What the 2018 Midterm Elections Mean for Energy & Fuels

11.01.18 | Blog | By:

On November 6, American voters will go to the polls for the initial midterm election of Donald Trump’s presidency.  Control of the U.S. Congress hangs in the balance, and all indicators show unusually high enthusiasm and turnout by both Democratic and Republican voters.  Regardless of which side of the aisle that you sit, make no mistake, this midterm election is a referendum on the Trump Presidency and by extension the GOP-controlled Congress and its agenda.

This brief outlook will examine the key issues for voters, what to watch in the upcoming elections, forecast for its outcome, and what we can expect for energy policy and fuels.  As with all elections, voter turnout is key for both parties.  Changing demographics – especially if millennials decide to go to the polls – will also impact many election results.

What Are Voters Really Interested In?

Historically, midterm elections have substantially lower voter turnout than during presidential election years.  The hype and media attention during presidential elections drives interest to go to the polls.  According to the Center for Politics at the University of Virginia, since 1972 just under 60% of eligible voters actually vote in presidential elections compared to about 40% during off-year (midterm and other) elections.  This is an important metric because midterm voters also tend to be more informed about the election, the gender gap more pronounced (women tend to vote more for Democrats, men for Republicans) and electorate tends to be less racial diversity.

This year’s midterm elections seem to be different, in part because of the intense media coverage of President Trump, and more recently of the Senate hearings and confirmation process of (now) Supreme Court Associate Justice Brett Kavanaugh.  As a result, voters on both sides have become energized.  Much higher early voting turnout and requests for absentee ballots indicate this midterm election may contradict the norm.

Examining multiple polls on what’s driving voter interest this time shows some common threads.  Specific local or state issues, and of course partisanship (whether the voter is Republican or Democrat) may surpass these more national responses but overall these are key issues are driving voters to make it to the polls this year.  Voters are most concerned about health care (including the opioid crisis) and what a candidate’s position is on pre-existing conditions, Medicare and prescription costs as influencing their decision on how they plan to vote.  Immigration policy and how the government is handling this are generally next on the list (and regionally dependent).  The economy and jobs follow as the next important voter concern – mostly related to family financial security and wage growth.  Interestingly, government ethics and leadership is identified as an important factor in how those polled plan to vote.

Other important issues (those polling above several percent of respondents) include violent crime, college education costs and debt, race relations and the federal budget deficit.  Environmental issues rank very low in concern, overall below 2% of respondents – but significant partisan difference on climate change exists, when polled up to 75% of Democrats say this is important compared to only 12% of Republicans.  Energy issues, including fuel prices and resource development (shale and offshore drilling) rank below environmental concerns for most voters – an indication of our low energy costs that benefit all of us. 

Midterm Elections: What to Watch for & Forecast

All 435 seats of the House of Representatives[1] and 35 seats in the Senate are up for election this November.  Historically in midterm elections, the party that holds the presidency tends to lose seats in the House, but the losses vary greatly.  In general, the Democratic gain in the House is really a question of how big or small the outcome, and whether the party will get the net 24 seats to flip the current Republican majority.  There are 42 open Republican seats compared to 21 Democratic open seats – clearly an advantage for Democrats.  For the Senate, midterm election outcomes depend more on the ratio of party seats being decided. For this cycle there are 24 Democrats and 2 Independents (who caucus with the Democrats) and only 9 Republicans being decided.

The current economic conditions – real GDP growth near 4%, lowest unemployment in over 40 years, federal income tax cuts – would seem to favor Republican candidates in this election.  Even the latest approval ratings (Gallup polls) for President Trump in the low to mid-40s are not out of line with other recent presidents at their first midterms.  Except that, all of them (other than President George W. Bush due to the 9/11 terrorist attacks) still lost double-digit seats in the House in the first midterm elections.

What does all this mean?  The current political climate supports the view that this will be a better year for Democrats in the House, but that Republicans will do better in the Senate.  After reviewing multiple sources, including the Cook Report, Center for Politics, Rasmussen Reports, Real Clear Politics, 538, various media outlets, other polls and analysts, the consensus is that the Democrats will retake the House majority – but by a smaller margin than thought just several weeks ago.  In examining this information, my forecast is for the Democrats to pick up 28 to 30 House seats, giving them a slight four to six member majority in the next Congress.  Voter turnout, especially women, will have a great influence on the outcome for the House. 

In the Senate, based on the favorable ratio, the Republicans should strengthen its majority by gaining one seat in North Dakota, resulting in a 52 to 48 majority.  I expect the GOP to hold heavily contested seats in Arizona, Nevada, Tennessee and Texas, and the Democrats should win in their “blue” states, like Wisconsin and Michigan.  The Senate races in Florida, Missouri and Indiana are just too close to call, but a Republican win in any of these states would add to its majority.

One set of important state-wide elections to watch on November 6 are governor races.  Governors are the chief executives in implementing many federal government programs, like health care (Medicare/Medicaid), disaster response, and pollution controls, plus innovative energy/climate change programs.  Key governor races can increase voter turnout, which then drives voting on other offices.  There are 36 governorships on the ballot this year – 26 Republican held, 9 Democratic, 1 Independent (Alaska).  Of these, 12 GOP held offices are term limited or retiring, compared to only 4 Democrats (plus Alaska’s retirement).  In closely examining poll figures and predictions, Democrats are looking to pick up at least 5 governorships (Iowa, Illinois, Maine, Michigan, New Mexico).  Tossup elections in Ohio, Wisconsin, Nevada and Georgia could add to the Democratic Party gains.[2]

Post Election & Lame Duck Session

The 2018 midterm elections outcomes will impact what gets done during the lame-duck session of the 115th Congress (period between November 6 and adjournment in mid-December).  Important issues for the energy and fuels industries need to be addressed, including tax extenders that were left out of last year’s package, and reauthorization and funding of the farm bill that support bioenergy programs.  Congress must also pass remaining appropriations before a December 7 deadline (about 80% of discretionary FY2019 funding is passed).  Other proposed legislation on energy efficiency or Renewable Fuel Standard (RFS) reform will not be further considered.  

My discussions with Congressional staff and other contacts indicate that tax extenders, including the $1.00 per gallon blenders credit for biodiesel/renewable diesel, most likely will be passed before adjournment – but only to retroactively cover 2018 (meaning it will expire again after December 31). 

Negotiations are progressing to reconcile significant differences between the House and Senate versions of the farm bill, with the biggest hold ups being funding and work requirements on Supplemental Nutritional Assistance Program (so called “food stamp” benefits) and mandatory funding provisions on many agricultural programs including bioenergy.  Talk of a 3-year extension of the 2014 farm bill would push reauthorization off until after the 2020 presidential election.  Any short-term extension into next year (commodity programs and crop insurance are still in place through 2018) would mean the legislation starts over with the 116th Congress – and possible new Committee leaders and membership in the House.

The 116th Congress: What Can We Expect?

If the 2018 midterm elections result in a split Congress with Democratic House and Republican Senate, then we can expect mostly gridlock on most legislative proposals.  A Democratic-led House will adopt many bills to advance its agenda that will be sent over to the Republican led Senate to stall out.  Fiercely partisan battles will take place on budget and spending/appropriations, immigration (the border wall), tax provisions, and (as always) health care.

House Democratic leaders have already indicated their agenda priorities if they take over the majority – the most dominant will be oversight and investigation of the Trump Administration, including the power to subpoena department and agency heads and other appointed officials.  This oversight, conducted in an intensely partisan environment, will focus on three things:

  1. President Trump’s tax returns (release of these documents is a long-held tradition by presidential candidates);
  2. Russian involvement with Trump enterprises; and
  3. testimony given during confirmation proceedings by Justice Brett Kavanaugh.

It’s unclear if presumptive Democratic House Speaker Nancy Pelosi will allow impeachment proceedings against the President, such as under charges of Constitutional emoluments clauses or possible outcome of special counsel Robert Muller’s investigation – something she opposes at this point.  With a Republican majority Senate, such proceedings in the House would be a waste of political capital since Senate conviction of impeachment requires a two-thirds affirmative vote (i.e., 67 Senators to agree).

So what energy legislation could a split Congress agree to?  Most likely bipartisan energy legislation can move forward that includes efficiency programs, federal land management for oil and natural gas, infrastructure modernization (electric grid, pipelines and water systems), trade incentives, and conservation and environmental protection.  Any expansion of off-shore development is out of reach for the foreseeable future. 

Although on-and-off negotiations have been taking place during 2018, and we can expect this to continue in the next year, RFS reform is unlikely to be reached because of the deep divide between biofuels (ethanol) producers and refiners.  President Trump’s recent directive for EPA to address granting an E15 volatility waiver, and for greater transparency and controls on Renewable Identification Numbers (RINs) holdings and trading have released some pressure for Congressional action.

One potential area of agreement in the next Congress is infrastructure programs, including roads, bridges, rail and other transportation.  The challenge will be how to fund such programs when annual budget deficits are approaching $1 Trillion per year.  Senate Republicans will block any attempt to roll-back any parts of the tax cuts adopted in 2017 to help fund infrastructure projects.

Bottom Line

Based on review of many polls the past several months, and multiple analyses of voter trends, congressional campaigns and candidate debates, my outlook is that the Republicans will hold its Senate majority, but they will relinquish the House majority to the Democrats.  With this premise, I don’t expect any surprises during the lame duck session.  The 116th Congress, scheduled to convene on Jan. 3, 2019, will exhibit strained gridlock. And unfortunately, the partisan rhetoric starts to ramp up even more so –on November 7 the marathon to the 2020 presidential election starts in earnest.

[1] There are presently 235 Republicans, 193 Democrats, and 7 vacancies (5 formerly held by Republicans and 2 by Democrats) in the House of Representatives.

[2] Current state governors are 33 Republican, 16 Democrats, and 1 Independent.  Of 2018 races, 17 are considered safely/likely Republican, and 14 safely/likely Democratic (including pickups).

John Kneiss is president of Energy Policy Consulting.