What to Watch for 2022: Federal Policy

Photo of United States capital at night

2021 ended with a whimper for the budget reconciliation package that Democrats had hoped to finish before the holidays. In this edition of Both True, I give you what to watch for regarding federal policy in 2022 — a year that begins with Democrats hoping to resuscitate their climate agenda and the midterm election season moving into full swing. At Adamantine, we’re advising game-changing leaders to adopt cautious optimism, avoid the moody pendulum of political commentary, and stay the leadership course.

You can review our recent What to Watch editions on COP26 and energy prices as well.

Both of these things are true:

  • Federal policy can materially impact your business risk.
  • A steady, proactive energy and environmental leadership strategy allows you to avoid the political roller coaster.

The situation

Here’s your refresher on what’s in play right now for key federal energy policy:

  • The infrastructure bill. On November 15, the Infrastructure Investment and Jobs Act was signed into law with bipartisan support. The package contains significant climate-friendly investment that aligns with oil and gas decarbonization leadership opportunities. Notably, the bill contains the largest single investment ever made into carbon capture utilization and storage (CCUS), allocating funds, grants, and loans toward developing CCUS infrastructure such as carbon transport and direct air capture. The bill also allocates $9.5 billion toward hydrogen research, development, and demonstration programs. In additional good news, the legislation’s definition of “clean hydrogen” is inclusive of blue hydrogen (the kind of hydrogen derived from fossil fuels with carbon capture). The infrastructure bill also includes funding for building out electric vehicle infrastructure, improving the cybersecurity of the energy sector, and orphan well cleanup.
  • The reconciliation bill. On November 19, the House of Representatives passed the chamber’s version of the Build Back Better Act. It faces a tough battle in the Senate but proponents of the bill are not giving up hope. The reconciliation bill currently includes several provisions that have the potential to create challenges for oil and gas operations, including methane fees, increased royalty rates, and more. However, the bill also expands the 45Q carbon capture and sequestration tax credit and includes a hydrogen-production tax credit.
  • Public support. The American public’s support for both the infrastructure and reconciliation bills has been strong, numerous polls and surveys have told us. An ABC News/Washington Post poll conducted in mid-November (after the infrastructure bill was passed by Congress) demonstrated majority support by the public for both the infrastructure and reconciliation bill. About 63% of Americans said they supported the infrastructure bill, and 58% supported the proposed $2 trillion reconciliation package.
  • Progressive scrutiny. The infrastructure bill has drawn criticism from several environmental groups. As I noted in a Both True edition from late 2021, climate action that offsets, repurposes, or otherwise engages the oil and gas industry can be critiqued as a lifeline extending oil and gas development. Mitch Jones, director of advocacy programs and policy for Food & Water Watch, wrote in August: “This infrastructure proposal is not a down payment on real climate action — it is doubling down on support for climate polluters.”
  • Pragmatic enthusiasm. On a more optimistic note, not everyone is crying foul or apocalypse! While haggling continues on the reconciliation bill, Robison Meyer in The Atlantic describes how climate provisions and funding in the reconciliation bill have prevailed. “[E]ven as the bill’s overall spending has been cut in half,” Meyer writes, “its amount of climate spending has barely budged, moving from $600 billion to $555 billion.” AndConrad Schneider with the Clean Air Task Force commented to Roll Call on the carbon capture sequestation provisions in the infrastructure bill: “These are the component pieces — not as big as they need to be, not as full as they need to be — but they represent pieces of the puzzle that ultimately will lead to de-carbonization. It’s a great start; it’s not the finish.”

Seize the day

Federal climate policy will have big ramifications on the energy mix, with numerous opportunities for the oil and gas industry to participate in decarbonization leadership. At Adamantine, we’re advising game-changing oil and gas leaders to chart a steady course and avoid any impulse to partake in combative or high-drama political gamesmanship. Instead, we think the sector’s leaders should and will put their efforts into ensuring that decarbonization pathways are viable through our industry’s engagement, investment, and innovation.

No one knows what will happen next with the reconciliation bill or its descendants. Here’s something we do know: Uncertainty always leads to an opportunity for those with the foresight to engage in the climate conversation authentically and constructively.

Wondering how to engage your leadership team in this political conversation? Hit reply: I’m taking on a limited number of executive advisory engagements in 2022. Was this post forwarded to you? You can subscribe here.

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