Presidential elections matter.
President-elect Donald Trump has pledged to drastically change the federal government’s role and policies in relation to energy, the environment, and climate change. Reducing regulation was a hallmark of the Trump campaign and serves as a unifying tenet of the new Administration taking shape. However, detailed policy positions in these critical areas were not put forth during the campaign. Just a few weeks after the election, the transition process is under way, and Trump has not made the key appointments for the heads of the responsible departments and agencies in these areas. The Senate confirmation process for such appointees, which should shed considerable light on what actions and policies the Trump Administration will take, is months away.
Nonetheless, this client alert offers some predictions about at least the direction and velocity of the changes the incoming Administration may seek to make to energy, environmental, and climate change regulations and policies. This alert is informed, of necessity, by statements and postings by the President-elect during the campaign and following his election, as well as by his transition team.
In the energy sphere, it seems apparent that the new Administration will devote considerable attention to infrastructure, natural gas, oil, and coal. But what about renewable generation and clean energy and technology? We offer some predictions below.
Infrastructure, Natural Gas, and Oil
President-elect Trump has spoken about the need for $1 trillion in infrastructure investments via public-private partnerships and private investment through tax incentives. This could be an area where Democrats in Congress and President Trump can find common ground in relatively short order.
In particular, we expect a focus on energy infrastructure with respect to natural gas, oil, and electricity. In a YouTube video posted November 21, the President-elect said that on day one of his presidency he will “cancel job-killing restrictions on the production of American energy, including shale energy and clean coal, creating many millions of high paying jobs.” It seems likely that the new Administration’s focus on job creation would override any pressure on it to disfavor renewable energy sources, such as solar or wind.
Trump has talked about lifting roadblocks to energy projects, including the Keystone Pipeline. The Trump Administration is likely to streamline permitting and environmental review processes for conventional energy infrastructure with respect to natural gas and oil, and it is likely to respond positively to more electric transmission development and grid harmonization. It seems unlikely the new Administration would take overt steps to make the permitting and environmental review processes for renewables more onerous, as this would be inconsistent with its pledges to reduce regulation.
Trump has pledged to open up more federal lands for onshore and offshore oil and gas production, may encourage the Federal Energy Regulatory Commission to more swiftly approve the siting and construction of natural gas infrastructure (such as interstate pipelines and liquefied natural gas export (LNG) terminals), and may push the Department of Energy (DOE) to act more quickly on certain applications to export LNG.
The percentage of natural gas use for electric generation in various markets continues to climb, the United States now is a net exporter of natural gas, LNG exports are becoming a prominent feature of the U.S. natural gas market, and natural gas production in the United States has increased annually since 2005, catalyzed by the shale gas revolution. In a Trump Administration, we expect the future of natural gas will only become brighter.
During the campaign, the President-elect vowed to end the “war on coal” and promised to revitalize the coal industry. Thus, the biggest possible shift in the electricity sector appears to be a federal focus on increased coal production and electric generation from coal, both of which have been in steady decline in recent years largely due to an abundance of lower-cost natural gas for generation and related market forces.
Trump has stated that domestic energy resources – including coal, oil, and natural gas – represent trillions in potential economic output and that his Administration will create millions of new jobs by transforming the United States into a net energy exporter. Among other things, the DOE may attempt to expand its efforts to promote and subsidize “clean coal” endeavors such as carbon capture and sequestration technology, and we may see more coal exports.
But coal has taken it on the chin for many years, primarily due to market forces spawned by the shale gas revolution and the declining cost of wind and solar generation. At the same time, coal mining has shifted from underground to surface mining, which generally requires fewer workers. Over this period, environmental and other federal regulations (and the moratorium on federal coal leasing) have been lesser factors in coal’s decline. Thus, despite a possible set of federal rules and polices favoring coal, a material increase in coal as an energy source in the U.S. energy markets during the Trump Administration seems challenging. In the face of these challenges, we expect the new Administration will consider a range of policy responses beyond regulatory changes around coal mining and electricity generated from coal to address the difficult circumstances of local economies and communities historically dependent on coal.
Renewable Generation and Clean Energy and Technology
During the campaign, President-elect Trump criticized renewable generation as expensive, disparaging solar power as not working so well and warning that wind turbines kill birds. Nonetheless, because of the jobs that solar and wind development support, and the investment of many utilities and businesses in those areas, it is not clear that Trump will try to eliminate tax incentives for solar and wind or take other steps to affirmatively disfavor renewable energy. Moreover, as many of those jobs occur in red states and not only blue states, the Republican-controlled Congress may have no desire to eliminate various tax credits set to expire of their own accord if construction begins after 2019 for wind and after 2022 for solar. (See our previous alert on renewable tax issues.)
The Trump transition team’s website currently talks of promoting both conventional and renewable resources. Importantly, renewable energy is an area where the focus is on what a Trump Administration may not be able to change or impact significantly.
The movement toward more renewable energy in the United States is expected to continue to be driven by state renewable portfolio standards (RPS) and the large and growing corporate procurement of renewables. Corporate sourcing by consumer-facing businesses and large multi‑national corporations that have already adopted internal targets for more sustainable and energy-efficient operations will continue apace. This movement has been aided greatly by reductions in the cost of wind and solar power. Indeed, corporations may feel pressure from consumers to accelerate their sourcing of renewable energy if actions taken at the federal level are perceived as antithetical to renewables.
A growing roster of companies is investing in renewable energy and related sustainability efforts because they believe their fiduciary duties to shareholders may require it. Private companies on that roster believe it’s good business. So, even if the new Administration pulls back on the Obama Administration’s commitment to the Paris Agreement and revokes or unwinds the Clean Power Plan (CPP), discussed below, investment decisions with respect to renewables and clean energy technology are unlikely to be significantly impacted.
In addition, recent trends toward more distributed energy resources, energy efficiency, conservation, microgrids, energy storage (especially batteries), and a new role for local distribution utilities likely will continue, regardless of changes at the federal level.
Absent a cohesive and comprehensive modern federal energy policy with respect to renewable generation and clean energy and technology, States likely will continue to take a leadership role in promoting the growth of renewable generation by upholding or expanding RPS programs, retail electric competition and customer choice, net metering, community solar, and related policies.
For example, before the election, New York updated its clean energy standard to require half of the state’s electricity to come from renewable sources by 2030 and is actively engaged in reshaping its energy policy through a multi-faceted proceeding known as Reforming the Energy Vision (REV). California recently extended its landmark climate change program, Assembly Bill 32, the California Global Warming Solutions Act, and has enacted laws mandating the expansion of distributed generation and energy storage.
Given statements during the campaign and thereafter reflecting commitments to federalism and the principle that decisions ought to be handled at state and local levels as often as possible, we would not expect the Trump Administration to try to dampen materially state and local efforts promoting renewable generation and clean energy and technology.
Environment and Climate Change
During the campaign, President-elect Trump called climate change a “hoax” and stated that the concept of global warming was created by and for the Chinese to make U.S. manufacturing non‑competitive. Trump also declared his plans to scrap the Obama Administration’s Climate Action Plan, including its most prominent component – the Clean Power Plan (CPP), which restricts greenhouse gas emissions (GHG) from existing power plants.
Trump tapped renowned climate skeptic Myron Ebell – director of the Center for Energy and Environment at the Competitive Enterprise Institute – to lead the transition at EPA, further signaling that the agency likely will attempt to roll back a host of air and water regulations developed and implemented by the Obama Administration. The Trump transition website states that it will refocus the EPA on its core mission of ensuring clean air, and clean, safe drinking water for all Americans.
Clean Power Plan
There are several possible courses of action that could be pursued to revoke or limit the impact of the CPP (currently stayed by the Supreme Court), but the path forward depends in part on when and how the D.C. Circuit rules on the myriad legal challenges to the rule.
Some have suggested that the new Administration could, immediately upon taking office, “moot” the case by informing the D.C. Circuit that it intends to withdraw the CPP. However, because the CPP is a regulation, it could not be withdrawn in advance of a formal notice and comment rulemaking process as required by the Administrative Procedure Act. Thus, unless the D.C. Circuit declares the CPP unlawful and the Supreme Court agrees or is not in a position to act, revocation of the CPP is not expected to happen quickly and will likely require significant new regulatory proceedings. Likewise, it is not apparent that a decision by the new Administration not to defend the CPP before the D.C. Circuit would result in dismissal of the case because numerous parties that intervened to defend it may be able to continue the appeal, unless and until the CPP is formally withdrawn.
Other Key Regulations
Comparable complications and impediments stand in the way of eliminating or substantially scaling back implementation and enforcement of other regulatory programs. Unwinding the EPA’s New Source Rule setting forth GHG emissions standards for new power plants would likely require formal rulemaking. The EPA’s requirement for reduced methane emissions from certain oil and gas infrastructure, the Department of Interior (DOI) rule restricting hydraulic fracturing on federal lands (also current stayed), and DOI’s newest rule (promulgated post-election) to reduce waste of natural gas from venting, flaring, and leaks during oil and natural gas production activities on onshore Federal and certain Indian leases, are among the rules likely to be targets. Certain regulations that were only promulgated very recently may be disapproved, or essentially revoked, by Congress pursuant to the Congressional Review Act, but that authority has rarely been invoked, for a number of reasons.
The Paris Agreement
During the campaign, President-elect Trump promised to cancel the Paris Agreement on climate change, which now is in force. He also vowed not to make payments to the United Nations’ global climate change fund. It has been reported that last week President-elect Trump responded to a question about whether he would withdraw the United States from the Agreement and stated that “he has an open mind to it.”
Withdrawal from the Paris Agreement by the United States could be accomplished by invoking an article to withdraw a year after it takes effect by declaring the abandonment of a 1992 treaty, the United Nations Framework Convention on Climate Change, on which it is partly built. Another section of the Agreement allows a signatory to withdraw three years after it is signed, with an additional one-year waiting period. President Trump could choose not to enforce voluntary rules (such as the CPP) and incentives to reduce GHG emissions.
On the climate change front, there has been, and continues to be, significant pushback on the President-elect’s position from a host of nations. China has repeatedly declared its intent to lead in this area if the U.S. does not, as it faces growing domestic pressure to reduce its air pollution. There may be significant foreign policy implications for the United States if President Trump decides to walk away from the Paris Agreement. Hundreds of companies recently announced a commitment to continue reducing GHG emissions, and environmental groups and others are massing their forces and making plans to challenge anticipated Trump Administration actions on climate change.
In addition to the potential legal impediments to swift action to undo such regulations, many utilities, energy companies, and market participants, as well as the products and services companies that sell to them, have helped shape or benefitted from clean energy regulations, policies, and initiatives. Unwinding those regulations, policies, or initiatives would be disruptive and harm economic interests and investments that many began implementing years ago. Thus, many large companies are likely to oppose such efforts.
In sum, on the environment and climate change, if Trump’s pronouncements are translated into policies and action by the Trump Administration, we expect vigorous political fights and legal battles to ensue, with possible uncertainty for investors, market participants and others. Thus, it seems likely that the timing and extent of changes to environmental and climate change requirements and policies will remain up in the air for some time.
At this point, many things are fuzzy and not expected to sharpen into focus quickly.
The impact of Donald Trump’s election as President on federal requirements and policies on energy, environment, and climate change is unclear. It is reasonable to predict there will be contentious fights on multiple fronts in many venues.
In the energy sector, infrastructure is expected to get a boost and the future of natural gas continues to look strong. As to the role of coal, renewable generation and clean energy and technology, the Trump Administration is expected to have less influence as it cannot easily upend market forces or dictate state laws and policies.