Challenges in U.S. Energy Sector Due to Regulatory Uncertainty
Energy companies in the U.S. are increasingly voicing concerns that the current instability in the regulatory framework is making it tough to secure funding and carry out major projects. This point has been raised by various executives I’ve spoken to since 2021, and Colette Hirstius from Shell Americas recently shared similar views.
“I think the uncertainty in the regulatory environment is very harmful,” Hirstius stated. “Regardless of how much it swings one way, it tends to swing back just as much in the other direction.”
Hirstius really hits the nail on the head here. Having a clear and consistent regulatory environment is essential for executives to plan effectively, especially for large projects that need substantial investment and time to complete. This is increasingly critical as the demand for various energy sources grows—be it oil, gas, mining, LNG exports, nuclear energy, or large wind and solar developments.
For decades, the U.S. boasted a high level of regulatory certainty, which offered a significant competitive advantage over less stable nations. This stability has attracted billions in global investments aimed at funding U.S.-based initiatives.
However, this began to shift around the time of the Obama administration, largely due to the former president’s ambition to “transform this country.” The aggressive climate policies introduced in 2009, which became even more pronounced during Biden’s presidency, sparked backlash among voters, leading to fluctuating regulatory conditions during the Trump years.
Now, acquiring funding for energy projects in the U.S. has become more challenging compared to pre-2009 times, and the complexity surrounding future planning is undeniably increasing. Contributing to this uncertainty are the record inflation and ongoing supply chain issues that have emerged during Biden’s term.
The 2009 Endangerment Finding by the E.P.A. regarding greenhouse gases marked a significant rise in regulatory complexity under Obama. This initial classification of carbon dioxide—an essential gas—as a “pollutant” has caused an unprecedented surge in federal energy and climate regulations.
Unfortunately for Obama and the Democrats, these regulatory decisions also paved the way for Trump’s rise to power. Since then, the changes to energy and climate regulations occurring every four years have further destabilized confidence in the U.S. legal framework.
What’s particularly troubling is how these changes often came through numerous executive orders from each president, which can be quickly rescinded by their successors, making the regulatory environment even less predictable.
Congress hasn’t effectively enacted lasting legislation to stabilize these issues, which complicates things further. Currently, the E.P.A., led by Secretary Lee Zeldin, is aiming to revoke Obama’s endangerment certification via an executive order from Trump. This suggests that even more extensive regulatory changes and repeals of Obama and Biden’s rules may be on the horizon.
However, if the Republican majority in Congress doesn’t act to solidify these changes, any incoming Democratic president could easily reverse them with little effort.
This issue is significant and can only be remedied through congressional action. Unfortunately, the context of another government shutdown doesn’t exactly inspire confidence in their ability to resolve this matter.
