Biden Drilling Ban Throws Spanner in the Works for Trump
Outgoing president’s “parting shot” offers further uncertainty for investors ahead of expected policy, funding rollbacks.
An executive order introduced by US President Joe Biden is likely to infringe on his successor’s ambitions to cut clean energy production and scale-up domestic oil and gas output, policy experts have argued.
This comes ahead of an expected slew of climate policy and funding rollbacks – as well as increased scrutiny of climate-focused investors and networks – under the incoming Trump administration.
Last week, Biden moved to permanently ban offshore oil and gas development across 625 million acres of the Atlantic and Pacific oceans, invoking a decades-old law. This is equivalent to around 1.5 times the size of Alaska. Biden argued the ban will help protect the US coastline from disasters like the 2010 Deepwater Horizon spill in the Gulf of Mexico.
“Given the geographic scope of the 6 January offshore oil and gas drilling ban, this was [likely] the administration’s parting shot,” Michael Littenberg, Global Head of ESG, Corporate Social Responsibility and Business and Human Rights Practice at US law firm Ropes & Gray, told ESG Investor.
“The ban will no doubt be challenged by the Trump administration.”
The law Biden invoked – the 1953 Outer Continental Shelf Lands Act (OCSLA) – gives the sitting US president broad authority to withdraw federal waters from future oil and gas leasing and development.
Trump, who will be inaugurated on 20 January, previously called on OCSLA to protect waters off the coast of Florida in 2020 until 2032.
“But it’s not clear what the authority [of the law] is to unban drilling,” said Littenberg.
During his first term, Trump issued an executive order seeking to reverse a similar drilling ban implemented by the Obama administration. That order was challenged in court and Trump was required to act in conformity with the Obama move.
Trump appealed but, before a final decision was made, Biden had taken office and revoked Trump’s order. As such, the case was dismissed, and the court did not render a decision.
“Although there have been modifications to prior decisions regarding offshore areas that could be subject to oil and gas leasing under OCSLA, no court has [yet] validated a complete reversal of a withdrawal,” said Littenberg.
He noted there is likely to be “another long slog” in the courts and near-term uncertainty for investors as Trump tries to rescind Biden’s ban.
In the final days of his term, Biden has also declared new national monuments under the Antiquities Act of 1906 to protect terrestrial areas from energy developments, although it is anticipated this will be undone by Trump, as was the case during his last term.
Despite the raft of climate-focused rulings introduced by Biden, US oil production has set new production records during his presidency.
“Drill, baby, drill!”
Once president, Trump will have the ability to issue his own executive orders to weaken Biden’s climate agenda.
Executive orders don’t require Congressional approval and have a mandatory effect where they align with the president’s constitutional or statutory authority.
“There will likely be a flurry of early Presidential executive orders issued to federal agencies, departments and officials to implement the new administration’s energy policies,” said Littenberg.
As well as withdrawing the US from the Paris Agreement, it is expected that Trump will attempt to issue funding cuts for climate-focused agencies like the Environmental Protection Agency, limit clean energy development under the Inflation Reduction Act (IRA), and dismantle environmental justice initiatives, according to the World Resources Institute (WRI).
“It’s clear that the US government’s policy priorities on climate are likely to shift in the change between the Biden and Trump administrations,” said Greg Hershman, Head of US Policy at the UN-convened Principles for Responsible Investment (PRI).
“For responsible investors aiming to make decisions that manage risk and serve the long-term needs for clients, clarity and certainty that the rules of the game aren’t going to change over the course of that investment are vital considerations.”
However, Hershman noted that the most “consequential action” by a US administration on climate in more than a decade has already happened via the introduction of the IRA.
Passed in 2022, the IRA pledged US$370 billion in investment and tax incentives to reduce greenhouse gas emissions and fund the upscaling of domestic renewable energy sources.
“President-elect Trump has significant political motivation to leave big portions of the IRA climate provisions intact,” said Bryan McGannon, Managing Director of the US Sustainable Investment Forum (US SIF).
“Many of the IRA investments are already creating jobs in the clean energy supply chain in red states.”
The IRA’s tax incentives have created more than 330,000 jobs via over 300 clean energy projects implemented in both Republican and Democratic districts.
“There probably isn’t much more that President Biden can do on his way out the door that would be difficult to reverse on 20 January,” said Littenberg.
State-level climate action
Although Trump is expected to limit climate action at a national level, several individual states are expected to maintain existing levels of climate ambition.
The 24 states and territories that comprise the bipartisan US Climate Alliance – representing 57% of the US economy – have collectively committed to net zero by 2050 or earlier.
These states include California, which in November approved Proposition 4 – a US$10 billion bond designed to invest in climate adaptation and resilience.
As well as overseeing the implementation of corporate climate-related disclosure rules, the California Air Resources Board has also approved updates to California’s Low Carbon Fuel Standard, which will accelerate the development of clean fuels and zero-emission infrastructure.
In November, the PRI published a policy briefing underlining the importance of maintaining state-level sustainability ambition and investment in the US.
“The US has an important global leadership role to drive progress on addressing climate change,” said McGannon. “The path of travel towards a lower-carbon future is clear and the US should continue to drive innovation in this space.”
US-based investors should continue to assess all risks and opportunities in their portfolios, including climate concerns, he added.
“Many investors have investment time horizons that extend beyond the four-year presidential cycle,” he said.
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