President Biden, First Month in Office
Published 12 February 2021
by David Stent, Content Manager, Energy Council
In his first days in office, President Joe Biden has placed the energy transition as a central pillar of his administration’s policy objectives – utilising executive orders to re-join the Paris Climate Agreement, halt new drilling projects on federal land, providing funding grants for green technologies and withdrawing approval for the controversial Keystone XL pipeline.
The wide ranging review of Trump-era policies has been keenly anticipated since his electoral victory last year, with few areas talked about more than the divergence in approach Biden will take toward energy and climate policy. The President's selection of Jennifer Granholm, the former Michigan governor, as Energy Secretary is particularly promising given her success in transitioning her state from its dependency on the traditional automobile industry. Since her tenure began in 2007, she has secured funding grants for EVs and battery technologies, and welcomed over 40 clean energy companies that established headquarters in the state. Secretary Granholm will be assisted by David Turk, Deputy Executive Director at the International Energy Agency and former Deputy Assistant Secretary for International Climate and Technology at the US Department of Energy.
President Biden has placed a moratorium on new oil and gas permits for the 60-days following his inauguration, as the new administration takes stock of how best to approach the energy dilemma. The Democrat has aligned himself closely with the ideas of a ‘Green New Deal‘ floated by the progressive arm of the party. Although an ambitious renewable-focused energy revolution is increasingly attractive for many, the position is in conflict with the geopolitical and national security concerns relating to the necessity of producing oil and gas on US shores.
While some energy traditionalists may see the revocation of new drilling licenses as a precursor to an economic catastrophe with the US losing its O&G resource superiority, the reality is far more benign. The majority of drilling licenses for the next year had already been granted, and the over-supply of crude that sunk the WTI cannot be replicated until sufficient demand has returned, necessitating a decrease in Covid production levels regardless. The executive order was issued to provide a buffer period as Biden’s energy department reviews Trump-era policies and programs.
The re-entry into the Paris Climate Agreement has been one of the most prominent executive orders issued by the President in his first days in office, signaling the biggest foreign policy shift of the new administration thus far. Former Secretary of State John Kerry has been tasked as the Special Envoy to the UN on the Climate. Placing a renowned bureaucrat in-charge signals an intention that the US will seek to be global leaders in the transition. Re-establishing the US as a transformational global leader is the most pressing concern and change of tack from the inward-looking previous administration. The United States’ failure to challenge the effects of climate change at a federal level has allowed the Europeans and Chinese to make impressive leaps in developing affordable and pervasive renewable technologies and policies.
Internally, an expected order to stop further construction of the controversial Keystone XL pipeline has likely ended the project for good. The delays have become so deeply entrenched in the process that the long-term profits have diminished significantly over the past decade. While the pipeline was presented as transformational for the transmission of hydrocarbons from the Alberta oil sands in Canada to the Permian basin in the United States, the damaging affects outlined by environmental and indigenous cultural groups have now taken precedence.
To accomplish the ‘Green New Deal’, Biden will need to shepherd industry toward the production of new battery technologies, electric or fuel-cell vehicles, CCUS technologies, green hydrogen and generation technologies – and to commercialise them swiftly in order to lower the cost of implementation. There is undoubtedly the expertise, knowledge and financial capacity to achieve superiority but enticing all stakeholders remains a bigger challenge.
With the deployment of the first $2 trillion Covid stimulus package, the green shift has begun with extensions to wind and solar tax credits, grants toward the development of green technologies, tax credits for energy efficient buildings and clean infrastructure developments. A strong start that has placed big bets on early results.
What will be the effects of this shift over the course of Biden’s first term?
The political environment in the USA remains divisive, especially in the context of energy and climate change policy where the ‘green’ revolution is seen as more of a left-wing endeavor while the right seek to entrench US oil and gas resource superiority. Biden has a difficult task in balancing the geopolitical concern of maintaining oil and gas production, against the necessity of positioning the US as a world-beater in renewable technologies and manufacturing.
Like Roosevelt’s famous model for industrial growth, the ‘Green New Deal’ seeks to spurn a wave of new jobs, new ‘clean’ industry and manufacturing – all with the intention of raising the quality of life for the average working American. This is a divisive pursuit that will take far longer than one term in office to succeed and as such, may still be limited given the possibility of Republican mid-term gains in the House and Senate or even a failed run for a second-term.
A route to success is to remove the internal political brinkmanship and focus on the global geopolitical stage. Begin by retraining the technical and skilled oil or gas workers to maintain solar or wind farms in the ‘deep Red’ states, in doing so highlighting the reduced job volatility within the renewable energy sector.
The President will also need to frame the United States as failing in light of China’s and the EU’s broad successes and entice market competition through a national emissions trading scheme. The establishment of a functional market price for carbon has the dual benefit of reducing emissions and developing a market environment for emissions – opening new revenue streams. As ESG commitments become ingrained in the access to capital, it is a matter of ‘when' and not ‘if' a national emissions trading scheme is implemented.
Biden cannot forget the oil industry, and it is unlikely that he will, especially in light of his Democratic predecessor Barack Obama’s affinity for boosting oil production. Rather it will be a responsible approach to shifting dependency away from sources of energy with price volatility, to sources of energy with generation volatility. Developing a balanced energy policy that promotes green ideals while reducing foreign influence on the oil price. Regulatory encouragement of industry to make climate conscious decisions will boost the wider ecosystem, the financial benefits will emerge via carbon trading and a holistic shift will occur.
**Update: Texas Energy Exposed**
Biden's first major challenge came as an extreme cold snap took over much of the United States, and while much of the nation's grid network is protected from extreme weather conditions, aided by a distributed network across many states and many supply points. However, the ‘Lone Star' state insisted on forging their own way, confident the resources of oil and gas at their disposal ensured a near-permanent supply of energy.
However, this belief was shattered as the Electric Reliability Council of Texas (ERCOT) saw fit to by-pass measures that would ‘winterize' a grid, essentially protect vulnerable elements from extreme weather interference. The result was an exponential increase in demand as the Texas temperature reached record lows, in turn causing insufficient supply as power stations were turned off to stop an entire grid collapse.
The politicization of the energy sector in the United States ensured blame was quickly apportioned to both wind developers and the oil and gas producers. The reality is that neither sector is to blame; wind developers have never shied away from the volatility of renewables, while Texas sits on more than sufficient oil and gas supply to power the state. Those at fault are the administrators who failed to plan for the worst-case scenarios nor saw the vulnerability of isolating the state grid from the national supply.
Such an abnormal weather event has exposed the surprising weaknesses of a state renowned for their access to energy, and as the dust settles it will be intriguing to follow how Texans react to a scandalous deprivation of energy at the moment they needed it the most.