President Joe Biden promised to “end” the use of oil and natural gas in the United States during his campaign, and also talked about mounting a “whole of government” approach to achieving that goal. Since taking office, he has worked to follow through on those promises, cancelling the Keystone XL pipeline, repeatedly suspending the federal oil and gas leasing program and even attempting to place a climate activist, Sarah Bloom Raskin, on the board of the Federal Reserve.
On Monday, Biden’s Securities and Exchange Commission (SEC) got into the act, issuing a new proposed regulation mandating climate-related disclosures, a vast expansion of its regulatory authority that some believe exceed its’ purview. “Today’s action hijacks the democratic process and disrespects the limited scope of authority that Congress gave to the SEC,” Sen. Pat Toomey (R., Pa.) was quoted as saying. “This is a thinly veiled effort to have unelected financial regulators set climate and energy policy for America.”
One of the big concerns from the oil and gas industry stems from the likely outcome that the SEC rule will afford some financial institutions and ESG investor groups with just another rationale to deny capital lending to companies. One CEO I spoke with pointed out that the measurement of these emissions is far from an exact science, open to interpretation and disagreement even among true experts. But Gary Gensler, Chairman of the SEC, disagrees, saying “Companies and investors alike would benefit from the clear rules of the road.”
While the administration boasts that the new rule will result in a set process for everyone to use, the CEO is concerned that the method for measurement will later be proven to have been wrong. But in the meantime, the liability associated with SEC filings would almost certainly become another tool for activists to target companies for “improperly” disclosing emissions and bring shareholder lawsuits.
API, one of the oil industry’s national trade associations, alluded to such concerns in a formal statement issued on Monday: “The U.S. oil and natural gas industry has a long history of sustainability reporting, and achieving greater comparability and transparency across those efforts is a leading priority. We are concerned that the Commission’s sweeping proposal could require non-material disclosures and create confusion for investors and capital markets.”
Jason Modglin, President of the Texas Alliance of Energy Producers, was more blunt in his assessment, saying “The SEC appears to have been coopted by the same proponents for Sarah Bloom Raskin into utilizing the financial system to penalize and ostracize oil and gas producers to the detriment of US taxpayers and their energy security.”
As I’ve written several times recently, the topic of energy security would logically seem to be of heightened importance at this difficult juncture of world history. But there can be little doubt that America’s energy security has been diminished during this presidential administration, and it could be put at further risk by politically-motivated financial regulators with little or no expertise in energy or environmental regulation.
The President himself makes no secret of his desire to implement policies that will further restrict the domestic oil and gas business, and his senior officials from numerous federal departments have stated for the record that they are working to implement rules and policies that will discourage future energy production. There is no real doubt that this proposal from the SEC is one of those efforts.
Denying credit from banks and raising the cost of capital for investment is likely to suppress domestic exploration and production of traditional energy sources. When combined with other administration actions, such as restricting new oil and gas drilling on federal lands, policies like this one can help create energy price shocks like the one we are currently experiencing and increase our dependence on foreign sources.
Ironically, this new, punitive regulation from the SEC was issued less than two weeks after Energy Secretary Jennifer Granholm urged the domestic industry to invest billions more money needed to produce more oil here at home. Doing that would certainly increase America’s level of energy security, but it is an effort that can only be achieved through access to capital markets. This transparent effort by the SEC to further limit such access for energy producers stands in direct conflict to Granholm’s plea.
But honestly, that reality should surprise no one who has been paying attention, since it is how this administration has functioned related to the domestic oil and gas business for 14 months now.
