Republican sweep opens way to boost oil and gas development

U.S. Republicans are poised to pave the way to expand fossil fuel development, roll back Biden-era environmental regulations and curtail President Joe Biden’s signature climate law after securing unified control of Congress and the White House.
Republicans completed the feat as CNN and NBC News projected Wednesday that the party had won a majority of seats in the U.S. House. That dashed Democrats’ hopes of holding the House as a firewall against President Donald Trump and the incoming Republican Senate majority.
House Speaker Mike Johnson and other Republican lawmakers have said they will press to expand oil and gas leases on federal lands. Johnson would also like to allow more drilling in Alaska’s National Petroleum Reserve, after the Biden administration enacted regulations to thwart drilling in more than half the area.
Oil producers, however, may be reluctant to drill new wells with U.S. output already at a record high and investors previously burned by oversupply in the market. Still, shares in companies that provide drilling and fracking services surged after the election, with the S&P 500 Energy Index up 4.6% since Election Day.
The last time Trump and Republicans had full control over the elected branches of government, in 2017, the party lifted a 40-year-old ban on oil and gas drilling in Alaska’s Arctic National Wildlife Refuge.
Lawmakers can get around the threat of a Senate filibuster through a special procedure available to Congress for budget-related legislation that requires only a bare majority in each chamber.
The Republican-controlled Congress will likely also use that process to curtail Biden’s signature climate law, the Inflation Reduction Act, which provides trillions of dollars in tax breaks, subsidies and other incentives for clean energy sources, electric vehicles, nuclear power plants and more. Trump savaged the law on the campaign trail.
Still, Evercore ISI in a note to clients forecast only “slight modifications” in the tax breaks such as capping some incentives because the vast majority of clean-energy investment subsidized by the law has gone to Republican-held congressional districts, where land and labor are usually cheaper.
A group of House Republicans warned Johnson over the summer not to repeal the climate law’s clean-energy credits, arguing doing so would “undermine private investments and stop development” already underway. Powerful groups such as the American Petroleum Institute also support some parts of the law, such as generous incentives for hydrogen development and carbon capture.
The climate law “is more likely to be trimmed than terminated,” said Kevin Book, managing director of Washington-based consulting firm ClearView Energy Partners.
One open question that could influence the debate in Washington is the role that Elon Musk will play, Book added.
Musk’s Tesla would disproportionately benefit from strengthening domestic content requirements to qualify for electric vehicle tax credits since the company’s models use fewer imported parts than competitors, Deutsche Bank AG wrote in a research note Tuesday.
A Republican-controlled Congress also gives the GOP a better chance at using a once-obscure law that allows them to roll back rules finalized late in the Biden administration. During Trump’s first-term, Republicans in Congress repealed 14 Obama administration rules.
The incoming Republican Congress may use the tool to repeal a recently finalized Biden administration regulation that requires oil and gas companies to pay a fee for leaks of methane, a potent greenhouse gas, said Dan Goldbeck, director of regulatory policy at the American Action Forum, a right-leaning think tank.