ENERGY POLICY IMPLICATIONS OF THE 2016 ELECTIONS
SCOTT SEGAL AND JOSHUA ZIVE, BRACEWELL LLP, WASHINGTON, DC
IT IS THAT TIME AGAIN IN THE US-children have returned to school, leaves are beginning to turn, football is being played, and like we see every four years, the frayed nerves of a country prepare for the impending presidential election. While coverage of this election has been marked by a focus on the large personalities at the top of the ticket, insufficient attention has been given to the coming election of a new Congress and what the combination of a new Congress and new President could mean for US energy policy.
While Presidents have a significant amount of regulatory power and can sometimes set the policy agenda, most of the nuts and bolts of energy policy are controlled by Congress. It is important for participants in, and observers of, the energy sector to understand what energy issues will be strongly influenced by the elections.
WHAT'S AT STAKE IN THE COMING CONGRESSIONAL ELECTIONS?
In presidential election years, it is easy to become overly focused on the race for the presidency. While there is no question that the next President will make regulatory and enforcement decisions that impact the energy sector, most of the energy policy questions that drive the sector, from taxes to production, will be controlled by the Congress. Congress controls the purse-strings, can limit or expand the power of regulatory agencies, and can either advance or thwart a presidential agenda. Accordingly, it is important to understand the scope of what is at stake in this year's congressional elections.
The current Congress, with Republicans holding a 247-187 margin in the House and a 54-44 margin in the Senate (with the two independent senators causing with Democrats, the real margin is 54-46 for the Republicans), was most notable for its struggle to pass major legislation. These problems extended to energy policy initiatives, and the only significant bipartisan energy legislation to be passed by both the House and the Senate, authored by Sen. Lisa Murkowski (R-AK), is struggling to make its way out of a conference committee. It still faces the threat of a veto by President Obama.
So, what changes for Congress are in store as a result of the coming elections? In the House of Representatives, major changes in partisan control are unlikely. In fact, most analysts see as few as 36 truly contested races in the House, and as a result the chances of control switching to the Democrats appear to be very slim.
The Senate, however, is a different story. The Democrats only need to net five Senate seats to win control of the Senate (four if Democrats win the White House as well), and this year presents at least five Senate seats currently held by Republicans that Democrats have a credible chance of taking, with only one Democratic seat at risk (the seat held, ironically, by current Minority Leader Harry Reid (D-NV)). The states that everybody will be watching, ranked from most likely to least likely of being won by Democrats based on current polling, are:
- Illinois - Sen. Mark Kirk [R]
- Wisconsin - Sen. Ron Johnson [R]
- Indiana - Sen. Dan Coats [R] is retiring
- New Hampshire - Sen. Kelly Ayotte [R]
- Pennsylvania - Sen. Pat Toomey [R]
- Ohio - Sen. Rob Portman [R]
These states, plus Nevada, will likely determine whether the Senate stays under Republican control or shifts to the Democrats. This outcome will be important for the overall legislative agenda, and certainly for energy policy.
Converting the existing power of the filibuster (which means that most legislation requires support from 60 Senators to be considered on the floor of the Senate) into Democratic control of the Senate has a range of important policy consequences. First, if Democrats take control of the Senate, they will also assume control of the various Senate committees. For example, Sen. Maria Cantwell (D-WA) could become chair of the Senate Energy and Natural Resources Committee, and she has evidenced a mistrust of energy markets. This means that senators, even if they cannot pass legislation, will have the power convene oversight and policy hearings that can be used to highlight policy issues, advance legislation, and embarrass private sector actors into changing their business practices.
A change in control of the Senate would also effectively blunt the ability for the Republican-controlled House to get most of their major policy initiatives enacted into law, would make it much easier for a President Clinton to get her judicial and regulatory appointees confirmed (and much harder for a President Trump), and will mean that the Senate either becomes a strong partner for the next President or a familiar opponent.
ENERGY ISSUES TO WATCH
With a new Congress and President coming soon, persons interested in the energy sector should focus on the major issues that will be the subject of debate in 2017. In our opinion, there are two major issues that will shape the energy policy agenda. How these broader issues are resolved will largely determine how more granular policy disputes are settled.
KEEP IT IN THE GROUND
In recent years, energy debates have focused on which fuels should serve as the foundation for the electricity and transportation sectors, with a general acceptance of the notion that the US needs to produce and import fossil fuels in order to satisfy baseload electricity generation and transportation needs. But the common acceptance of fossil fuels as a backbone for vehicles and affordable power is under assault.
In March of 2015, the "Keep it in the Ground" movement (KIITG) was launched by environmental groups in opposition to the Keystone XL Pipeline and continues in the opposition to the Dakota Access Pipeline (DAPL). Unlike past campaigns, which tended to focus on specific fuels, this campaign is designed to apply public pressure on politicians and investors in order to force a complete transition to renewable energy.
KIITG is utilizing a broad and diverse public campaign. Their strategy is built on political advocacy, activist shareholders, consistent media outreach, and organized protests connected to energy projects such as pipelines. We also expect that litigation will be a tool used by the activists when it is available.
These efforts are designed to make it politically and economically untenable to produce or transport traditional fuels. The campaign is no longer focused primarily on users of fuels, and efforts have been made to prevent export terminals from receiving necessary permits, to obstruct lease sales involving land that has energy production value, and to force consumers of fuels to abandon the use of traditional fuels.
We expect that the KIITG efforts will continue to grow as a result of significant support from wealthy benefactors, and the outcome of the 2016 elections will help determine whether "Keep it in the Ground" is able to become a more significant driver of federal policy. If Democrats take control of the Senate and/or the Presidency, we can expect significantly more scrutiny of virtually all projects involving fossil fuels, and activists will likely attempt to pressure Congress and/or the President to utilize every available regulatory and legislative tool in the effort to make the use of fossil fuels prohibitively burdensome.
The seeds of KIITG may find the most purchase in a Clinton Administration that is saddled with both a base of supporters expecting action and a hostile party platform. However, even a Trump Administration would not be immune from some aspects of KIITG, as is evidenced by the candidate's initial (since clarified) support for local ordinances that could limit oil and gas production.
The energy sector will need to be prepared to engage KIITG directly. This will require resources, strategy, and cooperation. More specifically, it will require that producers of fuels work together in ways that were not necessary when the energy debate was focused on which fossil fuels will be used, rather than whether they will be used at all. In order to be effective, industries that have grown accustomed to treating other fuels as rivals will need to find ways to make sure that their messages are consistent, their resources are sufficient, and that the public is educated about the need for a reliable supply of traditional fuels.
CLIMATE CHANGE POLICY
Although the issue has struggled to capture public attention during this election, the next Congress and President will be forced to grapple with the complex policy choices surrounding climate change policy. President Obama's Clean Power Plan (CPP), the sweeping regulatory initiative designed to force utilities to reduce consumption of fossil fuels, will be challenged in the DC Circuit Court of Appeals this fall, and regardless of the outcome we expect significant climate change policy battles in 2017.
So far, climate change has rarely been discussed during this election, and what discussion has occurred has portrayed a deceptively simple set of choices. Donald Trump and most Republicans are calling for the repeal of President Obama's Clean Power Plan, and Secretary Clinton and most Democrats are calling for even more aggressive action on climate change. For example, Secretary Clinton has recently outlined a broad climate change program that is focused on generated half of domestic electricity needs from renewable sources, cutting "energy waste" for homes and businesses, and reducing domestic oil consumption by a third. Donald Trump, on the other hand, has recently stated that "there is still much that needs to be investigated in the field of 'climate change'" and that our resources may be better spent on other problems.
Despite the general nature of most climate debates during this election, the truth is that the policy choices are not as simple as they are often portrayed. For example, even if the CPP survives its day in court, it will not be as easy to repeal as some think. Although a new President can revoke many aspects of the regulatory regime, some of the regulations surrounding the CPP and climate change have been premised on legal and scientific rationales that make it difficult to simply repeal the regulations. Similarly, the energy industry will make it difficult to sufficiently unwind aspects of the CPP that have already been incorporated into planning and investment decisions.
One topic that will surely be the focus of discussion is the possibility of enacting a carbon tax. Donald Trump and Republican leadership have been strongly opposed to a carbon tax. Secretary Clinton has been quiet on the issue. However, a growing chorus of voices have argued that a carbon tax may be a practical alternative to command-and-control regulations and some prominent voices in the energy industry have been calling for consideration of a carbon tax as a possible option in a "grand bargain."
CONCLUSION
Irrespective of election outcomes, energy will be a central part of the policy agenda with the next Congress and President. Participants in the energy sector would be well-advised to begin planning for these debates now. Every policy will carry a range of potential risks and rewards for players in the energy sector, and companies that choose to sit on the sidelines of these debates will do so at their own peril.
ABOUT THE AUTHORS
Scott Segal ([email protected]) is a partner in Bracewell's Washington, DC office. He has more than two decades of experience across a broad range of policy and communications issues, with particular experience dealing with energy, the environment, and natural resources. A practicing lawyer, Segal assists clients with effective participation in the legislative and regulatory processes.
Josh Zive ([email protected]) is a senior counsel in the firm's Washington, DC office. He has an eclectic background in legislative and regulatory advocacy, campaign finance and ethics laws, strategic communications, and issues related to international trade and economic sanctions. He works closely with associations and companies involved in legal and political controversies to craft and deliver arguments that can be successful with legal, political, and public audiences.
