The White House issued two executive orders April 10 intended to remove obstacles to developing energy infrastructure and expediting the pipeline permitting process.
While the goal is to accelerate the construction of energy infrastructure, streamlining the process and diminishing reviews could dilute a thorough environmental analysis, and this could ultimately hurt companies as they navigate project costs. Moreover, projects could be delayed by potential litigation over agency actions resulting from the orders.
The two orders, Promoting Energy Infrastructure and Economic Growth (E.O. 13868), and Issuance of Permits with Respect to Facilities and Land Transportation Crossings at the International Boundaries of the United States (E.O. 13867), also focus on reducing regulations and improving avenues for delivering coal, oil, and natural gas both domestically and internationally.
The administration hopes these orders will make it harder for states and tribes to block pipeline and energy infrastructure development. Over the last decade, numerous objections to pipeline expansion have been raised by states and citizen groups.
For example, New York denied several natural gas pipelines that would have connected New England states to Pennsylvania’s shale gas fields. The Keystone XL Pipeline, which would carry petroleum from the Canadian oil sands to the Gulf Coast, also faced significant public opposition with protesters camping out for weeks to block the project.
Whether the Trump administration’s executive orders will help expedite the pipeline and energy infrastructure process or create new legal challenges has yet to be determined.
Clean Water Act Issues
Take the case of Clean Water Act permitting. The Environmental Protection Agency must consult with states and tribes on permitting decisions and licensing to ensure compliance with federal law.
E.O. 13868 directs the EPA to review its Section 401 water quality certification interim guidance and regulations and make any needed changes within 60 days to boost the efficiency of the permitting and approval process for infrastructure projects.
Updated rules supporting the aims of the order are due in 13 months. This new guidance could conflict with Clean Water Act requirements and interfere with state and tribe involvement in the permitting process by shortening the review time and scope. It will likely be met with litigation.
The departments of Energy and Transportation also must report on barriers to a national energy market. This includes looking at regions where expansion of energy infrastructure to move natural gas has been limited or lacking entirely because of public opposition.
On March 29, the administration issued a presidential permit for the Keystone XL Pipeline, an action that supersedes a 2017 State Department cross-border permit that is currently being challenged in a federal appeals court.
A presidential permit is not subject to environmental review requirements, and this one effectively undercuts the litigation over the State Department’s permit. This sidestepping of the review process may also trigger litigation.
E.O. 13868 also directs the Department of Transportation to review the safety standards for transporting liquid natural gas (LNG) and to propose a rule within 100 days that would allow the fuel to be moved in rail tank cars like other cryogenic liquids.
Regulations ban the transport of LNG by rail. Opponents to changing the law have expressed concerns about the safety of carrying highly flammable and dangerous substances through densely populated cities which, if ignited, could be catastrophic for communities.
A final rule is due in 13 months.
Energy Market Barriers
To finance energy infrastructure projects through capital markets, E.O. 13868 directs the Department of Labor to review data on ERISA retirement plan investments and discern any trends, such as whether there is a greater focus on renewable energy and a move away from fossil fuels.
DOL must review its prior guidance, on fiduciary responsibilities for proxy voting—which references environmental, social, and governance (ESG) considerations in applying ERISA standards—and decide whether any changes are needed to ensure it advances the aims of the White House order.
The order seeks to remove ESG considerations that may be leading fiduciaries to invest in renewable energy and diverting potential investments in energy infrastructure for coal, oil, and natural gas.
A 2018 Government Accountability Office study on ESG investing estimated that less than one in 10 retirement plans offer the ESG category, and only 3 percent of those choose that option.
The order seems to assume that maximizing profit is mutually exclusive from ESG considerations. ESG factors of risk management and value creation are part of the sustainable investing profile. In certain cases, investing in clean energy rather than fossil fuel would have resulted in higher returns for pensioners, according to a 2016 report by the nonprofit Fossil Free USA.
While the order seeks to eliminate ESG considerations from retirement plan investment, the Sustainable Accounting Standard Board (SASB) and some institutional investors are moving in a different direction.
They want increased ESG disclosure and standards to help companies know which ESG matters are going to materially affect their financial success. ESG issues are not only a general social and environmental consideration in making investments, such as those supporting renewable energy, but are also a company-specific concern that can affect their bottom line.
SASB is providing standards to help companies report these concerns. Companies such as General Motors, Nike, Kellogg, and JetBlue look to the SASB standards on addressing ESG considerations.
The orders appear to place a higher premium on energy infrastructure for depletable resources such as fossil fuels in a way that diverts funds and focus from renewable energy, such as wind and solar, and from energy efficiency and climate mitigation efforts. The paradigm created by the orders could be detrimental to ESG shareholder activism and ESG investment decisions including from ERISA retirement assets.
The results of the reviews called for in the orders are unclear, but there will be opportunities for comment on some of the actions proposed by the orders and attention should be paid to the short time frames.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
Candace Quinn is a partner in the Wagner Law Group’s New York and Boston offices where she specializes in domestic and international tax and ERISA issues and on energy law for renewable energy project development, pension investment, and ERISA related requirements. She is also involved in the U.S. Council of International Business Environment Committee and its Climate Change Energy Working Group.