The Biden administration has hit the ground running on its climate agenda, but it’ll have to break into a dead sprint if it wants to reach its environmental goals. Before the sun had set on Inauguration Day, the Keystone XL pipeline project had been canceled (for the second time), oil and gas leasing activity had been suspended on federal lands (both onshore and offshore), and the U.S. had committed to rejoin the Paris Agreement. Yet none of these policies will come close to meeting the promises President Biden made during his campaign—notably, eliminating carbon pollution from domestic power plants by 2035 and realizing a “net zero” economy by 2050. To find out if he’ll take the radical steps necessary, watch the Dakotas.
Mr. Biden’s recent moves on energy policy will make future oil and gas expansion difficult, but that’s not going to be enough. The American energy industry is already consolidating after an unprecedented multiyear period of growth—punctured by last year’s pandemic-related demand shock—so the blow to the sector is likely to be glancing. If the president intends to keep his vows on carbon emissions and the like, his administration will have to reduce the size of the fossil fuel industry aggressively, not merely curtail its growth.
If he’s willing to do that—which seems likely given the cast of true climate believers slated to head up various regulatory agencies—the first target will probably be the Dakota Access Pipeline.
The 1,172-mile pipeline currently transports an average of 570,000 barrels a day of crude oil from the Bakken Formation beneath Montana and North Dakota to the Midwest and Gulf Coast refined-product markets. Dakota Access stalled in the waning days of the Obama administration but President Trump approved the project and it was placed into service in 2017.
Over the past three years, the pipeline and its corporate sponsor, Energy Transfer, have been dogged by lawsuits from Native American groups and environmentalists, even though the pipeline system has had no reported environmental or safety issues to date.
In July 2020, federal Judge
ruled that a detailed environmental-impact statement should have been prepared by the Army Corps of Engineers for the pipeline’s quarter-mile crossing of the Missouri River—rather than the streamlined environmental assessment that was used—due to the “highly controversial” nature of the project. The lead plaintiff in the case was the Standing Rock Sioux Tribe, whose reservation is located downstream from the point where the pipeline passes approximately 100 feet below the bottom of the Missouri River.
Judge Boasberg, an Obama appointee, also ordered the immediate shutdown and emptying of the pipeline for the estimated 13 months it would take to complete a full-blown environmental review, a drastic and unprecedented move that was subsequently reversed on appeal.
With the project’s impact statement and appeals processes now playing out in parallel, the Biden administration has the opportunity to step in and effectively shut down the pipeline permanently by either standing down on a legal defense or overruling the Army Corps’s environmental findings. The Obama administration employed both strategies to achieve its climate policy goals.
From a PR perspective, canceling the pipeline would burnish the Biden administration’s climate credentials—particularly given indigenous resistance. The United Nations lists Energy Transfer as a human-rights violator over its interactions with the Sioux tribe.
Besides encouraging Alinsky-style mob tactics by groups opposed to energy infrastructure development—a project only needs to prove “highly controversial” to be legally challenged—the Boasberg ruling could allow climate activists to go after any fast-tracked project. As long as it’s sufficiently offensive to warrant protests from someone, any project that got a quickly processed environmental assessment could be reopened and revisited after the fact. Expect the Biden administration to start with those approved and put in place under Mr. Trump.
Armed with this new policy weapon, next in the line of fire after Dakota Access would likely be two crude-oil pipelines—Line 3 and Line 5—running from Western Canada into the upper Midwest. Both are replacement projects already opposed by Democratic state governments in Minnesota and Michigan. A like-minded Biden administration would probably be enough to tip the balance toward cancellation, which would translate into a net loss of more than one million barrels a day of U.S. oil-transportation capacity.
Even though natural gas has a much smaller carbon footprint than crude oil, recently completed and in-progress natural gas pipelines are also likely at risk, given environmentalists’ fierce opposition to the construction of such projects in recent years.
A Dakota Access decision will likely set the political and regulatory tone for the energy industry over the next four years. The country will learn if Mr. Biden plans on sticking to his campaign climate promises or if he cares more about saving a strategically important industry that provides good-paying blue-collar jobs across the country.
Mr. Tice works in investment management and is an adjunct professor of finance at New York University’s Stern School of Business.
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