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PESA Election Update: Where Does It Stand and What Does It Mean for the OFS Sector?

Analysis from PESA Vice President Government Affairs Tim Tarpley

PRESIDENTIAL RESULTS
A little more than a week has passed since the U.S. election, and we are starting to see some clarity about what to expect at the federal level over the next few years. Most observers and analysts predict that former Vice President Joe Biden and Sen. Kamala Harris will secure more than 270 Electoral College votes and be elected to serve as President and Vice President.

President Donald Trump has yet to concede and has launched legal battles in Georgia, Pennsylvania, Arizona and Nevada. It will be difficult, if not impossible, for these challenges to overturn enough votes to secure a Trump victory. In past recounts and electoral challenges, only a few hundred votes change. In nearly all the close states being watched, the margins are in the tens of thousands.

Trump directed the General Services Administration to withhold funds for the transition. As of now, this request is being honored. Despite this roadblock, the Biden-Harris team is moving forward with the transition.

HOUSE OF REPRESENTATIVES
Although votes are still being counted in several states, we can say for sure that the U.S. House of Representatives will be held by the Democrats, albeit with a slimmer majority. At this point, eight seats held by Democrats were won by Republicans, and three Republican seats went to Democrats.

Heavily funded progressive candidates came up short in many races across the country, including Texas. Of note, moderate and pro-business Democrats in the House are quietly expressing discontent with Speaker Nancy Pelosi’s leadership. Rumors are swirling about potential challengers to her leadership.

While Pelosi has traditionally been able to fend off such challenges, this is worth watching. The legislative priorities of the next Congress could be changed by Democratic infighting. Of special note for OFS, legislation like the Green New Deal and other environmental justice legislation would be less likely under more moderate leadership.

SENATE
In the Senate, Republicans hold 50 seats (including the recently-called races in Alaska and North Carolina) and Democrats hold 48. Both Senate races in Georgia are going to a runoff in January, and the state typically favors Republicans. Taking all that into account, it is likely, but not yet assured, that Republicans will have a one or two seat margin in the U.S. Senate.

Taking all that into account, it is likely, but not yet assured, that Republicans will have a one or two seat margin in the U.S. Senate. This is a critical determinant of the type of legislation likely to affect the OFS sector next year.

A GOP majority would blunt much of the difficult legislation our sector could have faced. We will likely not have to worry about a Green New Deal, large scale carbon tax or other progressive policies if the margin holds. However, a 1-2 vote margin is not insurmountable, and less extreme environmental legislation could pass the Senate, especially as part of a larger compromise package.

CABINET & ADMINISTRATION
Despite potential transition funding roadblocks ahead, the Biden-Harris team is moving forward with the process to hire staff and vet nominees to fill the departments in their administration. This is the first area where the Senate control will come into play. With Biden likely focused on COVID-19 and economic stimulus for the first portion of his term, energy-related policies will be spearheaded by his cabinet.

Republican control of the Senate, even by a small margin, means that progressives will be less likely to even be nominated. Expect to see more moderate mainstream Democrats have more prominence, which is good for our sector. Appointments to watch are Interior, Energy and EPA.

While it’s still early, interesting information has emerged around the Interior post. Rep. Deb Haaland (NM-1), Sen. Martin Heinrich (D-NM) and Sen. Tom Udall (D-NM) are all apparently being considered. This is important because New Mexico is one of the states most affected by Biden’s promise to limit or halt new leases for fracking on public lands.

Two former Obama-era officials, Ernest Moniz and Elizabeth Randall, are apparently in consideration for Energy, and Gov. Jay Inslee (WA) is a possibility at EPA.

TRADE & TARIFFS
Of interest to PESA members is how the new administration engages on trade and tariffs. Will the Biden administration put an end to Trump-era trade wars? Rep. Jimmy Gomez (CA-34) is being floated as a potential leader for U.S. Trade Representative, as is a former Biden aide on Capitol Hill, Nelson Cunningham.

Negotiations with China are expected to restart soon after the new administration takes office, and we should not expect an immediate end to the Section 301 tariffs on imports from China. These tariffs are likely to remain in some fashion into the next administration.

It is also important to remember that Trump remains in office until January 20, 2021. U.S. trade actions initiated by the Trump administration, such as the Section 301 investigation on Vietnam’s currency valuation, will continue. Comments in that investigation are due November 12. No hearing is scheduled, so the U.S. Trade Representative could act on Vietnam as early as mid-December.

Unions, being strong supporters of the President elect, will likely play instrumental roles in how trade policy is formulated in the new administration. They may also play a role in determining the extent of the new administration’s actions on fracking. The Teamsters trucking union is planning a large demonstration against potential action on fracking this week.

PARIS CLIMATE AGREEMENT
The Paris Agreement is another area where we should expect action from the new administration that could affect our sector. The accord, signed by 195 nations, is within the U.N. Framework Convention on Climate Change.

The long-term goal is to keep the increase in global temperature to below 2 degrees Celsius (ideally 1.5 degrees) by reducing emissions. The strategy set what are called the 20/20/20 targets — reducing carbon dioxide (CO2) emissions by 20%, increasing renewable energy’s market share to 20%, and increasing energy efficiency by 20%. Per the agreement, each country must determine its own plan and report on its progress. There is no mechanism to force countries to set or meet specific emissions targets.

Trump began the process to withdraw the U.S. from the accord in August 2017, and the U.S. was officially withdrawn in November 2020. Biden has vowed to bring the U.S. back into the agreement on his first day of office.

The biggest issue facing the new administration is the agreement’s lack of binding enforcement. The Biden administration would have to create other mechanisms to push other countries to strengthen emissions goals and transform them into concrete steps.

For example, China, the world’s biggest emitter, recently pledged to become “carbon neutral” by 2060. The country has not offered detailed plans describing how they’ll reach the goal. Biden will also face checks on his ability to implement new U.S. emissions cuts, even as he presses other nations, since the Senate will likely be in Republican control or split too closely.

President-elect Biden is expected to update the Obama-era pledge, which called for the U.S. reducing greenhouse gas emissions 26-28% below 2005 levels by 2025. The next big U.N. climate conference is slated for late 2021, which would give the new administration a window to prepare its plan.

There’s a lot of discretion for structuring the pledges, and it’s possible Biden could offer a 2035 target given his campaign pledge to move the U.S. power sector to 100% carbon-free sources by that date. International leaders will probably expect a new aggressive climate commitment from the United States. Biden could accomplish this using stimulus provisions, tariffs on carbon-intensive goods, or new climate actions via executive order. Stimulus options would have to go through the Senate though as would any new treaty obligations.

We expect additional clarity on many of these issues in the coming weeks. The PESA Government Affairs team will continue to provide PESA Members with additional updates and analysis on how these fast-moving events will affect the OFS sector.

For more information, contact PESA Vice President Government Affairs Tim Tarpley.

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