Trump Issues Sweeping Executive Order on Energy, Environment and Climate Change
On March 28, 2017, President Trump issued his long-awaited Executive Order, entitled "Promoting Energy Independence and Economic Growth" (EO), outlining his plan to reconsider and withdraw actions taken by President Obama to address global climate change. The EO takes aim at a series of key programs and policies, including the Clean Power Plan, oil and gas methane regulations, the coal leasing moratorium, the social cost of carbon metric, the NEPA greenhouse gas guidance, and the President's Climate Action Plan. Significantly, the EO also requires agencies to identify other actions "related to or arising from" the Climate Action Plan for reconsideration.
But the EO is not limited to climate-related initiatives. Rather, it calls for a potentially sweeping reexamination and rebalancing of US policy regarding energy and the environment. As described in more detail below, the EO sets into motion a new OMB review process affecting all federal agencies whose actions "potentially burden" the development or use of domestic energy resources--particularly oil, natural gas, coal, and nuclear power--regardless of whether the actions relate to climate change. The review process culminates in a 180-day deadline for agencies to identify additional regulations and policies for reconsideration or rescission.
This client advisory provides an overview of the key elements of the EO and examines its implications for the future. Although the EO provides an important articulation of the Administration's priorities related to energy, environment, economic growth, and climate-related policies, it raises as many questions as it answers, creating both challenges and opportunities for the regulated community. For some sectors, the EO will present an opening for clients to address legacy policies to achieve regulatory objectives that may not have been possible previously. It will be imperative for interested parties across the spectrum to monitor developments closely, assess impacts for ongoing and future operations, and evaluate possible opportunities to participate in the administrative and legal processes as they unfold.
New Domestic Energy Policy Review Process
Section 1 of the EO articulates national policy objectives relating to the promotion of domestic energy resources, economic growth and job creation. With respect to the environment, the EO recognizes that federal agencies must "promote clean air and clean water for the American people," where "permitted by law" (sec. 1(d)), but it makes clear that agencies must at the same time avoid regulatory burdens that "unnecessarily" encumber domestic energy production or job creation. It directs agencies to ensure that "environmental regulations comply with the law, are of greater benefit than cost, . . . achieve environmental improvements for the American people, and are developed through transparent processes that employ the best available peer-reviewed science and economics" (sec. 1(e)).
Section 2 of the EO then orders a sweeping policy review of all agency actions (defined broadly to include regulations, orders, guidance documents, and policies) that "potentially burden" the safe, efficient development of domestic energy resources (sec. 2(a)). "Burden" is defined to mean "unnecessarily obstruct, delay, curtail, or otherwise impose significant costs on the siting, permitting, production, utilization, transmission, or delivery of energy resources" (sec. 2(b)).
The EO sets in motion a series of processes with deadlines: 45 days for agencies to submit a plan to the Office of Management and Budget (OMB); 120 days to submit a draft final report with recommendations; and 180 days for the plans to be finalized (unless extended by OMB). At the end of the review process, which will be coordinated by OMB, the EO directs agencies, as soon as practicable, in accordance with specific recommendations in their final reports, to "suspend, revise, or rescind, or publish for notice and comment proposed rules suspending, revising, or rescinding" the actions they identified (sec. 2(g)).
In the near-term, agencies will likely be working rapidly to interpret the EO and figure out how it affects their various programs and policies. Clients with particular interests in the continuation, modification, or reversal of any specific programs or policies that could fall within the scope of the new domestic energy policy review will need to keep careful track of this decision-making process and seek opportunities to provide input.
Reconsideration of the Clean Power Plan (EO Sec. 4)
Not surprisingly, a central focus of the EO is the Clean Power Plan (CPP). The CPP, finalized in August 2015, established national standards limiting carbon emissions from existing coal and natural gas-fired power plants under section 111(d) of the Clean Air Act (CAA).1 Hailed by some as a necessary step in combatting climate change, critics of the CPP argued (among other things) that it would force states to reconfigure their electricity generating portfolios, resulting in the further retirement of coal-fired power plants in favor of natural gas and renewable sources, and cause higher electricity prices.
The US Supreme Court stayed implementation of the CPP in February 2016 pending completion of legal challenges brought by industry groups and 24 states. The US Court of Appeals for the District of Columbia Circuit, sitting en banc, heard argument on the CPP's validity in September 2016. The DC Circuit has yet to issue a decision.
- Orders EPA to review the CPP rule for consistency with the EO's policy statements (sec. 1) and, if appropriate, and as soon as practicable, "publish for notice and comment proposed rules suspending, revising, or rescinding" the rule (sec. 4 and 4(b)(i)). The EO also applies to any rules or guidance issued pursuant to the CPP (sec. 4), including the proposed federal plan and model trading rules (sec. 4(b)(iii))2, as well as the Legal Memorandum that EPA published in conjunction with the CPP (sec. 4(c)).3
- Orders EPA to take the same steps with respect to the section 111(b) New Source Performance Standards (NSPS) for new, modified, and reconstructed power plants (sec. 4(b)(ii)).4
- Authorizes the US Attorney General to provide notice of the EO to the DC Circuit and request that the court stay or otherwise delay litigation in any cases challenging the above rules, or seek other appropriate relief, pending the completion of the administrative process (sec. 4(d)).
- The EO requires EPA to reconsider the CPP, but provides no guidance as to which specific legal or factual issues EPA should re-examine. Nor does it provide specifics on process or timing. This leaves EPA with a wide array of options with different policy ramifications and degrees of litigation risk.
- On one end of the spectrum, EPA could conceivably revisit positions on issues that would undermine the CPP's legal foundation. For example, EPA could conceivably adopt the position (advanced by CPP opponents in the DC Circuit) that it is statutorily barred from issuing section 111(d) standards for greenhouse gas emissions from power plants because it is already regulating those sources for emissions of hazardous pollutants under section 112. Such a move would, if sustained through inevitable litigation, preclude any further development of standards for greenhouse gases from existing power plants under section 111(d). (Note: this would be the result so long as EPA continues to defend, and is successful in defending, the section 112 Mercury and Air Toxics Rule5 for power plants, which is also currently under review in the DC Circuit. That rule is also possibly subject to review under the EO as potentially burdening the use of domestically produced energy resources.)
- On the other end of the spectrum, EPA could decide to leave intact its legal authority to issue the section 111(d) standards, but refashion those standards in ways that might reduce their stringency or enforceability. For example, for coal-fired plants, EPA could focus exclusively on heat rate efficiency measures achievable within the "fence line" of the facilities (i.e., what is referred to as "Building Block 1"); and EPA could defer action on--or jettison on legal grounds--other elements of the CPP that require generation shifting to natural gas (Building Block 2) or zero-emitting sources such as wind and solar ("Building Block 3"). EPA could also seek to reduce stringency by reconsidering any number of record issues, such as those relating to costs and grid reliability. Among the many possibilities, EPA could also attempt to reinterpret the respective responsibilities of EPA and the states under section 111(d), giving more say to the states on what the standards should be and leaving EPA with a more limited role.
- It is also possible that EPA will do none of the above. There are a number of approaches it could take that would allow it to defer these questions, for now. For example, the promulgation of an NSPS for new power plants under section 111(b) is a prerequisite for a section 111(d) rulemaking for existing sources. Because the EO directs EPA to reconsider the section 111(b) NSPS rule, the Agency could conceivably decide to initiate the administrative process for that predicate rule first, which could consume a significant amount of time, before deciding what to do about 111(d).
- In short, the EO does not specify whether EPA should pursue a strategy of "repeal and replace," or simply "repeal," of the CPP. Nor does it provide guidance on what any "replacement" would look like. The possibilities are numerous and the stakes are high. Businesses in all relevant sectors will want to monitor the process closely as it unfolds, and look for opportunities to have their voices heard.
- Hours after President Trump signed the EO, DOJ filed a motion asking the DC Circuit to hold the case in abeyance. EPA also signed a Federal Register notice announcing its review of the CPP and providing advanced notice of forthcoming rulemaking proceedings. We note that courts are usually amenable to requests for abeyances where there is a significant change in circumstances, such as a presidential transition. Nonetheless, we can expect to see proponents of the CPP resist putting the litigation on hold and argue that the court should render its decision.
- The practical effect of withdrawing the CPP is unclear, to the extent energy prices render investments in new coal-fired power plants impractical and lead utilities to continue to build new capacity-using natural gas, wind, and solar, depending on the relative economics of these sources at the time. The price of natural gas is difficult to predict, while the capital cost of wind and solar is dropping, and methods to resolve the intermittency of wind and solar are improving. Furthermore, companies may be hesitant to rely on the current administration's position favorable to coal-fired power in making long-term investments that will depend on conditions beyond the term of this administration. In the shorter term, the reversal of the CPP may mean that coal will be dispatched more than it would be otherwise over the next few years. It may also prolong the life of some older coal plants and delay inside-the-fence line efficiency improvements in those plants that will stay in operation. Beyond that, the impact on capital planning may be limited. We will continue to analyze the practical impacts for the energy industry in the coming weeks and months.
Other Elements of the EO
The EO also addresses several other key policy and regulatory initiatives in the energy and environment sector.
Lifting of Moratorium on Coal Leasing (EO Sec. 6)
The EO immediately rescinds a moratorium on new leases for coal mining from approximately 570 million acres of federal lands, which the Department of the Interior's Bureau of Land Management (DOI/BLM) issued in January 2016.6 The suspension of new leasing was intended to last for a minimum of three years. DOI explained the temporary halt as a central component of a plan to broadly re-examine the nation's decades-old coal leasing program, which has not been extensively reviewed since the 1980s, and which the agency believed merited review in light of changing economic, public health, and environmental considerations.
The EO instructs the Secretary of the Interior to "take all steps necessary and appropriate to amend or withdraw" the programmatic review, leaving open the possibility that the review will be amended rather than terminated (sec. 6).Questions and Implications:
- While lifting the moratorium will immediately reopen the 570 million acres where the federal government owns the coal mineral estate, many US coal companies may not be looking to secure new reserves in the near term given the sector's recent downturn. Decreased demand spurred by competition from natural gas and renewables, and by the decline in coal exports, has decreased production in many of the federally-owned reserves.
Review of Federal Regulations on Energy Development (EO Sec. 7)
The EO also instructs EPA and DOI to "review" several Obama-era regulations and guidance related to oil and gas development, and "if appropriate . . . suspend, revise, or rescind the guidance, or publish for notice and comment proposed rules suspending, revising, or rescinding those rules" (sec. 7(a), (b)). As noted above in reference to the CPP, the effects of these mandated reviews have yet to be seen--the measures could be rescinded, modified, or (less likely) kept intact. Each review will generate questions about the process required for reevaluation: When will the reviews begin? What will the agencies prioritize? How will the agencies draft new rules to withstand legal challenge?
The EO also authorizes the Attorney General, in his discretion, to "request that [a] court stay  litigation or otherwise delay further litigation" over any of the subject rules (sec 7(c)).
Some of the key rules targeted for review are as follows.7
BLM Methane Regulations (EO Sec. 7(b)(iv))
The EO instructs DOI to review the BLM's Methane and Waste Prevention Rule, which was finalized in November 2016.8 The rule, which is designed to reduce emissions of methane (a greenhouse gas), prohibits the venting of natural gas from oil wells (with limited exceptions), requires companies to update their equipment and processes to limit natural gas flaring, and requires operators to submit a plan outlining how they plan to capture escaping gas before drilling a development oil well. The rule was challenged in court almost immediately after finalization.9
The House of Representatives voted in February 2017 to approve a Congressional Review Act resolution against the rule, which is pending in the Senate.10 Whether Congress takes any further action in light of the EO remains to be seen.
EPA Methane Regulations (EO Sec. 7(a))
The EO also directs EPA to review its methane rules for new oil and gas infrastructure that were finalized in May 2016—EPA's first-ever methane standards for new, modified, and reconstructed sources.11 These rules were aimed at reducing methane emissions from new and modified sources by 40-45% (from 2012 levels) by 2025, and also set standards for volatile organic compounds and other air pollutants.
EPA took initial steps to write similar regulations for existing sources by sending an information request to industry groups last year. However, on March 3, 2017, EPA Administrator Scott Pruitt withdrew the information request.
BLM Hydraulic Fracturing Regulations (EO Sec. 7(b)(i))
The EO also directs DOI to review a 2015 BLM rule regarding hydraulic fracturing on federal and tribal lands.12 The rule imposes stringent well casing and wastewater storage requirements and requires drillers to publicly disclose chemicals used in hydraulic fracturing within 30 days of completing operations. It also mandates stricter storage protocols for recovered waste water and requires drillers to submit detailed information on the geology, depth, and locations of existing wells for the purpose of lowering the risk of cross-contamination from chemicals.
Earlier this month, the government sought a temporary abeyance from the Tenth Circuit in a legal challenge to the rule, explaining that it does not align with the current administration's policies. The court canceled the oral arguments scheduled for earlier this week.
Withdrawal of the Social Cost of Carbon (EO Sec. 5)
The EO addresses a budgeting metric used by the Obama administration to assign a dollar amount to the economic impact of carbon dioxide pollution. This monetary value, also known as the "social cost of carbon," represents an estimate recommended by an interagency working group convened by the Council of Economic Advisers and the Office of Management and Budget of the long-term benefit to society of reducing emissions of carbon dioxide and other greenhouse gases on a carbon equivalent basis.13 EPA has previously stated the social cost of carbon values (in 2007 dollars per metric ton CO2) as $36 for 2015 and $42 for 2020.14 The social cost of carbon estimate was one component of the Obama administration's economic justification for regulations both aimed directly at reducing greenhouse gases (for example, greenhouse gas standards for cars and trucks), and those aimed at other pollutants with a collateral benefit of reducing greenhouse gases (for example, regulation of hazardous air pollutants from power plants that would encourage retirement of such plants in favor of other types of electricity generation). The basic rationale is that measures to reduce greenhouse gases costing industry less than EPA's determination of the social cost of $36 per ton of carbon equivalent are worthwhile because they result in a net benefit to society by avoiding greater economic costs associated with the contribution of those greenhouse gases to climate change.15
The EO requires from this point forward that agencies, "when monetizing the value of changes in greenhouse gas emissions resulting from regulations," and conducting a regulatory cost-benefit analysis, adhere to the guidance in OMB Circular A-4 (EO sec. 5(c)).
Questions and Implications:
- The practice of estimating the economic costs and benefits of most government regulations has been in place for decades, and agencies will continue to conduct such analyses.16
- However, eliminating the social cost of carbon metric could provide an economic justification for proposing less stringent regulations. In particular, the EO's direction for agencies to adhere to OMB Circular A-4 may result in a greater discount rate for future harms and/or an exclusive focus on harms incurred within the United States.
Revocation of Climate-Related Policies (EO Sec. 3)
The EO revokes several non-binding executive policies and reports from the previous administration, including several presidential memoranda and initiatives related to climate change--for example, preparing for impacts of climate change and addressing climate change threats in the national security context (EO sec. 3(a),(b)). The two most important affected policies are the White House Council on Environmental Quality's (CEQ's) climate guidance and President Obama's overarching Climate Action Plan.
Council on Environmental Quality Greenhouse Gas Guidance
The EO rescinds the Obama-era guidance for federal agencies on how to consider greenhouse gas emissions and the effects of climate change as part of the environmental reviews required by the National Environmental Policy Act (NEPA) (EO sec. 3(c)). The CEQ finalized that guidance in August 2016 after a multi-year interagency process.17 Under NEPA, federal agencies are required to consider and disclose the potential effects of their proposed actions and decisions on the environment. The CEQ guidance provided methods for agencies to use in describing and quantifying greenhouse gas emissions or projected climate change impacts resulting from proposed federal actions and provided that agencies use quantitative (not qualitative) methods to assess greenhouse gas emissions where feasible.
Questions and Implications:
- While the policy directives of rescinding the CEQ guidance signal the White House's interest in reducing the role climate change plays in analysis of federal agency actions, the legal implications of such action are less certain. CEQ guidance documents, though "persuasive authority offering interpretive guidance regarding the meaning of NEPA and the implementing regulations," are not treated with the same judicial deference afforded to administrative rules that are the product of notice and comment rulemaking.18
President's Climate Action Plan
The EO rescinds the 2013 Climate Action Plan (EO sec. 3(b)), which articulated the Obama administration's commitment to reducing the nation's greenhouse gas emissions and becoming a global leader in climate change initiatives.19 The Climate Action Plan encompassed a number of efforts to improve energy efficiency standards, encourage investment in renewable energy, update the electricity grid, develop infrastructure and policies to address on-the-ground climate change impacts, and enhance collaboration between states, industry, and other sectors in setting emissions standards.
Critically, the EO requires that "the heads of all agencies shall identify existing agency actions related to or arising from" the Climate Action Plan and related policy documents (EO sec. 3(d)) and requires each agency to "suspend, revise, or rescind, or publish for notice and comment proposed rules suspending, revising, or rescinding any such actions," as "appropriate and consistent" with the policies set forth in section 1 of the EO. This mandate could potentially be interpreted as a sweeping requirement that could require extensive reconsideration of major actions taken in relation to the Climate Action Plan and other executive initiatives, and will depend on interpretation of what is "appropriate and consistent" with the EO's policies.
What the EO Does Not Address
EPA's Legal Obligation to Regulate Greenhouse Gases Under the CAA
The EO's provisions are also notable for what they don't do. Critically, the EO does not direct EPA to withdraw or reconsider its 2009 "endangerment finding"20 under Section 202(a) of the CAA that greenhouse gas emissions endanger the public health and welfare (a necessary predicate for regulating greenhouse gases as a pollutant under the CAA). The EO also does not seek to revisit or question the fundamental holding of Massachusetts v. Environmental Protection Agency that "[b]ecause greenhouse gases fit well within the [CAA]'s capacious definition of 'air pollutant,' . . . EPA has the statutory authority to regulate the emission of such gases from new motor vehicles."21 The decision not to require EPA to re-open the endangerment finding is highly significant because to do so would have: (a) required EPA to revisit the scientific underpinnings of its previous finding; and (b) called into question the basic authority of EPA to issue regulations of greenhouse gas emissions under the CAA. We note, however, that it is conceivable that EPA could identify the endangerment finding as within the scope of Section 2 of the EO (requiring review of existing actions that potentially burden the development of domestic energy resources).
2015 Paris Agreement
The EO is also silent with respect to the international climate change agreement brokered in Paris at the December 2015 United Nations Climate Change Conference, which went into effect in November 2016 (hereinafter, "Paris Agreement"). The Paris Agreement aims to limit global warming well below 2 degrees Celsius and as close to 1.5 degrees Celsius as possible, and sets non-binding carbon emission reduction goals and related financing strategies. Under the Paris Agreement, the US pledged to reduce greenhouse gas pollution by 26-28% by 2025 (from 2005 levels). The reconsideration process triggered by the EO will likely place the achievement of that pledge further out of reach.
The White House stated in a background briefing on March 27, 2017, that the administration is still discussing whether the U.S. will withdraw from the Paris Agreement.
The EO, sweeping in scope, raises as many questions as it answers, but presents both challenges and opportunities for clients. It is not the end point, but rather a step in a potentially lengthy series of legal and administrative processes. We will continue to monitor the political and regulatory landscape closely to identify opportunities for clients and stakeholders to help shape the administration's regulatory agenda as it unfolds.
* Laura Cottingham contributed significantly to this Advisory. Ms. Cottingham is an associate in Arnold & Porter Kaye Scholer's Environmental practice group and is located in the Washington, DC office.
**This Advisory was last updated on March 31, 2017
Federal Plan Requirements for Greenhouse Gas Emissions from Electric Utility Generating Units Constructed on or Before January 8, 2014, 80 Fed. Reg. 64,965 (proposed Oct. 23, 2015) (to be codified at 40 C.F.R. pts. 60, 62, and 78).
Standards of Performance for Greenhouse Gas Emissions from New, Modified, and Reconstructed Stationary Sources: Electric Utility Generating Units, 80 Fed. Reg. 64,509 (Oct. 23, 2015) (to be codified at 40 C.F.R. pts. 60, 70, 71, and 98).
National Emission Standards for Hazardous Air Pollutants from Coal- and Oil-Fired Electric Utility Steam Generating Units and Standards of Performance for Fossil-Fuel-Fired Electric Utility, Industrial-Commercial-Institutional, and Small Industrial-Commercial-Institutional Steam Generating Units, 77 Fed. Reg. 9,303 (Feb. 16, 2012) (to be codified at 40 C.F.R. pts. 60 and 63).
As explained in a recent Arnold & Porter Kaye Scholer Advisory, the CRA enables Congress to repeal or prevent a federal regulation from taking effect. Within 60 days of submission from an agency, Congress can exercise the authority to use a joint resolution of disapproval to overturn an interim final rule or final rule. Rules promulgated near the end of a legislative session are given a longer review period, which allows a new president and Congress to review rules promulgated by the prior administration.
See EPA Fact Sheet: Social Cost of Carbon (Dec. 2016). See also EPA, The Social Cost of Carbon: Estimating the Benefits of Reducing Greenhouse Gas Emissions.
The use of the social cost of carbon metric in developing regulations has been upheld by at least one court. In Zero Zone, Inc. v. U.S. Department of Energy, the Seventh Circuit held, inter alia, that the Department of Energy did not abuse its discretion or act arbitrarily and capriciously in calculating the social cost of carbon when promulgating a rule aimed at improving energy efficiency standards for commercial refrigeration equipment. 832 F.3d 654, 677 (7th Cir. 2016).
In Center for Biological Diversity v. National Highway Traffic Safety Administration, the Ninth Circuit held that the Department of Transportation's failure to monetize or quantify the value of greenhouse gas emission reductions when promulgating a 2006 rule setting fuel setting fuel economy standards for light trucks was arbitrary and capricious. 538 F.3d 1172 (9th Cir. 2008).
Final Guidance for Federal Departments and Agencies on Consideration of Greenhouse Gas Emissions and the Effects of Climate Change in National Environmental Policy Act Reviews, 81 Fed. Reg. 51,866 (Aug. 5, 2016).
Executive Office of the President, The President's Climate Action Plan (June 2013).
Endangerment and Cause or Contribute Findings for Greenhouse Gases Under Section 202(a) of the Clean Air Act, 74 Fed. Reg. 66,495 (Dec. 15, 2009) (Endangerment Finding); aff'd, Coal. for Responsible Regulation, Inc. v. Envtl. Prot. Agency, 684 F.3d 102 (D.C. Cir. 2012), aff'd in part, rev'd in part on other grounds sub nom. Utility Air Regulatory Grp. v. Envtl. Prot. Agency, 134 S. Ct. 2427 (2014).