• December 13, 2017

    NAFTA and North American Energy

    Stephen Eule

Today Global Energy Institute President and CEO Karen Harbert testified before the U.S. House Committee on Energy and Commerce’s Subcommittee on Energy on the impact of NAFTA on North American energy.

North American energy trade is a crucial and growing component of the U.S. economy thanks in part to the North American Free Trade Agreement (NAFTA). We’re on the verge of getting the economy back on track to 3%+ economic growth with pending comprehensive tax reform legislation and regulatory relief efforts by the Trump administration and Congress. Yet, withdrawing from NAFTA would likely erase any positive impact created by those efforts.

The United States is today the largest producer of energy in the world, and it is fortunate to have two neighboring countries, Canada and Mexico, that are themselves large energy producers. North America is an energy powerhouse. Combined production from the United States, Canada, and Mexico accounts for 19% of crude oil, 28% of natural gas, and 12% of coal output globally.

In the years since the NAFTA was negotiated, the North American energy sector has been fundamentally transformed. Given our proximity to such large and secure energy resources, it is not surprising that Canada and Mexico are among America’s largest energy trading partners. Whereas the United States traditionally has been a big purchaser of energy from Canada and Mexico, it is rapidly becoming a large supplier of crude oil, refined petroleum, and natural gas to these and other countries thanks to the Shale Revolution.

Integration of these large markets enhances the flexibility and reliability of the energy supply and distribution system for American consumers, business, and industry. There is a detailed discussion of energy trends in the testimony, but suffice it to say that the energy revolution here in the United States is encouraging greater trade, creating millions of well-paying jobs and new industries, and strengthening the nation’s long-term energy security.

The U.S. energy economy has nothing to fear from NAFTA—and a lot to gain. A modernized NAFTA could help solidify the recent advances and create advantages for North American industry, advancing market-based integration of the energy sector, including energy production, transportation and processing, as well as electricity generation, transmission, and distribution.

The Chamber is concerned, therefore, that the Trump Administration is considering using withdrawal from NAFTA as a negotiating tactic. Withdrawal would impose unacceptably high costs on the United States. One credible estimate from the firm ImpactECON suggests it could cause 1.2 million lost jobs.

Even without withdrawal, some proposals would undermine some NAFTA benefits. In the energy sector, attempts to undermine the Investor-State Dispute Settlement (ISDS) protections could hamper the export of America’s state-of-the-art technology and services and undermine additional economic growth.  ISDS provides neutral arbitration to resolve investment disputes, ensuring U.S. companies and workers are afforded due process and private property guarantees.  Eliminating ISDS protections will sacrifice jobs for Americans and economic expansion in our energy sector.

The robust energy trade among the United States, Canada, and Mexico that exists under NAFTA inevitably would be a casualty of withdrawal, threatening the “Energy Dominance” that is the core the of the Trump Administration’s energy policy. This is just one example of the high-level stakes in these negotiations. Given all of this, it is our strongest recommendation that if NAFTA modernization cannot be reached, the administration must retain its commitment to the current trade agreement.