One of the noteworthy moments of the recent Presidential campaign came in the candidates’ last debate, when Vice President Biden made the following comment on energy: “I would transition away from the oil industry, yes. The oil industry pollutes, significantly. It has to be replaced by renewable energy over time.”
While much was made of that remark, the term “transition” was an unmistakable reference to specific language in his campaign’s July energy plan calling for a net-zero carbon economy by 2050, coupled with an intermediate net-zero commitment for the power sector by 2035. While reasonable minds may differ as to whether those goals are achievable without major technological breakthroughs or robust use of offset mechanisms (or both), the language of a “transition over time” is familiar. Echoes of such a transition can be found in the climate policies of oil & gas and power sector companies and in policy debates happening in the halls of major trade associations.
Exactly how significant change in the energy sector ultimately becomes under a Biden administration lies in large part on the outcome of a number of external factors. What can reasonably be done to affect the national energy mix pursuant to executive authority? How persuasive can former Senator Biden be in convincing one-time colleagues to walk a potentially risky path on energy? Finally, who will a Biden administration rely upon to develop and implement his energy policy, both at the White House and within the Cabinet?
That last point in particular merits attention. We think a Biden administration is more likely to trust its experts to develop the components of a national energy policy than to release top-down dictates that prove less than durable in their impact. As a wise Washingtonian once said, “Personnel is policy.”
We expect a deliberate, but gradual—rather than radical—approach to the energy transition from a Biden administration. Consider the following:
- Biden White House officials and Cabinet appointments are likely to reflect Biden’s own left-of-center, but not revolutionary, views on the role of government as change agent.
- The memory of 2009-2010, when the cap-and-trade bill failed but helped precipitate major mid-term losses, is still fresh in the minds of Biden and Democratic Congressional leadership.
- Regardless of the outcome of the Senate run-off races in Georgia, Senate Democrats will lack a sufficient margin to pass sweeping and dramatic reforms of energy and environmental policy, particularly if the filibuster remains in place. Senator Joe Manchin (D-WV), for example, seems like to oppose major change and is on record in favor of keeping the filibuster in place in any event.
- ESG investors are already pushing corporate leaders to establish “net neutral” climate goals, taking some pressure off Congress.
- Biden is not opposed to continued use of fossil fuels in any form. His position on hydraulic fracturing on federal lands became increasingly clear as the campaign wore on, and his strong belief in the importance of removing energy leverage from Russia while fostering more favorable trade relations with China can create a path forward for export markets for U.S. natural gas. Also, the close relationship between the building-trades unions and the Biden campaign and transition team suggests that policies undermining energy and manufacturing growth will fail to gain traction, at least as long as the U.S. seeks a path of sustainable economic recovery. Even the incoming administration’s support for carbon capture and sequestration, which will likely spur some exciting new projects on the path to net-zero emissions, can be seen as a desire to keep the fossil-fuel sector alive and well.
- Biden the technological optimist. Biden clearly supports the expansion of renewable energy sources, from the more familiar like solar and wind to the cutting-edge like hydrogen applications in manufacturing, power, gas and transportation. Look for that optimism to show up in support for legislative priorities like Clean Energy Standards; energy efficiency expansion; green tax provisions that extend or create new incentives for clean technologies; green infrastructure provisions; and appropriations to support research, development and deployment priorities. While past efforts fostered early-stage innovation, Biden’s ARPA-C approach would center on actual commercialization.
- Biden transportation policy seems broadly positioned. It’s tempting to focus solely on electric vehicle (EV) support thanks to the candidate’s oft-repeated commitment for 500,000 new charging stations. We think an EV infrastructure-based commitment coupled with tax credits fits better within a Biden energy policy rubric than an outright mandate or ban on internal combustion engines, which would be more likely to trigger consumer acceptability issues. Yet Biden has spoken of enhanced energy efficiency for cars and trucks more broadly, and counts the inclusion of CAFÉ standards in the auto bailout as one of his early Obama administration victories. Beyond EVs, look for commitments to advanced liquid motor fuels, increasing octane to support efficiency objectives, and alternative technologies like hydrogen fuel cells.
- A different offshore? While the offshore oil and gas sector will continue to see choppy waters from market conditions and a skeptical administration, other opportunities may emerge. Offshore wind (OSW) developers can look forward to leaving much of today’s disruptive federal permitting uncertainty behind, while doing their part to reduce the intermittency of the renewable resource base. The best-in-class Gulf Coast offshore energy industry may also find new opportunity in OSW, as well as more aggressive schedules for plugging and abandonment activities.
- Going nuclear. Past Democratic administrations have not been particularly kind to the nuclear sector. During the campaign, while noting the need for effective treatment and storage of waste, the Biden team also expressed support for advanced nuclear technology like small modular reactors. While part of the puzzle, we think the new administration will have to grapple with creating a favorable environment for the existing nuclear fleet for that 2035 intermediate power-sector decarbonization goal to stay within reach. Look for Biden to bring leadership into the Department of Energy with particular nuclear expertise.