Insight: US voters give boost to clean energy policies but stop short of carbon tax

From ballot measures to statehouses, what do the results of the US midterm elections mean for oil, gas and power markets? Kate Winston and Maya Weber report

On November 6, US voters shied away from key statewide environmental initiatives that would have imposed near-term costs on oil, gas and traditional utility interests. But they backed candidates, including nine new Democratic governors, with aggressive renewable energy and environmental goals. Advocates may now look to states fully under Democratic control – such as Nevada, New Mexico and Colorado – to take quick action on clean energy, since divided government at the federal level lowers prospects for this in Washington.

The defeated

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Several green ballot initiatives offered critical test cases, and their defeat could discourage other states from pursuing similar measures. Washington’s carbon fee and Colorado’s drilling setback were seen as bookending what is politically possible at the moment.

Washington Initiative 1631 would have been the first carbon fee in the US. If passed, it would have set a carbon fee of $15/mt starting in 2020 and boosted costs for oil refineries, gas-fired power plants and other large users of fossil fuels.

Colorado Proposition 112 would have increased oil and gas drilling setbacks on non-federal land from 500 feet to 2,500 feet. The measure, strongly opposed by the oil and gas sector, could have reduced oil production in some basins by more than 50% by 2023.

If the Colorado measure had passed in a state that leans heavily on industry revenue, it could have been copied elsewhere. The failure of the Washington measure in a state with low carbon intensity suggests it could be a heavy lift elsewhere.

“We viewed both states as litmus tests for potential policy contagion,” ClearView Energy Partners said in a post-election note. “In Colorado, where proceeds from a fast-growing oil and gas industry fund schools and local governments, voter support for a de facto drilling ban could have pointed towards emulation by other, less-revenue-reliant producer states,” the note said.

Carbon tax

Scott Segal of Bracewell said Washington state has a balance of urban and rural voters, and of conservative and liberal voters. As a result, there were two well-funded sides battling over a fairly aggressive carbon tax. "It in many respects was a test case for the politics of the carbon tax on what I would call neutral ground," he said in a post-election webinar.

But Tom Steyer, founder of the nonprofit NextGen Climate Action, pushed back against the narrative that the failure of the Washington initiative means a carbon fee would be politically infeasible at the national level. “I don’t think that for a second because obviously the largest, most populous state in the United States is California and we have a comprehensive plan,” Steyer said at a post-election event.

Environmental advocates blamed the defeat of some initiatives on industry spending. Advocates spent $15 million backing the Washington initiative while opponents spent about $30 million to defeat it. Proponents of the Colorado initiative spent $1 million and opponents spent $30 million.

Industry groups countered that some initiatives failed when put to the test by voters. "Where energy bans were on the ballots, many of them failed when it was put to a vote of the people," said Benjamin Marter, communications director for the American Petroleum Institute.

Elsewhere, Alaska voters also shot down Ballot Measure 1, which would have strengthened permitting regulations for any activity that could affect salmon habitats. Oil and gas producers said the rules could delay projects and increase costs, potentially prohibiting developments on the state’s North Slope and elsewhere.

Renewable gains

While several high-profile ballot initiatives disappointed environmental groups, their policy goals gained ground in governors' mansions. Seven switched to Democratic hands.

The League of Conservation Voters tallied nine new governors who committed to move their states toward 100% clean energy: Tony Evers of Wisconsin, Gretchen Whitmer of Michigan, J.B. Pritzker of Illinois, Janet Mills of Maine, Jared Polis of Colorado, Kate Brown of Oregon, Gavin Newsom of California, Steve Sisolak of Nevada and Ned Lamont of Connecticut.

Michelle Lujan Grisham in New Mexico, another Democratic governor pickup, is expected to tighten venting and flaring requirements for oil and gas production, in addition to backing 50% renewables by 2030 and 80% by 2040.

Governor-elect support for clean energy goals overlaps with six states in which Democrats moved from divided control to holding the governorship and both chambers of the state legislature: Colorado, Illinois, Maine, New Mexico, New York and Nevada. The combination increases the likelihood of measures advancing.

That makes a difference in places like Colorado, where Senate Democratic control combined with the election of a governor who has backed 100% renewable energy by 2040 and favors tighter regulation of the oil and gas industry.

The New York state Senate flip to Democratic hands also could give life to more ambitious renewables goals than embraced by Democratic Governor Andrew Cuomo. The push for a higher concentration of renewables "will be baked into the nationwide platform approaching 2020 and beyond" in the Democratic Party, said Rob Rains of Washington Analysis.

Dan Lashof, director of the World Resources Institute–United States, said after the election he sees Colorado, Nevada and New Mexico as poised for quick action on renewable standards. Wisconsin experienced the biggest ideological shift, Lashof said, with Democrat Tony Evers unseating Republican Governor Scott Walker, while Michigan and Illinois governors-elect could strengthen the existing goals on renewables.

With no action on climate legislation at the federal level, many environmental groups are focusing on state-level and sector-specific progress, Michael Brune, executive director of the Sierra Club said. “The commitments on 100% clean energy coming from these governors, we feel will be deeply transformative."

Going in a different direction, Ohio elected Republican Attorney General Mike DeWine, improving prospects for efforts to relax renewable mandates.

Results were mixed for ballot initiatives to raise renewable energy targets. Arizonans rejected a ballot initiative to require electric utilities to get 50% of their power from renewables by 2030. Arizona Public Service fought the measure, saying it could force the 3.9 GW Palo Verde nuclear plant to retire early.

A Nevada initiative to increase the state's renewable portfolio standard to 50% by 2030 won easily with 60% of the vote, despite the state’s utility remaining neutral on the issue. While the initiative needs to pass again in 2020 to go into effect, environmental groups hope the state legislature will pass a law making that mandate binding even sooner. Prospects are improved by the election to governor of Sisolak, who ran as a clean energy advocate combating climate change.