On January 20th, immediately following being sworn in, the Biden administration announced a slew of executive actions, several involving energy and environmental policy. Most headlines have focused on the Keystone XL pipeline decision and rejoining the Paris agreement, but other actions will over time have a more widespread impact.
Actions with near-term effect
The action with the most immediate result is the revocation of the Keystone XL permit to cross the US-Canada border. Because the permit is purely presidential, rather than any agency action, it is not required to go through any formal process. The permit revocation does not affect the parts of the pipeline that are already constructed and operating. Despite crowing by various environmental pressure groups, the permit revocation also will not have an effect on oil production from Canada. Rather than traveling through the pipeline, Canadian production will have to travel by rail coming into the US. Perhaps ironically, considering the objections to the pipeline were environmental, rail transportation results in greater greenhouse gas emissions and a higher risk of spills or accidents (from crashes and derailments) compared to pipelines. The decision is thus mostly symbolic, though the 1,000 or more job losses already announced and the greater demand for Venezuelan heavy crude are very real effects.
Another order with near-term effect is the decision to rejoin the Paris Agreement, the non-binding international agreement on reducing greenhouse gas emissions. There is a 30-day waiting period to rejoin, which means the US will rejoin on February 19th. The Biden administration appears ready to continue the Obama administration’s fiction that the Paris Agreement is not a treaty requiring Senate ratification. The immediate practical effect of this action is nil, the treaty is non-binding and in any case the Biden administration has announced no new commitments under the treaty. As a signaling effort, though, it cannot be ignored. The administration clearly intends to use the Paris Agreement as a justification for its harmful climate policies, and there remains the danger that activist judges will use the agreement as a backdoor means to impose climate regulations that cannot pass Congress.
The third set of actions with near-term effects impact oil and gas development in Alaska. The Biden administration has reinstated the Obama administration’s withdrawal of offshore development off the north coast of Alaska. While the Trump administration did rescind that withdrawal, low oil prices and the difficulties of offshore development in the Arctic resulted in no new activity during his term. Thus this decision does not have on-the-ground effects right now.
The Biden administration also announced a moratorium on leasing activity in the coastal plain of Alaska pending a new environmental review. The Trump administration earlier this year completed a first round of leasing in the coastal plain. The order does not revoke these leases, but the Biden administration is signaling a clear intent to hold up any efforts at development. However, moving forward with a leasing program for the coastal plain is congressionally mandated under current law. Without new action from Congress, the Biden administration cannot stonewall development forever, but regulatory tricks and delay tactics can be expected. Limiting the near term effect of this action, though, is that development activity in the coastal plain was already unlikely in the near term due to low oil prices and coronavirus-weakened global demand. Any actual development activity was already not expected during Biden’s term, but regulatory obstruction today can still hamper future development.
Long-term regulatory action
The Biden administration also laid out its plan of action on regulations. These are described as “executive orders” but they are actually instructions to various agencies and departments to begin the process of reviewing and revising regulations and guidance. Other than the revocations of executive orders from the Trump administration and freezing any regulations that have not gone into effect, these executive orders have little-to-no immediate effect. They do act as a guide for what regulatory actions the Biden administration is intending to pursue.
One memorandum with potentially wide-ranging impact is entitled “Modernizing Regulatory Review.” The relatively innocuous title conceals a Trojan horse, particularly for energy and environmental policy. For several decades, radical environmentalists have complained that the review guidelines for regulations set out by the Office of Management and Budget (OMB) are “too friendly to industry.” By this, these activists really mean that more weight is given to economic considerations rather than their pet ideological preferences, which makes it harder for them to get the sort of draconian regulations they support approved. The memo seeks to inject considerations like “social welfare, racial justice, environmental stewardship, human dignity, equity, and the interests of future generations” into the regulatory review process. The problem, of course, is that all these concepts are nebulous, very much dependent on the eye of the beholder. This is a recipe for increased capriciousness in the regulatory process, with all the harm and uncertainty that entails for the livelihoods of the people who are subject to these regulations.
The executive orders also include the roadmap of administration regulatory priorities in energy and environment. The administration wants to impose stricter methane regulations on the oil and gas industry than those approved by the Trump administration. They want to review the Corporate Average Fuel Economy (CAFE) standards for 2021-2026 issued by the EPA and Department of Transportation. The administration also will seek to create a replacement for the Obama administration Clean Power Plan. Additionally, there are instructions to review energy efficiency standards for buildings and appliances.
While generally unsurprising priorities, some of these efforts will be difficult to advance. The scope of federal regulatory authority over methane is very much an open legal question. The Obama administration’s attempts to regulate methane have been struck down in court and the Trump administration’s alternative methane regulations were also stopped from going into effect. Methane regulations are set for a years-long slog with an uncertain outcome at the end.
A Clean Power Plan (CPP) replacement is on similarly uncertain grounds. In a timely gift, the DC Circuit ruled that the Trump administration replacement for the CPP, known as the Affordable Clean Energy (ACE) rule was poorly reasoned and remanded the regulation back to the EPA. However, the courts also questioned the Obama CPP, with the Supreme Court in 2016 preventing it from ever going into effect. The Biden administration is left with the difficult decision of whether to try to replicate the CPP, which will face a Supreme Court that has only grown more skeptical of regulatory overreach since 2016, or chart a more modest approach, which would outrage the environmentalist base of the Democratic party.
The proposed CAFE standards rewrite is uncertain as well, but for a different reason. The standards from the Trump administration are for cars already entering the market. Legally, the federal government must give car manufacturers 18 months notice of a change in CAFE standards, and that does not account for the often years it takes to shepherd a rulemaking through the notice-and-comment process. This timeline means it will be difficult for the Biden administration to issue new CAFE standards before the Trump administration 2021-2026 standards are more than halfway passed.
Long-term executive action
Outside of the formal regulatory intentions, there are also a number of administrative actions that are more within the purview of the executive branch, allowing for more rapid and certain action by the administration.
The administration will review the boundary adjustments made to several national monuments by the Trump administration. It is almost a foregone conclusion that this review will result in a recommendation to re-establish the monument boundaries. While designating and expanding national monuments is at the sole discretion of the president, states such as Utah have moved forward with leasing in some areas within previous monument boundaries. This will complicate efforts to reestablish the boundaries, especially given the numerous court decisions under the Trump administration that limit the ability of a president to undo the actions of his predecessors.
The administration will work to replace the White House Council On Environmental Quality (CEQ) implementation rules on evaluation of greenhouse gasses (GHG) during National Environmental Policy Act (NEPA) reviews. NEPA environmental assessments are required for most federal activities. The Trump administration finalized instructions for government agencies for how to consider GHGs during these assessments. A particularly significant part of those rules was that only the direct emissions of the project or action itself should be considered, which the Biden administration will seek to change. While CEQ is a White House office, the Trump administration did create its implementation regulations through the formal rulemaking process. This means the Biden administration will need to undertake a formal process to withdraw them. While this will slow down the Biden administration’s ambitions, it will not stop them from producing new NEPA rules that can be expected to make NEPA compliance even more expensive and burdensome.
A final action that will have major ramifications is the revival of the executive branch interagency working group on the social cost of carbon (SCC). The SCC purports to measure the cost of various externalities, for example, greenhouse gasses. The problem with a SCC is that it is infinitely malleable; there are large ranges of perfectly defensible assumptions that radically change its value. For example, under some climate models, using a discount rate (used to calculate the present value of future costs) of 7% as recommended by OMB results in a negative SCC, meaning that CO2 emissions today are actually beneficial. Using a very low discount rate, as advocated by radical environmentalists, makes the SCC very high to justify draconian action. And the discount rate is only one of many variables.
The Trump administration has used a SCC that is much lower than what environmentalists would prefer, so the goal of the Biden administration’s interagency working group will be to create a higher value. This way the Biden administration can pretend that even swingingly harmful regulations that impoverish Americans today are in fact a net “benefit.” In addition to greenhouse gasses, the Biden executive order also seeks to inject “environmental justice” and “intergenerational equity” into the SCC calculation process. As elsewhere, these nebulous concepts are a recipe for capricious policymaking. There is no definition of environmental justice or intergenerational equity; a regulator can simply make up whatever they need to make their desired regulation look good.
While some of the impacts on energy and environmental policy of Biden’s executive orders can be guessed at, a great deal is up in the air. Some of the executive orders would appear to conflict with each other. For example, the administration’s desire for extensive climate regulations will drive up the cost of energy, but higher energy costs disproportionately harm poor and minority groups. This conflicts with the repeated references to racial justice and inequality throughout the executive orders. Additionally, the timelines for many of these regulations are exceptionally ambitious, to put it mildly.
To square these circles, the Biden administration will need to drop or limit some of its ambitions. Unfortunately, the regulatory blitz outlined in these executive orders is so potentially far-reaching that it introduces uncertainty throughout the economy. These executive orders do not just impact the producers of energy and their employees, but every company or individual that consumes energy. The framework spelled out in these executive orders seeks an end to affordable energy supplies. It further proposes injecting a whole range of ideological preferences into the regulatory and cost-benefit processes, with no accounting for the economic damage sure to come from arbitrary ideological regulatory standards and resulting uncertainty.
If carried through on, these executive orders are certain to cause massive economic disruption. Guessing to what degree they will be followed-through on creates massive uncertainty. Given the fragile state of the economy, as we move out of the coronavirus period, these executive orders are the last thing anyone hoping for a healthy economic recovery should desire.