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Climate Deal Marks Contentious Federal Fossil Fuels Commitment

July 28, 2022, 4:08 PM

The tax and climate deal struck by Sens. Joe Manchin (D-W.Va.) and Chuck Schumer (D-N.Y.) would force a massive ramp-up to federal oil and gas leasing for the next decade.

The bill, if passed, would tie wind and solar development to oil and gas lease sales. That language is expected to undermine the Biden administration’s plans to expand renewable energy on federal lands and waters, as well as greatly complicate plans to draw down oil and gas production that contributes directly to the climate crisis, natural resources lawyers say.

“It’s Congress saying we want all of the above, and you can’t hold wind leasing” without also leasing oil and gas, said Jamie Auslander, principal at Beveridge & Diamond PC.

“It ties them together and it will force Interior to hold bona fide onshore and offshore oil and gas lease sales in order to hold the domestic wind sales,” he said.

The leasing language “is one of the worst policy provisions I’ve seen,” said Sam Kalen, a natural resources law professor at the University of Wyoming. “Renewables cannot be tied to leasing fossil fuels as normal.”

New Uncertainty?

That provision also introduces new uncertainty for renewables development on federal lands because timing of construction of new wind and solar projects often depends on deadlines set for tax reasons and by electric power contracts, said Svend Brandt-Erichsen, a partner at Nossaman LLP.

The possibility that a right-of-way must wait for an oil and gas lease sale to occur “adds another risk to renewable development on federal lands and may discourage some investors,” Brandt-Erichsen said.

Whatever hope there was of ending federal oil and gas leasing is now “off the table,” said Pat Parenteau, an environmental law professor at the Vermont Law School.

Manchin, in a statement, said his agreement with Schumer ‘is truly all of the above” when it comes to relying on a diverse set of energy sources.

“This is a bill that keeps the fossil fuel industry, and the country, in a very strong position” until alternative energy sources mature further, the senator said Thursday.

No Oil, No Wind

The proposed legislation would block the Interior Department from issuing any wind and solar development rights of way unless it first holds oil and gas lease sales.

Onshore, the department would have to offer 2 million acres of federal land for lease annually, or half of all the land nominated for leasing, and hold a lease sale within 120 days of issuing any renewables right of way. Previous administrations held onshore sales quarterly.

Anyone can nominate federal land for leasing for free, which has led to oil speculation in Nevada, where little oil is produced. The legislation would impose a $5 per-acre fee for nominations.

That provision may serve to reduce the chances environmentalists could nominate lands for leasing that they don’t expect to produce oil or gas as a way to get around the minimum oil leasing requirements, Auslander said.

Offshore, the department would have to offer at least 60 million acres of federal waters in an oil and gas lease sale in the year prior to leasing any waters for offshore wind development.

The provision seems to be a response to the oil and gas leasing “pause” the Biden administration announced in January 2021, Kalen said.

Courts since required the Biden administration to hold an offshore oil and gas lease sale originally proposed during the Trump administration. The Interior Department canceled previously scheduled offshore sales, and issued a proposed five-year offshore leasing plan earlier this month without committing to holding any of the lease sales.

The legislation would force canceled offshore lease sales to go forth.

‘Pleasant Surprise’

A court also required the department to hold a series of onshore oil and gas lease sales, which were held in June. But most of the lands originally included in the onshore sales were stripped from them for environmental reasons.

No other onshore sales have been announced, but the provisions in the bill would encourage the department to hold the sales more regularly.

“This provision was quite a pleasant surprise,” said Kathleen Sgamma, president of the Western Energy Alliance, which represents oil and gas producers operating on federal lands. The alliance sued the Biden administration to force it to proceed with quarterly onshore lease sales.

“Tying wind and solar to oil and natural is actually a really clever all-of-the-above energy move,” Sgamma said. “The bill forces them not to neglect oil and natural gas.”

Environmental groups, including the Center for Biological Diversity, called the leasing provisions in the bill a “poison pill” that would lock-in an oil and gas leasing pace similar to those of previous administrations.

—With assistance from Colin Wilhelm.

To contact the reporter on this story: Bobby Magill at bmagill@bloombergindustry.com

To contact the editor responsible for this story: Chuck McCutcheon at cmccutcheon@bloombergindustry.com