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New Energy Infrastructure Projects: Challenges and Opportunities in 2021 under a Biden Administration and Other Recent Developments

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Following the election, new energy infrastructure projects in the United States will face challenges and opportunities in 2021.  Here is a run-down of some of the key issues to watch for in the year ahead:

  • Climate Change and Environmental Justice – U.S. president-elect Biden has announced plans of an “all-of-government approach” to address climate and environmental justice.The Biden Administration is expected to instruct every agency throughout the federal government to incorporate analyses of the benefits and burdens of climate change and its impacts on disadvantaged communities in all decision-making processes. It is also likely that the Biden Administration will, via executive action early in the new year, reinstall and expand the social cost of carbon that is used by the federal government.The effects of these actions will be felt in many sectors of the economy, particularly in the permitting and licensing processes related to new energy infrastructure.
  • “Climate Tests” for New Projects – The Biden-Sanders Unity Task Force Recommendations, released in July, sought to “[e]nsure that all major domestic and international infrastructure projects that require federal approval or receive significant federal funds or financing consider climate change (i.e. apply a climate test) and cumulative impacts, including a full life cycle assessment, and identify and invest in all opportunities to avoid, minimize and mitigate climate impacts, including impacts from fossil fuel infrastructure projects and export terminals.”This “climate test,” which might be implemented through executive orders or regulations, could create additional scrutiny for fossil-fuel energy infrastructure projects but new opportunities for renewable energy and other energy transition projects.Control of the U.S. Senate, which is up for grabs in the Georgia runoffs, will likely determine whether there are any viable prospects for the Biden Administration to shepherd climate legislation through Congress.
  • DOE – The new Administration may move to rescind the U.S. Department of Energy’s 2018 Small-Scale Natural Gas Exports rule (83 Fed. Reg. 35106) that provides for streamlined approval of small-scale natural gas export applications for up to 51.75 billion cubic feet per year (Bcf/yr) to countries with which the U.S. does not have a free trade agreement.
  • NEPA – The Council on Environmental Quality (CEQ) recently amended the National Environmental Policy Act (NEPA) implementing regulations to streamline environmental reviews throughout the federal government. A central purpose of these reforms was to promote expansion of U.S. energy infrastructure of all kinds. Environmental groups objected to these changes and filed suit in several courts around the United States to block those regulations from going into effect.The new Administration likely will move to rescind many (but perhaps not all) of these recent NEPA reforms. The new Administration also is likely to reverse CEQ’s 2019 guidelines on consideration of greenhouse gas emissions and climate change in NEPA reviews.
  • Interior – The new Administration has signaled its intention to restrict oil and gas drilling on federal lands and waters. If legislation is not feasible, it likely will seek to accomplish much of this goal through a combination of executive orders, formal rulemaking, and informal agency actions by the Department of the Interior. Moreover, the new Administration may move to replace the recently amended Endangered Species Act implementing regulations that supported expanded development of infrastructure projects, along with recent Migratory Bird Treaty Act reforms.
  • FERC – The Federal Energy Regulatory Commission (FERC) now comprises a full panel of five members and is at a significant crossroad, especially on climate-related policies and actions. Two new members – Democrat Allison Clements and Republican Mark Christie – were confirmed on November 30, 2020. With Commissioner Chatterjee stating an intent to remain until the end of his term in mid-2021, Republicans may continue to hold a slim majority on the commission through mid- or late-2021, although President Biden is expected to name a new chairman (possibly Commissioner Glick) in early 2021.Looking ahead to 2021 and beyond, observers are watching to see: whether FERC approves new rules to incorporate carbon pricing into wholesale markets; whether FERC more rigorously scrutinizes greenhouse gas impacts associated with new pipelines; how FERC approaches capacity market rules concerning state-subsidies for renewables; and whether there is an uptick in FERC enforcement especially in the area of tariff compliance and market behavior.
  • EPA – At the Environmental Protection Agency (EPA), it will be important how the new Administration handles key climate regulatory issues early in 2021 including, among other things, the ongoing litigation in the D.C. Circuit regarding (1) the repeal of the Obama Administration’s Clean Power Plan (CPP) and adoption of the Trump Administration’s Affordable Clean Energy (ACE) Rule, and (2) the new rules revising New Source Performance Standards (NSPS) under Subparts OOOO and OOOOa affecting methane emissions in the oil and gas sector.

 

  1. In the first case, the D.C. Circuit has already heard oral arguments addressing EPA’s authority under Section 111(d) of the Clean Air Act to impose greenhouse gas emission standards on existing fossil fuel fired power plants, and whether those standards can impose limits based on measures applied beyond the fenceline of the facility.As readers may recall, in the Clean Power Plan, the Obama Administration adopted an expansive interpretation of its powers under Section 111(d), and that rule was quickly stayed by the U.S. Supreme Court.However, the D.C. Circuit panel that heard oral arguments on CPP repeal and the ACE rule seems skeptical of the Trump Administration’s approach as well.Observers are watching to see whether the D.C. Circuit panel, which many observers expect to rule against the Trump EPA, proceeds with issuing a decision before the Biden Administration comes into office, or whether the Biden Administration would have the opportunity to review and reconsider the CPP/ACE rules before a ruling by the D.C. Circuit. It is worth noting that, in terms of a remedy, the environmental petitioners in the D.C. Circuit litigation are not asking the court to reinstate the CPP as the dates and standards in the CPP are now seen by most as obsolete.This case has significant implications for the future of EPA regulations of existing and new sources of greenhouse gas emissions throughout the energy sector.
  2.  With regard to the EPA methane NSPS rules found at Subpart OOOO/OOOOa (commonly referred to as the “Quad-O and Quad-Oa” standards), EPA recently issued final rules providing that these standards are inapplicable to the transmission and storage segment of the oil and natural gas source category while also rescinding the methane-specific requirements of these standards for the remaining segments of oil and natural gas production and processing.As importantly, the rules adopted an interpretation of Section 111 of the Clean Air Act under which EPA must, as a predicate to promulgating new standards for certain air pollutants, determine that the pollutant at issue from the source category causes or contributes significantly to dangerous air pollution which may reasonably be anticipated to endanger public health or welfare. EPA found that such determination by EPA for methane in the 2016 NSPS OOOOa rule was invalid and did not meet the statutory standard.As a result, EPA’s current position – one that is likely to be reconsidered by the Biden Administration – is that EPA is not under an obligation to develop emission guidelines to address methane emissions from existing sources under Section 111(d) of the Clean Air Act.Initially, the D.C. Circuit stayed the OOOO/OOOOa rules, but just a week before the election, the court dissolved the administrative stay, finding that the environmental petitioners did not satisfy the “stringent requirements for a stay pending court review.”Interestingly, the D.C. Circuit also set an expedited briefing schedule in the OOOO/OOOOa litigation, with the environmental petitioners’ brief recently due on December 7, 2020.DOJ must file its response by early February, but the Trump Administration could elect to file a brief early before leaving office. Regardless, observers expect the Biden Administration to jump quickly into the courtroom and seek to hold the case in abeyance while the new Administration reconsiders and ultimately revises the OOOO/OOOOa rules.
  • DOJ – The Biden campaign promised significant changes in direction at the U.S. Department of Justice, with a renewed focus on environmental enforcement.Though the number of civil and criminal cases have shown a steady decline over the last decade, many expect to see an uptick in new cases in 2021 and beyond as budgets and staffing resources are redirected from other areas to focus on environmental violations.Particular areas of focus are likely to include actions implicating climate change and environmental justice concerns, especially those in the energy sector. The Biden Administration is also expected to rollback various Trump-era enforcement reforms. For example, supplemental environmental projects and third-party payments in environmental cases are likely to return. Combined with more expensive mitigation requirements, the costs associated with settling federal environmental enforcement cases are likely to increase substantially. The Biden Administration is also likely to resurrect various national enforcement initiatives, including those targeting modifications to energy facilities under the New Source Review program.
  • Wind, Solar, CCUS, Hydrogen and Other “Green” Energy – President-elect Biden has also announced plans to spur development of “green” energy like wind, solar, carbon capture use and sequestration (CCUS), hydrogen and electric vehicles. Whether he can achieve these goals via new legislation will depend on which political party controls the U.S. Senate.The most likely developments on this front will be increased tax credits for these projects and technologies.In the development of hydrogen, the higher costs of “green” hydrogen (produced from electrolysis powered by wind and solar energy) are likely to result in more development in 2021 of “blue” hydrogen (produced from natural gas through steam methane reformation, and combined with a CCUS project to capture and store the resulting carbon dioxide), unless the use of natural gas is rejected as too closely tied to the oil and gas industry.
  • Public Company Disclosures – Under the Biden Administration, the U.S. Securities and Exchange Commission (SEC) may seek to implement new disclosure requirements with respect to climate-related and other environmental, social and governance (ESG) matters, including by energy companies developing new infrastructure projects.Recently, on November 19, 2020, the SEC declined to include amendments seeking to standardize and require these disclosures.Two Democrat members, Commissioner Allison Herren Lee and Commissioner Caroline Crenshaw, dissented and would have included the amendments.With Chairman Jay Clayton’s announcement that he will step down at the end of 2020 and the uncertainty about the identity and agenda of his successor, there may be a shift in the Commission’s focus on climate-related and other ESG disclosures.
  • Equator Principles – Recent changes to the Equator Principles will impose a heightened climate-related review for energy projects seeking debt financing from complying financial institutions.The most recent version, EP4, went into effect on October 1, 2020, and adds a “Climate Change Risk Assessment” for all projects with annual Scope 1 and 2 emissions of 100,000 tonnes of carbon dioxide equivalent or more.The climate assessment requires a review of climate risks of the proposed project and of the developer’s proposed mitigation efforts.EP4 also continues to require an alternatives analysis for such projects.EP4 does not, on its face, prevent loans to projects that develop or utilize fossil fuels, but it does create greater hurdles for fossil fuel projects in the lender review process, and also suggests potentially less favorable treatment of fossil fuel projects.Developers will need to be prepared to work through a climate assessment with their lenders.In particular, developers will need to be ready to show measurement, reporting and verification policies upstream and downstream of the project, in order to answer the questions raised by the climate assessment.

Baker Botts is a full-service law firm with a diverse team of lawyers ready to help today’s energy companies navigate the risks and opportunities arising from the likely change in approach to energy and environmental matters.  To discuss these developments further, please contact the lawyers listed below or your Baker Botts relationship lawyer.

 

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