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Energy policy outlook in a Biden presidency

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Oil pumps at sunset, industrial oil pumps equipment With president-elect Joe Biden due to take office Jan. 20 as the United States’ 46th president, U.S.-based energy companies likely can expect a change in energy policy priorities from the federal government.

While Biden was never a wholehearted supporter of the Green New Deal, a major policy proposal of the Democratic Party, Biden certainly agrees with many of its foundational assumptions. Core to this perspective is that climate change must be a top priority for government action. One of the consequences of this view will likely be increased focus on fossil fuels regulations.

Bryan Benoit, National Managing Partner, Energy, for Grant Thornton, sees that emphasis as a challenge for U.S. coal and oil companies. This sector has tended not to focus on diversifying into green energy fields like solar and wind power as much as their European counterparts. But there is little indication that new regulations for the industry is a concern next year.

Tax incentives likely There should be no surprise that Biden, a Democrat, has embraced long-standing party policies that favor tax incentives for renewable energy sources. Renewable energy tax incentives specifically mentioned in Biden’s campaign platform include:

  • Incentives for carbon capture
  • Credits aimed at new manufacturing investments and low-carbon technologies
  • Restoring the electric vehicle credit
  • Tax credits to combat climate change in housing
  • Incentives for manufacturing facilities that make energy-efficient upgrades

Biden’s position papers also promised to end “fossil fuel breaks” though none were specifically listed. Grant Thornton U.S. Partner-in-Charge, Energy -- Tax Michael Osina said it was his experience that reports of Biden (or Democrats) ending fossil fuel breaks often came more from Republicans than Biden himself. With the need to pass a stimulus, Osina does not think there would be significant action specifically on fossil fuel legislation.

Biden’s position on oil fracking was the subject of much debate during the campaign. This focus notwithstanding, there seems little chance of an expansion of this extraction technique on U.S. lands, Osina added. Moreover, the future of other major fossil fuel work, such as the Keystone XL pipeline now halted over legal issues, is difficult to ascertain.

Significantly, the Biden energy campaign positions do not mention the Green New Deal (GND) by name. The Democratic Party’s economic stimulus program is currently represented by two House bills that stalled in the Senate. With the Senate majority still in limbo (Democrats would need to carry both Georgia Senate runoff elections to force a 50-50 tie), Biden should anticipate having a difficult time passing any GND-inspired energy legislation without bipartisan support.

Most importantly, any change in emphasis in energy production would need to be a gradual transition. Companies cannot simply “flip a switch,” Benoit said, given how much infrastructure around fossil fuels is currently in place. At the moment, further incentivizing green energy seems likely to achieve action in a Biden Administration.

Changing international position Trump announced in 2017 the United States would withdraw from the Paris Climate Agreement, a process that, given the timing restrictions, did not formally happen until Nov. 4 this year. Biden has vowed to return to the agreement immediately when taking office. The Paris Agreement requires signatories to reduce global greenhouse measures to 2° C. above pre-industrial global temperature levels, a move that would almost certainly require more restrictions on fossil fuel emissions. Expect Biden to rejoin the agreement on Day One.

Benoit said many U.S. fossil fuel companies are investing in research to find ways to burn coal and oil in a way that reduces emissions. There are solutions to improve emissions, Benoit said, but the deterrent was often cost. That might have been a lost opportunity, as Benoit said some oil and gas executives have shared.

“They’re wondering what might have been” Benoit added, “because they may have done some things that would have been less profitable but, nevertheless, placed them in no worse standing than they are now in terms of market cap or outlook.”

An emphasis on solar and wind energy, Benoit said, may still have geopolitical consequences, even if the energy sources themselves are domestic by nature. The use of renewable energy relies on large-scale use of efficient batteries and that involves the mineral lithium. With so much of our society powered by lithium ion batteries, it’s a concern that more than 80% of the world’s lithium supply may be found in China. That may be just one of the reasons President-elect Biden refers to China as his “special challenge.”

Biden’s pledge to rejoin the Iran Nuclear Deal could have multiple repercussions. While other nations did not leave the deal, the U.S.’s absence led to cuts in Iranian oil production, which bolstered the market share of other OPEC nations. The U.S. rejoining the deal would almost certainly mean a ramp-up of Iranian oil production. This move could lead others to do the same in order not to be cut out of market share. If this happened, oil prices could drop even further, which would add burden to U.S. shale and other producers.

As observers will likely see a marked shift in the public policy priorities from the White House, major changes will require a political consensus that just does not exist in Washington. With the prospect of divided government, major divestment in natural resources and mining will be delayed. The broader trend towards energy innovation and renewables, however, will clearly benefit from additional momentum and focus.

Contacts:

Bryan BenoitBryan Benoit
National Managing Partner
Energy
Houston office
T +1 832 476 3620

Phillip KangasPhil Kangas
U.S. Partner-in-Charge
Energy – Advisory, Natural Resources and Mining
Arlington, Va. Office
T +1 703 637 2788

Michael OsinaMichael Osina
U.S. Partner-in-Charge
Energy - Tax
Houston office
T +1 832 476 3694