Incoming United States President Joe Biden wasted no time putting the climate crisis back on the U.S. government agenda, proving to the world he meant business to become the “climate president”. With new executive orders detailing far-ranging plans to shift the U.S. away from fossil fuels in order to create millions of jobs in renewable energy while conserving vast swaths of public lands and water, it appears there is a new sheriff in town. But, Biden has taken office at an inflection point in U.S. energy policy, where fossil fuels still dominate transportation and electricity generation, even as they are starting to lose ground to both market forces and shifting public opinion. Now, even though the United States and the world face a profound climate crisis, Joe Biden needs to take his foot off the gas to implement small steps in order to tackle the climate crisis on a united front instead of waging war against fossil fuels.
- Since entering office, President Biden has focused on rolling back many Trump era policies and fulfilling climate related promises from his campaign platform. His first executive order was to rejoin the Paris Climate Agreement. Subsequent executive orders direct future climate policy in several key areas relating to domestic energy production.
- Biden’s second executive order on climate change titled “Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis” lays the groundwork for new climate guidelines including methane emissions, protection of the Alaska’s Arctic National Wildlife Refuge, defining accounting measures for the social cost of greenhouse gasses, and revoking the Keystone XL pipeline permit. An additional order allowed the Department of the Interior to implement a 60-day moratorium for oil and gas leasing and drilling permits on all federal land.
- The first part of the executive order is a call to action for ensuring access to clean air and water, holding polluters accountable for their actions, reducing greenhouse gas emissions, or prioritizing environmental health.
- Another major area of the executive order is establishing new regulations and guidelines for the emissions of methane gas and other volatile organic compounds (VOCs). Direction has been given to review actions taken during the Trump administration and revert environmental standards to those implemented when Biden was Vice President. Methane policy rollbacks may have an impact on smaller operators with constrained budgets, but the rule changes likely only impact about $100 million worth of savings through 2023.
- Biden’s executive action also created new protections for Alaska’s Arctic National Wildlife Refuge (ANWR) against future oil and gas development. A temporary moratorium on oil and gas leasing is in effect until the Secretary of the Interior can review the Coastal Plain Oil and Gas Leasing Program implemented by Trump to evaluate environmental impacts. ANWR spans 19.3 million acres and is home to many animals like caribou and polar bears native to the area and also supports several Indigenous communities and jobs for Alaskans through resource development. If a ban on oil and gas leasing becomes permanent, compensation will likely be expected for the State of Alaska and Alaskan Natives who rely on oil revenues.
- One important area of Biden’s energy plan is creating environmental accountability for corporations and defining the social cost of greenhouse gas emissions. A draft for quantifying and standardizing the monetized damages from incremental greenhouse gas is expected by February 9th, 2021. Costs related to changes in net agricultural productivity, human health, property damage from increased flood risk, and the value of ecosystem services to appraise climate risk, environmental justice, and intergenerational equity is expected by June 1st, 2022.
- Revoking the Keystone XL pipeline was the final portion of his second executive order on climate change and received a plethora of attention. The order revokes Trump’s 2019 permit for TC Energy Corporation to construct, connect, operate, and maintain pipeline facilities at the Canadian-U.S. border. Following the executive action, TC Energy terminated 1,000 employees related to the project and the pipeline which was anticipated to eliminate more than three million tonnes of CO2 equivalent emitted every year in greenhouse gas emissions, will not be completed.
- A 60-day moratorium on all federal oil and gas leasing and drilling was implemented by the Department of the Interior on Biden’s inauguration day. The President then issued an executive order approving the Department of the Interior to create an indefinite moratorium following the “completion of a comprehensive review and reconsideration of Federal oil and gas permitting and leasing practices.” In the near term, many companies prepared for regulation by submitting federal permits prior to Biden’s inauguration. Ultimately, an extension of this policy could result in major implications for many actors in the energy value chain including asset values for production and midstream companies, Indigenous tribes and State programs/municipalities relying on revenue streams, and even countries exporting oil to the U.S. with the hope for regaining lost market share.
Incoming United States President Joe Biden wasted no time putting the climate crisis back on the United States government agenda, proving to the world he meant business. Since a solid majority of his campaign was built on climate change and the environment, it was no surprise Joe Biden took large strides on his first day to rejoin the Paris Climate Agreement and reverse Trump-era environmental actions. But Biden did not stop there, ending his first week in the White House on his newly coined Climate Day. The first part of this series discussed Biden’s plan for the future of energy in America that sets the country down a new path – one aimed at transition and lasting change during his “Clean Energy Revolution” and his first executive order on climate change. The second part of this three-part series will begin to investigate his second executive action on climate change in addition to the moratorium released by the Department of the Interior on President Biden’s first day in office. Clearly the President’s climate change and environmental agenda mark a reversal from policies under his predecessor who sought to maximize fossil fuels by removing regulations and easing environmental reviews. Looks like there is a new sheriff in town.
Executive Order #2 On Climate: Tackling The Climate Crisis
While Biden’s first executive order on climate change was a springboard to action, his second executive order titled “Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis” is a massive laundry list of plans to gain momentum for his Clean Energy Revolution. The order itself is split up into eight sections detailing how to tackle the climate crisis utilizing environmental justice. While the various segments are broad and wordy, each section can be simplified in order to understand how it will alter the energy landscape. Section one is quite straightforward. This great country has an enduring commitment to empower the people, protect the environment and our public health, and conserve national treasures that secure our national memory; and President Biden believes the Federal Government has failed to live up to all of those expectations . In order to remedy that, his Clean Energy Plan calls to advance environmental justice. The Federal Government must be “guided by the best science and be protected by processes that ensure the integrity of Federal decision-making” . Therefore, President Biden has made a commitment to the American People to empower them and ensure environmental and public health through science. This may be through ensuring access to clean air and water, holding polluters accountable for their actions, reducing greenhouse gas emissions, or prioritizing environmental health. He believes action must be taken now by all executive departments and agencies to review and address previous Federal regulations and orders from the past that conflict with the human right to environmental justice.
Similar to his executive order to rejoin the Paris Climate Agreement, on his first day in office President Joe Biden signed an additional springboard order to advance environmental justice by immediately reviewing actions taken between January 20, 2017 and January 20, 2021. Chief among those are to review an action that finalized amendments to the New Source Performance Standards (NSPS) for the oil and natural gas sector signed by President Trump on September 15, 2020 . The action reduced Obama-Administration methane emission controls in the oil and gas sector and Biden took action to again reverse these mandates by September 2021. Furthermore, Biden is proposing new regulations to establish “comprehensive standards of performance and emission guidelines for methane and volatile organic compound emissions from existing operations in the oil and gas sector, including the exploration and production, transmission, processing, and storage segments” .
This section is key because in August 2020, the United States Environmental Protection Agency began rolling back emissions regulations (85 Fed. Reg. 57398) to curb the release of methane enacted during Barack Obama’s two terms in the White House. The actions, expected but nonetheless condemned by environmentalists, had a little-noticed side effect. Experts predict it could lead to higher emissions of volatile organic compounds (VOCs) and hazardous air pollutants causing smog and have been linked to cancer, respiratory illnesses, and a growing list of other ailments, which is precisely why President Biden is taking action . Granted, while the Trump-Administration took a bit of a step back on these issues, several states ended up making significant changes to create stricter regulations on emissions, air quality, and flaring rules. Now the Federal Government can again take the lead with Joe Biden in the driver’s seat.
Lately, press coverage seems to imply that methane is the number one climate enemy, whether it’s methane leakage, flaring of methane, or use in buildings. This has made a push for methane reductions low hanging fruit for climate advocacy groups. But, on August 13, 2020, the EPA issued two final rules making it simpler and less burdensome for the oil and natural gas industry to comply with the New Source Performance Standards (NSPS) for the Oil and Natural Gas Industry . Essentially, the move loosened Obama-era national standards on the extraction of oil and natural gas, which had been implemented to limit methane from leaking into the atmosphere, to alleviate the economic burden on producers. It was estimated back in 2019 that these rule adjustments would save the domestic oil and gas industry a mere $97-$123 million total from 2019-2023 because the Obama-Era regulations had already been in place for several years . Biden’s reversal of Trump era requirements may impact E&P operators in several ways including burdening smaller operators with more restrained budgets, while providing opportunities for other areas of the oil and gas sector. Trump’s Administration believed the regulations targeted a vilified participant of the energy machine while ignoring other high-polluting sources shown in Figure 1. Since the single largest single source of methane emissions in the United States, enteric fermentation, comes from livestock as a byproduct of digestion and cannot be fixed readily or easily, the policy appears to attack the greenhouse gas known to cause substantial global heating and not an industry. It is foolish to assume that every policy the Trump Administration adopted is wrong and should be reversed, but many of Trump’s changes to Obama era policy are likely prime targets for Biden to roll back. The methane emission section of Biden’s executive order seems to be less aimed at solving environmental justice and may be more of an attempt to restore some of the environmental regulations created when he was Vice President.
Protecting the Arctic in Alaska’s National Wildlife Refuge
The fifth section of President Biden’s second executive order on climate highlights environmental justice for protecting Alaska’s National Wildlife Refuge by imposing a temporary moratorium on all oil and natural gas leasing activities. Such actions are in direct opposition to those taken by his predecessor but are in line with Obama-Era policies. This moratorium is the antithesis of the Coastal Plain Oil and Gas Leasing Program, as established by the Record of Decision signed by Donald Trump on August 17, 2020, for the Arctic National Wildlife Refuge . This is all to say the new executive order allows the Secretary of the Interior to review the program and as appropriate and “consistent with applicable law, conduct a new, comprehensive analysis of the potential environmental impacts of the oil and gas program and the Presidential Memorandum of December 20, 2016, are hereby reinstated in their original form, thereby restoring the original withdrawal of certain offshore areas in Arctic waters and the Bering Sea from oil and gas drilling” . The Biden Administration argues legal deficiencies underlying the program, including the inadequacy of the environmental review required by the National Environmental Policy Act, do not provide environmental justice to the home of caribou, polar bears and Indigenous people.
On the final Tuesday of Donald Trump’s presidency, the Department of the Interior’s Bureau of Land Management signed and issued nine leases it auctioned off earlier that month, spanning 437,804 acres on the refuge’s coastal plain . The sale and potential drilling of previously protected coastal plains are now under review due to environmental concerns of one of the last pristine wildernesses in the world. At 19.3 million acres, it’s home to multiple mountain ranges, supports one of the last great migrations of caribou, and is one of the few landscapes polar bears inhabit . In addition, Indigenous communities rely on its wealth of natural resources, and — other than these Indigenous settlements — there’s no infrastructure on the landscape. The argument for drilling therefore hinges on the need for Alaskan jobs and economic development. However, the sales of the leases brought less than $15 million, and all but two of those leases were purchased by the Alaska Industrial Development and Export Authority, an arm of the Alaska state government . BLM Alaska State Director Chad Padgett noted that the leases “reflect a solid commitment by both the state and industry to pursue responsible oil and gas development on Alaska’s North Slope” and more importantly, the leases cannot be reversed unless they were issued improperly .
Even before Biden’s action, though, the refuge’s future as a source of oil and related jobs was far from secure. The Trump administration held the refuge’s first lease sale Jan. 6, following a 2017 decision by Congress to open the area to drilling, but the sale drew little interest . No major oil companies bid on the leases and instead, two smaller companies each picked up a single lease, while the state-owned Alaska Industrial Development and Export Authority picked up seven . Former Alaska Governor Bill Walker had pushed the state to bid on the leases, concerned that the oil industry wouldn’t show up to the sale, but is pleased the state now holds a plethora of leases. He believes it will give the state more power in talks with the Biden administration about the refuge’s future due to their strong connections with the land and the people most affected by his decisions. Either way, if the Biden administration decides to ban all leasing for oil drilling in the coastal plain, it needs to figure out a way to compensate those that would have financially benefited from development, including the State of Alaska and the Alaskan Natives who rely on oil revenues to support their way of life.
Accounting for the Benefits of Reducing Climate Pollution
Although the next section of Biden’s executive order does not repeal any Trump-Era policies, some argue it is one of the most significant actions taken on his first day of the presidency. It does not target any group, but instead is an accounting measure for the social cost of greenhouse gases. The move helps outline the basics of monitoring, accounting, defining metrics, and creating dashboards to quantify the cost of climate change. According to the executive order, it is essential that all corporations and agencies capture the full cost of greenhouse gas emissions as accurately as possible by taking global damages into account. The “social cost of carbon” (SCC), “social cost of nitrous oxide” (SCN), and “social cost of methane” (SCM) are estimates of the monetized damages associated with incremental increases in greenhouse gas emissions . While companies track their revenues, expenses, and monitor all sorts of risks, impacts from climate change and emissions aren’t tracked in the same way. With this order, similar to the way there are generally accepted accounting principles (GAAP) in finance, there will be principals for accounting the impact of climate change . Until now, the U.S. government lacked a framework to account for what it calls the “full costs of greenhouse gas emissions” by taking “global damages into account” . The new initiative will include changes in net agricultural productivity, human health, property damage from increased flood risk, and the value of ecosystem services . While a draft for the social cost of climate change is expected by February 9th, a final version to take into account climate risk, environmental justice, and intergenerational equity will be published by June 1, 2022 .
An accurate social cost is essential for agencies to reasonably determine the social benefits of reducing greenhouse gas emissions when conducting cost-benefit analyses of regulatory policy and other actions. Furthermore, the order is the first action that concretely allows data and science to inform policy making across the government. What the Biden Administration is doing is attempting to provide a financial figure for the damages brought on by greenhouse gas emissions in terms of rising interest rates, destroyed farmland, and devalued infrastructure caused by natural disasters linked to global climate change . While these kinds of benchmarks aren’t flashy, they will now be the government’s method to determine personal and corporate accountability, which will become critical metrics as the country takes steps to meet the targets set in the Paris Agreement. In addition, it also gives companies looking to address their emissions footprints an economic framework to point to as they inform their investors and the public . Although not a headline grabbing section, requiring public companies to disclose climate risks and the greenhouse gas emissions in their operations and supply chains sets the Biden Administration down a path attempting to implement guidance from scientific data while tackling environmental injustice and climate change.
Keystone XL Pipeline
If ever there was an environmental battle exemplifying a game of table tennis, it would be the stop-start story of the Keystone XL Pipeline – the sixth section of Biden’s ninth executive order. The Keystone Pipeline System originally went online in June 2010, operating in Canada and the United States. It runs from the Western Canadian Sedimentary Basin in Alberta to refineries in Illinois and Texas as well as tank farms and an oil pipeline distribution center in Cushing, Oklahoma . The pipeline became well known when a planned fourth phase, Keystone XL, attracted opposition from environmentalists, becoming a symbol of the battle over climate change and fossil fuels. In 2015 the Keystone XL project was temporarily delayed by President Barack Obama who denied its border crossing, but on January 24, 2017, President Donald Trump took action to permit the pipeline’s completion . The proposed Keystone XL Pipeline was a $13 billion project that planned to connect and secure a growing supply of Canadian crude oil with the largest refining centers in the United States, significantly benefiting the United States energy supply . Additionally, the pipeline would connect the Phase I pipeline terminals in Hardisty, Alberta, and Steele City, Nebraska, by a shorter route and a larger diameter pipe. Since its proposition in 2008, the project has been started, stalled, stopped, and resumed countless times. Dozens of foreign and domestic protests cite the pervasive threats to ecosystems, drinking water sources, and public health . Since the project resumed back in 2017, there have been few hiccups. That is until recently when the Supreme Court ordered all Keystone XL work be halted on July 6, 2020 , and indefinitely postponed on January 20th, 2021 when Joe Biden canceled the Presidential Permit issued by Donald Trump, stopping the project in its tracks .
The executive order officially revokes the March 2019 permit for the Keystone XL Pipeline Trump granted to TransCanada Keystone Pipeline, L.P. (now TC Energy Corporation) to construct, connect, operate, and maintain pipeline facilities at the international border of the United States and Canada . The permit was revoked citing a 2015 review that noted the proposed pipeline would not serve U.S. interests and would undermine U.S. climate leadership by undercutting the credibility and influence of the United States in urging other countries to take ambitious climate action . Ironically, API CEO, Mike Sommers, put it perfectly when announcing “revoking the Keystone XL pipeline is a significant step backwards both for environmental progress and our economic recovery” . Why? The Keystone XL project has changed considerably since it was originally conceived, and this project was about to serve as the gold standard for responsible and sustainable energy infrastructure development. A week before the project’s cancelation, TC Energy Corporation announced they would achieve net zero emissions across the project’s operation once placed into service in 2023 and had committed “operations will be fully powered by renewable energy sources no later than 2030” . In addition to its green initiatives, TC announced the signing of Indigenous communities as equity owners, and that the project will be constructed under a Project Labor Agreement, ensuring 100% of construction is done through union labor . Following the successful implementation of this initiative, TC Energy expected to be among the top 10 corporate renewable sponsors in North America. Additionally, the project was projected to eliminate more than three million tonnes of CO2 equivalent emitted every year in greenhouse gas emissions – the equivalent of approximately 650,000 cars taken off the road . Finally, as part of this announcement, TC Energy was expected to spur an investment of over $1.7 Billion in communities along the Keystone XL footprint creating approximately 1.6 gigawatts of renewable electric capacity, and thousands of construction jobs in rural and Indigenous communities .
Pipelines are not only the safest and most reliable method to transport oil to markets, but the initiatives announced ensured it would have the lowest environmental impact of any oil pipeline in existence. Therefore, the proposition from TC Energy was directly in line with Biden’s initiatives, yet the project was shut down on his first day as President of the United States. A key statement about the Keystone XL permit in his executive order is quoted as saying, “at home, we will combat the [environmental] crisis with an ambitious plan to build back better, designed to both reduce harmful emissions and create good clean-energy jobs” . With the cancelation of the Keystone XL project, one of the largest green initiatives of 2021 has been eliminated forever, over 1,000 jobs were immediately terminated , the creation of new jobs will no longer occur, and nearly 48,000 tons of steel scrap will now be left behind to pollute the environment .
The Big Kahuna
While Biden’s second executive order on climate covered eight topics, the final sections deal with other Executive Revocations and General Provisions insignificant to this specific article. They will be covered in the future. Although not initially an executive order by the President, an order was released by the head of the United States Department of the Interior on President Biden’s inauguration day, a move we have termed the Big Kahuna. Acting U.S. Interior Secretary Scott de la Vega enacted a 60-day moratorium suspending new oil and gas leasing and drilling permits on all federal lands . On the newly coined Climate Day a week later, Joe Biden took it a step further by releasing an executive order allowing the Secretary of the Interior to indefinitely suspend all new “oil and natural gas leases on public lands or in offshore waters pending completion of a comprehensive review and reconsideration of Federal oil and gas permitting and leasing practices in light of the Secretary of the Interior’s broad stewardship responsibilities over the public lands and in offshore waters, including potential climate and other impacts associated with oil and gas activities on public lands or in offshore waters” . While completing reviews with the Secretary of Agriculture, the Secretary of Commerce, the National Oceanic and Atmospheric Administration, and the Secretary of Energy; the Secretary of the Interior is also instructed to consider adjusting royalties associated with fossil fuel extraction from public lands and offshore waters, or take any “other appropriate action, to account for corresponding climate costs” . While the indefinite suspension currently only applies to new leasing activities, many worry the 60-day moratorium on drilling permits will also be elongated indefinitely.
A ban on new federal leases and a temporary ban on permits has huge potential for damage, though not as much in the near term. New drilling isn’t necessarily a top priority for many energy companies with prices and demand still depressed. Companies with deep enough pockets to pay application fees anticipated Federal leasing regulation and accelerated their permitting activities in 2020 to generate a backlog of Federal permits. It should come as no surprise that in December alone, the Bureau of Land Management signed off on 847 drilling permits, a rate roughly double what it had approved each month between June and November . With the reduced pace of activity, companies are flush with permits but are capital restrained, so the resulting development slowdown benefits the new President’s momentum for climate action. But that momentum will not last long. Shale basins require constant new drilling for reserves replacement and approved Federal permits will quickly begin to run out. Since Federally controlled areas account for roughly one-quarter of all U.S. oil production, these moves have begun an apparent war with the fossil fuel industry. In places such as New Mexico, federal lands sit adjacent to state and private acreage which will make it a headache for producers with a heavy presence in those states to figure out permits, especially because most drilling today occurs horizontally. Companies with higher exposure to federal lands, such as EOG Resources and Occidental Petroleum, already have experienced steeper drops in their share prices relative to peers since before the election when a Biden victory began to look likely, while supermajors such as ExxonMobile and Chevron find themselves in a much better position .
If Biden follows through with a permanent ban, “he is shooting himself in the foot, because why would you ruin the revenue stream that comes into the United States from federal land?” said Betty Read Young, who runs a small oil operation in Roswell, N.M. . Federal fossil fuel leasing programs generated nearly $8.1 billion in tax revenue in fiscal 2020, according to the Interior Department’s Office of Natural Resources Revenue, a sum shared among federal, state, local and tribal governments . While that sounds like a large slice of the pie to distribute evenly, $7.5 billion of that still went to the Federal Government . Plain and simple: banning new oil and gas permitting on public lands and waters to establish targeted programs to enhance reforestation and develop renewables in these areas with the goal of doubling offshore wind by 2030 will eliminate much needed Federal revenue . How is President Biden going to pay for his $2 trillion Clean Energy Revolution without needed revenue from the fossil fuel sector? Moreover, royalty rates, or the percentage of oil revenue that an energy company must share with the underlying landowner, are cheaper for federal lands than for state- and private-owned acreage . That too could change with Biden’s latest executive order in which his administration now has the power to adjust how much revenue a producer must send the government further incentivizing a move from Federal leases. Although the current order is only a temporary halt on government owned mineral development, an extension of this policy could result in major implications for many actors in the energy value chain including asset values for production and midstream companies, Indigenous tribes and State programs/municipalities relying on revenue streams, and even countries exporting oil to the U.S. with the hope for regaining lost market share.
Joe Biden had long promised to become the “climate president,” and now he has detailed far-ranging plans to shift the U.S. away from fossil fuels in order to create millions of jobs in renewable energy while conserving vast swaths of public lands and water. Recent actions taken by President Biden are certainly swift and precise, but the long term effects might still be clouded. Biden is not proposing an immediate end to the oil and gas industry, but instead a swift transition away from fossil fuels. The problem is, the rate of change for these actions is much too quick for both industry and society to pivot. Industry executives have made it clear time and time again that they were prepared to work with Biden, many willing to compromise even though an increased energy cost is to be expected from the abolishment of fossil fuels. While his aggressive proposals won broad praise from environmental activists and many fellow Democrats, it has set off an intense battle with the U.S. fossil fuel industry, which has underpinned the nation’s economy for more than a century. In a nation that remains heavily reliant on energy created from oil and gas even during a shift toward cleaner energy, the president and his deputies are aware they must take steps to blunt the short-term economic fallout on those impacted by the transition, or risk economic and political turmoil.
Biden has taken office at an inflection point in U.S. energy policy, where fossil fuels dominate transportation and electricity generation, even as they are starting to lose ground to both market forces and shifting public opinion. “We’ve already waited too long to deal with this climate crisis,” Biden said. “We see it with our own eyes. We feel it. We know it in our bones. And it’s time to act” . The problem is, the industry cannot pre-warn the public about the failures of future energy reliability without appropriate infrastructure or the dichotomy of vilifying the oil and gas industry even though it is a staple of domestic energy consumption. If nobody wants to listen, it has to happen first. Actions by the Biden administration at this point seem to be wholly embraced by his supporters, but the nation should remember that a campaign proposal is often different from governing. It is true the United States and the world face a profound climate crisis, but small steps are the solution to tackle the climate crisis on a united front. Be sure to tune in next week for an investigation into President Biden’s existential executive order tackling the climate crisis at home and abroad and what long term implications may result for the global fossil fuel industry.