America’s banana republic permitting policy, including its increasing lack of a stable and predictable regulatory system, will have a chilling effect not only on investors’ willingness to fund the development of other already-permitted wind power projects, but on perceptions of political risk as well.
In the last few years, a number of observers have suggested that the increasingly polarized and dysfunctional nature of American politics poses increasing risks to business, both domestic and foreign. Some have even suggested that the heightened risk environment in the United States make it comparable to an emerging market in that regard.
The Eurasia Group, where I was previously employed for over a decade, put the “Rule of Don” in second place on their list of “Top Risks” for 2025 – where an “erosion of independent checks on executive power and the rule of law will increase the extent to which the U.S. policy landscape depends on the decisions of one powerful man.”
In this context, Secretary of the Interior Doug Burgum issued an order on April 16 halting construction of Equinor’s $5 billion Empire Wind project, an 810-megawatt wind generation development offshore from New York. Burgum’s statement accused the Biden administration of making a rushed and insufficient analysis of the project – a charge frequently made by private litigants challenging a permit, particularly for the development of fossil fuels projects and infrastructure, but not something which has been widely invoked against renewable energy project permits issued a previous administration. The Trump administration did not make a detailed argument as to what the actual problems were that Empire Wind could cause.
The financial implications are substantial, since if Equinor is not allowed to complete construction, it will have to write off what is likely to be hundreds of millions of dollars in sunk costs. This sort of risk is the worst nightmare of companies developing fixed infrastructure, including in the energy sector, and in the United States it is a rare phenomenon.
Companies have long complained about having to undertake cumbersome and years-long permitting processes, and there have been legislators of both parties in Congress in recent years who have argued for streamlining these processes at the federal level.
But once permits are issued and construction starts, it is very rare to see an administration throw wrench in the works in this manner, inflicting such large financial losses. Some would argue that the never-built Keystone XL Pipeline project is an analogous situation, as TransCanada (now TC Energy) had already purchased a lot of the physical hardware and moved it into place. But in that case, the developer did not have the final “national interest determination” from the State Department required for pipelines crossing U.S. borders, and TransCanada chose to take the risk of making the purchases to speed things up, assuming that would be a pro forma process until it ran into the Obama administration’s climate policy. In this case with Equinor, though, the project had all of the required permits, including from the Department of the Interior.
President Trump has a long history of disparaging wind power projects for nebulous reasons, including that they allegedly harm birds and whales, and that they are unsightly for owners of beachfront properties –perhaps his real concern. As expected, he made a policy change against wind power at the very beginning of this term, issuing an executive order on Inauguration Day halting new permitting activity and ordering a review of the permitting process. The environmental arguments against wind power, however, are extremely weak, and it is clear that this mainly comes down to the personal aesthetic preference of the current president. Fair enough. He won the election and has a right to change policies.
As I have pointed out before, renewable power generation is not a panacea, and there are limits to the percentage share of solar and wind one can rely on if one is to maintain the reliability of the electric grid. But the current outlook for renewed strong growth in electricity demand – largely driven by AI and data centers – requires a lot of additional generating capacity from all sources, including renewables. The proper approach to policy would be to streamline cumbersome permitting processes for both renewables and fossil fuel plants and allow the private sector, within the constraints of environmental regulations, to determine what needs to get built.
Trump’s apparent approach here, however, is based on personal whims. The core principle at stake is that pulling the rug out from under investors in a fixed infrastructure project when they have already obtained all of the necessary permits and have construction well underway, inflicting major financial losses, imposes a huge loss of credibility on those governments which do so. It is very different from changing the criteria for new permits.
The United States used to have a relatively stable and predictable regulatory system, one where having permits meant you could move forward with the project. Now that this is not the case, it will have a chilling effect not only on investors’ willingness to fund the development of other already-permitted wind power projects, but on perceptions of political risk around other fixed infrastructure projects as well.
As someone who has done analysis of this in emerging markets with weak political institutions, this is familiar, but I did not expect to see the United States’ institutional credibility weaken to that point – this really is banana republic stuff.
Greg Priddy is a Senior Fellow at the Center for the National Interest and does consulting work related to political risk for the energy sector and financial clients. Previously, he was director of global oil at Eurasia Group and worked at the U.S. Department of Energy.
Image: Shutterstock/etraveler
