U.S. President-elect Joe Biden has developed aggressive climate and clean energy plans that could result in sweeping changes to the energy sector. But the potential for Republicans to keep control of the U.S. Senate could upset those ambitions, all but ensuring a partisan battle that will delay, if not block, major climate legislation.
Democrat Joe Biden was declared the winner of the U.S. presidential election.
"At this moment of profound crisis, we have the opportunity to build a more resilient, sustainable economy — one that will put the United States on an irreversible path to achieve net-zero emissions, economy-wide, by no later than 2050," the transition website said.
Media organizations The Associated Press, CNN and Fox, among others, declared Biden the winner of the election on Nov. 7 after he gained more than the 270 electoral college votes needed to clinch the presidential race, although President Donald Trump's reelection campaign is challenging that result on a number of fronts.
Several energy industry groups quickly congratulated Biden on his victory, including the American Petroleum Institute, the Interstate Natural Gas Association of America, the American Wind Energy Association and the Solar Energy Industries Association.
Despite Biden's victory, Republicans could still hold onto their U.S. Senate majority, pending the outcome of two runoff races for Georgia's Senate seats that will not take place until January. Without Congressional support, a Biden administration would likely seek to implement many of his climate proposals using executive authorities, such as through executive orders and federal agency rulemakings.Biden has developed a $2 trillion climate plan that aims to decarbonize the U.S. power sector by 2035, in part through a "technology-neutral energy efficiency and clean electricity standard" for utilities and grid operators.
The plan, which seeks to rebuild the economy while focusing on reducing emissions, includes calls to reform and extend tax incentives for clean energy. Biden wants to reinstate environmental regulations rolled back under the Trump administration as well.
While Biden can accomplish some parts of his climate agenda through agency action, including tougher U.S. Environmental Protection Agency emissions standards for power plants and vehicles, a sustained GOP Senate majority could doom legislation to enact a carbon tax or form an ambitious national clean energy standard. A Republican majority in the Senate could also limit overall spending on clean energy innovation and green infrastructure and be less receptive to extending or expanding tax credits for clean energy.
Even if Biden relies on government agencies to carry out his climate plan, Senate Republicans could put up a fight against the president-elect's nominees if they stay in power, slowing regulatory efforts.
But on a Nov. 5 media call, several environmental leaders said Biden could still make significant headway in addressing climate change even with a Republican-controlled Senate.
"There is ample opportunity for significant benefits moving forward, and you can do that without a consenting authority of the legislature," said Gina McCarthy, president and CEO of the Natural Resources Defense Council. "You can do it under the authorities that are given to the executive branch, and I expect he'll use and consider all of those."
A Biden administration could "put a lot of pressure on EPA" to form new regulations, said Eric Washburn, a former Democratic staff director for the Senate Environment and Public Works Committee, during a Nov. 4 webinar hosted by Bracewell LLP. Those rules could include a new version of the Obama administration's defunct Clean Power Plan, potential methane limits for oil and gas producers, and wetlands protections, Washburn said.
Biden's victory is expected to accelerate the U.S. power sector's transition toward lower-carbon generation, which has already been set in motion by utilities, states and cities that have adopted aggressive clean energy targets.
Moreover, given the nation's significant role in global energy markets, any change to U.S. demand could have long-term international implications, according to Kevin Book, managing director of the independent research firm ClearView Energy Partners LLC. Prior to the election, he noted that if Biden won, "then in 2030 the world is going to look different from an energy perspective."
"It's a big deal. It's a huge deal. It's a binary set of implications," Book said. "The duration of the change is essentially permanent."
Impact on power sector
Along with agency regulations, Biden's net-zero-by-2035 power sector goal could hinge on strong federal investment in clean energy procurement and research.
He has called for a $400 billion increase in federal purchases of electric vehicles and clean energy inputs, such as batteries, and to create a new Advanced Research Projects Agency-Climate. The agency would focus on promoting the development of grid-scale battery storage, advanced nuclear reactors, carbon capture at existing industrial and power plants, and direct air capture, among other technologies.
In addition, Biden has called to deploy 500,000 new public EV charging outlets and to fully restore a federal tax credit for EV purchases.
"Fundamentally, U.S. utilities seem uniquely positioned to benefit from Biden's green infrastructure plan, which would support higher infrastructure spending, renewables in particular," said Andrew Weisel, equity research director for U.S. utilities and power at Scotia Capital.
Another pillar of Biden's climate plan is having the U.S. rejoin the Paris Agreement on climate change, reversing Trump's June 2017 decision to exit the pact, which sought steep cuts to economywide greenhouse gas emissions. The U.S. formally withdrew from the Paris agreement on Nov. 4, capping a multiyear withdrawal process.
While Biden could reenter the Paris agreement on his own, much of the spending and tax measures in his energy and climate plan would rely on support from Congress. When it comes to energy legislation, "we will see more modest attempts, in my judgment, at negotiated compromises because that's ... all [Biden] can get" with a divided Congress, said Scott Segal, a partner at Bracewell, during a Nov. 4 post-election webinar.
Fewer immediate implications for U.S. fuels
Biden's emphasis on renewable energy and electric vehicle development could affect fossil fuel demand in the coming years as well, though some market observers counter that his policies would have less of an impact on the oil and gas industry compared with the power sector. Biden's policies would "work through the system over a longer period of time and won't immediately affect oil and gas companies," according to John Thieroff, senior analyst with Moody's Investors Service.
However, both candidates discussed fracking throughout the election cycle, with Trump claiming Biden would ban the practice if he won. Though Biden has repeatedly said he would not ban fracking if elected despite progressives' calls for an end to the practice, he said during the final presidential debate that he does support transitioning the nation away from the oil industry. Moody's also expects a Biden administration to hasten the thermal coal sector's decline.
Regarding federal lands, Biden's policies could limit production from the extractive industries. The former vice president plans to halt new oil and gas drilling on federal lands, and industry representatives have noted that public lands present opportunities for the executive branch to curb fossil fuel development.
Additionally, Biden's climate plan calls for creating 250,000 jobs plugging abandoned oil and gas wells and reclaiming abandoned mine sites, and he has pledged to "hold companies accountable for the environmental damage of their operations," according to his campaign's website.
Industry groups have downplayed the election's impacts, noting that they have and will continue to work with whoever occupies the White House. But some market observers contended that a dramatic shift from a Trump to a Biden administration could threaten needed certainty for the energy sector.
Valero Energy Corp. executives said on the company's Oct. 22 earnings call that even higher taxes and more regulations under a Democratic administration would not significantly hinder the industry.
"It's never as bad as they say it's going to be, and it's never as good as they say it's going to be," said Richard Walsh, Valero's senior vice president and general counsel. "We think there's going to be demand recovery here as we go through the economy, and we don't think that the administration is going to be doing anything that's going to really materially alter that."