All new administrations seek to exert their own views and influence over policy and government action when they arrive at the White House, but they need to be careful. They run the risk of scaring away business with their changes by sending the message that the operating environment in the United States is neither stable nor reliable. In its early decisions, particularly those involving energy production and transportation, the Biden administration sent businesses all the wrong messages. We risk losing the confidence of investors.
Stability and reliability are both crucial to foster an attractive investment environment, in energy as well as other sectors. When President BidenJoe BidenJill Biden campaigns for McAuliffe in Virginia Fill the Eastern District of Virginia Biden: Those who defy Jan. 6 subpoenas should be prosecuted MORE unilaterally hampered new oil production on federal land and waters and cancelled the Canadian Keystone XL pipeline with the stroke of a pen, his administration redirected major American policies in an instant without any real assessment or discussion. Business ventures will now see a risk of unreliability every four years.
Energy firms — particularly U.S. companies — are facing uncertainty and instability with the Biden administration’s executive order to suspend all new leases for oil and gas drilling on federal land and offshore. Many companies tried to prepare in case of this move, and they stocked up on federal leases prior to the inauguration. Nevertheless, on Jan. 29, the government invalidated 70 permits it previously had approved. The government claimed that such permits now require an extra level of approval from a political appointee (now appointed by the Biden team). Companies were told to cease operations and to resubmit their permit applications, meaning that, for some of them, preparations were for naught.
Some companies are challenging the moratorium. Two hundred independent energy firms, through the Western Energy Alliance, have filed a petition in federal court in Wyoming. These companies need to protect themselves and pursue all recourse because they relied on one set of circumstances and the government changed those circumstances without input or warning.
This year-long moratorium on new oil and gas leases on federal land and offshore is just the first step. More regulation is probably coming, but companies don’t know what to expect. To be sure, in the future they will be wary of seeking to explore or produce on federal land and offshore. Even if the Biden administration decides to end the moratorium — again, at its pleasure with no consultative process — any company looking to utilize subsoil resources on federal land must be wary that the government could renege once again. This kind of risk may make projects utilizing federal land too risky, but this precedent does not apply to the oil and gas industry alone. From now on, businesses will be wary of investing in anything that depends on the government since they know they could be shut down after another election. This is no way to run a healthy economy or a business-friendly environment.
Similarly, the administration’s decision to cancel the permit for the Keystone XL pipeline might have been an easy inauguration gift for environmentalist activists, but it sets a harmful precedent. In this case, our close ally Canada is learning that it can’t count on the U.S. to keep its promises. Both Canadian Prime Minister Justin TrudeauJustin Pierre James TrudeauCanada's Trudeau apologizes for vacation on first Truth and Reconciliation Day Unvaccinated Canadian government workers to be placed on unpaid leave Canada marks first 'National Day of Truth and Reconciliation' MORE and Alberta Premier Jason Kenney harshly condemned the president’s unilateral action. Kenney called the executive order a “gut punch to the Alberta and Canadian economies” and “an insult.”
TC Energy, the Canadian company behind the pipeline, relied on the word of the U.S. government when it started building the pipeline, and it has already spent more than $6 billion on the project. It may seek legal recourse, and Alberta, which has accused the U.S. of violating NAFTA, will sue as well. Most importantly, the U.S. is losing the trust of partners and investors.
The next foreign company or American enterprise that wants to invest in American infrastructure and natural resources will think twice or will walk away, knowing that a new president can renege immediately and without a full or serious review. This is not a partisan issue. Biden’s precedent could scare away renewable energy investors if they fear a future Republican president would hamper their efforts, perhaps canceling loan guarantees or contracts. The U.S. government needs to show that it keeps its word when businesses have already relied on that word and committed major investments based on that word.
Ellen R. Wald is a senior fellow at the Atlantic Council’s Global Energy Center, and president of Transversal Consulting, a global energy and geopolitics consultancy. She is the author of “Saudi, Inc.,” a history of Aramco and how the Saudi royal family controls this multitrillion-dollar enterprise. Follow her on Twitter @EnergzdEconomy.