Now that Inauguration Day has passed and President Biden has begun to share his energy policy, how will those policies affect the energy industry? While the Biden administration would like the U.S. to achieve net zero greenhouse gas emissions by 2050 — and Biden has set an even more ambitious goal to reach 0% by 2035 — it faces an uphill battle.
Still, the new administration plans to enact a policy far different from the former administration that includes:
Boosting offshore wind production
While the Trump administration slowed offshore wind development approvals, the Biden administration intends to support companies and states seeking to develop and expand offshore wind industry.
Restricting oil and gas development
The Biden administration doesn’t plan to ban hydraulic fracking; however, it has signaled its intention to end the sale of new oil/ gas development leases on public waters and lands.
Although this plan won’t affect onshore development much, offshore effects could be greater. A permanent ban on new leasing would see a 30% reduction in U.S. offshore oil and gas production by 2035.
Banning federal drilling
While his administration evaluates and reviews Trump-era rules designed to accelerate and increase the number of oil and gas leasing/ drilling permits on federal land, Biden has suspended issuance of permits for 60 days.
Some energy analysts predict that this moratorium will lead to a longer halt on leases. Companies had already begun to stockpile permits for drilling on federal land before the administration changed hands. Experts speculate that the new administration could declare a climate emergency, change land management rules, restrict or slow permitting, and reduce current financial incentives for leases. Industry leaders worry that this restriction will shift production to Russia and Saudi Arabia and necessitate that U.S. must import more foreign oil.
Revoking pipeline permits
Just a day into his presidency, Biden revoked the Keystone KL pipeline permit. The American Petroleum Institute worries that his actions will hurt union workers; however, environmentalists and Native American tribes argue that this fossil fuel infrastructure will worsen climate change. They have pressed for investing in infrastructure designed for cleaner, healthier energy alternatives.
Supporting electric vehicles
We’ll see tighter fuel economy standards that will drive sales of electric cars. In fact, more than 4 million EVs may be driving on U.S. roads by 2030 — nearly 60% more than if the previous administration’s rules taken effect.
But of the 275 million total vehicles driving on America’s roads in 2030, EVs represent only 1.5% of that number. Their increased numbers won’t impact U.S. fuel demand in the next 9 years.
Gradually relaxing sanctions on Iran
Experts predict that while he criticized Trump’s decision to exit from the international deal associated with Iran’s nuclear program, Biden is unlikely to relax sanctions in place since 2018. A renewed deal will likely not enter the negotiations phase until June 2021 at the earliest — and after Iran’s elections — and the countries might not reach an agreement. Progress may depend on Iran’s compliance with the JCPOA terms.
Reinstituting fuel economy and greenhouse gas emissions standards
The Trump administration rolled back many of the regulations implemented during the Obama administration. Environmental groups disputed the Trump administration’s claims that reducing annual fuel efficiency gains from 4.7% to 1.5% would make cars safer and more affordable. Interestingly, a Consumer Reports analysis of Trump’s rollbacks would increase fuel costs an average of $3,200 over the life of a new vehicle.
The auto industry supported the rollback because of a concern that it would struggle to meet Obama-era standards. That 75% of new vehicles sold in 2020 were less efficient trucks and SUVs doesn’t help meet stricter regulations, either. Automobile manufacturers do have the technology to improve efficiency.
Revisiting and implementing a carbon tax
Nobel winner (Economics Sciences) William Nordhaus developed a Climate Club plan. Designed to reduce carbon emissions and accelerate decreasing carbon intensity per unit of GDP, the U.S. could execute a domestic carbon pricing mechanism, similar to what the EU is doing with its carbon border tax.
U.S. energy companies have lobbied for a set carbon tax through several administrations. They have proposed imposing this tax at the wellhead, mine mouth, or port of entry for fossil fuels. Several companies — like BP — are divesting oil and gas properties. Exxon Mobile continues to evaluate possible carbon capture, use, and sequestration strategies. Both oil and electric utilities companies will continue to drive growth in green hydrogen.
Proceeds generated from the tax can fund investment credits and rebates for:
- Conservation in building materials and building
- Switching capital equipment to lower carbon fuel sources
- Exploration and development of alternative renewable energies
Recommitting to the Paris Climate Agreement
On the day after the inauguration, Biden issued an executive order recommitting the U.S. to the 2015 Paris Climate Agreement. Countries who have signed the pact agree to reduce greenhouse gas emissions, address other negative influences on climate change, and assist developing countries affected by the changing climate. The U.S. is among several countries pledging to cut net climate emissions to zero by 2050.
The current trajectory indicates that temperature spikes resulting from global emissions would push temperatures up by 3.5°C by the year 2100. In the five years since the Paris Agreement was signed, temperatures are projected to rise 2.9°C by the end of the century.
Role of the Department of Energy
The DOE has $40 billion left from loan authority awarded under the 2009 stimulus. It’s likely to play a key role in helping reduce emissions from the transportation sector. Some experts suggest that Biden could repurpose the loan, transforming it into a government-wide lending bank that facilitates rapid deployment of innovations like energy storage technology to support renewable power growth.
The department’s new energy secretary, former Michigan governor Jennifer Graham, plans to partner the DOE with states and cities, providing incentives to encourage government at all levels to combat climate change. The DOE is well-positioned to use its research capacity, appliance standards setting, modeling capabilities, and grants to shape the new administration’s climate plan.
Challenges ahead
The Biden administration faces a range of challenges. President Biden’s teams will need to identify how best to scale renewables while simultaneously limiting their environmental footprint. The country must maintain enough fossil fuels as backup to address needs when renewable energy isn’t available.
- Airport, rail, highways, oil & gas pipelines, renewable energy facilities, power and water grids, and other infrastructure need modernization and updates, too.
- Clean energy lobbyists have already begun strategizing on how to influence the administration’s agenda for tackling climate change.
- Renewable energy sources should deliver 70% of new generation capacity built this year, according to the U.S. Energy Information Administration.
During his summer campaign, President Biden pledge to invest $2 trillion in clean energy and infrastructure spending over 10 years and set a new goal of 2035 as the year the U.S. will achieve 100% clean electricity nationwide. Experts predict that with a supportive climate, the new administration’s goals will not only help to reverse the negative effects of climate change, but generate over 700,000 new jobs during this decade and 4.9 million new jobs by 2050.
The Biden administration has signaled its plans to adopt a strong clean energy and climate agenda. The Consolidated Appropriations Act, 2021, has extended a 26% tax credit through 2022; it drops to 22% and expires at the end of 2023. If you’re exploring the possibility of adding solar to your buildings, talk to the members at CREA United: Robert Leech, Managing Member of Circuit Energy Group and Michael Sean McGeary, President of Office Management Services. Both members are committed to helping clients develop energy strategies to manage their energy needs.
