One of President Trump’s focuses in his first week was energy. In his executive order titled “Unleashing American Energy,” the president stated that it “is in the national interest to unleash America’s affordable and reliable energy and natural resources.”
He recognizes one of the main hindrances to realizing that vision: “In recent years, burdensome and ideologically motivated regulations have impeded the development of (energy) resources (and) limited the generation of reliable and affordable electricity.”
That is, of course, if you are a traditional source of energy. Offshore wind was given special treatment by the Biden administration in its obsession with transitioning to “clean energy.” It waved a new, unproven source of electricity right on through the roadblocks it had set up to impede reliable energy industries. The story of Vineyard Wind and financial surety is illustrative.
Every energy company is required to set aside “financial assurances” — such as bonds — that would ensure that it can pay for the costs associated with safely removing a structure (an oil rig, for example) at the end of its life. This is to prevent “orphaned” structures that pose a risk to the environment and to act as insurance against taxpayers having to foot the bill for decommissioning a site.
For traditional energy sources, such as oil and gas, the regulations governing financial assurances can be cumbersome, especially after the Biden administration changed the rules for companies operating off the Outer Continental Shelf. They are required to put up onerously expensive bonds unless they are able to show high credit ratings or other assets. That’s fine for large oil companies, but it threatens to drive many smaller oil and gas businesses out of business. Surety markets have even stated that the demands as mandated may be too difficult to underwrite.
The system was not broken. Over many decades, decommissioning had cost taxpayers $58 million. The Biden rule creates an additional compliance cost of $2.676 billion.
Contrast this with the treatment that Vineyard Wind has received. Vineyard Wind, off the shore of Martha’s Vineyard, is the nation’s first offshore wind plant. It is the flagship operation of a recent and unproven industry. It produced its first megawatt of electricity last year.
Wind companies’ assurance regulations are anything but onerous. Wind plants are required to show $10,000 per turbine of financial assurance to cover decommissioning costs and environmental risks to cover an estimated liability of $532,000 per turbine in decommissioning costs. Vineyard Wind, which has a lease to build 62 wind turbines, should be required to put up $620,000 in financial assurances to cover the potential liability of $33 million.
Inexplicably, the Biden administration waived this financial assurance requirement, despite the regulations containing no waiver option. The Bureau of Ocean Energy Management’s reasoning was that Vineyard Wind’s financial assurance requirement was “unnecessarily burdensome for lessees because … they have not begun receiving project income.”
For an industry that relies on substantial subsidies, is already on shaky ground because of high consumer costs, and can prove to be unreliable at times, there are many risk factors at play to waive financial assurance requirements. Indeed, Vineyard Wind is already having to replace the blades it has already constructed after one broke off last summer. This is especially true given that the industry has no track record for compliance. What happens if subsidies are discontinued? What happens if the electricity generated is insufficient to be profitable? What happens if the wind plant is forced to close like some of its land-based counterparts?
The taxpayer is at risk of paying for decommissioning and environmental risks.
If an oil start-up were to claim undue burden to avoid financial assurances, no such waiver would be available. Nor should it be for Vineyard Wind.
Wind energy is a fine pursuit if it can provide reliable, financially sustainable and environmentally friendly energy. Perhaps already perceiving its “inadequacies” along with the reliability risks of the projects, Trump already suspended leasing for wind projects pending a review of leases and laws.
He should follow that secretarial order with another (or executive order): require that all regulations, including financial assurance, be enforced on wind projects. Additionally, he should order that the onerous financial assurance regulations placed on the oil and gas industry be replaced with regulations that are more manageable.
The Biden administration used regulation to “pick sides” between industries. Trump’s initial energy actions are a great start. These two suggested steps would do much to give America a fair, productive and reliable energy industry.
