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  • 03
  • April
  • 2017

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Is President Trump’s Climate Executive Order Good for Business?

On March 28, 2017, President Trump signed an executive order that seeks to entirely reverse the Obama Administration’s climate policies. Widely anticipated and discussed as a “climate change” order, the Presidential Executive Order on Promoting Energy Independence and Economic Growth, is actually a sweeping statement regarding the President’s desire to comprehensively reduce regulatory burdens across the energy industry. The stated purpose of the Executive Order—to promote the development of American energy resources—raises the question of whether what the order seeks to accomplish is good for the energy industry.

In broad terms, the Executive Order calls upon executive agencies to immediately review existing regulations and move to suspend, revise or rescind any rules, guidance, or policies that burden the development of domestically produced energy. The order broadly defines “burden” to include any rule or policy that may “obstruct, delay, curtail or otherwise imposed significant costs on permitting, production, utilization, transmission or delivery or energy resources.” While the term energy resources is not defined in the Executive Order, it does state that it should be the United States national policy that energy can be produced from “coal, natural gas, nuclear, flowing water, and other domestic sources including renewable sources.”

Notably, the Executive Order neither directs the Environmental Protection Agency (EPA) to revisit its greenhouse gas endangerment finding nor makes any statement about the United States continued participation in the Paris Agreement.

While in the abstract removal of regulatory burdens sounds like a good thing for industry, the actual impact will likely depend upon the segment of the energy industry, how executive agencies go about implementing the order, and the result of the legal battles that will certainly ensue. The one certain impact across the energy space is that all impacted segments of the energy industry will be subject to heightened regulatory uncertainty and the potential business impacts related thereto.

Revocation of the Clean Power Plan

The Executive Order directs EPA to take immediate action to suspend, revise or rescind the Clean Power Plan, the greenhouse gas standards for new power plants (the GHG NSPS), and EPA’s Model Trading Rules. Immediately upon issuance of the Executive Order, the Department of Justice Department asked the D.C. Circuit to suspend the current litigation challenging the CPP and the new source rules because the rules may be significantly modified or rescinded.

While many industry groups challenged the Clean Power Plan (CPP) in court, there are several reasons to question to what extent the Executive Order’s Directive will benefit the electric power generation sector. First, as we have written about previously, modeling evaluations of the CPP suggest that changes in the energy industry driven by market forces and the regulation of conventional air pollutants will achieve the CPP’s 2030 targets, meaning that the CPP itself was unlikely to force any greenhouse gas (GHG) reductions from the generation sector over this time frame. While elimination of the CPP may influence behavior in the post-2030 time frame (where assessments suggested subsequent, yet-to-be-promulgated CPP compliance periods would have forced changes in the generation mix to meet GHG reduction targets), the result over the next few years will be significant regulatory uncertainty as the EPA figures out what a subsequent rule might look like. As many utilities have pointed out, the investments they make have long lifetimes and heightened regulatory uncertainty can be a challenge for their business; it remains to be seen how the energy industry will weigh the rollback implemented by the Trump Administration against the possibility of future policy changes in subsequent administrations.

Second, depending on how far any roll-back may go, it could stimulate renewed efforts by environmental plaintiffs to bring GHG-related tort suits against the utility sector. In American Electric Power v. Connecticut, the Supreme Court held that no federal judge “may set limits on greenhouse gas emissions in the face of a law empowering EPA to set the same limits.” While the Supreme Court suggested that EPA need not choose to exercise this authority for the preemption of common law claims to apply, in finding that common law claims were preempted, the court discussed at length the settlement agreement that committed EPA to the rulemaking which ultimately resulted in the Clean Power Plan. Were the EPA to now conclude that regulation of GHGs from existing power plants is not appropriate under section 111(d) of the Clean Air Act, States and environmental groups who support the CPP may seek to revisit the issue of preemption under American Electric Power v. Connecticut by bringing new federal tort claims. Further, AEP v. Connecticut did not reach the issue of state tort claims at all, so there remains a possibility of increased climate tort litigation in state courts.

Third, a number of states that had intervened in the CPP Litigation to support the Obama Administration have already announced that they will vigorously oppose any efforts by the Trump Administration to roll back the CPP. Unwinding the CPP or replacing it with a different rule will require EPA to follow the same administrative procedures involved in promulgating the initial rule, including public notice and comment. Much as the CPP led to a significant amount of litigation, any future rule is also certain to be challenged, with the resultant proceedings perpetuating uncertainty regarding the status of GHG regulations for power plants.

Rescinding the NEPA Climate Change Guidance

The Executive Order also directs the Council on Environmental Quality (CEQ) to rescind the NEPA Climate Change Guidance. As we have explained before, the Obama Administration’s National Environmental Policy Act (NEPA) Climate Change Guidance directed analysis of upstream impacts and reliance on emissions in a manner that is not consistent with NEPA. As a result, revocation of the Guidance may prove beneficial in the development of energy projects where NEPA analysis is required, particularly projects on federal lands and transmission projects.

However, the practical impact of the recession of the Guidance remains to be seen. In 2014, CEQ denied a petition to amend its regulations to specifically address climate change because it concluded that analysis of climate impacts is already within the scope of what NEPA requires. In addition, numerous courts have concluded that NEPA requires an analysis of climate change impacts. Furthermore, while the Guidance will no longer be on the books as official policy, there is nothing that would prevent a federal court from considering it in evaluation what might be appropriate in a NEPA climate change analysis.

Withdrawal of the Social Cost of Carbon and Social Cost of Methane

In what may ultimately be the most meaningful, but least attention-grabbing, component of the Executive Order, it disbands the Interagency Working Group (IWG) that the Obama Administration had charged with the development of social cost of carbon metrics [or use federal policy making. It also withdraws all of the technical support documents that developed the Social Cost of Carbon.

As we have explained previously, the Social Cost of Carbon is a widely used metric to capture the economic impacts of climate change. Under the Obama Administration, the IWG Social Cost of Carbon and Social Cost of Methane values were widely used in regulatory cost benefit analyses to claim significant benefits from GHG regulatory programs. President Trump has directed agencies to revert to relying on OMB Circular A-4 in preparing the regulatory cost-benefit analyses. This approach, which was employed during the George W. Bush Administration, provides guidance on metrics for regulations with public health impacts, including the use of quality adjusted life years, but does not require the use of any particular metric.

While it remains to be seen how Circular A-4 will be implemented on a prospective basis, eliminating use of the Social Cost of Carbon will make it much more difficult to demonstrate a net benefit in a regulatory cost benefit analysis for GHG regulations. This is because the methods generally suggested under Circular A-4 do not provide a method to account for the long-term economy-wide impacts of climate change. When combined with the Executive Order’s command that executive agencies not finalize any regulation where costs exceed benefits, it is not clear that it would be possible to finalize any new regulations of GHG emissions.

Changes to Policies Regarding Energy Production on Federal Lands

The Executive Order also directs changes in policy regarding energy production on federal lands. Most notably, it withdraws the Obama Administration’s moratorium on additional coal leasing on federallLands. While the withdrawal reopens the possibility of federal coal leasing, new leasing activity is far from certain. Even before the Obama Administration’s moratorium issued, coal leasing on federal lands was the subject of significant legal challenges brought by environmental groups and such challenges will certainly resume if new federal coal leasing is pursued. Furthermore, at this time, it is not clear whether market conditions will support the expansion of coal mining on federal lands.

With respect to oil and gas production, the Executive Order calls upon EPA to review and revise the Quad Oa rules establishing performance standards for new oil and natural gas wells. This means there is some possibility that the rule may be altered before its most onerous requirements—the periodic leak detection and repair (LDAR) requirements—take effect this summer. The rescission of this rule could save the industry the around $250 million in total capital costs in 2020 and $360 million in 2025, based on EPA’s estimates.

The Executive Order also orders the Secretary of the Interior to review the rules for fracking on federal lands. Two of the listed rules have been the source of litigation and criticism from the energy industry: in March 2015 the Bureau of Land Management (BLM) within the Department of the Interior, finalized a rule that impose new or more stringent standards for performing hydraulic fracturing on federal and American Indian lands. In June 2016, a Wyoming federal judge struck down this rule, finding that the BLM lacked authority to promulgate the rule. That decision was being appealed by the federal government. In addition, in November 2016 the BLM finalized another rule which would regulate the venting and flaring of natural gas, and include provisions for leak detection, air emissions from equipment, well maintenance and unloading, drilling and completions and royalties potentially owed for loss of such emissions from oil and natural gas facilities producing on federal and tribal leases. This second rule became effective in January 2017.

Review of Regulations, Guidance and Policies that Burden Energy Production

Finally, the Executive Order requires all agencies to complete a study of their regulations, orders, guidance, and policies that may burden energy production. Under the timeline set forth in the order all Agencies must submit a plan for OMB review within 45 days, a draft final report within 120 days, and a final report within 180 days unless OMB extends the deadline. If an agency’s report identifies burdens, the Executive Order requires the agency to suspend, revise, rescind or publish for comment a proposal to do the same as soon as practicable.

While the ultimate impact of these required reviews on the energy industry remains to be seen, preparation of the required studies on a relatively short time frame is likely to require a significant commitment of agency resources. Given that the Trump Administration has simultaneously proposed significant budget (and thereby staffing) cuts to many of the affected agencies, the diversion of resources to these mandatory reviews could impact other core agency activities, such as permitting, that are essential to the energy industry.

Conclusion

Overall, while the new Executive Order may ultimately benefit the energy industry in certain ways, the reality is likely to be much more complex than it appears at first glance. To some extent, the potential for benefits will be offset—to what extent is unclear—by the near certainty that the Executive Order will create a period of heightened regulatory uncertainty while federal agencies try to rescind or revise many of the Obama-era rules targeting GHG emissions to comply with this directive. Revising rules that have been finalized is no small task, however, and any agency actions to do so are likely to involve lengthy rulemaking proceedings and near-certain litigation. Furthermore, the Executive Order did not direct EPA to act on the Endangerment Finding itself, which is the prerequisite to the regulation of GHGs under the Clean Air Act. As a result, it is not clear that full implementation of the Executive Order would eliminate all GHG regulations for the energy industry.

Finally, it would be an error to view this Executive Order as addressing only GHG regulation. The broad definition of “burden” under Executive Order means that a wide range of regulations impacting the energy industry, including those establishing performance standards and permitting requirements under the Clean Air and Clean Waters Acts could be revisited, so long as doing so is not inconsistent with the Executive Order’s other stated goal of protecting clean air and clean water.

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Author

Margaret E. Peloso

Margaret E. Peloso Counsel