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Implications of the election of

EY Building a better working world

On Tuesday, November 8, 2016, Republican nominee Donald Trump defeated Hillary Clinton to win the Presidency of the United States. Along with the election of President-elect Trump, Republicans were able to retain control of both houses of Congress. After years of discussions of potential for comprehensive tax reform, there appears to be a high h probability of tax reform legislation being moved through Congress in 2017. President-elect Trump and Republicans from the House of Representatives (the House) have both produced tax reform outlines that have many similarities. These plans will impact the energy sector (oil and gas, mining and metals, and power and utilities).

On June 24, 2016, the Tax Reform Task Force, composed of House Republicans and led by House Ways and Means Committee Chairman Kevin Brady (R- TX), released a report on tax reform, the Tax Reform Task Force Blueprint (the Blueprint). The Blueprint contains a high-level tax reform proposal that, if enacted, would repeal the current US business income tax regime and replace it with a quasi-consumption tax. As described in more detail below, the Blueprint may serve as a playbook for certain tax reform changes in a Republican controlled Congress. Below, President-elect Trump’s energy policy is explored, followed by his stated tax policy and energy tax implications of the Blueprint.

President-elect Trump’s energy policy

President-elect Trump is widely expected to significantly depart from the priorities of the Obama Administration by favoring development of additional conventional energy resources and attempting to put the brakes on new environmental initiatives. The Republican (GOP) majorities in the House and Senate have a similar agenda, and Democrats in Congress are expected to mobilize in opposition — in particular by leveraging their power in the Senate to filibuster legislation — and publicly highlight the potential impacts of a Trump Administration’s policies. Trump has pledged to cancel U S participation in the 2015 Paris Climate agreement, and opposes implementation of the Obama Administration’s Clean Power Plan (CPP). His campaign literature is heavily salted with proposals to provide regulatory relief to fossil fuel industries and slanted in fav or of new administrative initiatives to foster conventional energy development. Specifically, his website calls for the following energy related initiatives:

• Make America energy independent, create millions of new jobs, and protect clean air and clean water; conserve our natural habitats, reserves and resources; unleash an energy revolution that will bring vast new wealth to our country

• Declare American energy dominance a strategic economic and foreign policy goal of the United States

• Unleash America’s $ 5 0 trillion in untapped shale, oil and natural gas reserves, plus hundreds of years in clean coal reserves

• Become, and stay, totally independent of any need to import energy from the OPEC cartel or any nations hostile to our interests

• Open onshore and offshore leasing on federal lands, eliminate moratorium on coal leasing, and open shale energy deposits

• Encourage the use of natural gas and other American energy resources that will both reduce emissions but also reduce the price of energy and increase our economic output

• Rescind all job- destroying Obama executive actions

President-elect Trump has stated that he w ants to reduce and eliminate all barriers to responsible energy production, creating at least half a million jobs a year, US $30 billion in higher wages and cheaper energy. Given the predominance of oil and gas, President-elect Trump may try to halt additional environmental regulatory measures proposed by the Obama Administration, such as methane emission curbs. It should be noted that it is difficult legally to change or repeal regulations which have been promulgated in final form — such as the CPP — without going through the Administrative Procedures Act process. Environmental lawyers can be expected to litigate at every step of the w ay if Trump attempts to bypass Congress and eliminate the CPP by executive order, and the courts may well serve as a brake on such actions. However, environmental advocates who would have likely tried to push a President Clinton to administratively expand the scope of the CPP’s carbon emission regulations beyond the electric power sector, potentially economy - w ide under Section 115 of the Clean Air Act, may now be left to use a litigation route to try to force the Environmental Protection Agency to expand the CPP to achieve this goal.

During the campaign, Trump also specifically rejected the idea of using a carbon tax/ carbon pricing as a means of encouraging market-driven emission reductions. With GOP chairmen of the tax-writing committees in the House and Senate, it is very unlikely they will schedule hearing s or mark ups to move carbon taxes — other than to schedule votes in the House or Senate aimed at undermining vulnerable Democrats up for reelection in 2018.

Additionally, the President-elect has vowed to allow energy infrastructure projects, like the Key stone Pipeline and other industrial facilities which have faced denials or delay s under the current Administration, to move forward. Trump has proposed a $1 trillion infrastructure plan that would rely heavily on private- public partnerships by providing a tax credit to encourage private investors to fund projects overseen by states and municipalities. As conceived by Trump’ s advisors, the tax credit would apply to infrastructure projects with a dedicated source of revenue, such as toll roads, airports or utilities financed at least in part by fees paid by users. Decisions on which projects to fund would generally be left to the states. Full Story.