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The American oil industry wasn’t built for Canadian tariffs.
Since his re-election, President Trump has repeatedly threatened to impose big tariffs on imports from Canada and Mexico.
And in recent days, he’s made it clear: Yes, he really means all imports.
“We don’t need them to make our cars, we make a lot of them. We don’t need their lumber because we have our own forests,” he told Davos attendees last week. “We don’t need their oil and gas, we have more than anybody.”
The president is mistaken about the American fossil fuel industry — at least in its current structure. Even though the United States is the world’s No. 1 producer of oil and natural gas, the industry really does depend on oil imported from its neighbors, especially Canada. If Trump makes good on his threats to tariff oil imports from Canada and Mexico, then he will cost the American oil and gas industry tens of billions of dollars while causing gasoline prices to rise across much of the country.
That’s because not all petroleum is created equal. The type of crude that oozes out of wells in Alberta and Saskatchewan is not identical to what’s extracted by frackers in Texas and Oklahoma. But the types of petroleum now produced in Canada and in America pair especially well together — meaning that if the price of Canadian oil goes up, then American refineries, as well as American consumers, will pay the price.
That could hurt the president’s ability to fulfill one of his core promises. In his inaugural address, Trump promised to “rapidly bring down costs and prices” in part by fighting “escalating energy costs.” Levying tariffs on Canadian oil imports would likely raise energy prices.
But it could have more complicated environmental effects. Western Canadian petroleum has a higher carbon intensity than other crude oils, and American climate activists fought last decade to keep it from entering the United States. Trump, counterintuitively, could succeed more thoroughly than they did.
To understand why, you have to know a little bit of chemistry — and a bit of history, too.
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We often talk about oil as an homogenous and fungible commodity, but that’s not really true. In reality, oil and natural gas usually come out of the ground as a slurry of hydrocarbons.
A hydrocarbon is a chain of hydrogen and carbon atoms bonded together. Sometimes those chains are relatively short — as in methane, the major component of natural gas — and sometimes they’re longer — as in octane, a liquid and a major component of gasoline. As the number of carbon atoms keeps growing, the substance starts to get waxier until the chains get absolutely enormous and become the kind of molecule you find in coal. Nitrogen, oxygen, and sulfur atoms are sometimes jammed into the hydrocarbon chains too.
In other words, all fossil fuels exist on a spectrum — and crude oil, a melange of hydrocarbons of different lengths and properties, occupies the messy middle. Those properties can vary based on how and why in the past a crude field formed. Petroleum engineers classify it along two axes:
American fracking wells tend to produce light, sweet crude. The oil from Alberta is heavy and sour.
Normally, heavy and sour oil trades at a discount compared to light and sweet oil. That’s because the highest volume products that come out of a refinery — gasoline or jet fuel, for instance — are made of short hydrocarbons, not long ones. Light, sweet crudes are closer to the finished product, and thus require less refining.
Yet heavy, sour crudes are crucial to the U.S. oil industry anyway. American refiners use heavy crudes to bring down their input costs for refined products such as gasoline, diesel, and jet fuel.
Why? That’s where the history comes in.
Nearly two decades ago, as oil prices reached painful highs as global demand outstripped supply, many refineries across the United States began to invest in technologies that would let them break down heavier, sour petroleum into something more commercially viable. They built coking refineries, expensive pieces of equipment that use extreme heat to break down long hydrocarbon chains into shorter ones. The cost of such a refinery can exceed $10 billion. Many were purpose-built for breaking down the sludgy, sour oil coming from Canada.
In the early 2010s, as the fracking revolution turned the United States into an oil-drilling superpower, those coking refineries remained important. They helped stretch the value out of the light, tight crude coming out of fracking wells, Rory Johnston, an oil markets analyst and the author of the Commodity Context newsletter, told me last week.
It does not make sense to use the coking refineries on oil from fracking wells, because that oil is already largely composed of short-chain hydrocarbons. But by breaking down Canadian oil in coking refineries, and blending it with American oil, the industry can make a wider blend of producers at a lower cost.
“Heavy crude’s cheaper, and they want to refine this into valuable end products,” Johnston said in a separate conversation recorded this week on Heatmap’s Shift Key podcast. “And so because of this, to just run light crude through that, you would instantly render economically worthless all of this very, very expensive equipment.”
Many of America’s refineries — especially those in the Midwest — are now tuned specifically to process light fracking oil and heavy Canadian sludge together, he said. What this means in practice is that the United States exports as a finished product much of the crude oil that it imports from Canada. Under the current situation, the U.S. earns more money selling refined products made from Canadian crude than it spends importing raw petroleum from Canada, Johnston added.
Tariffs will collapse the price relationships that allow for that mutually beneficial situation to persist. It will boost the cost of Canadian oil by at least $5 a barrel on each side of the border, raising pump prices by about 13 cents in the Midwest, Johnston told me.
That may not sound so bad for consumers. But it would be terrible for refiners. “The total effect of Trump’s actions so far is to nuke the economics of U.S. coking refineries. It’s truly magnificent,” he said. “You couldn’t create a better scenario to destroy the economics of U.S. coking refineries.”
If U.S. oil companies lose access to cheap Canadian oil, they will struggle to replace it. That’s because the next best place to get heavy, sour crude is Mexico — and Mexican imports, too, would likely face 25% tariffs under most scenarios where Canada is levied. The next places to get heavy, sour crude are Venezuela (where the Trump administration wants to tighten sanctions) and Colombia (where Trump nearly imposed tariffs last weekend).
One reason Canadian oil is so cheap in the United States is that companies have invested billions integrating the two countries’ oil infrastructure. A network of pipelines and storage tanks bring millions of barrels of oil from Canada down to the U.S. Gulf Coast every day. The countries — and especially their fossil fuel industries — are interdependent.
Meanwhile, only one pipeline system — the Trans Mountain pipeline — connects Alberta’s oil fields to the Pacific coast.
If you begin to play out how each country might react to a tariff, Johnston said, “you get into these completely absurd scenario discussions,” Johnston said. “The result is everyone would be poorer in that scenario.”
None other than the U.S. oil industry itself has opposed the tariffs.
“We import a lot of oil from both Mexico and Canada, and we refine it here in the most sophisticated refinery system in the world,” Mike Sommers, the CEO of the American Petroleum Institute, said at an event in Washington last week. “We’re going to continue to work with the Trump administration on this so that they understand how important it is that we continue these trade relationships.”
On Monday, The Wall Street Journal reported that some Trump aides are eager to hit Canada and Mexico with tariffs this weekend, even though the president has yet to reopen talks — or even describe his demands — for a reworked U.S.-Mexico-Canada free trade agreement. Canadian and Mexican officials have said that they are not sure what Trump actually wants in the talks.
One irony of this fracas is that the tariffs would have a more uncertain environmental effect. Western Canadian crude is unusually carbon-intensive to extract and refine. If its price rose — or if Canadian officials responded to tariffs in part by shutting down production — then Trump could accidentally, if marginally, decrease carbon emissions. American refineries might also respond to tariffs by importing heavy, sour crude oil from abroad, essentially just shifting production around the planet.
Still, it remains ridiculous that Trump, who has spent his first days in the White House attacking a “Green New Deal” agenda that never actually passed Congress, might succeed in raising the cost of oil consumption and production in the U.S. where a decade of climate activism has largely failed.
Perhaps that’s why many still doubt it would happen. On Wednesday morning, President Claudia Sheinbaum of Mexico said that she did not think Trump would ultimately impose sanctions on her country. And even within the oil industry, tariffs on Canadian oil seem unthinkable. A 25% tariff would whack the industry hardest, even though it has allied itself closely with Trump. Trump’s likely energy secretary, Chris Wright, is the CEO of Liberty Energy, an oilfield services company.
“A lot of the people I’m hearing on the Canadian side are saying, ‘Maybe we should try to speak with these people around Trump. Maybe Wright or [Trump’s energy czar Doug] Burgum understand what’s happening,’” Johnston said.
But Trump has already made demands that strike the North American oil industry as bizarre. At the same Davos meeting where he said the United States didn’t need Canadian oil, Trump demanded that OPEC and Saudi Arabia cut global oil prices so that global interest rates could fall. Such a move would cut profits in the American oil industry while hampering Trump’s goal of increasing U.S. oil production.
The irony that a Republican president would push off Canadian crude to increase America’s reliance on OPEC is hard to comprehend, Johnston said.
“I don’t know that anyone has a great sense of where Trump’s true philosophical anchor is,” he said, “other than that we are now getting a clear picture that he views any and all trade deficits as a sin unto themselves.”
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Without the endangerment finding on greenhouse gases, the state could have a case for re-imposing its own greenhouse limits on auto emissions.
Trump’s Environmental Protection Agency has moved to abdicate the federal government’s responsibility to regulate greenhouse gas emissions for vehicles. At this point it’s only a proposal, and legal challenges to the shift could take years to resolve even after the change gets finalized.
But if the law eventually closes the door on national standards, it might open a new one for states.
The Clean Air Act prohibits states from enacting their own pollution regulations for mobile sources, such as cars and trucks. California, however, is allowed to request a waiver from the EPA to create its own, stricter rules, since the state was already regulating vehicle pollution prior to the law’s passage. Once EPA approves one of California’s waivers, other states can subsequently adopt the stricter rules without requesting the same federal dispensation.
At first California’s air quality regulations were focused on more traditional health-harming pollutants such as ozone and particulate matter. But in 2005, California created the world’s first greenhouse gas emissions standards for cars, beginning with model year 2009, and requested a waiver from the EPA to enforce them.
At the time the EPA did not have any national standards for greenhouse gas emissions, but a seminal court case would soon force it to create them. In 2007, the Supreme Court ruled in Massachusetts vs. EPA that greenhouse gases are pollutants, as defined by the Clean Air Act, and that the agency has a duty to regulate them if it finds that they endanger public health or welfare. In 2009, the EPA under President Obama issued its “endangerment finding,” determining under a mountain of evidence that yes, greenhouse gases threaten public health, and prompting the development of the first federal climate standards for vehicles.
Now the Trump administration is trying to reverse that finding and put an end to federal climate regulations for vehicles once and for all.
At the same time, Trump has approved a move by Congress to rescind California’s latest waivers — although the move was legally dubious and the state is challenging it in court. Congress revoked the waivers under the Congressional Review Act, a law that allows the legislative branch to undo recently-finalized agency rules with a simple majority, despite previous rulings from the Government Accountability Office and the Senate parliamentarian that the waivers are not “rules” as defined by the Congressional Review Act.
But if the EPA says the Clean Air Act does not require the agency to regulate greenhouse gas emissions, does California even need those waivers?
“If I were the state of California and the endangerment finding gets rescinded, I would argue that there are no federal standards,” Ann Carlson, a professor of environmental law at the University of California, Los Angeles, and a former Biden administration official, told me. “There is, in the view of EPA, no need to regulate, and therefore states shouldn’t be preempted. I don’t know if that’s a winner, but I think it’s worth a try.”
Eliminating the endangerment finding would give states a solid argument for being able to regulate greenhouse emissions themselves, Carlson told me. But what would make the argument a “slam dunk,” she said, was if the Supreme Court ultimately overturned Massachusetts vs. EPA, and ruled that greenhouse gases are not air pollutants under the Clean Air Act after all.
The road to that outcome would be long and could veer in a different direction if Democrats retake the White House in 2028. First, the EPA has to put out its proposal for public comments and issue a final decision. That process alone could take a year. Then states or environmental groups would challenge the decision in the D.C. Circuit Court of Appeals, which would likely take another year to reach a ruling, putting us into mid-2027 or so.
While we won’t know what EPA’s exact argument will be until it issues the final decision, the justifications it has put forward so far are weak, according to experts. The agency’s main claim in the proposal is that it can only regulate pollutants that endanger health through local or regional exposures — the global problem of climate change doesn’t count. “This is hard to square with the Supreme Court’s decision in Massachusetts vs. EPA,” Harvard Law School’s Jody Freeman told me, “but EPA claims that doesn’t settle it.”
Carlson said she thinks there’s a pretty good chance the D.C. court would strike down the EPA’s attempt to reverse the endangerment finding. But the Trump administration would presumably appeal that ruling to the Supreme Court, which would present an opportunity for the conservative majority to overturn Massachusetts vs. EPA. Chief Justice Roberts, along with Justices Alito and Thomas, dissented in the original 2007 decision, while Justice Brett Kavanaugh, who was confirmed in 2018, “has made clear his disdain for using the Clean Air Act to regulate greenhouse gasses,” Carlson said.
There are a lot of open questions about what would happen next. If the case is still ongoing by 2029, the next administration could decide to withdraw it, or simply to reinstate the endangerment finding.
Another wrinkle: The Inflation Reduction Act amended the Clean Air Act to explicitly define greenhouse gases as pollutants under new sections of the law. That could make it harder for the Supreme Court to overturn Massachusetts vs. EPA, although the court has previously held that different sections of the law may define “air pollutant” differently.
Finally, even if the case goes all the way to the point of reversing Massachusetts vs. EPA, there would probably still need to be additional litigation to clarify what states can do, Atid Kimelman, a clean vehicles attorney for the National Resources Defense Council, told me.
He noted that the federal government might argue that regardless of the fact that the EPA isn’t regulating greenhouse gases, states are still preempted, as the whole point of the preemption in the Clean Air Act is to make sure that the country doesn’t have 50 different standards for motor vehicles. Another hurdle might be that the federal Energy Policy Conservation Act, which authorizes the Department of Transportation to set fuel economy standards, also preempts states from adopting their own vehicle regulations.
“This is somewhat novel territory that hasn’t really played out in courts,” he said. “These are arguments that have to be tested.”
Along with Senator John Curtis of Utah, the Iowa senator is aiming to preserve the definition of “begin construction” as it applies to tax credits.
Iowa Senator Chuck Grassley wants “begin construction” to mean what it means.
To that end, Grassley has placed a “hold” on three nominees to the Treasury Department, the agency tasked with writing the rules and guidance for implementing the tax provisions of the One Big Beautiful Bill Act, many of which depend on that all-important definition.
Grassley and other Republican senators had negotiated a “glidepath for the orderly phaseout” of tax credits for renewables, the senator in a statement announcing the hold, giving developers until July 2026 to start construction on projects (or complete the projects and have them operating by the end of 2027) to qualify for tax credits.
Days after signing the law, however, President Trump signed an executive order calling for new guidance on what exactly starting construction means. The title of that order, “Ending Market Distorting Subsidies for Unreliable, Foreign Controlled Energy Sources,” has generated understandable concern within the renewables industry that, as part of a deal to get conservative House members to support the bill, the Treasury Department will write new guidance making it much more difficult for wind and solar projects to qualify for tax credits.
“What it means for a project to ‘begin construction'’ has been well established by Treasury guidance for more than a decade,” Grassley said. Under these longstanding definitions, “beginning construction” can mean undertaking “physical work of a significant nature,” which can include or buying certain long-lead equipment or components like transformers. Another way to qualify for the credits is to spend 5% of the total cost of the project.
A more restrictive interpretation of “begin construction,” however, could turn the tax credit language into a dead letter, especially when combined with the rest of the administration’s full-spectrum legal assault on renewable energy.
Grassley said that new guidance is expected within two weeks, and that “until I can be certain that such rules and regulations adhere to the law and congressional intent, I intend to continue to object to the consideration of these Treasury nominees.”Grassley has a long history with production tax credits for wind energy, playing a pivotal role in their extension in 2015. “As the father of the first wind energy tax credit in 1992, I can say that the tax credit was never meant to be permanent,” Grassley said at the time. “The five-year extension for wind energy brings about the best possible long-term outcome that provides certainty, predictability and a responsible phase-down of a tax incentive for a renewable energy source.”
Almost 60% of Iowa’s electricity is generated by wind turbines, the highest proportion of any state, according to Energy Information Administration data.
Utah Senator John Curtis has joined Grassley in placing a hold on nominees, delaying their vote before the whole Senate, according to Politico’s Joshua Siegel. Grassley and Curtis, alongside Lisa Murkowski of Alaska and Thom Tillis of North Carolina, were unable to get a meeting with the Treasury Department to discuss the guidance, Siegel reported.
On Puerto Rico’s water crisis, LNG’s tax scam, a nuclear safety scandal
Current conditions: Wildfire smoke in Alberta, Canada, is so thick that the airport had a visibility of just about 650 feet, and the air quality index hit 2241, 10 times higher than “hazardous” levels • At least 10 Chinese provinces are on alert for heavy rainfall this week, with as much as 8 inches deluging Beijing • Prolonged heatwave conditions in southeastern Europe are raising the risk of fires.
A wildfire in Arizona’s Grand Canyon National Park that has burned for nearly a month has grown into the largest blaze in the continental U.S. so far this year, scorching more than 114,000 acres as of this weekend. The Dragon Bravo fire, near the park’s North Rim, is expected to increase in size in the coming days due to the exceptionally dry, hot weather, The New York Times reported.
It’s far from the only major fire burning out West. The Gifford fire in California grew to nearly 40,000 acres on Sunday within the Los Padres National Forest in south-central California. The fire was just 3% contained as of late Sunday evening, according to the federal wildfire tracker, InciWeb. Last month, my colleague Jeva Lange wrote that the “next big wave” of wildfires out West “could happen any day.” As she reported, “the components for a bad fire season are all there — the landscape just needs a spark.” Lightning has been a particular concern in the Pacific Northwest, where thunderstorms led to 72 fires in two Oregon counties during just one night in June. A lightning strike is the likely cause of the Dragon Bravo fire.
One of many anti-corruption protests in San Juan, Puerto Rico. Jose Jimenez/Getty Images
Nearly eight years after Hurricane María decimated Puerto Rico’s power grid, the United States’ most populous territory still suffers electricity outages every week and faces rising utility bills. But the island of more than 3 million American citizens is reeling this week from yet another utility failure: Water outages. As many as 180,000 households in Puerto Rico lost access to running water last week, and thousands are still without service. The electricity and water issues are combined. Updates on the state-run water utility’s X page indicated that several water pumping stations are out of service due to a lack of electricity. Governor Jenniffer González Colón called in the National Guard to help distribute water.
It’s just the latest crisis afflicting the Caribbean territory’s basic infrastructure as the island enters the peak of hurricane season. The local government last month escalated its battle with New Fortress Energy, the financially troubled New York-based gas company that provides its fuel and operates its power plants. González Colón is considering ending the island’s contract with LUMA Energy, the private consortium that controls the power grid. Faced with ongoing blackouts, the government just scrapped Puerto Rico’s renewable energy targets and extended the life of a highly polluting coal plant, threatening devastating health consequences for the surrounding community, as I reported earlier this summer for the MIT Technology Review. And, despite González Colón’s chummy relationship with President Donald Trump, federal funding for Puerto Rico’s post-María reconstruction is still trickling out almost a decade after the storm.
The One Big Beautiful Bill Act is bringing tax credits for wind turbines, solar panels, and electric vehicles to a swift end on the grounds that the technologies are mature and therefore no longer worth subsidizing. Yet America’s largest exporter of liquified natural gas is seeking “alternative fuel” tax credits simply for running its vessels on the fuel they carry, exactly as they’re designed to do. The tax credit, originally signed into law by former President George W. Bush in 2005, was intended to incentivize the switch from gasoline and diesel to biofuels, LNG, and liquid fuels derived from coal. The tankers Cheniere Energy, the nation’s top overseas seller of American LNG, uses to ship its fuel around the world are built to boil off fuel from the tanks that hold its cargo. But the company is seeking federal rewards for using the LNG, according to an investigation by Inside Climate News. If the Internal Revenue Service approves the request, Cheniere could net more than $140 million.
The Trump administration has vowed to cut back and streamline nuclear regulations to make building new reactors easier, potentially compromising safety. The effort has stirred enough drama at the Nuclear Regulatory Commission that a Republican commissioner resigned last week. Now a scandal at the St. Lucie Nuclear Power Plant in Florida is providing a timely reminder of why strict oversight exists over atomic energy stations. An inspection report on the plant, owned by Florida Power & Light, revealed that workers feared reporting safety problems to upper management lest they face retaliation. And that comes right as a database shows safety violations soared over the past year, according to the Tampa Bay Times.
The investigation came as the Department of Energy discovered four radioactive wasp nests at the defunct Savannah River nuclear facility in South Carolina. The finding suggested that environmental contamination at the site, which previously developed weapons-grade material for the U.S. government, is more extensive than previously understood. While advocates of nuclear energy draw clear distinctions with the military-related sites, political upheaval at the federal agency that oversees radioactive materials could put the growing bipartisan consensus on building more reactors at risk.
Tesla’s board approved a $30 billion payout of shares to Elon Musk in a new compensation deal, according to a regulatory filing on Monday that followed the billionaire's threat to leave the electric automaker if he didn't receive more stock.
The move came days after a jury in Florida found flaws in Tesla’s self-driving software partly responsible for a crash that killed a 22-year-old woman in 2019 and severely injured her boyfriend, The New York Times reported. If Friday's verdict holds, Tesla will be on the hook for as much as $243 million in damages to the parents of the woman and her boyfriend. The jury decided that Tesla bore 33% of the blame for the crash. Tesla said it would appeal. It’s a setback for Musk’s driverless ambitions. As Tesla’s human-driven automotive offerings stalled out last year, Heatmap contributor Andrew Moseman wrote that, “sure, maybe it will be the one to crack full autonomous driving. But in practical terms, that tech is not close to reality, and Tesla’s version of it has encountered its fair share of bugs and been sued over crashes.”
New research from Stanford University has “upended conventional wisdom about electric vehicle battery management. Contrary to popular belief, a more dynamic driving style could significantly extend the lifespan of EV batteries,” including not charging the units to 100%.