How to ruin a perfectly good oil and gas boom

Over the past several years, oil and gas production has risen steadily, setting production records year after year. 

These increases were driven mainly by hydraulic fracturing. According to the EIA, the U.S. exported more petroleum than it imported in 2020, making it a net annual petroleum exporter for the first time since at least 1949. As for natural gas, total annual exports generally increased each year from 2000 through 2019. In 2019, the U.S. was a net exporter of natural gas for the third year in a row.

The Biden administration was installed on Jan. 20, 2021 and wasted no time reigniting the war on fossil fuels. Among other things, Biden rejoined the Paris Agreement, mandated the use of the "social cost of carbon" (SCC), and paused new oil and gas leases on federal lands and in offshore waters.

As part of the Paris Agreement, President Biden announced that the U.S. will achieve a 50-52 percent reduction in greenhouse gases (GHG) from 2005 levels by 2030 and achieve net-zero emissions by 2050. In the fact sheet released with the announcement, the administration also announced a goal to reach "100-percent carbon pollution-free electricity by 2035." According to the EPA's GHG inventory, the total of GHG emissions was 7,423 million metric tons (MMT) of CO2 equivalent in 2005. Between 2005 and 2019, total GHG emissions declined to 6,558.3 MMT, a drop of 11.6 percent (864.7 MMT). To achieve the goal of reducing total GHG to 3,711.5 MMT, which is 50 percent of 2005 levels, an additional 2,846.8 MMT will have to be reduced over the next nine years.

Assuming the entire electrical generation infrastructure can be changed by 2030 or 2035, a realization of the goal of "100-percent carbon pollution-free electricity by 2035" will not achieve the overall goal, as 2019 emissions from electric power produced by fossil fuel combustion was only 1,606 MMT. Clearly, emissions from other sectors of the economy will have to be reduced.

President Biden also required the use of the SCC when monetizing the value of changes in GHG emissions resulting from regulations and other relevant agency actions. An interim SCC was released in February 2021 that set the SCC at $51 per metric ton (at a 3-percent discount rate). The use of an inflated SCC skews a cost-benefit analysis, making it more likely that the societal benefits of a proposed rule outweigh its costs. Further, the SCC will be applied to a variety of new agency actions. It is likely that the Department of the Interior (DOI) will factor the SCC into its decision to resume oil and gas activities on federal lands.

President Biden paused new oil and gas leases on public lands and in offshore waters. DOI Secretary Haaland revoked 12 Trump-era orders focused on promoting oil and gas development on federal lands because the orders were "inconsistent with, or present obstacles to" the policies announced by President Biden.

Interestingly, in order to achieve "100-percent carbon pollution-free electricity by 2035" and net-zero emissions by 2050, a vast number of solar and wind farms will have to be built in a short period of time. Some estimate an area the size of South Dakota will be required to achieve the 2035 goal, and an area the size of five South Dakotas is necessary to achieve the 2050 goal.

The production and combustion of fossil fuels will face obstacles curtailing growth and likely diminishing the levels of current production. In announcing the new reduction targets, President Biden did not address the disruptions to the oil and gas industry or the economy that will be associated with such a dramatic decrease in reliance on fossil fuels over such a short period of time.

John B. King is a partner with Breazeale, Sachse & Wilson LLP in Baton Rouge, Louisiana. His practice relates mainly to environmental regulatory permitting and compliance. Prior to joining the firm in 2003, he served as chief attorney of enforcement for the Louisiana Department of Environmental Quality.

For more information, visit www.bswenviroblog.com, or contact John B. King at jbk@bswllp.com or (225) 381-8014.