US moratorium on new federal oil and gas leases

On 27 January 2021, in a swift move to implement his policies and strategies to prioritise, promote and intensify governmental actions on the protection of public health and environment, the newly elected 46th President of the United States, Joe Biden, has signed an executive order "on Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis" (the "Order").

The Order clearly directs federal departments and agencies to take immediate actions, notably aiming at reducing greenhouse gas emissions, limiting exposure to dangerous chemicals, and holding polluters accountable.

In this regard, the Order notably provides for:

• a thorough review of federal departments and agencies' actions taken during the Trump presidency in order to suspend, revise or rescind actions inconsistent with the objectives of health and environmental protection;
• the revocation of various executive orders on energy infrastructures and environment taken during the Trump presidency;
• the revocation of the keystone XL Pipeline permit on the construction of a pipeline at the US-Canada border;
• the application of a moratorium on new federal oil and gas leases.

Whereas, of course, the issue of climate change and environmental protection is paramount and at the forefront of international, political and economic preoccupations, the implementation of measures such as the Order will very likely cause adverse consequences for investors in the energy sector, thereby raising legitimate concerns, in particular with respect to: 

• the effectivity of the right to legal certainty;
• the protection of the investors' legitimate expectations;
• the compensation for the loss actually incurred by the investors and / or their loss of opportunities;
• the loss of collateral investments in view of future leasing projects.

Interestingly, it bears noting that the Order does provide safeguards to deter investors from taking any action against the State.

For instance, Section 8 of the Order expressly states that:

"(b)  This order shall be implemented in a manner consistent with applicable law and subject to the availability of appropriations.

(c)  This order is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, or entities, its officers, employees, or agents, or any other person." (Emphasis added)

Furthermore, the Order indicates that the moratorium will only apply to new leases, thereby excluding prior or existing leases from its scope of application.

However, an example of direct consequences of the Order on existing leases is to be found in the Keystone XL pipeline situation, where the United States granted TransCanada Energy corp a permit for the construction, connection, operation and maintenance of a pipeline at the US-Canadian border, to extract and carry bitumen oil.

The pipeline permit was first denied by the Obama's administration, leading to the initiation of an ICSID arbitration which was discontinued after the signature by Donald Trump of an executive order granting the permit for construction of the pipeline.

The Order simply revoked the permit granted in March 2019 by Donald Trump, thereby affecting an already existing lease, with all the legal and economic consequences that this entails.

The decision to revoke the Keystone XL permit thus seems to indicate that the Federal Government will be inclined to unilaterally revoke existing leases where the underlying permit provisions provide for such possibility.

Moreover, despite the safeguard provisions contained in the Order, it is likely that different investors and interest groups within the energy sector will seek to obtain compensation for any damage suffered as a result of the implementation of the Order, including of course, by means of arbitration.

Yet, whether or not such investors would succeed in their course of action remains uncertain. In practice, courts and arbitral tribunals in litigations involving environmental measures will indeed often seek to strike a balance between the legitimate power of the State to regulate on climate issues, and the investors' legitimate expectations.

Given the present context of global awareness and understanding of the urgency to tackle climate change - as illustrated by the recent return of the United States in the Paris climate Agreement - the legitimate power of the State to regulate on environmental protection could potentially outweigh the need to protect the investors' legitimate expectations.

More generally, the increasing number of regulations on environmental protection and climate change shed light on the necessity for investors in the energy sector to consider potential future legislative changes, when implementing their investment strategies.