In June 2017, then-President Trump revealed that the United States would exit the United Nations’ Paris Agreement to combat climate change. Shortly after taking office last week, President Biden took action to re-commit the U.S. to the legally binding international treaty aimed at curbing greenhouse gas (GHG) emissions. The Paris Agreement officially goes into force for the U.S. on Feb. 19, 2021, according to the UN Framework Convention on Climate Change.
Paul Goydan, Houston-based head of the North American energy practice with Boston Consulting Group (BCG), recently outlined to Rigzone how rejoining the Paris accord could affect the U.S. oil and gas industry. Read on for a transcript of Rigzone’s conversation with Goydan.
Rigzone: Which provisions of the Paris deal would command the most interest from U.S. oil and gas companies?
Paul Goydan: Re-joining Paris just commits the U.S. to reduce GHG emissions in line with keeping global warming to “well below 2 degrees.” In practice it will require the U.S. to submit a Nationally Determined Contribution, which is effectively a plan for how the U.S. will achieve net-zero emissions. So, other than achieving net-zero emissions by 2050 and setting interim targets, there are no particular constraints on what the U.S. can do to achieve it. And there are no specific penalties. So it’s all up to what the Biden administration does and what passes Congress.
Rigzone: What are some examples of day-to-day operational changes that could await U.S. oil and gas firms?
Goydan: One example is the Biden administration’s 60-day suspension of new well permits on federal lands. There was a flurry of permits in December – at about double the pace of the prior three-month average. This moratorium will really hit the smaller players that operate in those areas but do not have the inventory of permits that the larger companies do. State-level policies will continue to remain very relevant from an emissions perspective … it’s not just federal changes.
Rigzone: At a more strategic level, what adjustments might companies need to make?
Goydan: Larger companies will continue to invest for the long term and continue to progress in including climate change into their view on oil prices and costs of development/operations. There may also be a shift away from federal leases and lands if they become more costly and complex, but this outcome may be fine for the administration. Portfolio matters and the oil industry remains global so we could see longer-term shifts in focus away from U.S. development by international firms, but it is too soon to conclude anything.
Rigzone: How do you see this decision changing the U.S. competitive landscape for oil and gas firms? Who are the winners and losers, so to speak? In terms of the oil and gas workforce, what changes might we see given this decision?
Goydan: Less development and less investment in the U.S. will impact employment. With the recent price shocks, we are already at an industry low point for employment so we likely won’t see things “get worse” in the short term, but we will see impacts on activity resumption and jobs coming back.
Rigzone: Making a decision is one thing. Implementing it is another. What potential hurdles might the Biden administration, not to mention the U.S. oil and gas industry, face in putting tenets of the Paris accord into effect?
Goydan: We expect more stringent federal regulation where feasible – first targets will be on methane emissions and flaring, while subsequent measures will be focused on CAFE (Corporate Average Fuel Economy) standards, power markets. But a comprehensive new regulatory or market-based regime for climate is unlikely; with congressional action challenged, the Biden Environmental Protection Agency will attempt to use the Clean Air Act but the legal basis will be heavily litigated. Overall, potentially the biggest impact will be through new government spending and incentives shifting energy production and consumption patterns – there is now an emerging bipartisan consensus on expanding support for a full range of technologies that will fundamentally impact oil and gas demand (e.g., electric vehicle promotion, renewables adoption, electrification).
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