Report: How North America Can Harmonize on Fossil Energy Issues

WASHINGTON—Technological advancements in gas and oil development have put North America in possession of some of the most significant fossil energy resources in the world. As production has grown in Mexico, Canada, and the United States, so has the interconnectedness among the three countries’ energy sectors—and the need to harmonize regulatory polices.

As the three countries begin NAFTA renegotiations this week, a new report out today looks at the issues in play and makes several recommendations for action items—North American Energy Integration: Assessing Oil and Gas Policy Issues ahead of NAFTA Renegotiation.

The report is informed by an October 2016 workshop held in Washington, DC, that brought together regulators, academics, practitioners, policy experts, and civil society groups to discuss opportunities for harmonization across the sector. It is coauthored by Alan Krupnick, a senior fellow at Resources for the Future (RFF); Amin Asadollahi of the International Institute for Sustainable Development (IISD); Juan Carlos Belausteguigoitia Rius of Instituto Tecnológico Autónomo de México (ITAM); Kristin Hayes, associate director of RFF’s Center for Energy and Climate Economics; Isabel Echarte, an RFF research assistant; and Philip Gass and Daniella Echeverria of the International Institute for Sustainable Development. The October event and a series of related workshops were conducted in concert with support from the Department of Energy’s Office of Energy Policy and Systems Analysis.

The governments of Canada, the United States, and Mexico have increasingly worked toward harmonizing energy-related regulations (including many on environmental safety and climate change) across the North American continent. This harmonization has taken a number of forms, ranging from data and technology sharing to full-fledged planning and policy alignment—driven by a desire to reduce regulatory complexity, foster additional cross-border transport of resources, address potential economic complications due to unaligned markets, and collaborate on shared objectives, such as reducing greenhouse gas emissions. Furthermore, the Trump administration signaled in July that it is interested in furthering energy market access and “support[ing] North American energy security” in its “Summary of Objectives for the NAFTA Renegotiation.”

According to the new report, “The most comprehensive statement of policy coordination on this issue to date came at the North American Leaders’ Summit in June 2016, when then-US president Barack Obama, Canadian prime minister Justin Trudeau, and Mexican president Enrique Peña-Nieto jointly announced several goals, including reducing methane emissions from the oil and gas sector 40–45 percent by 2025 and 50 percent clean power generation by 2025.”

Then, in 2016, the political landscape shifted with the election of Donald Trump to the US presidency, the authors note: “President Trump has indicated a distinct change in attitude toward both federal energy and climate policy and relations with the United States’ North American neighbors.”

The report, however, further notes that the “momentum behind North American energy interconnectedness is strong, as market forces continue to nudge the three countries toward further cooperation. But politics are quite likely to be a major factor as to whether, in what directions, and to what extent further policy harmonization occurs—at either the federal or subnational level.”

The report continues: “President Trump’s signaled commitment to renegotiating the North American Free Trade Agreement (NAFTA) presents an interesting opportunity to send such a credible signal. Energy issues should be broadly and thoughtfully discussed as part of any new negotiations. This is an area ripe for future research and thought leadership, both across disciplines (economics, law, policy) and across nations.”

Drawing from both the regulatory review and the ideas generated in the workshop, the report describes a set of recommended priorities for national or subnational action in North America:

1. Describe ways the three countries are already collaborating on energy and climate issues, and maintain all nonduplicative interactions.
2. Define what constitutes a subsidy to the oil and gas sector, harmonize this definition among the three countries, and continue action to eliminate subsidies.
3. Examine the extent to which infrastructure permitting processes are similar or differ across the three countries, specifically as this relates to environmental impact statements.
4. Improve regulatory alignment and information sharing regarding methane emissions.
5. Expand FracFocus (already used in the United States and Canada) to Mexico in order to provide transparency and access to data, including additives in hydraulic fracturing.
6. Continue energy technology innovation exchanges on topics such as carbon capture and storage, methane measurements, and water-saving technologies. Leverage the three countries’ investments through joint funding for research and development.
7. Develop risk-based safety and environmental inspection systems to address the Gulf of Mexico holistically in the spirit of the US–Mexico Transboundary Hydrocarbon Reservoirs Agreement. The Gulf is one ecosystem, and nature does not recognize borders. Expand existing coordination to address more issues, and look for areas where goals and objectives overlap.
8. Make changes in rules across the three countries in two identified target areas: decommissioning standards and water use and disposal standards.
9. Study past and present concerns regarding harmonization in NAFTA and what they mean for harmonization in this context. Examine areas where NAFTA could be updated.
10. Provide Mexico with certainty regarding the supply of natural gas and oil products, and further policies that provide the three countries with increased energy and economic security.
11. Harmonize CO2 policies where possible, particularly at the subnational level in the short term.

Read the full report—North American Energy Integration: Assessing Oil and Gas Policy Issues ahead of NAFTA Renegotiation.