Republican energy agenda in legislation to face budget test in US Senate

After a meeting between senators and President-elect Donald Trump Jan. 8, congressional Republicans will be weighing what energy policy measures, such as mandatory oil and gas leasing and rescinding a methane fee, can be included in budget reconciliation legislation as an early priority in Congress.

Republicans in Congress are generally united in their opposition to the methane fee that was included in the Inflation Reduction Act, and many have advocated for ending tax credits on electric vehicles, among other steps, to be part of any reconciliation bill.

The Biden administration's Jan. 6 order restricting oil and gas drilling in US coastal waters could also add to pressure for Republicans to support more oil and gas leasing in a budget reconciliation bill.

Republicans are eyeing reconciliation legislation as a primary vehicle for laws to back Trump's agenda because it allows Congress to avoid a Democrat filibuster in the Senate, where a 60-vote majority would be needed. Republicans hold 53 seats in the Senate.

Trump has pushed for increased border security, "unleashing American energy," ending the debt ceiling and addressing a host of tax matters.

The president-elect told reporters before the Jan. 8 meeting that he has no preference on whether lawmakers provide one or two reconciliation bills.

House Speaker Mike Johnson, Republican-Louisiana, has indicated a preference for one reconciliation bill, while Senate Majority Leader John Thune, Republican-South Dakota, prefers two reconciliation bills.

Amid that back and forth over strategy, energy lawyers in Washington are busy assessing which portions of the Republican's energy agenda constitutes a budgetary item that can be included in a reconciliation package.

A Senate rule for budget reconciliation bills, named after former Senate Majority Leader Robert Byrd, Democrat-West Virginia, forbids including provisions unrelated to the budget in such legislation, with the Senate parliamentarian making calls on what complies with the rule.

Trump met with Senate Republicans Jan. 8, though an agreement on what should be included in reconciliation measures remains a topic of debate.

Oil and gas leasing

President Joe Biden Jan. 6 issued two presidential memoranda to protect all waters off the east and west coasts of the US, as well as the eastern Gulf of Mexico and portions of the Northern Bering Sea in Alaska, from all future oil and gas leasing.

"While offshore oil and gas leasing has always been a priority to be included in a reconciliation bill, that priority has only intensified with [the Jan. 6] action of President Biden to remove areas from oil and gas leasing just because most observers believe that to reverse that requires an act of Congress," said Jim Noe, a partner at Holland & Knight.

"I think it will encourage Republicans to find a way to ensure that a proactive leasing schedule is included in any [budget] reconciliation bill to undo what President Biden did today and also to mandate a minimum number of offshore oil and gas lease sales." Noe also anticipated action on leasing onshore on public lands.

House Natural Resources Chairman Bruce Westerman, Republican Arkansas, raised the prospect of acting within the budget reconciliation process in a Jan. 6 statement that was critical not only of the new Biden action-- but also of the administration's track record on federal oil and gas leasing.

"While the federal deficit grows, President Biden's decision to lock away 625 million acres of future energy potential undermines one of our nation's greatest revenue streams—energy receipts, second only to income taxes," Westerman said. "In the 119th Congress, we will use every tool, including reconciliation, to restore and unleash these revenues, fueling conservation, coastal resilience, and energy independence, and ensuring America—not OPEC, Russia or China—leads the world."

Rolling back Biden's new restrictions could, however, raise sensitivities among Republicans from Florida and other affected coastal areas.

Westerman, in a statement Jan. 9, emphasized a desire to "ensure everyone has a seat at the table" as the bill is drafted.

Other parts of the Republican energy policy agenda – embodied in a sweeping House bill in the last Congress known as H.R. 1 – may or may not make the cut for reconciliation, depending on whether they are likely to survive the Byrd rule in the Senate.

Republicans are likely to "push the envelope to the fullest extent that they think is permissible under the reconciliation rules to effectuate as early as possible the Trump agenda on energy policy," Noe said.

The American Petroleum Institute listed repeal of the methane fee among its priorities for the reconciliation bill, in an email to S&P Global Energy Jan. 9.

The major oil and gas trade group also mentioned restoring certainty for mandatory oil and gas lease sales -- with at least two sales per year in the Gulf of Mexico, as well as sales in Alaska.

Tax policies and permitting reform were also on the group's agenda for reconciliation, although the group acknowledged that including permitting reform provisions would depend on what the budget process permits.

Westerman has recently indicated that permitting provisions may need to advance outside of the reconciliation process.

While opposing the methane fee, API said it hopes to preserve the tax credits that support carbon capture projects as well as hydrogen and low emissions transportation fuels in the reconciliation process.

As for tax provisions, the group's priorities for reconciliation focused on the corporate tax rates, and extending the 100% bonus depreciation and other policies to encourage infrastructure development.