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January 2021 Exclusive Story

First 100 Days

Biden Seeking Quick-Hit Victories For Green Agenda

By Jeffrey Oliver and Thomas Holmberg

HOUSTON–According to the heated rhetoric of the 2020 presidential election, the incoming Biden/Harris administration will hit the oil and gas industry like some kind of extinction-level event. The good news is that, even if such a threat exists, it will almost certainly remain hopelessly mired in the political and practical impediments that have historically moderated such aggressive agendas. Instead, what will almost certainly emerge from Washington in the first 100 days of the new administration will comprise fairly predictable rollbacks and reinforced regulations; the sort of headline-grabbing and base-motivating actions that will give Biden demonstrable results without requiring unrealistic levels of consensus.

History provides some insight into the likely metes and bounds of the pending regulatory shift. In 2008, for example, then-President Barack Obama took the reins from George W. Bush, having run on promises similar to those of Biden: a green economy increasingly built on the promise of alternative energy. While Obama would have to wait until his second term for Democratic control of both the House and Senate, his first 100 days in office nonetheless provide a likely template for what we can expect to see in the first 100 days of the Biden administration, particularly given the degree of personnel overlap between the two administrations.

The regulatory arena provided Obama the easiest way forward to affect energy policy. The Obama administration’s victories on this front were largely in the form of cancelled leases, increased regulatory burdens and delays, and rollbacks of Bush-era policies. For example, the administration delayed the implementation of a five-year plan that would have allowed for new drilling on the Outer Continental Shelf and cancelled 77 recently auctioned leases in Utah. The administration also delayed a scheduled round of oil shale research and development leases.

The Obama administration threatened, but ultimately failed, to expand federal protection of the yellow billed loon, which would have impeded drilling in some Alaskan fields. The administration did succeed in rolling back a Bush-era regulation that allowed federal agencies to skip “broad interagency consultations” before initiating any projects that might impact endangered species. The net effect was to lengthen the review process for new drilling in certain areas. Other actions included an increase in mileage standards for passenger cars and instruction that the U.S. Environmental Protection Agency reconsider California’s request to regulate greenhouse gas emissions from cars, thereby reversing the climate policies of the Bush administration.

Legislatively, Obama faced greater hurdles than Biden will face in his first term. The president asked Congress to send him legislation instituting a market-based cap on emissions. The idea ultimately stalled in the Senate, despite Democratic control under Harry Reid. This failure illustrates the difficulty Biden will face, even with control of both sides of Congress. Drastic action will struggle to obtain the bipartisan support still required to advance major legislation. Such support will be particularly scarce in a still-fragile economy, mirroring the dynamic that dominated Obama’s first term.

Instead, the incoming administration will likely leverage its narrow control of the Senate to obtain fairly rapid approval of political appointees, which will result in a few relatively quick regulatory shifts at relevant federal agencies and similar curtailment of leasing on federal lands.

Priorities In First 100 Days

The administration will seek quick-hit victories for its green energy agenda, whether in the form of executive orders or federal agency regulatory adjustments. All of this will probably begin, of course, with a rollback of Trump administration initiatives and executive orders regarding emissions, climate change and new drilling leases. The following are the likeliest energy-relevant headlines of the Biden administration’s first 100 days.

The United States re-entering the Paris Climate Agreement is the lowest-hanging fruit on the executive-action tree, and for that reason, perhaps, it is the one President-elect Biden has been most adamant about. On his first day in office, Biden will sign a letter indicating the United States intends to re-enter the agreement. Re-entry will become official 30 days later.

A major question is how the administration will set the nationally determined contributions (“NDCs”) required by the agreement. The NDCs identify the efforts the country will take to reduce emissions and manage climate change. The current U.S. NDC sets a 2025 emissions goal that is no longer feasible. The administration will have to define a new goal and decide whether to involve Congress. Such involvement is not required by the agreement or law, but may help build the support for the agreement needed to avoid another withdrawal. With Democrats now enjoying majorities in the House and Senate, Biden may well involve Congress.

Another priority item will be ordering the EPA to rescind and replace Trump’s methane deregulation. Last August, the EPA finalized a new rule that eliminated methane emissions requirements for new oil and gas sources. Biden has indicated that “aggressive methane pollution limits for new and existing oil and gas operations” are a top priority.

It will need to be if he hopes to accomplish new regulations in his first term. Such rulemakings require significant time–years even–and this rulemaking also would need to address a midnight regulation finalized on January 12th that would preclude EPA from reinstating methane emissions limits on the oil and gas sector. Any final regulation can be expected to be the subject of years of litigation before the D.C. Circuit. Expect to see Biden officially order the EPA to begin the likely long and laborious rulemaking process of more stringent methane limitations.

During his campaign, Biden proposed halting new drilling permits on federal lands. Limitations on new leases, both onshore and offshore, are probably inevitable. Biden will likely order the Department of the Interior to curb upstream access to federal lands, but an outright freeze on such activity is unlikely. Certain states such as Wyoming, Colorado and New Mexico depend on revenue derived from activities on oil and gas leases and will work hard to stymie any such freeze. Perhaps more importantly, current leases already cover some 26 million acres with no clear path to cancelling them. These include new leases sold on Jan. 6 in the Alaska National Wildlife Refuge.

Biden will likely order a freeze on new leasing on federal lands while also ordering a broader study of relevant economic impacts. One way to limit such activity long term is to create or expand national monuments, which the president has the power to do. Obama famously did so in creating the Bears Ears and Grand Staircase-Escalante national monuments in the waning days of his second term. Trump promptly shrank the new monument by more than 2 million acres. Biden has promised to reverse the cut and restore Bears Ears.

Rolling Back Rollbacks

Biden has pledged to undo Trump’s rollback of fuel efficiency mileage standards set under Obama (in other words, rolling back a rollback), and will likely reach a deal with automakers within the administration’s first 100 days. Automakers on both sides of the question are fighting various court battles over the Trump administration’s actions in relation to the standards and also California’s ability to set more stringent standards.

Biden’s task will be to identify a nationwide standard that satisfies California authorities while providing automakers with a feasible target, thereby bringing everyone back to the table. Consensus appears to be growing among automakers that a nationwide standard is preferable to any kind of patchwork approach, which inevitably requires multiple versions of any given vehicle. This desire for national consistency may lend itself to the adoption of a compromise standard sooner rather than later.

In 2020, the Trump administration made significant changes to how agencies review projects under the National Environmental Policy Act (NEPA), which requires multiple levels of assessment regarding the environmental impact of certain proposed infrastructure projects, including oil and gas infrastructure. Under the new rules, the NEPA process is significantly less burdensome and more deferential to private parties. Perhaps most importantly for oil and gas infrastructure, the new rules dropped the requirement that agencies analyze the “cumulative impact” of a given project, a category of impacts that has been interpreted to include climate change.

The industry should anticipate the Biden administration ordering the Council on Environmental Quality to launch a new rulemaking process to again roll back Trump’s rollback and develop new rules requiring longer environmental review for infrastructure projects. As indicated, such rulemakings take years and often lead to court battles, meaning that an actual change to the current rules is somewhat distant.

While the ongoing pandemic will limit attention that can be paid to anything else during Biden’s first 100 days, the administration will likely use the opportunity for further coronavirus relief/stimulus bills to push for inclusion of clean energy provisions. This would include the extension of tax credits for the renewable energy industry, additional funding to states that expand renewables, and research and development funding.

‘Cumulative Impact’ Analysis

Trump streamlined the approval process for liquefied natural gas export authorizations and facilities. The Trump administration approved six such facilities over the past year alone. The high-profile nature and the number of LNG export projects currently in some phase of development will likely demand some attention from the new administration, and it will demand lengthier review of LNG export projects. One likely outcome is increased pressure on the Federal Energy Regulatory Commission to analyze attenuated emissions-related impacts of such facilities for pending and future applications–a kind of “cumulative impact” analysis of the sort FERC has previously refused to do.

Biden can be expected to start negotiations to rejoin the Iran nuclear deal. Unlike re-entry into the Paris Agreement, however, re-entering the Iran nuclear deal will prove quite difficult, although even more consequential. Any resulting lifting of sanctions could lead to Iran exporting as many as 500,000 barrels a day. Biden and relevant appointees have signaled a preference for returning to the joint comprehensive plan of action. The trick will be finding a viable path back to any credible negotiations with Tehran, where Iranian officials are likely to demand significant concessions from the Biden administration, some of which may represent political hazards for the new administration.

For example, an Iranian government spokesperson stated that the United States will have to compensate Iran for “damages during the withdrawal.” Given the backlash surrounding previous cash payments made to Iran by the Obama administration, any additional demand for cash may prove a step too far for the Biden administration. While relevant negotiations are likely to start early, the process is unlikely to reach any definitive conclusion for years.

As a candidate, Biden promised to kill Keystone XL, the long-gestating pipeline project that would carry Canadian tar sands oil to Gulf Coast refineries. President Trump, acting on his own campaign promises, cleared obstacles to the project in 2017. However, construction of the pipeline has been partially delayed by ongoing opposition from multiple groups, including landowners, Native American tribes and environmentalists. Biden has the power to simply rescind the relevant “presidential permit,” which is required for the pipeline to cross from Canada into the United States. Such an event would likely doom the project.

However, rescinding a permit is more costly, politically, than simply denying one. Biden may think twice about keeping his promise with regard to the pipeline. The appointment of former Secretary of State John Kerry as a special envoy on climate perhaps weighs in favor of a rescission. Kerry was a primary opponent to the pipeline under Obama.

As with his former boss, Biden will have to compromise on his aggressive energy agenda. Although the Obama administration was launched during the aftermath of the 2008 financial crisis, the incoming administration faces a set of challenges that are, perhaps, even more daunting: a seemingly overwhelming number of acute demands on attention and political capital, including the pandemic, resulting economic fallout, the continuing high likelihood of domestic social unrest, and a host of thorny foreign relations issues. Requisite prioritization will inevitably require a narrowing focus and more modest ambitions, particularly in an industry as important to the economy and to political fortunes as oil and gas.

While President Biden will have numerous administrative and legislative levers to pull, the ultimate impact will be a gradual rollback of Trump’s deregulatory actions coupled with increased incentives for the advancement of renewables and other low-carbon initiatives.

Editor’s Note: The authors wish to thank their Baker Botts colleagues Emily Hutson and Allison Watkins Mallick for contributions to this article.

Jeffrey Oliver

JEFFREY OLIVER is a partner in the antitrust and competition practice at Baker Botts LLP, where he advises clients on all aspects of antitrust law, with an emphasis on U.S. and international merger reviews. He has obtained antitrust clearance for transactions in a wide variety of industries and jurisdictions, with significant experience in oil and gas, healthcare, heavy industry, utilities, chemicals, media, transportation and trade associations. Oliver holds a B.A. from Brigham Young University, an M.A. in journalism from the University of Missouri-Columbia and a J.D. from the University of Chicago Law School.

Thomas Holmberg

THOMAS HOLMBERG is a partner in the global projects group at Baker Botts. He assists clients with energy projects and transactions around the world, including liquefied natural gas and natural gas pipeline projects and transactions. Holmberg advises clients on an array of regulatory issues, including contract and tariff matters before the Federal Energy Regulatory Commission, and represents clients before the Department of Energy for authorizations to export and import natural gas under the Natural Gas Act. He holds a B.A. in economics from the University of Arizona and a J.D. from the Georgetown University Law Center.

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