict the import of Chinese-made EVs.

With consumer interest in EVs falling in both the US and Europe, and increasing barriers to trade with China, lifting the EV mandate would make good sense. And there are real doubts about whether mandates will actually result in more EV sales – the UK has seen manufacturers ration the sale of petrol cars rather than increase the number of electric cars in order to comply with current rules. If consumers don’t want them, EV mandates will not work.

A more sensible approach to reducing emissions from vehicles in the US would be to encourage people to drive smaller cars. Americans buy cars which on average weigh 20% more than those sold in Europe. The reason for this is legacy emissions rules which had exemptions for “light trucks” which incentivised people to buy vehicles classified as such, including pick-ups and sports-utility vehicles, leading to a culture of large-vehicle ownership by people who had no real need for them.

There are plans to change these rules, but it’s going to be hard to change the big-car culture in the US. However, rather than providing tax breaks for large, heavy EVs, the Trump Administration could provide them for small petrol cars. On a full life-cycle basis that may well be better for the environment, and would certainly be better in terms of resource management (as they would require fewer materials and less energy to make, do not need new charging infrastructure, and would have a smaller impact on road conditions due to their lower weight). If people are reluctant to buy electric cars, a more pragmatic approach might be to encourage them to buy smaller cars.

Reducing the adverse impact on air quality from vehicles is important – not so much for climate reasons (of which Mr Trump is sceptical), but for the health of local residents. But all aspects of air quality must be taken into account (ie including particulates from tyre wear), so lifting the EV mandate should be accompanied by other measures to address the environmental impact of vehicles.

.

These proposed initiatives would all have positive benefits for the US economy. They would allow the US to maximise the benefits of its cheap domestic energy resources, and avoid adding un-necessary costs. Accelerating the deployment of nuclear power would create a long-term basis for basis for reliable, clean energy (which is not in fact expensive compared with renewables when the full costs to consumers are properly considered). And replacing EV mandates with incentives for smaller cars would likely have a more positive environmental impact when the full life-cycle impact is considered and when consumer interest in EVs is stalling.

Europeans like to think that everything Donald Trump does is by definition wrong or even evil. But his rhetoric on energy and the economy are pretty conventional – cheap energy will promote economic growth. He just doesn’t agree that renewables are the route to cheap energy. However, with de-industrialisation accelerating in Europe as a result of high energy costs, as well as a reliance on US LNG in the post-Russian gas era, Europe would do well to take note of his strategy and seek to emulate it.

While Europe as a whole does not have very much by way of oil and gas resources, the UK does, and it should follow Mr Trump’s lead and maximise them. We won’t be able to achieve energy dominance – the UKCS is too small for that – but we can improve our energy security as well as tax receipts at a time when the Treasury desperately needs funds, by maximising domestic production and minimising imports.

European politicians smugly believe they occupy the moral high ground, while their industrial champions falter, jobs are cut and households suffer some of the highest energy prices in the world. Mr Trump’s energy policy is more coherent, but there is still room for improvement.