By Leonard Hyman & William Tilles
June 3, 2023

• The debt ceiling talks ended with an agreement to lift the debt ceiling, sparing the economy and avoiding default.
• Senator Joe Manchin got the a stalled pipeline project finally approved. 
• Despite upfront rhetoric, the Republicans didn’t defund the Inflation Reduction Act.

The debt ceiling drama (farce?) has ended. Having manufactured a crisis that could have tanked the economy, our legislators solved the problem and took credit for their statesmanship, some might argue. Let’s leave aside the political noise and ask about the impact on the energy industry.

1. Economy spared— Good news for every business. Who needs a snap recession?

2. No default— Preserves the credit of the U.S. Treasury securities are the “risk free” investments that underlie all financial calculations. If they are not risk free, then their cost will rise and so will that of all other sources of capital. Having a debt ceiling circus every two years brings into question the risk free nature of the Treasuries. So we would say that not defaulting this time around is good news, but guaranteeing repeat performances is not, because, sooner or later, Congress won’t raise the debt ceiling. We can’t help but feel that Congress has raised capital costs for everybody. And energy companies have to raise a lot of capital.

3. Speeds up energy project siting processes— energy projects of all sorts — windmills as well as pipelines— are bogged down in seemingly endless hearings, which add to costs and to system planning uncertainty. We rate this as a modest win for the energy industry.

4. Congress blesses Joe Manchin’s pet pipeline project— The new law authorizes a pipeline that has been stalled for years. Maybe a requirement to get Senator Manchin’s vote, a one off, but a portent of things to come? Not sure. The Supreme Court, in the near future, seems likely to dilute or demolish the ability of regulatory agencies to exercise judgment. That would return us to the days of legislative regulation, when every act of regulation required a new law to deal with a particular circumstance, which created opportunities for corruption and which slowed and prevented needed change. Are you ready to have Congress to design and approve each energy project?

Now, let’s get to the dog that did not bark, actually the most important aspect of the deficit ceiling drama. You may remember, when it began, that the Republicans threatened to use the debt ceiling as leverage to defund President Biden’s Inflation Reduction Act, basically to gut the clean energy initiatives. Doing so could have cut several hundred billion dollars from the spending bill. But nothing happened. As a result, we think the IRA initiatives will continue and gain momentum, even if a Republican is elected president. Big businesses enjoying the government’s largesse will not want to forsake it on principle. They’ll be hooked. We suspect that the energy companies, with all their lobbying money, may have decided that deep down, they like the IRA because it offers so many financial goodies. No point in rocking the boat.

In short, President Biden got or kept just about everything he wanted. And watch for more announcements of multibillion-dollar IRA-funded projects in which the big energy companies invest in hydrogen, synthetic fuels, and CCS (carbon capture and sequestration). Those are the exciting, well subsidized markets, not the legacy oil and gas wells and pipelines. You can thank Congress for that.