Offshore wind learns the hard way the peril of US approvals

President Donald Trump’s war on offshore wind has devastated a $25bn industry and risked thousands of jobs, but perhaps more significantly, introduced unprecedented political risk into US investing, critics contend.

“Just saying that the president directed an agency to do something is not an adequate justification,” she added.

The resulting regulatory uncertainty “is terrible for all sectors of business and economy and sets a horrible precedent that no project is safe, even when it's been issued its final permits,” said Amy Boyd Rabin, vice president of policy and regulatory affairs at the Environmental League of Massachusetts.

Executives in fossil fuels have warned that Trump’s war on wind could boomerang on their industry.

Yet others see Trump’s assault on wind as par for the course in the highly politicized US energy and infrastructure regulatory environment.

'Welcome to the club'

American Petroleum Institute’s president Mike Sommers said “both sides of the aisle abuse the permitting process” in widely quoted media remarks.

“Welcome to the club,” he added.

The Keystone XL oil and gas pipeline saga highlights the industry’s regulatory risk.

TC Energy first proposed the nearly 2000-km pipeline to bring crude from Canada’s western tar sands to US refineries during former President Barack Obama’s administration in 2008.

The some $9bn pipeline was later rejected by Obama, restarted by Trump (twice, following a judicial block), then denied again by Biden, after spending nearly $1bn in capital.

Biden likewise stopped Venture Global’s Calcasieu Pass LNG export terminal in Louisiana in January last year, pausing at least $15bn in investment. The project was later reinstated by Trump and reportedly broke ground on construction this summer.

Coal mining on federal land has been essentially stopped since the Obama administration before DoI held its most recent leasing rounds last month.

Environmentalists reject the comparison, though.

“We've seen the administration take action against renewable energy at all stages of the process, from halting leasing and permitting to stopping these nearly complete projects, which is very different from the Biden administration's actions towards oil and gas development,” Loomis said.

Keystone had only completed 8% of total construction before it was halted and Venture Global was still in the engineering and procurement phase, compared to Revolution Wind over 80% completion.

Keystone also fell under “a different regulatory and statutory framework”, noted Kate Sinding Daly, senior vice president for law and policy at Conservation Law Foundation (CLF).

Cross-border pipelines require direct approval from the president – the Presidential Permit – putting them at specific risk of executive privilege, and “the developer of that [Keystone] project knew that,” Daly said.

'Arbitrary and capricious'

Offshore wind by contrast is permitted through an administrative process without direct presidential approval, which entitles offshore wind developers “to a very different set of expectations” on permitting certainty, Daly added.

What little certainty offshore wind still holds could be upended by Interior secretary Doug Burgum’s reinterpretation of a 70-year-plus law this past July.

Offshore wind is largely regulated under the Outer Continental Shelf Lands Act (OCSLA) of 1953, that was amended in 2005 to enable renewables.

That amendment included 12 criteria ranging from “safety” and “national defence” to commercial fishing that must be met for a project to be approved.

Biden held that these criteria could be reasonably balanced off each other to allow for development. Burgum now says each must “be fully met”, a potentially impossible standard for offshore wind projects to meet.

Its “the definition of arbitrary and capricious where you're changing the rules to achieve a particular outcome without providing the reason basis for why that change is justified,” Daly asserted.

More critically, this standard is being used to re-evaluate existing approvals, potentially laying the foundation for remanding most if not all project approvals.

“Retroactively applying a new standard is not something that is legal, and it's not something that we've seen prior administrations do,” she said.

The debate over which sector gets rougher treatment at the hands of its opponents will likely continue, and ‘policy by pendulum’ is seemingly the only outcome, with energy projects facing renewed risk with every change of administration.

For the fossil fuels industry, “the risk is baked into the investment, which drives up the risk-adjusted cost of capital,” said Schwartz.

This now applies to wind and solar development, with most likely outcome higher costs and tighter supply for US energy.