Democrat Joe Biden may have emerged victorious from last week’s tight presidential election but without a decisive win and facing a divided Congress, it’s unlikely he can achieve much of his green agenda – at least quickly.
The dust from the election has yet to settle, and the incumbent –Republican Donald Trump – is challenging results in key states in the courts. But markets have been pricing in a Biden presidency with a Republican-controlled Senate since late last week. The divided government’s scenario points to political gridlock and constraints on Biden’s most aggressive energy sector reform proposals that require legislation.
Efforts to phase out fossil fuels, enact any part of progressive Democrats Green New Deal or get approval for Biden’s plan for $2 trillion of clean-energy spending has little chance of succeeding. Democrats retain a remote chance of winning the Senate majority if they can sweep Georgia’s run-off elections in January. However, even if they do, Democrats from energy-producing states and “Blue Dog” Democrats would likely still stand in the way of expensive anti-oil measures.
The reality of the situation is that Republicans’ unexpectedly strong performance in the November 3 election — up and down the ballot, in federal and state contests — results in a sort of status quo for the U.S. oil and gas industry.
A Biden administration will not follow through on Trump’s “energy dominance” agenda. Still, it will have no choice but to keep a relatively friendly operating environment given the new political realities in Washington and statehouses across the country.
Biden’s climate agenda was shaped by his party’s progressive wing and mounting pressure from young voters. And yet his policy positions face a divided Congress’ political realities and the need to focus on Covid-19 and the economy.
The President-elect may also realize how important the oil and gas industry is to the economy. In January 2009, when Biden took office as vice president for Barack Obama, the administration had lofty climate policy goals. However, the Obama-Biden administration quickly gave way to the economic and political realities of the moment. In that case, the Great Recession made it impossible for President Obama and the Democratic-controlled Congress to drop the hammer on the oil industry despite much anti-oil campaign rhetoric, including vows to ban fracking.
The U.S. oil and gas industry, lifted by the shale boom, was responsible for massive job creation at the time, and the Obama administration knew it could not realistically stand in the way without harming the American economy.
The situation is similar today. The energy industry is reeling from the coronavirus crisis and low oil prices and has endured massive job cuts this year. It cannot afford to absorb more pressure without doing long-term damage to its production capabilities.
Biden caused a stir with recent comments about the need to “transition” away from oil, but as vice president, he oversaw the largest oil and gas production expansion in history. Biden was also the number two man in an administration that lifted the 40-year-old ban on crude oil exports in December 2015 — a move that raised domestic oil prices and kicked the shale boom into a higher gear.
None of this is to say that Biden will be as good for the oil industry as Trump has been.
Biden can use executive orders and regulations to implement his climate agenda. Realistic actions here include reimposing methane emissions controls on oil and gas facilities, requiring more thorough environmental reviews on drilling permits and pipelines, ramping up automobile fuel economy standards, and using the Clean Air Act to regulate emissions from power plants and possibly oil refineries.
The fact remains that oil companies were already facing investor pressure to clean up their act on methane and reduce their carbon footprints before the election.
ConocoPhillips, the largest U.S. independent producer, recently announced plans to reduce its greenhouse gas emissions from operations by as much as 45 percent by 2030 and to reach “net zero” by 2045 to 2055.
But if Biden overreaches with his attempts to enact climate policy, the checks are in place to counter him. The industry is looking at a more conservative court system after four years of Trump.
The president-elect’s first test of bipartisan cooperation will be the next stimulus bill. But you can forget about anything resembling a European-style “green recovery” package. Aggressive decarbonization policies are also off the table, including a clean energy standard, carbon tax or an infrastructure bill with outsized support for clean energy.
Biden plans to rejoin the Paris climate accord, but that may amount to window dressing if he cannot push through meaningful domestic policies to support U.S. targets within the framework. He’s unlikely to go to bat for U.S. oil producers with Saudi-led OPEC like Trump did. Still, as a centrist, he also knows the economic and geopolitical importance of a robust American energy sector.
One immediate oil market fear is that Biden will quickly relax Trump’s sanctions on Iran, which would unleash 2 million barrels a day of Iranian output onto global oil markets, tanking oil prices. But even this isn’t a sure bet after Republicans’ strong performance last week.
Biden has been critical of Trump’s decision to pull America out of the international Iran nuclear deal and has promised a change in approach. But that does not mean he will move quickly to relax the sanctions imposed in 2018.
Negotiations over a possible renewed deal are not likely to begin until June 2021, at the earliest, after Iran’s elections. And there is no guarantee that the two countries will reach an agreement given the shifting political landscapes and continued lack of mutual trust.
It is difficult to see Biden having the capacity to deal with anything more than combatting Covid-19 and resurrecting the economy. The latter being inextricably linked to the health of the American oil industry.