Mintz on Air - Predictions and Practical Policies

In the latest episode of the Mintz on Air: Predictions and Practical Policies Podcast, ESG Co-chair Jen Rubin moderates a forward-looking discussion on what businesses can expect for ESG, clean tech, and energy regulation under the second Trump administration. Jen is joined by Mintz Energy & Sustainability Chair Tom Burton, ESG Co-chair Jacob Hupart, Environmental Law Chair Jeff Porter, and Member Steven Shparber, who share key insights and practical advice for navigating potential changes.

Our panelists dive into topics such as:

• The future of federal support for clean tech and the growing role of state and private sector investment
• Expected shifts in SEC climate regulations and state-level disclosure rules
• How Trump’s EPA may approach deregulation in environmental protection
• Anticipated changes at FERC
• The evolving landscape of workplace diversity programs and regulatory compliance

Listen to learn more about actionable strategies and perspectives to help your business prepare for what’s ahead.

Mintz on Air - Predictions and Practical Policies Transcript

Introduction

Jen Rubin (J.R.) - Greetings. I'm Jen Rubin and welcome to Mintz on Air and the Predictions and Practical Policies podcast. I'm really happy to be joined here today by my partners Tom Burton, Jacob Hupart, Jeff Porter, and Steve Shparber to discuss what to expect in ESG, cleantech, and energy regulation under the second Trump administration. Incidentally, if you're interested in subscribing to our podcast, you can find them on the Insights section of the Mintz website, mintz.com.

What to Expect from the Second Trump Administration in Cleantech

J.R. - So, I'd like to start by turning to you, Tom Burton, who happens to be the Co-chair of the firm's ESG Practice group, as well as Chair of the firm's Energy and Sustainability Practice group. Tom, can you tell us very briefly what we should expect from the second Trump administration with respect to cleantech?

Tom Burton (T.B.) - With respect to cleantech, there are probably three kind of key themes that I'd want to bear in mind here when we move into this new administration.

The first is that federal government support of clean energy technologies and innovation will decline. I think that we saw that quite clearly during the first Trump administration from 2016 to 2020. In fact, looking back historically, much of the federal funding that has been supporting this area has been in the chasm between development and scale. And so, the federal government has stepped in to manage that risk, through the program office. During the first administration, only one loan guarantee or loan, from that office was issued. I would expect that the current state of affairs in which over $60 billion has been committed or closed, will no longer continue. Though certain commitments that have been made in all likelihood would be honored, particularly if they are true to the benefit of the quote, unquote red states. So, that's number one.

The second piece to this is that what we'll see is exactly what we saw in ‘16 to ‘20, which was a shift in support to clean energy innovation to the states. And that is already born true here in Massachusetts tech within just the last couple of days, our legislature and governor signed the sweeping climate legislation, which will provide hundreds of billions of dollars to support the industry and job creation in the industry, as well as smoothing the process of siting and permitting projects.

The third point I want to make is that there will be a shift in venture capital investing. Probably in all that, in fact, what we observed in 2016 to 2020 was a shift away from innovative businesses that rely on government support. So, investing in the clean tech space will be focused on businesses that can stand alone profitably themselves without government support, while also achieving climate goals. In addition, one of the other dynamics at play that will create some uncertainty is that, in the last several years, there has been much more capital committed into the climate space by private funds. That capital is being spent and there has been very little exit activity as a consequence, with no distributions by funds to then be reinvested in the new funds and new innovation. There is some talk of the potential pro-business policies being implemented by the administration. Perhaps, accelerating or increasing exit activity if that were to hit the climate space. I think that will actually bode well for that space more broadly.

J.R. - Thank you. It sounds like there's going to be real movement of money, maybe a movement of money away from the federal government, possibly towards the states and certainly into the private sector, which will be interesting developments.

What to Expect from the Second Trump Administration in the Regulatory Arena

J.R. - Turning now to Jacob Hupart. Jacob, you are also Co-chair of the firm's ESG practice, but you've spent a significant amount of time trying to understand, apply, and certainly litigate some of the regulatory developments during the Biden administration, beginning with the SEC climate regulations, which took up a lot of our head space for the past couple of years. What do you think we should expect from the second Trump administration in the regulatory arena?

Jacob Hupart (J.H.) - Building on one of the points Tom just made, I would say we are definitely going to see a shift in focus to the states in terms of regulatory activity from the federal government. Now, this is not to deny the influence and impact of the SEC, but even the Biden administration's TSCC rule on climate disclosures was subject to litigation in fact, state pending litigation, and the developing consensus was that it would be unlikely to survive this legal challenge given the changes in jurisprudence recently.

All that being said, the SEC and the CFTC, are still going to be active regulators in the space, albeit perhaps more along the lines of the general policing of disclosures. But to focus on what's probably most relevant for folks’ attention, there are still climate disclosure regulations out there. In particular, I would direct attention to California. Its rules recently just survived a summary judgment challenge, where companies with over $500 million in revenue that do business in California, doing business being interpreted fairly broadly, will have to report on climate risk. And those with over $1 billion in revenue having to report Scope One, Scope Two, and Scope Three GHG emissions as well. Given the significance of California as an economy, given how critical California is to many companies who, even if they do not do business in California, will do business with companies who do business in California, I would expect that the California disclosure rules will have a significant impact unless, of course, they are successfully challenged in the courts. I would also note, in particular, looking at other regulations what's going on in the EU and some of the EU regulations are targeting the supply chain of EU companies. So, to the extent US companies are doing business with EU companies, there's at least the prospect that they will also ultimately be subject to this regulation.

Now, what is perhaps most intriguing, though unlikely given that there is a Republican trifecta in government with House, Senate, and the presidency, is whether Congress will pass a law trying to preempt what states such as California are trying to do in the disclosure space. Now, given the very narrow majority in both houses of Congress and the prospect that individual congressmen and senators may not be on board with this project, it does not seem likely. But there's at least the prospect of a wide, far reaching climate preemption lobbying put on the books.  
All that being said, from a very practical perspective, I would focus attention on the states and in particular on California. But there are other states which make it into this. I would particularly name New York and Massachusetts as ones to watch out for.

J.R. - So interesting. It sounds like, again, we're going with this theme of greater state role. And of course, all of this is music to the ears of Sacramento. But let's set that aside for the moment and instead turn our attention to some environmental questions.

What to Expect from the Second Trump Administration’s EPA

J.R. - Jeff Porter, who leads our Environmental Practice at the firm. Jeff, you've been through a couple of other administrations and transitions related thereto. I'm curious what you think we can expect from Trump's EPA, starting with whether or not you agree with the pundits that we're going to remove the ‘P’ from EPA – that is the protection. Over to you, Jeff, for your thoughts.

Jeff Porter (J.P.) - Well, as Tom and Jacob have alluded, this isn't our first experience with President Trump. There's a lot that we already know, as Jacob alluded, we are now facing a President Trump with two material differences from the first Trump: Republican control of both houses of Congress and a deliberate decision to not include an institutionalist in the administration.

President Trump has vowed to both shrink the executive branch materially and also to engage in wide ranging deregulation, and I trust that he means what he says. There's a tension there that I'm not sure the President-elect and his team fully appreciate yet despite their past experience, which is in light of some recent decisions by the Supreme Court, agencies need to more seriously follow the Administrative Procedures Act, whether they're regulating or deregulating, and that requires people who know what to do and how to do it.

There's a tension between the aim to shrink the executive branch and EPA, particularly as much as possible, as quickly as possible. And the goal of deregulating massively, because if there's nobody to do the deregulation, the deregulation can't happen in a legally sustainable way. So, it will be interesting to see how that plays out at EPA specifically and across the government generally. Despite that challenge, I think there are some low hanging fruit that we can expect the administration to pick relatively quickly.

These are the Biden administration EPA regulations that have already been challenged in court, in most cases by a dozen and a half or so, what we would call red states. I think at the very least, we can expect the Justice Department and EPA to not continue the vigorous defense of those regulations in venues which were chosen because they were expected to be generally disinclined to uphold those regulations to begin with.

Examples of categories, of those regulations, that I think we should expect to see fall sooner rather than later:

• The regulation of the Biden administration, restoring a broader jurisdiction to the Clean Water Act, known as the Water of the United States rule 
• The state Surface Water Quality Certification Regulations, which gave the states enhanced authority and process in making the water quality certification decision states have to make in connection with the federal permitting of projects The Clean Air Act Good Neighbor Rule, which controls air pollution from upwind states to downwind states.
• The regulations that have to do with having to do with renewable energy incentives flowing through EPA;
• And finally, Senator Caputo, who stands to become the new chair of the Environment and Public Works Committee in the Senate, expressed some concerns about the Biden administration's regulations on PFAs. And as some folks may know, in October of 2021, the Biden administration embarked on a wide-ranging effort to regulate PFAs in products and in the environment, and has made what for the federal government is, really fast progress on several fronts. I think we should expect the wheels to at least turn more slowly in that area, if not a revisiting of some of what's been done altogether.

Those are the five areas that I would focus on expecting not the most meaningful change.

J.R. - Thanks, Jeff. It sounds like the disruptors are going to cause some disruption. And that's something that we might be looking forward to in this field.

What Changes to Expect from the Second Trump Administration in the Federal Energy Regulatory Commission

J.R. - Turning now to Steve Shparber. Steve, you lead our Federal Energy Regulatory team. What changes do you expect to see from the Federal Energy Regulatory Commission, among others?

Steve Shparber (S.S.) - What's interesting compared to what my other colleagues said, I think that FERC is actually going to be relatively stable compared to the other agencies and the other actions that the Trump administration will take. There will certainly be some changes with the Trump administration, but as Jeff mentioned previously, we've already been through this with the Trump administration and what that looks like at FERC.

There are some practical realities just in terms of what can be done. First of all, FERC is an independent regulatory agency like the SEC. It's staffed by five commissioners. What will happen right now? The make-up is there are three Democrats and two Republicans. What will change is there will be a Republican chairman once President Trump gets elected. And unless there are any elective resignations, the Democrats will still have a majority at FERC for the next year or so. So that's going to be interesting. They're going to probably have a situation where you have a Republican chairman of FERC but a Democrat majority. Now, the chairman can still go and set the commission's priorities in terms of timing of when things are voted on, but they need a majority to get things actually passed. So that's going to be an interesting dynamic.

There are two Republican chairmen. One, Commissioner Christie, is more of an old school institutionalist, former longstanding state regulator in Virginia. Lindsay See is less known in the FERC space. She is very well known in the energy environmental space generally because she was the West Virginia Solicitor General that argued West Virginia v EPA.

Who Trump picks as the next FERC chairman, assuming it's going to be one of those, is going to be interesting, but they're going to have to get along with the other three Democrat commissioners, who are going to be the majority for at least the next year or so, unless anyone decides to resign on their own accord.

In terms of what to expect out of FERC I think this is no surprise ,there will be a push towards deregulation and permitting reform on natural gas pipelines. I would expect to see maybe a FERC review of natural gas pipeline signing and taking into account ,the impact of climate change. This was a big issue during the last the Biden administration. But once again, there may not be anything that gets changed in the short term because you have three Democratic commissioners on board of the commission. But I also expect there to be a big push towards trying to build, trying to loosen regulations around permitting. Now, part of that is not just going to be FERC’s jurisdiction, this is coming out of the FERC realm a little bit, but part of  many reforms is going to be very important to get projects built, especially as we are in an era now where we have large demand growth, significant growth focused on AI push from the Trump administration, and Trump to get power to AI to compete with the Chinese because of national security issues.

Turning to the Senate a bit, I do expect there to be significant push towards permanent reform. And that actually could be very good news for renewables. The biggest roadblock now to getting renewables built at scale, it can be local permitting, interconnection to delays, lack of transmission. And so I do expect the Trump administration and also FERC to try to address those in conjunction with the Republican controlled Congress. And while I think that the main goal of that will be to get fossil fuels and nuclear plants online, for example, I do expect renewables, if there is a push towards loosening restrictions and being able to get projects built more quickly, I do expect renewables to benefit from that.

J.R. - Thank you. Sounds like there's a lot of opportunity there. In addition to some challenges relating to necessary collaboration.

The Evolving Landscape of Workplace Diversity Programs and Regulatory Compliance

J.R. - So, turning to the ‘S’ part of the ESG equation, I am, of course, an employment lawyer and, like everybody, have followed the election in which identity politics and social issues were prominently featured. And, of course, all of this occurred with the backdrop of a fairly prolonged attack on DEI initiatives.

With that said, my predictions are as follows: I do think we will see an emboldened attack from activists and others on DEI programs in general, and specifically programs that are aimed at leveling the playing field in the workplace. We've already seen that, of course, and we've seen recently in the past few days, the announcement of investment funds devoted to anti-wokeness. Not sure what that means. And I'm not even sure what the investment strategies flowing from that will be. But in any event, I think the focus will be on labels rather than substance. And I think that the substance, in fact, will remain largely the same because investors actually like seeing a return on their money and I don't think that's going to change anytime soon.

We're going to see a more welcome court reception to claims that employers have overstepped legal bounds with respect to diversity-focused programs and even workplace training programs, for example.

I do think that some states, maybe California, maybe others, will double down on state regulation, which may make things particularly complicated for multi-jurisdictional employers who are looking to put in place national employment policies. This dovetails with Jacob's comments about companies that do business in California and other so-called blue states. Right. You've got to make sure that you're consistent and that you're compliant with state law, notwithstanding what the federal government is directing.

With that, I'd like to segue. I'm just going to stay with the S part now, because I had promised we're going to be talking about some practical suggestions for what is to come, for this coming sea change for many industries.

On the S part, I think this is an ideal time for employers to take stock of existing DEI programs. The reasons for those programs, their components, most importantly, from the perspective of corporate boards, the data supporting them from a strategic human capital perspective, I think these developments need to be understood in light of the undisputed fact that Title Seven, yes, a federal statute, is still our law. It still prevents workplace discrimination, as do many state laws governing the workplace and employers need to be particularly careful about carving back too heavily in certain areas where legal mandates, such as training and other state policies remain in place. Secondly, but maybe more importantly, board members have not received a “Get Out of Jail Free” card when it comes to board oversight obligations. Those still exist. They still exist with respect to human capital management, and particularly with respect to recruiting and retention for the next generation of workers. It would be somewhat foolhardy, in my view, to construe this election as a pass on workplace programs that do in fact promote equal opportunity. And I have news for everyone: our workforce is in the throes of a wake up call, one that Covid really brought into light but will continue. And that is boomers, I'm sorry to use that word but it's the best one here, are retiring from the workplace and they're being replaced by techno savants, who have very firm notions of workplace fairness, equity, and working conditions. So, understanding how those changes will occur, how to meet them should be some of the highest priorities on the board's agenda.

Practical Advice for those who may be Impacted by Energy Regulations Under the Second Trump Administration

J.R. - Okay. So now I'm going to reverse course going back to Steve. I'd like you to offer us some practical advice, with respect to our clients or others who may be impacted by energy regulations. What should those businesses be doing?

S.S. - I think just zooming out from FERC, a few things. So, first of all, the Inflation Reduction Act,, with the Republic control of Congress, is almost certain to be scaled back to some extent. I think that it will not completely be gutted, just simply because there are too many jobs in the red states that are dependent upon it in one form or the other, but I do expect there to be curtailments to the Inflation Reduction Act and some legislative changes.

I also think that you can expect Department of Energy spending to change significantly away from supporting clean energy type projects. If your business is dependent upon tax incentives under the IRA or any spending under the power of energy programs, you should pay close attention because those may be changed significantly.

From a broader perspective, I think this is where there’s going to be some opportunity. Big picture, we are in this situation in this country we haven't had several decades where we have significant low growth in the US. We had about 20 years where demand had been flat, but now it's taking us significantly because of electrification, because of onshoring and re-shoring of our industrial base, and because of the growth of data centers and driven in large part by AI. That's not changing. Those are market fundamentals, and there is a lot of opportunity there. And I do think that the Trump administration will be very focused on, they do say an “all of the above” energy strategy, I think it will most likely favor things like nuclear or small module nuclear reactors, maybe even new forms of power like geothermal in addition to natural gas. But there will be a lot of opportunities as well for solar and storage, and wind and storage. Even though I think that government spending priorities are going to change, there'll be a lot of opportunities generally. And I think also another practical piece of advice is if your business is trying to get any sort of federal funding or trying to think how it may position itself to be more attractive to the Trump administration or just to Republican controlled Congress generally, explaining how you can meet reliability needs, how you can be affordable, how you can get produce generation, and get speed to market, that's going to be really important.

J.R. - Excellent. Thank you. Sounds like there is indeed a lot of opportunity out there turning to you, Jeff. Same question. But with respect to environmental issues, are there any priorities that you think businesses should focus on with respect to the new administration from a practical point of view?

J.P. - For the first time in many, many years we have a situation where Congress might actually do what Congress is supposed to do. For the past several years, whether its been a Democrat president and one of the branches of Congress controlled by the Republicans or the other way around, Congress has really been out of the federal environmental protection game for close to 20 years. We have a situation now where industry sectors, NGOs, everybody who might have business before Congress should be thinking about what legislation might be achievable and then setting a plan about how to achieve those legislative objectives. Steve mentioned permit reform. President Biden and Senator Manchin made a deal to try to tackle permit reform in the last administration, and it ended up not happening. It's likely to happen in the coming term, and it's important that we get it right. In recent years, permit reform has been focused on the permit reform necessary to encourage renewable energy facilities. I expect that there will be a broader view of the permitting reform that's required in the upcoming Congress, and everyone should welcome a serious conversation about how we can make it easier to build things in this country, hopefully without sacrificing environmental protection. But I do see that as a real opportunity for many industries in the coming years. The opportunity to Congress, whether it be permit reform, the extent of the Clean Water Act for the first time in a generation, we could have certainty about some of these things.

J.R. - Thank you. So again, the use of the term opportunity. Jacob, I'm curious, your view in terms of, practical advice for businesses, moving forward, are there opportunities to succeed?

J.H. - Well, I'm a litigator. I talk about risks rather than opportunities, usually. But from a regulatory and enforcement perspective, I would honestly say it's more a picture of continuity from the Biden administration rather than a huge shift. Not that there will not be immense changes in the SEC and others, but, for example, if we're talking about the pressure for climate disclosures that was coming from private investors, from the state, from the EU, and from the federal government, a change in administration only removes the federal government.

Similarly, if we're talking about enforcement actions, some of the most significant greenwashing enforcement actions lately have actually been pursued by state attorneys general rather than the SEC. Even if the impetus for regulations is perhaps shifting, the content at what companies should be focused on is probably more of the same. So, what does that mean? If a company is in this space, they should be looking at Scope One and Scope Two GHG emissions. If they're not reporting them through the SEC, they may have to report them through the states or in response to investor questionnaires. But we're talking very specifically about enforcement actions. Even since the disbandment of SEC’s Climate Task Force, which occurred this past summer, there's still been ESG focused enforcement actions by the SEC. Perhaps not as high profile, but focused on, a company says it is making green investments but is not living up to its public disclosures. That is exactly the kind of thing which I would expect the Trump administration SEC to focus on, as it is the classic type of SEC enforcement proceeding. It is also targeting a fund that, red states, may want to target.

To sum up, I would just say what companies should focus on is making sure their disclosures are complete and accurate to avoid the prospect of enforcement actions by either the SEC or a state AG or other regulator, and to be prepared to comply with disclosure requirements that are being imposed by actors other than the US federal government.

J.R. - So, making sure that being cognizant of risk is always an important aspect of any business and these issues should be followed closely to make sure that they're being appreciated. So Tom, to close out, you kicked us off, but I'd like you to close this out with some, some practical advice or thoughts on cleantech, which has been a growing industry for many years. What should businesses be considering with respect to making investments or even harvesting investments in the clean tech sector now?

T.B. - There's a couple of things that come to my mind immediately. One is that we should all remember that the innovation curve in a number of the clean energy industries, solar or storage, etc. continued to accelerate even through the first Trump administration where we didn't see as much federal support. So, for example, the cost to produce a panel, solar panel has, dramatically been reduced over the decades.

Storage is on the same cost curve, much less expensive, or I should say less expensive than in fossil fuel generation and so, I think that that is going to continue in other adjacent and ancillary areas. The business cases are still there to be made and folks should not forget that.

I do think that in the short term, businesses will need to sharpen their pencils. They're going to need to be thinking with much greater clarity around their business models. In the path to profitability because the funding sources are going to be those funding sources which will demand that, and there will be a bit of a flight to quality. So, there's hard work ahead, but, not anything we haven't recovered from before.

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