If approved by Congress, the hotly debated Trans-Pacific Partnership (TPP) trade agreement between the United States, Canada, Japan, and nine other Pacific Rim countries, would be the among the largest regional trade treaties in history. The TPP would have far reaching implications for many industries, including the energy sector. Although the specific provisions have not been publicly released, the TPP’s main tenants are: (1) to promote the removal of tariffs on American manufacturing and (2) to preserve the environment.
To fulfill these objectives, the TPP would eliminate tariffs on “environmentally beneficial products and technologies” such as solar panels, wind turbines, wastewater treatment systems, air pollution control equipment, and air and water quality analyzers. Tariff relief for these technologies may allow the U.S. to better compete with lower-priced foreign technologies, such as Chinese solar panels. The removal of tariffs on environmentally beneficial technologies also pairs nicely with the TPP’s objective of promoting cooperative efforts to address issues such as energy efficiency and the development of clean and alternative energy sources. The implementation of this objective also may help facilitate removing or reducing tariffs on nuclear and renewable energy services.
The Trans-Pacific Partnership Now Heads to Congress Where it Faces Opposition
Republican Congressional representatives generally have been less than enthused about the treaty, viewing it as surrendering aspects of U.S. sovereignty to its trade partners. However, President Obama may have a deal sweetener for Republicans as the TPP moves through Congress—the removal of currently required Department of Energy (DOE) approvals of liquefied natural gas (LNG) exports. Under the Natural Gas Policy Act, the DOE regulates natural gas exports and must automatically approve applications to countries with which the U.S. has free trade agreements (FTA), or issues permits for exports to non-FTA nations. Many Republicans, including Senate Energy and Natural Resources Chairwoman Murkowski, have supported legislation to speed DOE’s LNG permitting process.
The U.S. has been experiencing a natural gas boom that has contributed to dramatically lower oil and gas prices. Many domestic producers are now operating in a difficult environment, near or below their break even points. American LNG producers have turned to international markets to sell their inventory at higher price points, but first must obtain DOE authorization. The passage of the TPP by Congress may facilitate eliminating DOE’s intermediary role in authorizing LNG exports to TPP member countries, and also may result in the decoupling of LNG and oil prices for treaty participants.
Japan has been a vocal advocate of the U.S. removing LNG restrictions, and views American natural gas as a component of its energy security. On the other hand, some groups like the Sierra Club, have raised concerns that eliminating DOE’s role could result in higher prices for Americans and also create unforeseen environmental consequences as a result of increased extraction through fracking. Many energy analysts predict that the TPP won’t impact LNG exports in the short term because the DOE already has approved the export of more than 10.5 billion cubic feet of natural gas daily, including to Japan and other non-FTA countries.
Although there are a number of energy applications considered in the TPP, member countries would retain decision-making authority over their energy supply mix. However, it appears that the TPP would enable the U.S. to better compete in natural gas, and perhaps, in renewable energy outputs as well. Once more details emerge about the trade treaty, the agreement’s impact on the domestic energy industry can be better quantified.
Special thanks to Emma Spath for her assistance in the preparation of this post.