David V. Smith

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2019 Washington Policy: From Tailwinds to Headwinds

What Would a Biden Administration Mean for Energy Policy?

  • 07.29.20
  • Economy & Policy
  • Article

Energy Analyst Pavel Molchanov and Washington Policy Analyst Ed Mills discuss implications for carbon neutrality, drilling regulations and electric power generation.

The U.S. elections in November have meaningful implications for energy and climate policy. The backdrop for these policy considerations remains the pandemic, which has temporarily placed climate-related issues on the proverbial backburner. However, while the role of these issues in the current campaign is small, the implications for actual policy in 2021 and beyond are very meaningful.

Biden targets carbon neutrality by 2050, but it’d depend on Congress

Alongside Medicare for All, the other major buzzword around which Democratic politics has revolved in recent years is the Green New Deal (GND). Biden has praised the GND as a “crucial framework,” though stopping short of explicitly endorsing its specific provisions, which extend beyond climate policy into labor issues, healthcare and more.

The GND, calling for net zero CO2 emissions (carbon neutrality) for the U.S. economy by 2030, has an unrealistic time frame and represents an essentially symbolic “sense of Congress” resolution rather than substantive legislation.

Biden is calling for a federal target of net zero by 2050, a timetable that is consistent with the UN’s Paris Agreement and the pending European Climate Law. U.S. emissions are already trending down – by 13% from 2005 to 2019 – but getting to net zero by 2050 would require meaningful acceleration and some far-reaching changes across the economy, not solely the energy sector.

For any net zero target to become legally binding, Congress would have to legislate; there’s no getting around it. There are various proposed road maps for getting to net zero, including a plan released in June by the House’s Select Committee on the Climate Crisis, and it’s unclear whether Biden would want to create his own plan or use an existing one.

Congressional support would also be essential for the other headline element of Biden’s climate agenda: $2 trillion (over four years) of federal spending on energy transition initiatives. While the House is widely expected to remain in Democratic hands, continued Republican control of the Senate would make it virtually impossible for Biden to get such legislation enacted. Even a narrow Democratic majority would not automatically be enough for ambitious climate-related reforms. Reconciliation – thus requiring 51 votes instead of 60 – would be an option in the Senate for budget-related measures, but not for a net zero target. This means that potential elimination of the Senate filibuster – an idea toward which Biden has been showing more receptiveness recently – could be crucial for enactment of major climate reforms, along with much else.

Biden doesn’t plan to ban fracking, but oil and gas regulation would intensify

Without relying on Congress’s power of the purse, it is inherently easier for any administration to take purely regulatory steps, which in Biden’s case would mean imposing restrictions on fossil fuels – in contrast to subsidizing/bolstering low-carbon technologies. During the Democratic primaries, the question of banning fracking repeatedly came up, with Biden taking the moderate side of the argument. While explicitly against a nationwide fracking ban – which, even if attempted, would be unlikely to hold up in court – Biden plans to intensify regulation of drilling activity. This includes:

  1. Stricter rules on methane emissions from existing and new wells, essentially going back to Obama-era policy;
  2. Halting new drilling leases on federal acreage (while respecting previously signed ones), this going beyond Obama-era policy; and
  3. Adding a climate component to royalties on federal acreage, which is also not something that the Obama administration had done.

These are straightforward regulatory steps, to be enforced by the EPA or Department of Interior. Biden has also stated that all federal permitting decisions (for example, regarding pipelines and liquefied natural gas projects) should incorporate a climate analysis, though the administration’s power over midstream is not very direct: FERC is an independent regulatory agency, albeit with its members appointed by the president.

It’s also worth noting that, at a time when the U.S. rig count is at historic lows, following the epic oil crash due to COVID-19, the near-term impact of stricter regulation would be immaterial. As oil prices further recover and the industry eventually gets out of its extreme austerity mode, the impact would become commensurately greater.

These regulatory steps would aim to restrict the oil and gas industry from the supply side of the equation. From a demand standpoint, a Biden administration’s principal instrument would be the Corporate Average Fuel Economy (CAFE) standards. CAFE is under the control of the EPA and Department of Transportation. Obama-era policy had been a headline fuel economy target for light-duty vehicles of 55 mpg by 2025, whereas the Trump administration has lowered that to 40 mpg by 2026. The Trump administration is also trying to revoke the longstanding waiver that enables California to set its own, stricter fuel economy rules, which are followed by 12 other states, but this effort is currently being challenged in court. While Biden has not specified how he plans to modify CAFE, Obama-era policy would presumably provide a template, and California’s waiver would also be maintained.

For electric power generation, the bulk of regulatory authority is held by state-level utility commissions, with federal oversight (on the part of FERC) playing a smaller role. For some historical context: just as the Obama administration’s Clean Power Plan for electric utilities had been enjoined by the Supreme Court in 2016 amid claims of EPA overreach, the Trump administration’s 2018 attempt to create a coal/nuclear bailout never got off the ground. The EPA has the authority to regulate CO2 and other greenhouse gas emissions, but any such regulation is subject to judicial review and cannot be arbitrary.

In this context, in early July, the Biden-Sanders unity task force unveiled its environmental recommendations, among them a transition to 100% zero-carbon generation (nuclear, hydro and non-hydro renewables) by 2035. On July 14, Biden formally endorsed this target. Coming from a 2019 baseline of 39%, the full phase-out of coal- and gas-fired generation within 15 years would be logistically challenging; regardless, for such a mandate to become legally binding nationally, Congress would have to legislate. As with net zero CO2 by 2050, the reaction of Democrats from hydrocarbon-producing states would likely be negative. It is worth noting that nine states plus Puerto Rico and D.C. already have analogous targets, ranging from 2032 to 2050, but none of these jurisdictions have significant numbers of current jobs tied to fossil fuels.

Some aspects of Biden’s climate agenda come under the category of symbolism rather than actual legislation or regulation. Case in point: rejoining the Paris Agreement. This could be done on day one with the stroke of a pen, reversing the Trump administration’s exit from the agreement – but it would be an essentially symbolic step, since the agreement does not impose any specific obligations on any country. Similarly, Biden pledges to “work with our nation’s governors and mayors” to ramp up electric vehicle charging infrastructure to 500,000 units by 2030. Aside from funding, there is no obvious federal role here. It is also hazy what “enacting a national strategy to develop a low-carbon manufacturing sector in every state” and “mitigating the climate impact of urban sprawl” would mean in practical terms.

Finally, the role of the federal judiciary related to energy issues is sometimes overlooked. If any reminders were needed of just how impactful the courts can be, the ruling of the U.S. District Court for D.C. in early July regarding the Dakota Access pipeline provided a textbook case study. The vast majority of cases are not straightforwardly party-line or ideological in nature, but as a generalization, judges appointed by Democratic presidents tend to be more supportive of business regulation, including regulation related to environmental matters, all else being equal. The Trump administration, backed by the McConnell-controlled Senate, has been unusually effective at filling the federal bench. The interplay between a Biden administration and the Senate may or may not be similarly conducive.

State-level developments to watch

The 2018 midterm elections included high-profile ballot measures in Colorado (drilling restrictions) and Washington State (carbon tax). While there is nothing quite as headline-grabbing at the state level this November, keep an eye on the following developments.

Alaska: Will taxes on North Slope oil production be raised?

The Alaska North Slope Oil Production Tax Increase Initiative would, as the name implies, raise the tax burden on existing North Slope oilfields – specifically Alpine, Kuparuk and Prudhoe Bay. In each month, either an “alternative gross minimum tax” or an “additional production tax” would apply, whichever is greater. Backers see this initiative as a way to boost the state government’s revenue. Oil producers in the state (Conoco, Hilcorp, Exxon) are campaigning against.

Indiana: Could a new governor shift one of the most coal-centric states toward decarbonizing?

Of the 21 states without a legally binding renewable portfolio standard, Indiana is among the largest. Coal comprised 59% of the state’s electricity mix in 2019, more than double the national average. The Democratic gubernatorial candidate, Woody Myers, is running in part on a platform of compiling a statewide inventory of greenhouse gas emissions and developing decarbonization targets. However, incumbent Eric Holcomb is widely expected to win a second term.

Nevada: Will the previously approved 50% renewable portfolio standard for 2030 be confirmed?

The Nevada Renewable Energy Standards Initiative is a re-run of a ballot measure that 59% of voters backed in 2018. Why is there a need to vote a second time? Because the state constitution requires such initiatives to be approved in two consecutive elections. Bearing in mind the result from 2018, the outcome this November is not in serious doubt.

New York: Will the state issue $3 billion of bonds for environmental projects?

The New York Environment and Climate Change Projects Bond Measure is a straightforward bond issuance proposal, $3 billion in total, with no real surrounding controversy. Projects relating to climate mitigation (green buildings, carbon sequestration, etc.) as well as climate adaptation (flood risk reduction, shoreline restoration, etc.) would be eligible for funding.

Washington State: Will the nation’s most climate-focused governor win a third term?

An early dropout from the Democratic presidential contest, Jay Inslee is running for a third term as governor, and a signature part of his platform is a relentless focus on climate issues. In 2019, he signed into law a 100% zero-carbon power standard for 2045, but on the flip side, voters twice (in 2016 and 2018) rejected a carbon tax initiative that he had backed. This is a blue state, and Inslee’s popularity is such that he is widely expected to win.

All expressions of opinion reflect the judgment of Raymond James & Associates, Inc. and are subject to change. There is no assurance any of the trends mentioned will continue or that any of the forecasts mentioned will occur.

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