President Barack Obama famously stated, “Elections have consequences.” Apparently, issuing a proposed policy statement also has consequences. This column discusses the likely consequences of the 2020 election results on the oil and gas industry and the actual consequences of a proposed policy statement on the chairman of the Federal Energy Regulatory Commission (FERC).
When this column was submitted, final election results were still being confirmed. By slim margins in a handful of battle ground states, former Vice President Joe Biden looks to be the next president of the United States, but all votes have not been certified, and there are outstanding legal challenges.
The composition of Congress changed. Prior to the election, Democrats held a 232-197 advantage in the House of Representatives. The Democrats’ majority likely will be smaller, with the Republicans gaining some seats and several races still unresolved.
Senate Republicans entered the election with a 53 to 47 majority. Republicans will likely retain 50 seats, with two Georgia run-off elections in January determining the balance of power. If David Perdue (R) beats Jon Ossoff (D) and/or Kelly Loeffler (R) beats Raphael Warnock (D), then the Republicans will have a razor thin majority. If both Democrats win, then the Senate will be tied (50-50). However, because Vice President-elect Kamala Harris (D) would be able to break tie votes, the Democrats would have effective control of the Senate.
Control of the Senate will determine the extent to which Biden can implement his agenda through legislation. It literally takes “an act of Congress” (and presidential consent) to create or change legislation. In contrast, executive orders only require a president’s signature. To put this in perspective, the Biden-Harris campaign website states: “Biden believes the Green New Deal is a crucial framework for meeting the climate challenges we face.” With control of both chambers of Congress, Biden could possibly pass some version of the Green New Deal. If Republicans control the Senate, that will not occur. Nevertheless, on “Day 1” of Biden’s administration, expect a flurry of executive orders that revoke most of President Donald Trump’s executive orders.
Climate Change Consequences
Based on his campaign platform and public statements, we can expect Biden to change course — swiftly and significantly — from Trump’s policies and actions affecting the oil and gas pipeline industry. Chief among these will be climate change initiatives.
Under the 2015 Paris Climate Agreement, the United States committed to cut overall greenhouse gas (GHG) emissions by 26 to 28 percent below 2005 levels. Obama sought to meet his Paris commitments not through legislation, but through administrative rulemakings, such as the Clean Power Plan (CPP), which provided each state with a goal for reducing existing power plant emissions of carbon dioxide. States were required to begin reducing emissions by 2022, so that by 2030, power plant emissions of carbon dioxide would be 32 percent lower than in 2005. Trump rescinded the CPP and replaced it with the less aggressive, Affordable Clean Energy (ACE) Rule.
Under Trump, the Unites States withdrew from the Paris Climate Agreement effective Nov. 4, 2020. Biden has promised that the United States would rejoin the agreement and convene a climate world summit to seek more ambitious national pledges to reduce carbon dioxide emissions. In order to achieve those reductions, the Biden administration will need to resurrect and reconstitute the CPP; this time “Son of CPP” will be bigger, stronger and more aggressive.
In 2019, U.S. power plants emitted 5,149 million metric tons (MMT) of carbon dioxide, representing a reduction of more than 16 percent from 6,132 MMT in 2005. This reduction was due primarily to market forces that replaced old coal-fired generation facilities with newer generation facilities fueled by inexpensive shale gas. To achieve even greater carbon dioxide reductions, some gas-fired generation may need to be replaced by renewable resources, thereby reducing demand for natural gas.
Biden promised to phase out hydraulic fracturing and ban its use from federal lands. Although most fracking takes place on private lands, fracking limitations would adversely affect the industry, especially if the administration develops (as anticipated) additional environmental regulations to restrain the development, gathering, and transportation of oil and gas – to phase out fossil fuels. The following chart outlines a few of the differences between what Trump has done and Biden promises to do.
A few days after the election, the president demoted FERC Chairman Neil Chatterjee (R) and named Commissioner James Danly (R) the new Chairman. This was not only surprising, but also unusual. The White House was uncharacteristically silent about the change. Ironically, news first broke when Chatterjee, not Trump, “tweeted” about the demotion. A FERC Chairman sits at the president’s pleasure, and Chatterjee must have done some things to incur the president’s displeasure.
During the summer, in response to some complaints about diversity training at administrative agencies, the White House reportedly tried to limit training. Chatterjee balked. Likely more significant, however, was Chatterjee’s decision to embrace market-driven approaches to climate change. In September, Chatterjee joined with Commissioner Richard Glick (D) to issue Order No. 2222, which allows distributed energy resources (e.g., rooftop solar panels and demand response) to compete in energy markets administered by regional transmission organizations.
In October, Chatterjee again joined with Glick to issue a proposed policy statement that declared FERC’s jurisdiction over any market rules developed by regional power administrators to implement a price on carbon dioxide emissions, but also encouraged such development. This was likely the “last straw.” Danly dissented to both orders. He is now Chairman, until January, when Biden will likely appoint Glick.
For years, Commissioner Glick has dissented from orders authorizing
gas pipeline and LNG projects, because FERC had not conducted expanded analysis to account for indirect project impacts on the environment. He wanted the environmental analysis to address GHG emissions from the “downstream” combustion of gas transported by a proposed pipeline and “upstream” production of gas (including flaring or fugitive methane emissions). Expect this expanded analysis to begin once Glick becomes Chairman and Democrat commissioners are in the majority at FERC. When this occurs, it will likely be more difficult to obtain authorization for new natural gas infrastructure projects.
Washington Watch is a regular report on the oil and gas pipeline regulatory landscape. Steve Weiler is partner at Dorsey & Whitney LLC in Washington, D.C. Contact him at email@example.com.