The President and Congress Roll Back Obama Regulation

Between President Trump’s 17 executive orders and the new Congress’ wielding of the Congressional Review Act (CRA), regulatory reform has begun in earnest in Washington, D.C. The president not only ordered a regulatory freeze, but he also implemented a new policy for assessing new regulations to be proposed, by requiring that discretionary regulations must be offset by two other regulations eliminated. This concept, called a “regulatory budget,” calls on the director of the White House Office of Management and Budget (OMB) to give each agency a budget for how much it can increase regulatory costs or cut regulatory costs. This rule would require a “0” regulatory budget at present. President Reagan created the Office of Information and Regulatory Affairs in 1981, which is responsible for reviewing and signing off on all proposed and final rules before they are published in the Federal Register. Regulatory experts argue the “one in, two out” plan will, in most cases, kick in when an agency issues a rulemaking. It is not clear how it will apply to regulations required to implement an act of Congress, such as the recent GMO labeling bill, whose proposed implementation rule was set to go to OMB.

This week was also historic with the first successful use of the CRA to repeal Obama-era regulations. The CRA can only be used on regulations sent to Congress on or after May 30, 2016. More technically, it applies when notice of final rule is sent to Congress within 60 session days to be eligible for CRA repeal. To repeal, a simple majority is needed and there can be no Senate filibuster. Congress successfully repealed two regulations, a Department of Interior stream protection rule for coal mining and a SEC regulation called the “resource extraction rule,” which required oil, gas, and mining companies to reveal their payments to foreign governments. There are additional regulations slated for repeal. The CRA has only been successfully used one time before in the Clinton Administration to roll back a Department of Labor regulation on Ergonomics in 2001.


Pipeline Progress Means Crude-by-Rail Slowdown Could be Much More Long-term The future of crude shipped by rail remains uncertain following the Canadian and U.S. governments’ recent approvals of oil pipelines. Canadian Prime Minister Justin Trudeau approved Kinder Morgan Inc.’s Trans Mountain line and Enbridge Inc.’s Line 3 expansion in November. More recently, President Trump invited TransCanada Corp. to reapply for approval of its Keystone XL project. The company reapplied for a presidential permit from the State Department just last week. While all of these projects still face environmental opposition, they would significantly increase Canadian production if built. Altogether, the pipelines would contribute an extra capacity of nearly 1.8 million barrels a day. This would provide enough room for all of western Canadian production expected by 2030. “Down the road, if all those pipelines get built, then crude by rail becomes probably a moot point,” said the managing director at the Toronto consultancy AltaCorp Capital Inc. Read more on the Vancouver Sun

FERC Asked to Rescind Approval of Pipeline Project Sens. Ed Markey and Elizabeth Warren today asked FERC to “rescind” the agency’s approval of Spectra’s Atlantic Bridge natural gas pipeline project, raising questions about how regulators will address contested issues when it loses a quorum at the end of this week.”We request that FERC immediately rescind the order authorizing the Atlantic Bridge pipeline project until such time as the agency has a newly constituted quorum in place that will allow it to hear an appeal of this project,” the Massachusetts Democrats wrote in a letter to Acting FERC Chairwoman Cheryl LaFleur. FERC approved Atlantic Bridge a week ago. FERC staff handles most routine business at the agency, and most of the concern about FERC losing its quorum had to do with contested interstate natural gas pipeline certifications that were still awaiting the commission’s blessings. But Markey and Warren’s letter now raises the issue of what rights pipeline opponents will have if FERC attempts to issue any of a handful of other pipeline approvals before the weekend, when the agency leadership drops to two members. Read more on Politico


SEC Rule Requiring Oil and Gas Mining Companies to Reveal Foreign Government Payments Expected to be Signed by President Trump The Senate passed a resolution to nullify a SEC rule requiring oil, gas and mining companies to reveal their payments to foreign governments. It was the second time this week lawmakers sent President Donald Trump a Congressional Review Act resolution undoing an Obama administration regulation. He is expected to sign it. The final vote was 52-47 along strict party lines. That was narrower than yesterday’s vote to kill an Interior Department coal mining rule, in which four Democrats sided with the majority. Then-Exxon Mobil CEO Rex Tillerson, who was sworn in as secretary of State this week, personally lobbied against it when the 2010 law was being drafted. The Congressional Review Act had only been successfully used once before this week to kill a Clinton-era Labor Department ergonomics rule in 2001. Read more on Politico



Big Oil Firms Look to Save, While Smaller Upstarts Want to Spend Big oil companies and smaller U.S. upstarts are plotting sharply divergent paths as they plan spending for 2017 after a modest recovery in crude prices. While shale-oil drillers are boldly raising annual budgets to revive drilling in Texas, New Mexico and North Dakota, international oil giants such as Exxon Mobil Corp., Chevron Corp., Royal Dutch Shell PLC and BP PLC are planning to hold back spending, charting a cautious path to recovery. The bigger companies are concerned that the recent rebound in oil prices has run out of steam or could even reverse if members of the Organization of the Petroleum Exporting Countries fail to follow through on promised output cuts. And even if OPEC does make good on its pledge, the smaller firms focusing on U.S. wells could respond by replacing the barrels the cartel takes off the market, keeping a ceiling on oil prices over the longer term. The resilience of some shale-oil producers during the energy downturn—and their ability to once again tap capital markets as oil prices stabilize—has added complexity to the decision making at their bigger brethren, which traditionally have been focused on multibillion-dollar megaprojects that start and stop slowly. The big firms are catering to the demands of their largely conservative investor base which focuses on profits and debt reduction in order to maintain share-price stability and steady dividend payments. Investors in shale companies, meanwhile, are focused mainly on production growth. That gives these companies more flexibility to return to U.S. oil fields but it leaves the weakest vulnerable when oil prices drop, as the more than 100 bankruptcies during the past two years showed. Read more on Wall Street Journal


Exporters Tout Benefits of Republicans’ ‘Border Adjustment’ Proposal U.S. exporters are starting to put political weight behind a House Republican tax plan, touting the benefits of “border adjustment” to investors and forming a coalition to push the idea. Companies such as Dow Chemical Co. and Lockheed Martin Co. have been speaking about the plan’s benefits on earnings calls. On top of that, the American Made Coalition is launching an effort Thursday to rally support for border adjustment. The moves by the exporters and other companies escalate a corporate tug of war against businesses including retailers, toy makers and oil refiners who are fighting the border-adjustment proposal, which would tax imports while exempting exports. “American workers and businesses are not competing today on a level playing field with foreign competitors because of an outdated and unfair tax system,” said John Gentzel, a spokesman for the American Made Coalition. The coalition isn’t limited to exporters, and its members include Dow, General Electric Co., Boeing Co., Cook Medical, Merck & Co. and Pfizer Inc. Border adjustment has been at the core of the policy dispute in Washington as Republicans try to make the biggest tax-code changes since 1986. The proposal could generate about $1 trillion to pay for cutting tax rates and help prevent the U.S. tax base from moving abroad; removing it would leave a big hole in the Republican plan. Gregory Hayes, chairman and CEO of United Technologies Corp., told analysts last week that the company would benefit from a “territorial” tax system that would end taxes on U.S. companies’ foreign profits. Read more on Wall Street Journal

Congressional Republicans Nudging Trump Away from Tariff on American Products Manufactured Overseas President Trump, at loggerheads with congressional Republicans over the best way to overhaul the tax code, may have come toward Capitol Hill on a key sticking point, the way imports should be taxed, after a meeting at the White House said Representative Kevin Brady, chairman of the House Ways and Means Committee. Congressional Republicans are trying to nudge Mr. Trump away from one of his big campaign promises: a 35 percent tariff on any product made by an American company at an overseas factory, then imported into the United States market. Success in getting the president off that applause line will be critical to getting tax legislation passed in 2017 and fulfilling a central promise that Republicans have been making to voters for years. At the same time, both sides want to end what they see as a penalty on American exporters, who compete with overseas factories that can game the system for lower tax rates. At the White House meeting, Mr. Brady was joined by Senator Orrin Hatch of Utah, chairman of the Finance Committee, Senator Ron Wyden of Oregon, the ranking Democrat, and Representative Richard Neal of Massachusetts, the ranking Democrat on Ways and Means. The conversation with Mr. Trump also focused on trade and renegotiating the North American Free Trade Agreement. Read more on Bloomberg



In America’s Heartland, Discussing Climate Change Without Saying ‘Climate Change’ Doug Palen, a fourth-generation grain farmer on Kansas’ wind-swept plains, is in the business of understanding the climate. Since 2012, he has choked through the harshest drought to hit the Great Plains in a century, punctuated by freakish snowstorms and suffocating gales of dust. His planting season starts earlier in the spring and pushes deeper into winter. To adapt, he has embraced an environmentally conscious way of farming that guards against soil erosion and conserves precious water. He can talk for hours about carbon sequestration — the trapping of global-warming-causing gases in plant life and in the soil — or the science of the beneficial microbes that enrich his land. In short, he is a climate change realist. Just don’t expect him to utter the words “climate change.” “If politicians want to exhaust themselves debating the climate, that’s their choice,” Mr. Palen said, walking through fields of freshly planted winter wheat. “I have a farm to run.” Here in north-central Kansas, America’s breadbasket and conservative heartland, the economic realities of agriculture make climate change a critical business issue. At the same time, politics and social pressure make frank discussion complicated. This is wheat country, and Donald J. Trump country, and though the weather is acting up, the conservative orthodoxy maintains that the science isn’t settled. So while climate change is part of daily conversation, it gets disguised as something else. “People are all talking about it, without talking about it,” said the author of a recent book on conservative Americans and the environment, “Rancher, Farmer, Fisherman.” “It’s become such a charged topic that there’s a navigation people do.” Farmers like Mr. Palen focus on practical issues like erosion or dwindling aquifers. “When you don’t get the rainfall, it’s tough times,” he said. Farmers like him also happen to be protecting a vast and valuable carbon sink, making him an ally to climate-change campaigners. The soil traps far more carbon in its depths than all plant and animal life on the earth’s surface, scientists estimate. A 2013 study estimated that no-till and other restorative farming methods could achieve up to 15 percent of the total carbon reduction needed to stabilize the climate. Read more on New York Times

As the White House Changes Course on Climate Change, California Stubbornly Presses Forward At a time when President Trump’s new administration is ordering federal government scientists to stop communicating with the public, the array of data depicting carbon sequestration, ocean acidification and water temperatures at a conference on climate change was for some a political act of defiance. It’s a stance that will be tested as California doubles down on its climate policies even as Trump steps back from the battle against global warming. And despite the bravado displayed last week at a conference on climate change hosted by state government officials, there was pervasive anxiety about the future as well. Gov. Jerry Brown, in his State of the State speech Tuesday, said California wouldn’t step back from its agenda no matter what happens in Washington, a message repeatedly emphasized by top state leaders at the climate conference. California’s climate agenda remains controversial, and some business interests believe the state is putting itself at a competitive disadvantage by ramping up regulations. The state’s premiere initiative — the cap-and-trade program, which requires companies to purchase permits to release greenhouse gas emissions into the atmosphere — is the target of an ongoing legal challenge. Read more on Los Angeles Times

Trump Transition Team Hints At Making Good on Campaign Promises Myron Ebell, Trump’s former EPA transition team leader, wouldn’t tell us directly what’s in the agency action plan he left behind for Scott Pruitt. But he did drop some pretty strong hints. Ebell said the transition team’s recommendations are largely based on ensuring that the president’s 40 specific energy and environment promises from the campaign trail come true. Trump promised to rescind a bevy of Obama administration environmental regulations ranging from the Clean Power Plan to the administration’s clean water rule. Trump also said he would reduce the federal government’s role in environmental policy and promised regulation reform that would eliminate “stupid rules.” Still, it remains to be seen if Trump will implement the recommendations of his EPA transition team and how he will be able to get there given the focus on immigration, vote recounting and the size of his inauguration crowd. Ebell also told us he believes the agency will need to re-open the endangerment finding that allows the EPA to regulate greenhouse gas emissions under the Clean Air Act. He thinks that could “make it go away.” Pruitt, Trump’s pick for EPA administrator, seemed to say in congressional testimony he supports the finding, calling it “the law of the land.” “He said it’s settled law right now,” Ebell told us. “He didn’t say it’s settled law in the future. Read more on Bloomberg


Saudi Aramco Approves Rare Increase in Oil Price Saudi Arabia’s state-owned oil company said it was raising prices across the world, signaling that the kingdom its commitment to trimming its production along with other big petroleum producers. Raising prices for refineries and other buyers of crude oil will help naturally lower demand and reduce outflows from Saudi Arabia, the world’s largest exporter of crude. The kingdom had vowed to lower its output by about 4% from record high levels of 10.6 million barrels a day as part of a production-cutting deal with members of the Organization of the Petroleum Exporting Countries and other large producers like Russia. One of the biggest price increases was for Asian refiners and other crude buyers, who will have to pay as much as $1 barrel more for some grades of crude produced by the Saudi Arabian Oil Co., better known as Saudi Aramco. China, India and other Asian countries are seen as the growth centers for Saudi Arabia’s crude. Aramco also modestly raised prices for American buyers, while European customers were given the biggest increases of up to $1.35 per barrel. Across-the-board price moves are relatively rare for Aramco, which generally tailors its prices to the differing market conditions in the regions where it sells oil. The prices are set as premiums or discounts to regional benchmarks such as Brent, which fluctuate independently of Aramco. Last week tanker tracking firm Petro-Logistics said OPEC supply is on track to decrease by 900,000 barrels a day in January, or around 75% of its commitment to cut. Read more on Wall Street Journal

Shell Profit Slips to Lowest Level in More Than a Decade Royal Dutch Shell PLC’s annual profit tumbled in 2016 to its lowest level in over a decade, but the oil giant said it had turned an important corner, reporting a surge in cash despite low crude prices. The British-Dutch firm said its profit for 2016 on current cost-of-supplies basis—a measure similar to the net income that U.S. oil companies report—was $3.5 billion, down from $3.8 billion a year earlier. Profit for the fourth quarter fell to $1 billion from $1.8 billion a year earlier. The results reflected a tough year for the industry during which oil prices sank as low as $27 a barrel and remained mired in the mid-$40s for months. American energy-industry rivals Exxon Mobil Corp. and Chevron Corp. posted disappointing earnings this week and last. But there were also signs that Shell, the world’s second largest oil company, was starting to find its footing as the benefits from its roughly $50 billion acquisition of BG Group PLC last year kicked into gear. Read more on Wall Street Journal

Trump Vows to Overhaul Trade Deal with Mexico, Canada President Trump told top congressional lawmakers on Thursday that he wants to move quickly to overhaul a trade agreement with Mexico and Canada. Trump said he has “serious concerns” about the North American Free Trade Agreement (NAFTA) and told Republican and Democratic leaders of the Senate Finance and House Ways and Means committees he wants to “kick start” the reworking of the 1990s-era deal. “NAFTA has been a catastrophe for our country; it’s been a catastrophe for our workers and our jobs and our companies. They’re leaving our country,” Trump told the lawmakers at the White House.”I want to change it, and maybe we do it. Maybe we do a new NAFTA and we put an extra ‘F’ in the term NAFTA. You know what the ‘F’ is for, right? Free and fair trade — not just free trade,” he said. To qualify for fast-track consideration, the White House has to alert Congress 90 days ahead of starting talks on NAFTA or any other trade deal. Trump told four lawmakers — Senate Finance Chairman Orrin Hatch (R-Utah), panel ranking member Ron Wyden (D-Ore.) and Ways and Means Chairman Kevin Brady (R-Texas) and top Democrat Richard Neal (Mass.), who will oversee the trade agenda, he wants to “speed it up if possible.” Trump said he didn’t care if “it’s a renovation of NAFTA or a brand-new NAFTA, but we do have to make it fair, and it’s very unfair to the American worker and very, very unfair to companies that do business in this country.” After the meeting, Hatch said taking a closer look at NAFTA is the right move. “Given that the trade pact is now more than two decades old, a reexamination of the agreement to ensure it remains the best possible deal for American workers and entrepreneurs in the 21st century global economy makes sense,” Hatch said. “Ultimately, major shifts in policy are decisions that should made with the consultation of Congress which, under the U.S. Constitution, has authority over tariffs,” he said. Mexican announced on Wednesday that it has started the 90-day clock for NAFTA talks. Read more on The Hill


FERC Rejects Regional Wind Grid Charge Plan FERC on Thursday rejected a proposal by the grid operator for the Great Plains region that would make it more expensive for wind generators to connect to the grid. FERC said Southwest Power Pool, where wind provided about 14 percent of total generation in 2015, had not justified going with a more expensive charge than the agency outlined in a rulemaking. FERC told SPP to come back with a better pitch within 30 days. Read more on Politico


Pipeline Approvals by FERC


FERC approved a flurry of pipelines as they stand to lose their quorum. These include Energy Transfer Partners’ Rover and a pair of smaller pipeline projects like Tennessee Gas’ Orion and Dominion’s Charleston. Analysts had also thought Spectra’s NEXUS and National Fuel’s Northern Access 2016 might also get approval. Mainstream legal thought maintains that commission leaders need to sign off on these kind of projects, so companies had hoped for approvals soon in order to meet springtime tree-clearing deadlines and other restrictions. The departure of a key member of the Federal Energy Regulatory Commission on Friday will leave the agency short of the quorum needed to sign off on major projects such as natural gas pipelines. That comes after 52 pipelines were approved last year, the most in data going back to 2009. “FERC can’t let this go on too long because the backlog will stack up,” said , an energy analyst at Bloomberg Intelligence. “They are shorthanded, literally, so everything slows down.” Read more on Bloomberg


Michael Best Strategies

Michael Best Strategies’ Energy Team

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