The Fuse

Biden’s Energy and Environmental Agenda in 2021

by Nick Cunningham | November 10, 2020

President-elect Joe Biden will assume office in January, and in addition to Covid-19 response and economic recovery, he has promised action on climate change as one of his top agenda items.

However, it appears likely that Republicans will control the Senate. Even if the Democrats prevail in two runoff Senate elections in Georgia in January, a 50-50 Senate split would still leave the Democrats with no margin for error when it comes to big legislation. That does not mean that the Biden administration has its hands completely tied. Instead, much of action will come from the new President’s pen rather than from Congressional legislation, at least at the outset.

Executive actions, some on Day 1
The worse-than-expected result in the Senate for the Democrats severely diminishes the odds of President-elect Biden’s proposed $2 trillion green stimulus package. “In a divided government, legislative options to constrain the oil & gas industry could be effectively ‘off the table’ – a key tailwind for the sector,” Morgan Stanley wrote in a note.

In August 2020, Columbia University’s Sabin Center for Climate Change Law put out a roughly 60-page report detailing on the executive actions that the new administration could take on climate change. That playbook may come in handy for an administration constrained by Congress.

President-elect Joe Biden’s team is already lining up executive actions to sign immediately after he assumes office. The Washington Post reported that his team is already preparing several Day 1 orders, which appear to at least include rejoining the Paris Climate agreement.

The Biden camp has also signaled it would quickly rollback or reinstate environmental and energy regulatory actions. For instance, the Trump administration scrapped emissions limits on methane from oil and gas sites; those rules could be reimposed or tightened from an EPA rulemaking process.

President-elect Biden also previously vowed to rescind key permits for the Keystone XL pipeline. He could also increase protections for public lands. There is speculation that he could restore Bears Ears in Utah to its Obama-era size, keeping mining off limits in the area.

The new administration could also put a halt to litigation over some regulatory actions. The Trump administration is in the midst of watering down fuel economy standards for cars and trucks, and it is in legal fights with California over its ability to set tighter standards. Separately, the Obama-era Clean Power Plan, which put carbon limits on power plants, never took effect after it was blocked by the Supreme Court. The Trump administration wrote its own weaker version, the Affordable Clean Energy rule, which also got tied up in courts. The Biden administration could pull back on the legal fights and seek to restore the stricter standards, although they may face their own legal challenges.

More time-intensive rule changes could begin, but won’t take effect overnight. For example, the Trump administration weakened the National Environmental Policy Act (NEPA), which forces new pipelines, oil wells and other infrastructure projects to meet certain environmental standards. Biden’s team could tighten those standards up again, but it would need to go through a lengthy rulemaking process. In total, the Trump administration rolled back more than 125 environmental safeguards. It will take time for the Biden administration to chip away at that list.

Another initiative that has received a lot of attention is the prospect of curtailed access to drilling on federal lands. Through the Department of Interior, the Biden administration could slow or halt leasing in federal offshore acreage, and he could also limit hydraulic fracturing on federal lands, which would only really impact a section of the Permian basin in southeastern New Mexico. It’s not clear he will go down this road, but even if he did, many Permian drillers stocked up on leases in 2020 in anticipation of forthcoming restrictions.

Other agencies also have power
Much of the attention in January will turn to EPA, and the Departments of Energy and Interior, but the incoming president will have other executive power to call on to advance energy and environmental goals.

The Biden administration could sign executive orders on climate change-related financial risk. These types of risk can include the direct financial risk to companies or sectors from new regulation or carbon pricing. In theory, companies with carbon-intensive portfolios face heightened financial risk from a future in which carbon is constrained. Shareholders have increasingly pressured oil and gas companies to disclose such data, with some mixed success. The Biden administration could require such disclosures, which would increase scrutiny on fossil fuels.

The Federal Reserve could also tweak its rules to take the financial risk of climate change into account, which could affect the cost of capital for oil and gas, making the industry less competitive. That could help steer capital markets towards lower-carbon sectors.

The Biden administration could also tilt the makeup of the Federal Energy Regulatory Commission in a way that favors renewables. FERC has jurisdiction over long-distance pipelines as well as electricity markets.

Meanwhile, one less-discussed change will be in the realm of foreign policy, where American presidents generally have a freer hand. In addition to rejoining the Paris accord, the Biden administration could seek to marshal support for more international action, perhaps over flaring and methane, or clean energy deployment.

At the same time, there will be reshuffling of relations with some top oil producers around the world. The incoming Biden administration is likely to reassess its relationship with Saudi Arabia, which was very friendly under President Trump. Biden may also offer an olive branch to Iran, or somehow seek to revive the 2015 nuclear accord. There are big questions about the draconian oil sanctions the Trump administration put on both Iran and Venezuela. Loosening the international sanctions regime on these countries could lead to millions of barrels of oil flowing back onto the market.

Trump also had a decent (if complicated) relationship with Russia. The Obama administration had a hostile relationship with Moscow, one that deteriorated over the course of his second term. Biden’s victory may return the U.S. and Russia to a more adversarial footing. Biden has promised some sort of penalty for Russia’s interference in the 2016 election. Notably, the Kremlin did not immediately congratulate President-elect Biden on his victory.

Congress key to permanent change
There will be substantial pressure to pass economic stimulus, and it is conceivable that investments in renewable energy and R&D could be tucked in under that umbrella. At the same time, potential stimulus pushed through during the lame duck period over the next two and a half months could deflate the urgency around stimulus in the new Congress.

President-elect Joe Biden will have wide latitude to pursue a more progressive agenda on energy and environmental issues through executive action when he takes office. But more significant – and more durable – policy change would still need to be done through legislation. A clean energy standard, carbon pricing, or massive fiscal stimulus in renewables – the type of transformative policy needed to accelerate a shift to renewables – faces steep odds in a Republican-controlled Senate.