Streetwise Professor

April 10, 2019

Trump’s Energy Infrastructure Executive Order: A Constructive Use of Federal Power, Consonant With the Purpose of the Constitution

Filed under: Climate Change,Economics,Energy,Politics,Regulation — cpirrong @ 7:31 pm

Trump just departed from Ellington Joint Reserve Base here in Houston, ending a quick trip to Texas which included a rally in Houston. The focus of Trump’s visit was the US energy sector (In Texas? Go figure!). As part of that, he announced and signed an executive order limiting the power of states to block or obstruct the construction of interstate oil and gas pipelines.

Overall, I’m not a fan of executive orders, as they tend to be used to override or circumvent normal Constitutional procedures and purposes. There is a strong argument, however, that this order is an exception.

The very genesis of the Constitution traces to commercial disputes between states under the Articles of Confederation. Contention between Virginia and Maryland over navigation of the Potomac and the Chesapeake resulted in the calling of the Annapolis Convention (formally The Meeting of Commissioners to Remedy Defects of the Federal Government) in 1786. Although the Convention itself was something of a damp squid, it did result in the calling of the Philadelphia Convention of 1787, which wrote the Constitution that continues to be the law of the land to this day, 232 years later.

Of course, one part of that document is the Commerce Clause (Article I, Section 8, Clause 3) which grants to the Federal government the power to regulate commerce between the states. This was not an accident, comrades. Preventing protectionism by the states against each other was one of the main reasons for creating a more powerful central government.

State governments always have the temptation and incentive to favor their own constituents at the expense of people in other states. Letting that impulse operate freely would result in a Balkanized country with myriad wasteful restrictions, taxes, tolls, and regulations that would sap wealth. (Consider pre-Revolutionary France, with its oppressive system of local tolls on the movement of goods.) Anticipating that, the Founders expressly sought to limit the protectionist powers of states.

In Gibbons v. Ogden (1824) the Marshall court forcefully exerted the Commerce Clause. Things have likely gone too far since: for example, the Commerce Clause’s delegation of authority over navigable waters to the US government has been pushed to the extreme by using it to impose Federal environmental regulation on an intermittent wet spot on your back 40.

But what Trump is ordering is clearly within the four corners of the Clause as originally conceived. Oil and gas are produced in some states, and consumed in others. Interstate movement is necessary to connect producers and consumers. Further, for myriad motives many states have attempted to obstruct that movement. That is not, and has not been since the formation of the Republic, their prerogative.

The case can be made that the Commerce Clause has proved a Trojan Horse that has facilitated an expansion of Federal power beyond that what the Founders envisioned. But what Trump is ordering is squarely within the intent of the Clause, as drafted and intended.

The dramatic growth in US energy production is being hampered by infrastructure constraints. For many, that is a feature, not a bug: the hostility towards fossil fuel energy in particular by many in the US, especially on the left, makes such infrastructure a schwerpunkt for environmentalists. Knock out the transit links between producers and consumers, and energy will be neither produced nor consumed. They often find it easier to focus their efforts on state and local governments because (a) they are often more biddable, and (b) since you only need to prevail in one or two to delay or derail altogether a pipeline moving across many, the odds of success are higher. (If there are N jurisdictions crossed by a pipeline, and the probability of getting a jurisdiction to block it is P, the probability that it will go through is (1-P)^N, which decreases with N.)

Yes, local communities do have concerns. The question is what is the appropriate remedy for them. A properly applied Takings Clause (with payment of true value for taken property) is one: it prevents subsidization through expropriation. Insofar as environmental issues are concerned, the question is whether ex ante restrictions (i.e., imposing high standards to permit construction) are better than ex post penalties for damage imposed (which provide an incentive for infrastructure operators to take precautions against damage).

Since infrastructure operators are well-capitalized, and unlikely to be judgment proof, and since there are armies of class action attorneys waiting in the wings salivating at the opportunity to sue for damages, ex post penalties are likely to be more efficient than ex ante restrictions, especially ex ante restrictions imposed by state and local governments who internalize the benefits they obtain for their constituents, but who do not internalize the costs that they impose on producers upstream or consumers downstream.

And this is not to say that the Federal government is inevitably predisposed to efficient outcomes. Look no further than the previous administration, which largely embraced the environmentalist hostility to domestic energy development, and which as a consequence used its powers to thwart some important infrastructure developments (e.g., Keystone, which would have proven especially valuable in light of the loss of heavy crude production in Venezuela and to a lesser degree Mexico). So Federal power can be exercised for good or ill when it comes to energy infrastructure. Trump’s order is an example of it being exercised for the good of energy consumers and producers.

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5 Comments »

  1. Much of the territory involved – though not Texas – will have been part of the Louisiana Purchase. But that was unconstitutional – as Jefferson explained at the time, indulging himself in lots of his customary drama-queening. He then went ahead with it anyway, of course.

    In light of this, why bother with any of the “constitutional” chatter?

    Comment by dearieme — April 11, 2019 @ 3:37 am

  2. Nothing better than a hot cup of coffee, rising energy prices and a bit of real Constitutional history to go along with political progress.

    As always, well done.

    Comment by Carl Larry — April 11, 2019 @ 6:31 am

  3. Thanks, @Carl.

    Comment by cpirrong — April 11, 2019 @ 9:28 am

  4. Small nit…I believe it’s “damp squib”. A squib being a firecracker that doesn’t because it’s wet. Squids are always damp by definition!

    Comment by Marshall Jung — April 16, 2019 @ 9:24 am

  5. Squib it is.
    Mr. Trump’s position on oil and gas production is an area where his Administration is right on the money. His coal position- much less so. We should be pushing nuclear power over coal for baseload electrical production.

    Comment by AndyEss — April 17, 2019 @ 9:10 pm

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