Mid-year policy outlook: US

Political outlook

• With the 2024 presidential election on the horizon, the primary season is starting to heat up.
• The first Republican debate is scheduled for Aug. 20, 2023, and the first state in the nation to cast a vote in the Republican primary will be Iowa on Jan. 8, 2024. The Republican Party is planning for a debate each month from August to January. The criteria for being on the debate stage is to hold at least 1% in the polls and have 40,000 unique individual donors.
  
• On April 25, President Joe Biden formally announced his reelection bid with Vice President Kamala Harris by his side.
  
• With Congress divided and a presidential election heating up, significant legislative wins will be more difficult to attain, short of annual government funding bills and must-pass authorization bills.
  

Fiscal outlook

• In May, the growing US deficit took center stage, as Biden and House Republicans battled over a debt ceiling increase.
• Congress passed the debt ceiling deal, The Fiscal Responsibility Act, with bipartisan support. The deal caps discretionary spending for two years and sets overall spending limits for FY26-FY29. It also includes a mechanism to incentivize Congress to pass all 12 spending bills by Jan. 1 of the following year. There is an automatic continuing resolution with a 1% across-the-board cut to both domestic and defense spending if all 12 appropriations bills are passed by Jan. 1, 2024. This novel approach to spending reductions as a penalty for failure to process appropriations bills could be a game changer.
  

Geopolitical outlook

• In May, Biden visited world leaders in Japan at the G7 summit, where he announced an agreement to provide Ukraine with greater critical systems and training for the counter-offensive.
• With respect to US-China relations, Biden says that he plans on speaking with Chinese President Xi Jinping, though he cautioned that it may not be anytime soon. It was also reported in the run-up to the summit that other high ranking US officials, including Secretary of State Antony Blinken and Treasury Secretary Janet Yellen, are considering visits to Beijing sometime in the coming months.
• Meanwhile, bipartisan, bicameral pressure from Congress is being applied to ensure this administration continues a strategy of strength vis-à-vis China through greater oversight hearings and percolating legislation.
• Senate Majority Leader Chuck Schumer (D-NY) has indicated that his China 2.0 legislative package will limit the flow of advanced technologies to the Chinese government, boost domestic economic investments, provide an alternative to China’s infrastructure project known as the Belt and Road Initiative, limit the flow of investments to China, and deter Beijing’s aggression toward Taiwan.
  

Policy and regulatory outlook

Banking reform

• Over the last few months, much of the hot air in the Capitol building has been directed at the Silicon Valley Bank, Signature Bank, and First Republic Bank failures.
  
• Unsurprisingly, Democrats are laying the blame at the feet of the Trump administration’s regulatory rollback, which eased restrictions on banks with less than $250 billion in deposits, and are calling on the Federal Reserve and Federal Deposit Insurance Corporation (FDIC) to issue new rules with substantially enhanced capital and stress-testing requirements.
  
• Republicans argue that Biden’s bank supervisors were asleep at the wheel and have lambasted his administration for engaging in yet another costly and reckless government bailout.
  
• The banking crisis has already been featured in several hearings with regulators from the Federal Reserve, Treasury Department, and FDIC. It has spawned dozens of letters from lawmakers demanding answers and calling for reforms.
  
• Several pieces of legislation have also been introduced. While it is too soon to know whether they will gain any momentum, legislation to provide the FDIC with explicit “clawback” authority and to create an independent inspector general for the Federal Reserve appear to have bipartisan support.
  
• The FDIC recently issued a proposed rule that sets the assessments for banks to replenish the Deposit Insurance Fund and excludes community banks from footing the bill.
  
• The Fed is prioritizing its holistic review of bank capital requirements and is expected to issue a proposed rule that would establish stronger capital and liquidity standards for firms over $100 billion.
  

Energy

• Energy-permitting reform. As part of the debt ceiling agreement, House Speaker Kevin McCarthy was able to extract significant concessions on energy-permitting reform from the Biden administration, including reforms of the National Environmental Policy Act (NEPA), legislative approval of the Mountain Valley Pipeline, a study of interregional electric transmission, and a provision aimed at expediting approval of major energy storage infrastructure. Meanwhile, the Senate Energy Committee and Environment and Public Works Committee hope to mark up some combination of each of their bills into a bipartisan package sometime before the August break.
• Renewable energy. The Environmental Protection Agency (EPA) recently delivered its final SET rule that requires 2023, 2024, and 2025 Renewable Fuel Standard blending obligations to be submitted to the White House Office of Management and Budget (OMB). The OMB review marks the final stage before the promulgation of rulemaking. The OMB’s description of the rulemaking does not indicate whether it will contain provisions related to electric Renewable Identification Numbers (eRINs). eRins were addressed in the proposed rule, but recent reports suggest the EPA may exclude or separate eRINs provisions from the pending rulemaking.
  
• The proposal foresees electric vehicle (EV) manufacturers generating as many as 600 million eRIN credits in 2024. Under the rule, one eRIN would be generated for every 6.5 biofuel-powered kwH in an EV battery.
  
• New utilities emission limits. On May 11, the EPA announced a proposed rule limiting carbon emissions from the electrical grid. The rule will take effect in the 2030s and apply to gas- and coal-fired generating plants. If the new plan goes into effect, the operators of those plants will either need to carbon capture or replace a large fraction of their fuel with hydrogen.
  
• Solar tariffs. On May 16, Biden vetoed a Congressional Review Act resolution that would have undone his two-year moratorium on solar tariffs. We don’t expect Congress to override the veto.
  
• Carbon capture. With countries committing to net zero by 2050, Carbon Capture Utilization and Storage (CCUS) will be increasingly utilized. In late March, the White House Council on Environmental Quality announced members of new task forces that will provide input to inform the development of CCUS.
  
• Nuclear. In March, a bipartisan group of Senators (Risch, Barrasso, Manchin, Heinrich, Lummis, and Coons) introduced the Reduce Russian Uranium Imports Act, which ensures domestic uranium fuel production in the US. The House is moving a companion bill to ban Russian uranium. Republicans are concerned that there is not enough copper for EVs, batteries, and transmission lines, which will likely force the Biden administration to give up the zero-carbon level it has been aiming for.
  

Environmental, social and governance (ESG) and climate disclosure

• SEC Environmental, social, and governance requirements. Last year, the Securities and Exchange Commission (SEC) issued proposed rule changes that would require registrants to include climate-related disclosures in their registration statements and periodic reports – including information about climate-related risks that are reasonably likely to have a material impact on their business, results of operations, or financial condition – and certain climate-related financial statement metrics in a note to their audited financial statements. The required information about climate-related risks also would include disclosure of a registrant’s greenhouse gas emissions, which have become a commonly used metric to assess a registrant’s exposure to such risks.
• While the SEC previously indicated it was aiming to release its final rule on disclosure of climate-related financial risk by issuers in April 2023, it failed to meet this target. Release of the rule is not expected to occur until fall 2023 – it’s been delayed by internal debates on how to structure the rule to avoid legal peril, particularly in regard to the requirements on the disclosure of Scope 3 emissions.
  
• The SEC’s proposal continues to generate a great deal of controversy in Congress and among many in the public issuer community. The rule is expected to face legal challenges upon its finalization. These challenges are likely to focus on the Scope 3 requirement, but the rule will still be subject to litigation however it is crafted.
  
• Although SEC staff is heavily focused on the climate disclosure rule, the proposed rule on human capital management disclosure is expected to be released this summer or early fall.
  
• In an effort to push back against ESG investing, several states have introduced or passed legislation to limit state money or state pension funds from being invested in ESG funds.
  

Regulatory push and House oversight

• With a Republican House majority, Biden continues to turn to the executive branch regulatory agencies to pursue his climate ambitions with many examples of his agencies’ regulatory activity described above and even more rulemaking actions to come.
  
• Without explicit Congressional authority, major regulations are facing legal challenges, and should Republicans control the White House in two years, any politically contentious rules are at risk of being reversed.
  
• Republicans are conducting intense oversight of the administration’s climate policy, calling the secretary of the interior, the secretary of energy, and the EPA administrator to testify before congressional committees in many recent hearings.
  
• House Republicans are also focusing on subagencies that facilitate permitting or approval of energy projects, including the Bureau of Ocean Energy Management, the Bureau of Safety and Environmental Enforcement, and the US Fish and Wildlife Service, as made evident in recent hearings.