President Trump First 100 Days

Peter Lefkin | 11/20/2016
The seal of the President of the United States of America

Summary

At the outset of his presidency, Donald Trump is facing the most scrutinized first 100 days in the history of the office. In a time that will set the tone for the next four years, Peter Lefkin previews the hot-button issues confronting the new president.

Key takeaways

  • New US presidents come into office with an ambitious agenda and are determined to put their personal stamp on the office during their first 100 days.
  • While much has been made of the Republican majority in Congress, it bears repeating that Democrats have a significant 48 vote minority in the US Senate.
  • President Trump will face dissent not only from Democratic lawmakers, but also from many within his own party, especially on issues such as trade, infrastructure spending and immigration.

President Trump takes charge

Almost all new presidents come into office with an ambitious agenda and are determined to put their personal stamp on the office during in their first 100 days. Donald Trump is clearly no exception and the promises he made, in the parlance of his political speeches, are huge. But while much has been made of the Republican majority in Congress, it bears repeating that Democrats have a significant 48 vote minority in the US Senate, adding compromise and complication to wide range of issues President Trump will be facing as outlined here.

Mr. Trump’s popularity is measured at historic lows for a new US president

Infrastructure spending

Mr. Trump has repeatedly criticized America's infrastructure and also the need to put people back to work rebuilding that infrastructure. This is one issue, however, where he and his party are far apart. His Republican caucus is not entirely convinced that extensive infrastructure spending is needed, particularly if there is no easy way to pay for it. In 2009, they voted unanimously against President Obama's stimulus package and decried pork belly spending and this remains part of their DNA. President Trump might get more support from Democrats who welcome the jobs, and would also enjoy watching an early internal battle between the new President and Republican Congressional leaders over how to pay for it.

Trade

Mr. Trump spoke with unusual stridency about trade during the campaign, but even his supporters would admit that it will be hard to deliver on his promises. With respect to key trading partners, Mexican and US manufacturing components are too intermingled and a promised 35% tariff, with its threat of Mexican retaliation, would create havoc on both economies. China is of tremendous importance to the US and global economy at large and has tremendous leverage to retaliate. This goes beyond blocking US imports to include a wide range of issues including cyber security, cooperation in North Korea and the issuance and buying of Treasury debt. In the weeks leading up to the inauguration, Mr. Trump has created corporate angst with his tweets against General Motors, Toyota and a few other companies whom he accuses of exporting US jobs. This has raised fears in corporate board rooms about who might be next.

The Federal Reserve

As a candidate for office, Mr. Trump derided the easy monetary policy of low interest rates of the Janet Yellen-led Fed.

Given vacancies on the Federal Reserve Board, Trump could appoint a majority of its members

But as President especially as one with a real estate background, Mr. Trump might feel differently if higher interest rates squelch his hoped for economic growth. There are currently two vacancies on the seven-seat Federal Reserve Board of Governors, and over the next few years the Chairmanship of Janet Yellen will expire as will the Vice Chairmanship of Stanley Fischer. This could give President Trump the ability to appoint a majority of the Board in a fairly short period of time.

Regulatory environment

The power of the presidency as evidenced by President Obama can be enormous when it comes to new regulations. President Trump has already said he would halt and reverse any number of Obama initiatives, including those on climate change, worker overtime pay and the new Department of Labor (DOL) fiduciary duty rule which imposes complex standards and expanded liabilities for financial services firms. Mr. Trump has also vowed to repeal the Dodd-Frank Act, which regulates the banking industry at significant cost to the industry. While most banks want Dodd-Frank reformed, many have already invested significantly in compliance and don't necessarily want to completely gut the law. While reversing executive orders can be done fast, overturning regulations takes a bit more time and may be harder than expected. However, it could still get done and in some ways President Trump has more latitude here than in other areas.

Tax reform

The ultimate goal of Mr. Trump's tax reforms is to reduce the tax rate for corporations and individuals and broaden the tax base. To accomplish this, Mr. Trump has said that there is no reason why a tax bill has to be revenue neutral, while Senate Majority Leader McConnell, reflecting most of the Republican Caucus, says it must be neutral.

The recent Republican budget resolution projects $9 trillion more in debt. So much for Republican fiscal rectitude

McConnell has in mind the federal budget deficit, which was close to $600 billion for the 2016 fiscal year and is expected to get much larger due in part to aging baby boomers and higher interest rates on the national debt. US gross national debt as a percentage of gross domestic product has risen from 28% in 2008 to 72% now, and this number is expected to go higher still. The recent Republican budget resolution, which passed the House and Senate in early January, projects an increase of the public debt by $9 trillion over the next decade. So much for Republican austerity and fiscal rectitude.

Immigration

We can expect stronger enforcement and more jawboning on immigration, but nothing nearly as draconian as that which was talked about during the campaign. President Trump has already partially retreated with respect to his campaign statements that he would immediately reverse President Obama's Deferred Action for Childhood Arrivals. This has allowed 740,000 immigrants to obtain work permits with another 7,000 being approved every month. In recent statements, Mr. Trump has somewhat backed away from this although he has not said anything specifically on what he intends to do.

Independent commissions

By spring of 2017, there is likely to be a new Chairman for both the Securities and Exchange Commission (SEC) along with the Commodity Futures Trading Commission (CFTC). And given that these new chairmen will almost certainly be Republican, we can expect more reliance on market forces rather than regulation to promote competition and consumer protection. With respect to the SEC, you could expect a retreat from many of the increased disclosure requirements that have emerged during the last eight years, ranging from investment in fossil fuels, to executive pay/employee pay ratios, to the extent of measuring the level of minority and women workplace in management positions.

We may also see Congress step in and restructure the Consumer Financial Protection Bureau, which currently is run by one person and operates without Congressional funding or oversight. Some Republicans would like to close it down, but the more likely path will be to turn into a five-person commission like the SEC and CFTC. This would then be subject to Congressional oversight and adhere to public notice and comment procedures that other government entities are subject to.

Housing policy

President Trump's choice for Treasury Secretary Steven Mnunchin has said that Fannie Mae and Freddie Mac, which guarantee the interest and principal on roughly two-thirds of American mortgages, should be privatized but not closed. Congressman Jeb Hensarling (R-TX), the powerful House Financial Services Chairman, is anxious to make his mark by blowing up both Fannie and Freddie. In the end, I would anticipate some sort of compromise that moves closer to what Mnunchin wants than that being pursued by Hensarling.

Affordable Care Act

Since the Affordable Care Act (ACA) was enacted in 2010, the Republicans have voted repeatedly to repeal it, knowing it would face a certain veto from President Obama. Both President Trump and Congressional Republicans want to repeal it and replace it with something else, although there is no consensus on what this might be. House Speaker Paul Ryan (R-WI) wants to create a voucher-based private health insurance program with financial assistance to those in need. In the meantime, hanging in the balance are the 19 million people currently insured under the ACA.

Taking a step in the right direction, President Trump made a good move in nominating Congressman Tom Price (R-GA) to be Secretary of Health and Human Services. He is a surgeon who has done a lot of work and thinking on this matter during his six terms in Congress. The inclination was initially to repeal the law but keep it in effect for at least two years and use the time to come up with something else. This plan has since come under attack, even from Mr. Trump himself who promised, without understanding how complex it is, that Congress would repeal and replace the law with something else very soon. This is easier said than done. Mr. Trump has at times embraced a single payer system which is strongly opposed by Congressional Republicans. He also said he wants to jawbone down the prices of pharmaceuticals, which is another area where he might have a problem with people in his own party, but not with the Democrats, who agree at least on this one matter with him.

Trump's opportunity to reduce tensions

After years of rancor between Republicans and Democrats, it would be good to get bipartisan cooperation and this brings forth a level of public consensus that adds legitimacy and support for the things that are being done. Given the age we are living in, I have no illusions that this will occur. However, I do see developing fissures between the new president and Congress on issues relating to spending and deficits. As a developer and candidate, Mr. Trump has never abhorred debt. This is one principle that usually unites the Republican Party, even though they deviate from this when it serves their purposes.

I remain a bit hopeful that given the new president's lack of policy knowledge and experience in Washington that the Congress will restore the power provided to them in the United States constitution, which has been significantly eroded be the federal government for decades now.

Donald Trump has the opportunity to pivot in a way which reduces the tensions that divide us.

I think it would be helpful in forging a consensus and compel Congress to take more responsibility for their actions and for the people they serve.

As the new US president takes office, the American people stand in fear and hope, probably in ways never really experienced before in modern times. With the nation and the world's eyes on him, President Trump has the opportunity to pivot in a way which reduces the tensions that divide us. Let's hope he does it and that he is met with reciprocation by his opponents as well as restraint and understanding from those who supported him. We are all in this together and the sooner that we all recognize this, the better that we will all be.


105007

Expert-Image

Peter Lefkin

Senior Vice President of Government and External Affairs
New York, New York
Peter Lefkin is the senior vice president of governmental and external affairs with Allianz of America Corporation, which he joined in 1988. He leads the firm’s state and federal lobbying efforts in the US. Mr. Lefkin has a B.S.F.S., cum laude, from the Georgetown University School of Foreign Service, and a master’s in public administration and a J.D. from Syracuse University.

Methane: The Next Frontier for Fossil Fuel Emissions

Marie-Sybille Connan | 12/01/2016
factory-carbon-emission-day

Summary

Carbon dioxide emissions have taken up all the air, so to speak, in discussions on climate change. But Marie-Sybille Connan says the message must also get through on methane, which is the second-biggest greenhouse gas and also valuable in its own right.

A matter of methane emissions

Ahead of COP21, the United Nations Climate Change Conference, the six largest European oil & gas companies (including Shell, BP and Total) called for a global carbon tax as a way of slowing global warming and promoting natural gas as a transition fuel to a low carbon economy. This was a welcome initiative from the European majors, which was sadly not mirrored by their US peers. However, as often, the devil is in the details. Any carbon tax should recognize the two sides of carbon: there are two major greenhouse gases, carbon dioxide (CO2) and methane (CH4) and both are carbon gases.

Any carbon tax should recognize both sides of carbon emissions: carbon dioxide (CO2) and methane (CH4)

Targeting both is critically important if we want to have a chance to limit global warming to 2°C (with an even greater ambition to reach 1.5°C) as agreed in the Paris Agreement. Identifying an upper limit in greenhouse gas emissions as soon as possible is the immediate climate concern. One can appreciate how difficult the challenge is considering that the oil majors are currently rebalancing their portfolios towards natural gas and that the US economic recovery post Lehman Brothers is related to the shale gas boom.

Methane is the second most abundant manmade greenhouse gas after carbon dioxide: CO2 accounts for about half and CH4 for about one-quarter. It is emitted during the production of coal, oil and natural gas. It also comes from solid waste stored in landfills, animal waste management systems, wastewater treatment facilities and other manmade and natural sources.

These emissions pose risks to people and the environment. Methane emitted into the atmosphere creates air pollution causing thousands of premature births every year. Methane that builds up in coal mines and oil & natural gas facilities can cause explosions that can endanger workers.

Major emitters of methane

China, the US, Russia, India, Brazil, Indonesia, Nigeria, and Mexico are estimated to be responsible for nearly half of all anthropogenic methane emissions. However the major sources of methane emissions for these countries vary greatly. For example, a key source of methane emissions in China is coal production, whereas Russia emits most of its methane from natural gas and oil systems. In the US, oil and gas systems are the largest source methane emissions (30%) according to the US Environmental Protection Agency (EPA).

Global anthropogenic methane emissions are projected to increase by 19% over the period 2010-2030 to 10,220 million metric tons of CO2 equivalent by 2030. The relative contributions of the agriculture, coal mining and landfill sectors are projected to remain relatively constant while methane emissions from wastewater treatment systems are expected to increase by nearly 19%. Oil and gas emissions are the real issue as they are expected to increase by 26% over the same period.

Carbon dioxide vs. methane

In order to address climate change, we must reduce pollution to slow the rate of climate change (notion of flows) while at the same time limiting maximum warming (notion of inventories). But, all emissions are not equal. Like CO2, methane is a gas that warms the earth by trapping heat. However, the way in which each gas interacts with the planetary climate is dramatically different. The climate is slow to respond to changes in carbon dioxide emissions and, as such, immediate reductions in CO2 emissions will take 30 to 40 years to slow warming but, critically, all emissions produced will have a warming effect on the climate that will last for hundreds of years.

On the other hand, the climate system reacts quickly to changes in methane emissions and therefore reducing them now is crucial for slowing climate change over the next 30 to 40 years. Furthermore, the methane remains in the atmosphere for only 12 years: methane emissions don’t have any lasting influence on the planetary climate system, unlike carbon dioxide emissions.

Methane and carbon dioxide emissions have very different lifetime and impact. CH4 is 84 times more powerful than CO2 over the first two decades following its release but its only 28 times more powerful over 100 years. By contrast, CO2 remains in them atmosphere much longer. Over time, CO2 has then a greater warming potential.

Hence, comparing them requires a metric that depends on a timeframe. Scientists measure the global warming of potential gases over two time periods: 100 and 20 years. It is scientifically proven that the earth is predicted to warm by 1.5°C above pre-industrial baseline within the next 15 years and by 2°C within the next 35 years given current GHG emissions.

It is also scientifically proven that a combination of emissions reductions, such as curbing CO2 from coal-fired power plants and methane from oil and gas activities, is the best way to stabilize the climate in the long term while reducing warming now. That’s why, the use of a global warming potential of 84 for the 20-year time period from the IPCC Fifth Assessment is the right approach to compare the warming consequences of methane and carbon dioxide emissions.

Hence, Robert W. Howarth from the Cornell University, Ithaca, NY, introduces the notion of a GHG footprint for fossil fuels and he shows that the GHG footprints of shale gas first and then conventional natural gas are higher than that of conventional oil and coal when methane emissions are considered over an appropriate timescale. As such, natural gas (and shale gas in particular) may lose its green credentials as the transition fuel to a low carbon economy.

Regulatory, investor and corporate initiatives

There is an urgent need to act on methane emissions. Take the massive natural gas leak at a storage well near Los Angeles in October 2015 as an example, this resulted in thousands of nearby families having to flee their homes and be temporarily relocated. After several unsuccessful attempts to plug the leak, SoCal Gas began building a relief well to capture the leaking gas. In mid-February, the leak was fixed, over three and a half months later. The Environmental Defense Fund (EDF) estimates that the amount of methane leaked had the same 20-year climate impact as burning nearly a billion gallons of gasoline. This sole gas leak will have an impact on California’s ability to meet its GHG targets this year. Aside from the environmental and reputational risk, SoCal Gas estimates financial costs of $330 million and 83 lawsuits have already been filed against the firm.

From an economic standpoint, methane has value and lost methane is essentially wasted fuel

From an economic standpoint, methane is valuable and lost methane is essentially wasted fuel. Because methane is the major component of natural gas, it can also be captured before it is emitted into the atmosphere and used to produce energy for heating, electricity and cooking. When it is captured from landfills and agricultural sites, the collection systems can reduce local water contamination. As such, all stakeholders have a vested interest in managing actively methane emissions. There are practical and cost effective solutions to minimize methane emissions, many of which can increase the 'bottom line' of the Oil & Gas industry.

Since 2004, countries around the world have been working in partnership with the Global Methane Initiative on projects to reduce emissions worldwide and to use methane emissions as a source energy source. These projects are also helping to reduce air pollution, protect people's health and improve local economies.

Methane emissions: The next frontier

In particular in the US, where financial and environmental stakes are high, the White House announced in January 2015 an ambitious national strategy to reduce oil and gas methane emissions to 40-45% below 2012 levels by 2025. However, in order to meet this target, new regulations are required that go beyond the EPA proposed methane emissions standards for new and modified oil and gas facilities (August 2015). Indeed, circa 90% of emissions in 2018 are expected to come from existing facilities. The outcome of the US presidential polls may weigh on the implementation of further regulations.

A windfall awaits oil & gas companies that can effectively recapture methane from emissions

The Environmental Pension Fund (EDF) has done great work in increasing awareness across the Civil Society, corporate and the investor sphere. In a recent study, they show that global oil and gas methane emissions represented $30 billion in wasted resources worldwide, which proves that there is a financial benefit for oil & gas companies to identify and manage methane emissions.

They also found that the disclosure on methane emissions is not up to the challenge. 28% of the 65 companies (out of which 40 oil majors and 25 large midstream companies) surveyed report methane emissions in investor facing channels. No company provides quantitative reduction targets. Only one company provided detailed information on its leak detection and repair (LDAR) program. Information provided is generally vague, qualitative and non-actionable. The EDF calls for corporate action to measure and report methane emissions in order to manage the impact on global warming.

In the wake of EDF, investors are increasingly pushing for action on methane after having targeted companies for releasing sustainability reports and disclosing their carbon dioxide emissions. They want more information on the extent of the issue and how companies are tackling it. Hence, they have filed 10 shareholder resolutions to press US energy companies before their annual meetings this year to detail plans for limiting methane leakage from wells, pipelines and other energy equipment.

Energy investors are urging companies to minimize methane emissions in a transparent manner

Lastly, investors representing $3.6 trillion commended the joint US and Canadian March 10th announcement that both countries take steps to seriously address methane emissions from the oil & gas sector. As widely diversified, long-term investors with holdings in the oil & gas industry, they share a vested interest in the industry's long-term success and think that natural gas can play a significant role in the North American energy mix, has demonstrated the potential to reduce greenhouse gas emissions while supporting economic growth. However, they are concerned that methane emissions pose a risk to their investments. They urge companies to minimize methane emissions in a transparent manner and provide investors and the public with better methane reporting.

Methane disclosure has become the new challenge for investors in oil & gas companies after the good progress achieved on carbon disclosure and stranded assets stress-testing. For the gas industry to really be part of the solution in the transition to a low-carbon economy, methane emissions must be actively and transparently managed. Investor scrutiny will only but increase.

105007

Expert-Image

Marie-Sybille Connan

Assistant Vice President, ESG Analyst
Paris
Ms. Connan is an ESG analyst and an assistant vice president with Allianz Global Investors, which she joined in 2008. As a member of the firm’s Environmental, Social and Governance team, she is responsible for the energy, media and telecommunications sectors. Ms. Connan was previously a fund manager and credit analyst. Before joining the firm, Ms. Connan was a senior credit analyst at Fortis Investments and Aviva Investors; before that, she worked at Natixis AM as a fund manager and equity analyst, focusing on IT and software. Ms. Connan has a master’s in finance from the ESC Montpellier Business School. She is a member of the French Society of Financial Analysts and a graduate of the Centre de Formation des Analystes Financiers.
Connect With Us
Stay up-to-date with social media
Contact Allianz Global Investors
For more information on our products and services
Contact Us