Report: Energy Sector in Limbo over Permitting, ESG and Climate Policies

Joseph Markman
Hart Energy

The Babst Calland law firm’s annual report includes a chat with Sen. Joe Manchin and an assessment of the impact of President Biden’s government-wide climate approach.

President Joe Biden’s ambition to entirely wean the U.S. from fossil fuels by 2035 is “unattainable, not doable,” Sen. Joe Manchin (D-W.Va.) told a Babst Calland law firm panel during a recent webinar. The recording is included in the firm’s annual energy industry report, released June 30.

“There’s no way that we can eliminate our way to a cleaner climate,” the chairman of the Senate Committee on Energy and Natural Resources said, noting that the country could not make a sufficient worldwide difference because other countries will not follow its lead in cutting oil, gas and coal from the global energy mix. “Not going to happen.”

In its report, Pittsburgh-based Babst Calland focused on how the oil and gas industry, recovering from the economic impacts of the COVID-19 pandemic, is at an inflection point as it awaits the full impact of President Joe Biden’s climate-centric policies and the emergence of ESG (environmental, social and governance) concerns in investing decisions.

Manchin told the attorneys he was concerned about the federal permit approval process, and how the sluggish system could hinder the oil and gas industry’s—and the country’s—ability to build the infrastructure necessary to put the energy transition into effect. The senator has supported legislation to speed the permitting process.

“I don’t know any other way to get it done,” Manchin said. “We might not live long enough to see half of it being built if we don’t do something.”

The report addressed regulatory delays, as well, noting how they continue to threaten major pipeline projects in the Appalachian region.

“Producers in Appalachia are still in need of more transportation capacity to the Gulf and along the eastern seaboard, yet a plethora of public agencies and other stakeholders along the proposed pipeline routes continue to register objections,” the report said. “Fortunately, significant infrastructure is already in place, but efforts to add to that capacity will likely become a bigger and more costly challenge under the current permitting regime.”

Uncle Sam and ESG

Babst Calland pointed to burgeoning ESG reporting as among the most notable developments of the past year in the energy sector.

“Company reports and commitments to best practices have taken many different forms, but most are in response to pressure from financial investors and other stakeholders,” the report said. “Responsibly sourced gas certification programs are gaining traction. Engagement by the entire supply chain is helping to achieve the needed focus on ESG issues, some of which have been embraced by the industry for many years and are now getting the broader attention they deserve.”

Not only investors, but the federal government is focusing more on ESG issues. The report noted that a year ago, the Securities and Exchange Commission (SEC) did not impose more specific disclosure requirements for climate change risk because the standard in place was sufficient for investors to make informed decisions.

However, earlier this year, acting SEC Chair Allison Herren Lee said the agency would examine the effectiveness of climate-related disclosures in public company filings. Babst Calland also noted that SEC staff are evaluating climate change disclosure rules with the intent of “facilitating the disclosure of consistent, comparable, and reliable information on climate change.”

The report did not forecast the direction the agency will take under new Chairman Gary Gensler, but warned “the days could be numbered for the old materiality standard, and public companies may soon be required to perform a deeper analysis of their own climate change impacts as well as the risk climate change poses to their business.”

See You in Courts

The Babst Calland team did not attempt to soft-pedal the meaning of Biden’s government-wide approach.

“President Biden’s series of executive orders and the anticipated agency actions across the executive branch have the potential to change the nature of the administrative state in a manner not seen in decades,” they wrote. The report also touched on state and local initiatives to support electric vehicle usage, and to ban natural gas hookups in new construction, as proposed in San Francisco, New York and Berkeley, Calif.

Climate change-related litigation in federal and state courts is on the rise, the attorneys said, and the suits are coming from all directions.

“Cases include those initiated by states, cities and municipalities against energy companies under tort, fraud and misrepresentation theories seeking damages associated with the cost of improving infrastructure to mitigate alleged effects of climate change,” the report said. “Claims by public interest groups and individuals against the federal and state governments alleging violations of constitutional rights, third-party challenges to permits and approvals; and shareholder/investor claims against public companies alleging misrepresentation of the value of assets in financial filings.”

The report identified several notable developments, including:

  • A decision by the Ninth Circuit in February to not rehear “Juliana et al. v. U.S.” In its original decision, it ruled that individual plaintiffs lacked standing to sue the United States for a constitutional fundamental right to a “climate system capable of sustaining life.”
  • In April, the Second Circuit affirmed dismissal of New York City’s suit against five energy companies that alleged the companies were responsible for the city’s costs in response to climate change impacts because of their role in the production and sale of fossil fuels.

In May, the U.S. Supreme Court ruled that an appellate court improperly limited its review of a district court’s order that removed Baltimore’s climate suit to state court. The question was whether climate change tort lawsuits filed in state courts can be moved to federal court based on anticipated defenses that concern federal law. The Supreme Court did not consider any issues in the case other than the appellate court’s restriction of its review. “Looking ahead, the procedural issues in the above cases must be addressed before the viability of and potential liability from these claims can be determined,” Babst Calland attorneys wrote. “Because of the variety of jurisdictions involved, consistent outcomes in similar lawsuits are not guaranteed.”

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