Republican Wave Promises Shift In America’s Energy Policy

Republicans are expected to gain enough seats in the November 8 midterm elections to capture a majority in both chambers of Congress. The shift back to Republican control could complicate President Joe Biden’s energy policy priorities, but it will certainly provide a boost to energy security advocates.

The Biden administration’s energy policy has prioritized a climate agenda that has contributed to shortages and rising costs for consumers. The White House’s answer to the energy crisis so far has been to attack America’s oil and natural gas producers, demanding increased production and threatening higher taxes.

Such bully-pulpit leadership from the White House isn’t enough to calm energy markets angry about runaway inflation, Russian aggression in Europe, the standoff with China, and a global pandemic that won’t go away.

Current polls show Republicans with an 84 in 100 chance of taking back the US House of Representatives, according to polling site FiveThirtyEight. The battle for control of the Senate is tighter, with Republicans holding 52 out of 100 shots of winning control of the upper chamber.

As Republican candidates have gained in the polls as Election Day approaches, the most likely outcome is a closely divided Congress with a small Republican majority. But even a slim Republican majority could create headwinds for President Biden’s agenda.

Under Biden’s presidency, retail gasoline prices rose to a record $5 per gallon in June. Prices at the pump are around $3.75 per gallon today, which is still 60% above where they were when Biden took office on January 6, 2021. Gas prices are poised to push higher before the end of the year due to tight and rising global supplies. geopolitical risks, including the war in Ukraine and increased sanctions on Russia, a top oil and gas producer.

It’s not just gasoline prices that are a problem. The diesel situation is even worse. Meanwhile, the US Energy Information Administration (EIA) expects heating costs to increase this winter – with households forecast to spend nearly 30% more on natural gas and heating oil and 10% more on electricity.

Republicans are expected to upend Biden’s anti-fossil fuel agenda, which has seen the President recently threaten to tax windfall profits on domestic producers that will inhibit investment in new oil and gas supplies.

Biden has no political support in Congress today for such a tax, never mind when the new legislature meets with the Republican membership.

Biden’s administration at the Environmental Protection Agency (EPA), the Federal Energy Regulatory Commission (FERC), and the Securities and Exchange Commission (SEC) have been critical of the domestic oil and gas industry. They have delayed the sale of new oil and gas leases, blocked drilling permits, and delayed pipeline approvals. Such moves create an anti-investment atmosphere in the traditional energy sector.

As the election approaches, Biden is increasingly desperate to reduce consumer prices at the pump. The White House has withdrawn from the Strategic Petroleum Reserve (SPR) – America’s emergency oil stockpile – and is targeting oil-producing countries with appalling human rights records that promote terrorism.

Somehow, the President forgets that America is the largest producer of oil and gas – with a better track record of producing energy in an environmentally responsible way than Iran or Venezuela.

Even with control of the House, Republicans can challenge the White House’s energy policy and push for a return to the previous administration’s energy priorities.

That includes the White House’s strained relationship with Saudi Arabia, the leader of the OPEC cartel, which has ignored Biden’s calls for an increase in global oil supplies, choosing instead to cut production by 2 million barrels a day.

Congressional action on the so-called NOPEC legislation, which would allow the US Department of Justice to prosecute OPEC members on antitrust grounds as monopoly members, could make a vote as early as 2023.

The issues plaguing US-Saudi relations do not fall neatly along party lines. Criticism of Riyadh tends to be louder on the Democratic side, and former President Donald Trump is widely seen as having better relations with the kingdom. But Iowa’s Republican Senator Chuck Grassley has long led the charge to pass anti-OPEC legislation.

Trump’s continued influence on the Republican Party could lead a stronger Republican Congress to press again for better relations with OPEC. It’s hard to say how this will fall, but it will be more difficult politically for Biden to veto or lobby against the NOPEC vote than past presidents.

Biden’s crowning climate achievement, the Inflation Reduction Act (IRA), remains the GOP’s lightning rod. And while there are high hurdles to getting rid of the law, Republicans can be expected to do a lot to expose its flaws.

Republicans remain very unhappy with the passage of the Democratic spending bill, which contains $369 billion in clean energy spending. GOP House lawmakers have gone so far as to repeal the law, which Biden signed in August, a central policy plank for the next Congress. If the Republicans get control of the House, it means that many hearings and bills will be centered around dismantling the IRA.

Among the most vulnerable of the IRA energy provisions are a new methane tax on oil and gas operations and a minimum corporate tax of 15% of income. While Congress has wide latitude regarding tax provisions, Republicans will have to win both chambers to repeal the provisions successfully. Even so, they are unlikely to capture the two-thirds majority needed to override a presidential veto. Still, hefty House GOP oversight of federal agencies tasked with enforcing the law — and their budgets — could slow things down.

There is a lot at stake in energy at the state level in this election, too.

Republican wins in key producing states could fuel the GOP’s push against environmental, social, and governance (ESG) issues. The political rhetoric around the clean energy transition in Washington is at a palpable high, which climate hawks fear can trickle down to state-level politics, widening the band of anti-ESG countries.

A related debate is emerging in critical races, including gas-rich Pennsylvania. In the state’s closely watched Senate race, Republican candidate Mehmet Oz vowed to get rid of the Biden administration’s “wake up agenda” and ensure that the flow of capital to oil and gas projects is not disrupted. And the SEC’s climate risk disclosure rules, also said to be on the GOP’s chopping block, have yet to be finalized.

Meanwhile, some tight gubernatorial races carry climate and energy implications, where a change in power will almost guarantee a shift in policy-level conditions in their arena. States to watch are Oklahoma, New Mexico, and Oregon.

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