Low-Energy Fridays: The future of energy policy after the 2024 elections

Although the post-election dust is still settling, it looks like Republicans managed to pull off their ideal scenario by taking the presidency and Senate, as well as (most likely) holding the House of Representatives. This trifecta opens a suite of policy options for them, but the question is what form these policies may take. Truthfully, it is hard to know what President-elect Donald J. Trump will do, as his past administration frequently defied the expectations of D.C. politicos. On energy, however, the likeliest policy priorities will be regulatory reform, tax reform, and domestic energy production expansion.

Trump will have a broad ability to implement his agenda, largely because the Biden administration relied heavily on regulations and executive authority. Trump can easily unwind virtually all of President Joe Biden’s climate regulations—not just because the executive can issue new regulations that replace old ones, but because most of Biden’s newer regulations hinged upon the adoption of new methodology to estimate their benefits. Relatively modest changes to agency guidance for estimating benefits, as well as simple adjustments to the social cost of carbon’s benefits calculations, would cast the estimated net-benefits of proposed regulations under Biden into doubt.

The 2022 Supreme Court ruling in West Virginia v. Environmental Protection Agency can’t be ignored either, as it significantly narrowed regulators’ authority to intervene in consumer purchase decisions. It is therefore arguable that currently proposed climate-related regulations under Biden already run afoul of these guardrails, making it much easier for Trump administration 2.0 to withdraw from regulatory efforts. Back in 2017, however, regulators still had to adopt some rules to satisfy statutory requirements. Examples include the Affordable Clean Energy rule, which replaced the Clean Power Plan, and the Safer Affordable Fuel-Efficient Vehicles rule that replaced the Corporate Average Fuel Economy regulation.

One point to keep in mind about regulation, though, is that there is good reason to believe Biden’s regulators significantly overstated the benefits of their proposed requirements. Remember that under the past Trump administration, pollution of all types—even carbon dioxide—fell significantly. While many environmental organizations will seemingly have aneurysms due to Trump’s victory, the evidence shows that progress on key environmental goals is achievable, even under a “deregulatory agenda.”

Another likely outcome will be some measure of tax reform related to energy subsidies. For context, the federal deficit this year is projected to be $1.9 trillion, and it is growing because of increased spending that is partially from energy-related subsidies as well as rising interest payments on existing debt (a problem that grows every year we have a deficit). Considering that the Inflation Reduction Act (IRA) was adopted without their support, it is politically enticing for Republicans to unwind the roughly $1.2 trillion (over 10 years) in climate-related subsidies Democrats implemented and direct those funds toward extending the 2017 tax cuts adopted under Trump, which would cost $3.5 trillion over 10 years. Because tax issues fit squarely within budgetarily relevant policy that can be adopted by a simple majority under budget reconciliation rules, if Republicans hold the House as expected, then they can reform IRA tax credits without support from Democrats.

However, much has been made of some Republicans seeking to retain the IRA’s tax credits. For what it’s worth, my expectation is that we will see horse trading similar to the early days of the 2017 tax reform debate, when proposals were bandied about to impose sunsets on some tax credits to reduce their projected cost while retaining or expanding those that fit more with Republican priorities. Whatever tax reform emerges after Republicans have their policy discussions will not be as simple as politicians depict today, but this is still a major policy priority that we can expect Republicans to deliver on in the next Congress.

The third major energy policy issue for Republicans will be expanding domestic energy production. While many are keen to point out that Biden holds the record for highest U.S. oil and gas production, this is largely in spite of (rather than because of) the administration’s policies. Expect Trump and congressional Republicans to work together on expanding domestic lease sales, especially for offshore oil and gas, as well as easing permitting related to all domestic energy production—not just oil and gas extraction, but pipelines, minerals production, and liquefied natural gas export terminals.

The first Trump administration was successful in reducing the time it took to issue leases for drilling permits and to prepare environmental impact statements. It’s reasonable to expect similar efforts under the second Trump administration. This will stand in stark contrast to Biden’s policies, which focused on restricting leases and loading up more environmental requirements for projects to get permitted.

One unknown, though, is whether Trump can turn things around for the nation’s petroleum refiners. Refining capacity has fallen under Biden—one of the big reasons Americans have been experiencing higher-than-expected pump prices. Refineries are long-lived infrastructure that must survive past any single administration, but given that Biden’s strategy mostly revolved around threatening refiners, Trump may have more success in securing capacity additions that would have otherwise been unlikely.

Numerous issues will come up under the new administration, of course, but these represent some near-term big-picture changes. Policymakers must remember that, while Republicans may be excited about returning to the driver’s seat (and with Democrats likely to spend much of their time resisting Republican priorities) the landscape of policy priorities doesn’t care who is in power. The nation is still on an unsustainable fiscal trajectory, inflation hasn’t been fully addressed, and tensions are rising with foreign powers like China, Iran, and Russia that are significant to international trade flows of energy and minerals. We’ll see how the new administration and incoming Congress plan to address these topics in the coming weeks.