EDITORS: Partner - Jonathan Bobinger; Associates - Chandler Block, Robert Cowan, Austin Lee, Michael Mazidi
CONTRIBUTORS: Partners - Emil Barth, Jason Bennett, Preston Bernhisel, Jonathan Bobinger, Michael Bresson, Anne Carpenter, Lily Chinn, Nadira Clarke, Barbara de Marigny, Michael Didriksen, Alexandra Dapolito Dunn, Justin Hoffman, Thomas Holmberg, Debra Jezouit, Scott Looper, Paul Morico, Gerry Morton, Barton Seitz, Timothy Taylor, Mike Torosian, Kimberly Tuthill White, Jeffrey Wood; Senior Counsel - Aileen Hooks; Special Counsel - Kyle Hayes; Senior Associates - Garrett Hughey, Jamie Yarbrough; Associates - Leslie Barrett, Linn Bumpers, Greta Carlson, Ryan Chastain, Robert Cowan, Allie Hemmings, Megan Lawhorne, Michael Mazidi, Evan Neustater, Scott Novak, Samantha Olson, Megan Young; Senior Advisor - Leigh Hancher

EDITOR'S NOTE:

To Our Clients & Friends,

Each year we take the opportunity to review significant developments in the worldwide energy industry for the previous year and offer our views on what these developments may mean for the coming year.

As we reflect on 2021, we look back on a rebound year for traditional energy which provides hope that a return to normalcy from COVID-19 and its effects is on the horizon. While the beginning of the year was marked by business, travel and social distancing restrictions aimed at lowering the transmission of COVID-19, many jurisdictions lifted or lessened these restrictions as vaccine availability became widespread. Consumer confidence and spending rose as restrictions were lifted and spurred economic activity. In particular, the energy industry saw crude oil demand roar back to over $80 per barrel in November after once turning negative in April 2020. Natural gas witnessed a spike in price during February as Winter Storm Uri ravaged the Texas power grid and left many without power for an extended period. Even when prices stabilized, natural gas saw a steady price increase all the way through October, with Henry Hub spot prices rising to over $5 per mmbtu. This economic resurgence for the energy industry is due in no small part to society’s response to COVID-19. The vast availability of vaccines and boosters has stymied investors’ fears that further COVID-19 variants could send society back into lockdowns, giving hope that a path out of the pandemic is soon to come.

A major theme for the energy industry last year was the increasing momentum for the energy transition. Traditional fossil fuel-based companies faced increasing pressure to reduce their carbon emissions and align with carbon neutral goals. At the same time, there was a strong increase in investor focus on environmental, social and governance (“ESG”) practices and disclosures, as well as investor demand for ESG-focused investments. As a result, large amounts of capital were reallocated toward investments seen as aiding the energy transition, with a dramatic example being over $600 billion invested in ESG-focused funds worldwide through November 2021. Adding fuel to this investment fire was the proliferation in investor acceptance of, and demand for, initial public offerings of special purpose acquisition companies (“SPACs”), or blank-check companies, whose stated purpose was to raise capital to search for acquisition targets in the energy transition space. The number of SPAC IPOs announced in 2021 soared, even in the face of increased scrutiny from regulators and lawmakers. In March, the Division of Examinations of the Securities and Exchange Commission (“SEC”) announced its 2021 priorities included an enhanced focus on climate and ESG-related risks, which was followed shortly by an announcement from the Division of Enforcement of the creation of a Climate and ESG Task Force. This task force, comprised of members from SEC headquarters and regional offices as well as enforcement specialized units, is charged with developing initiatives to identify ESG-related misconduct and potential violations, with an initial focus on material climate risk disclosure gaps or misstatements being made under the SEC’s existing disclosure rules.

2021 also saw the new Biden presidential administration take office in January, bringing with it a focus on renewable energy and incentives for clean energy technologies. President Biden set a target of 80% clean power by 2030, along with the goal of a fully carbon-free electricity grid by 2035. In order to achieve these goals, the President has promised to spur investment in, and the deployment of, clean energy technologies. Lawmakers have also proposed legislation been proposed to increase incentives for investment in clean energy technology. In November, the House of Representatives passed The Build Back Better Act (“BBBA”) that would extend and expand clean energy tax credits including a direct pay option for the commercial investment tax credit. The BBBA has faced stiff resistance in the Senate, but if ultimately passed in any form, the BBBA would be a significant win for the Biden Administration’s energy transition goals.

While we expect the demand for ESG-focused investments to continue in 2022 and beyond, whether that will include the continued stream of SPACs seen in 2021 is difficult to predict. Regardless, we expect companies with a compelling energy transition story to see tailwinds in the market while traditional fossil fuel-related energy companies will continue to seek ways to contribute to the energy transition and reduce their emissions, in order to allay concerns of the investment community and attract capital going forward.

Click here to access an abridged PDF version of our publication which includes a brief synopsis of the articles and topics listed below.

To read individual, more detailed articles, please select from the list noted in the table below.

We appreciate the trust that you place in us to handle your legal matters and wish you further success in 2022.

Power & Utilities	North America Power & Utility Sector and Generation Assets Status of Key Environmental Regs Affecting Energy Infrastructure
Upstream	U.S. Upstream Review and Outlook
Midstream & LNG	2021 Master Limited Partnership ("MLP") Update 2021 Trends in the LNG Industry
Midstream Regulatory & Tax	2022 First Look - New FERC Policies on Construction of Natural Gas Projects and GHG Emissions New Safety and Environmental Regulations Impose Burdens on All Midstream Operators (Even if Previously Exempt!) Midstream Use of Waste Heat to Generate Power Gets an Investment Tax Credit New Hydrogen and Carbon Capture, Utilization & Storage Incentives for Midstream Infrastructure
Chemicals & Refining	2021 Trends Among U.S. Pure-Play Refiners Strong 2021 Pushes Chemicals M&A Market to Potentially Reach Pre-Pandemic Levels in 2022 Superfund Excise Taxes on Chemicals Revived
The Renewable Energy Transition	2021: Solar Volatility and Batteries to the Moon The Hydrogen and CCUS Industries: A Year in Review Clean Energy Technology - Increased Incentives in Energy Transition Renewable Energy Development on Contaminated Lands
Renewable Energy Finance	Market Trends in Green and Sustainability-Linked Financings
Renewable Energy Tax	2021 Renewable Energy Tax Developments Carbon Capture Projects Incentivized by Tax Credit Guidance: Section 45Q
Energy Environmental & Regulatory	Status of EPA Efforts to Address Greenhouse Gas Emissions from the Energy Sector 2021 Environmental Enforcement Trends The EU’s New Decarbonization Package
Energy ESG	ESG Focus and Scrutiny Continues Environmental Justice Update

ABOUT BAKER BOTTS L.L.P.
Baker Botts is an international law firm whose lawyers practice throughout a network of offices around the globe. Based on our experience and knowledge of our clients' industries, we are recognized as a leading firm in the energy, technology and life sciences sectors. Since 1840, we have provided creative and effective legal solutions for our clients while demonstrating an unrelenting commitment to excellence. For more information, please visit bakerbotts.com.