After several weeks of Democrat delays, the Senate has scheduled a confirmation vote Friday afternoon on Scott Pruitt, President Trump’s nominee to be Administration of the Environmental Protection Agency (EPA).
On a parallel track are several executive orders the White House is waiting to issue upon Pruitt’s confirmation that will instruct EPA to take action on several matters candidate Trump promised during the campaign. Reuters reported today that EPA officials were told to stand by for immediate incoming executive orders.
When President-Elect Trump nominated Scott Pruitt for EPA Administrator, we said at the time that the pick was confirmation that Trump intended to follow through on campaign promises to reverse the Obama administration’s policies to decarbonize the economy.
As a result, Pruitt’s confirmation Friday should alert investors about pending policy changes that could have meaningful impacts on various sectors and companies.
We believe the first priority for the White House and Pruitt will be rolling back the EPA Clean Power Plan (CPP) through regulatory and legal maneuvers. The CPP was the Obama Administration’s rule regulating carbon in the power sector and was widely expected to expand to other sectors in a Hillary Clinton Administration.
Trump has pledged to kill the CPP but it is unclear what approach EPA will use to implement this objective. One possibility is to withdraw the rule and develop a new rule that is less onerous on the coal sector and eliminates incentives for renewables. Another option is to instruct the Justice Department not to defend legal challenges to the rule. Whatever the approach, environmental groups are sure to litigate any actions on this front.
For investors, the CPP’s undoing will be positive for coal and most utilities while creating some headwinds for the renewable energy sector.
Another potential early executive order and EPA action would be some reforms to the Renewable Fuel Standard (RFS) which promotes the use of ethanol and other biofuels. Independent merchant refiners are seeking a rule change to shift the point of obligation for RFS compliance from refiners to blenders/retailers.
The change is opposed by the American Petroleum Institute and ethanol producers. It is a tricky issue for Trump because he won farm states like Iowa and North Dakota and has pledged to support the RFS.
But he has also pledged to ease costly regulations and appointed investor Carl Icahn (& refinery owner) as a regulatory advisor.
We believe Trump will thread the needle by issuing a rule to change the obligated party but taking some further action to bolster the RFS, such as administratively extending the program past the 2022 expiration.
In December the Obama Administration’s EPA denied a petition by Valero to shift the point of obligation under the RFS and opened up a public comment period on the denial which ends on February 22. More information on the petition and comment period is available here.
During his confirmation hearing, Pruitt was pressed by farm-state senators on his position regarding the Valero petition to change the obligated party but he demurred citing the on-going comment period on the denial.
The Trump EPA may review the comments and potentially use them to change the program. It is important to realize that EPA can do this through a notice of proposed rulemaking that does not require any congressional action.
Pruitt will be easily confirmed by all Republican Senators except Susan Collins (Maine) and will also get votes from Democrat Senators Joe Manchin (West Virginia) and Heidi Heitkamp (North Dakota).