In a series of prior blog posts, we previously highlighted the historic implications of the Inflation Reduction Act (IRA) for the U.S.’s international climate commitments, as well as for private companies navigating the energy transition.  Shortly after our series published, the Senate passed the IRA on Sunday August 7th with only minor modifications to the bill’s $369 billion in climate and clean energy spending.  Today, the House passed the IRA without any further changes, and soon hereafter President Biden is expected to sign it into law. 

However, this is only the beginning of the road; the IRA will have sweeping implications beyond the four corners of its pages.  In the coming months and years, we expect to see intense jockeying over agency rulemakings that will shape the IRA’s implementation, as well as determine its ultimate success as an energy policy.  

Continue Reading House Passes Inflation Reduction Act, Marks a New Era for Climate Policy

On July 27, New York Governor Kathy Hochul announced the release of the state’s third competitive offshore wind solicitation (RFP), seeking to procure a minimum of 2,000 megawatts (MW) of new offshore wind generation capacity, as well as significant capital investment in New York’s bourgeoning offshore wind energy supply chain.  New York’s Climate Leadership and Community Protection Act of 2019 established the goal of developing 9,000 MW of offshore wind capacity, the largest statutory goal to-date of any state in the country, by 2035.  Combined with the 4,300 MW of offshore wind generation capacity procured through its prior two solicitations, the RFP will put the state more than two-thirds of the way towards reaching that target. 

Continue Reading New York Remains Offshore Wind Pacesetter with Third Solicitation

The Federal Energy Regulatory Commission (FERC) recently issued a Notice of Proposed Rulemaking (NOPR) to reform its generator interconnection process. The proposed rules are intended to expedite the connection of new generator and storage facilities to the grid, and to clear out a burgeoning interconnection backlog, predominantly of renewable and storage resources.

This alert highlights the major proposed reforms to the pro forma Large Generator Interconnection Procedures (LGIP) included in the NOPR, and discusses the proposed transition process for interconnection customers with active interconnection requests. Initial comments on the NOPR are due by October 13, 2022, and reply comments are due by November 14, 2022. Given the importance of interconnection for every utility-scale generation and storage project, FERC will likely receive comments from a diverse group of stakeholders across the industry.

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Continue Reading FERC Proposes Major Changes to Generator Interconnection Process

Gazprom Reduces Supplies Again

Gazprom’s 27 July decision to reduce the gas it supplies through Nord Stream 1 to 33 mcm means it is now delivering just one-fifth of the pipeline’s capacity. This reduction ensures Europe will continue paying (ever higher prices) for (just enough) Russian gas in order to service its day-to-day needs, whilst leaving insufficient extra to fill storage units before the winter (in late June, the Commission mandated that EU gas storage facilities should be 80% full by 1 November). The Gazprom reductions come against the backdrop of a historically hot summer, where consumer demand, including for air conditioning, is significantly higher than normal.[i]

Continue Reading Europe’s Gas Crisis

The Inflation Reduction Act of 2022 (the “IRA”) features $260 billion in clean-energy tax credits. While the IRA extends many existing clean-energy tax credits, like the energy production tax credit and investment tax credit for wind and solar, it also establishes new credits, including credits for advanced manufacturing and hydrogen production. Additionally, beginning in 2025, taxpayers with zero emissions facilities would have added flexibility to choose between using a new technology neutral production tax credit or investment tax credit.

In addition to the extension of the solar investment tax credit, the IRA renews the previously expired production tax credit for solar energy and extends the credit to include qualifying facilities that begin construction before January 1, 2025.  IRA § 13101.  Taxpayers would also be eligible for a bonus 10% production tax credit if certain “domestic content requirements” are met or if the project is located in an “energy community.” [1]  The production tax credit is calculated by multiplying the amount of kilowatt-hours product by 0.3 cents or, if certain wage and apprenticeship requirements are met, 1.5 cents.  Id.

Another key provision is an extension of the energy investment tax credit to include qualifying facilities that begin construction before January 1, 2025, with tax credits for geothermal energy being extended to 2035.  IRA § 13102.  Similar to the production tax credits, taxpayers would be eligible for an additional 10% investment tax credit if certain “domestic content” requirements are met or if the project is located in an “energy community.”  The investment tax credit is calculated by taking the cost of placing the facility into service multiplied by 6% or, if certain wage and apprenticeship requirements are met, 30%.  Id.

The IRA includes an extension and modification of the 45Q credit for the carbon oxide sequestration.  IRA § 13104.  The 45Q credit for carbon capture would be set at $17 per metric ton of qualified carbon oxide or, if certain wage and apprenticeship requirements are met, at $85.  Id.  The 45Q credit is also expanded to include direct air capture, and is set at $36 per metric ton of qualified carbon oxide or, if certain wage and apprenticeship requirements are met, at $180.  Id.

The IRA also includes an extension of the Advanced Energy Project Credit to $10 billion, $4 billion of which is set aside for “energy communities.”  IRA § 13501. This credit has been expanded to include, among other things, hydropower facilities, energy storage systems, heavy-duty electric and fuel-cell vehicles and their associated charging infrastructure, critical mineral processing, refining, or recycling, and the retrofit of energy facilities with carbon capture and storage equipment.  Id.

Additionally, the IRA includes an advanced manufacturing production tax credit, which would support the production and sale of solar and wind farm equipment and components, battery components, commercial and residential inverters, and critical mineral production.  IRA § 13502.  The amount of the credit is keyed to the different components being manufactured.  Id.

It would also include a new clean hydrogen production tax credit, that can reach up to 60 cents a kilogram of qualified clean hydrogen or, if certain wage and apprenticeship requirements are met, $3.00.  Id. § 13204.  “Qualified clean hydrogen” is hydrogen which is produced through a process that results in a lifecycle greenhouse gas emissions rate of not greater than 4 kilograms of CO2e per kilogram of hydrogen.  Id.  The amount of the credit varies based on how clean the hydrogen fuel is, ranging from 20% of the credit amount for hydrogen emitting no greater than 4 kilograms of CO2e per kilogram of hydrogen to 100% for fuels emitting a lifecycle greenhouse gas emissions rate less than 0.45 kilograms of CO2e per kilogram of hydrogen.  Id.

For three of these tax credits, the IRA makes a “direct pay” option available to any taxpayer claiming the clean hydrogen credit, the carbon capture credit, or the advance manufacturing production tax credit.  IRA § 13801.  Direct pay allows taxpayers to receive a refundable tax credit even if they don’t otherwise have any tax liability to absorb the credit (e.g., the taxpayer is operating at a loss).  In this way, the credit is particularly beneficial for early-stage companies.  With respect to clean hydrogen and carbon capture facilities, the “direct pay” option is only available in the taxable year in which the facility is placed into service, and the four years following that.  Apart from these three tax credits, the “direct pay” option is also available for a longer list of other energy-related credits, but only if the organization claiming them is a tax-exempt organization, state or local government, tribal government, or the Tennessee Valley Authority.  Id.

The IRA includes a provision that allows taxpayers to transfer certain enumerated clean-energy credits to unrelated taxpayers.[2]  IRA § 6418(a).  Consideration paid for a transferrable credit must be paid in cash, and is not includable in the income of the transferor, nor deductible by the transferee.  Id. § (b).  Excessive transferability payments could result in an addition to tax of the transferee equal to the sum of the excessive payment amount plus a penalty of 20% of the excessive payment amount.  Id. § (g)(2).  This provision is particularly beneficial for taxpayers with low tax liability that cannot otherwise take advantage of the direct pay option for credits other than the three enumerated above, and instead have to turn to the tax equity markets to facilitate use of the credits. The IRA creates or extends many additional tax credits including: (1) the clean electricity production credit, § 13701; (2) clean electricity investment credit, § 13702; (3) the energy credit for solar and wind facilities connected to low-income communities, § 13103; and (4) a zero-emission nuclear power production credit, § 13105.

Allison Baker also contributed to this blog post.

[1] Energy community means brownfield sites as defined under CERCLA; areas with significant employment related to the extraction, processing, transport or storage of fossil fuels; a census tract where (or abutting where) a coal mine has closed since 2000; or a census tract where, or abutting where, a coal plant been retired since 2009.  IRA at 250-251.

[2] The clean-energy credits eligible for transfer are listed in IRA § 6418(f)(1).

One of the Inflation Reduction Act’s (IRA) notable features is the creation of a Greenhouse Gas Reduction Fund (GGRF).  This fund could create a mechanism to quickly disburse up to $27 billion to clean energy technologies, without undergoing the sometimes laborious reviews required by the National Environmental Policy Act (NEPA).  IRA § 60103. 

Continue Reading Inflation Reduction Act Sets the Stage for a National Green Bank

The Inflation Reduction Act (IRA) would make significant strides in limiting and cutting methane pollution. Methane has proven to be a significant part of the climate problem; the United Nations’ Environment Programme (UNEP) notes that over a 20-year period, methane is 80 times more potent at warming than carbon dioxide.  Studies by the National Oceanic and Atmospheric Administration (NOAA) further show that the rate of methane emissions is only worsening, with 2020 recording the largest annual increase since 1983.  By implementing a Methane Emissions Reduction Program, the IRA takes a significant step towards reducing methane-related warming.  This program implements a carrot-and-stick regulatory regime, whereby the Environmental Protection Agency (EPA) rewards methane reduction efforts with financial assistance, and penalizes excess methane waste with a set fee.

Continue Reading Methane Emissions Reduction Program: The Next Step in the United States’ Efforts to Tackle a Potent Greenhouse Gas

The environmental justice provisions included in the Inflation Reduction Act of 2022 (“IRA”) continue the Biden Administration’s commitment to environmental justice.  The administration has already demonstrated a consistent desire to build environmental justice into its programs through programs such as the Justice40 Initiative.  This initiative directs 40% of the climate change, sustainability, and other investments in environmental and climate protection to communities that the United States has historically marginalized, underserved, or overburdened with pollution.  EPA is also working to address environmental justice by making improvements to the NEPA process and the White House Council on  Environmental Quality is working on an additional set of NEPA Phase 2 rules designed to promote environmental justice.  EPA Administrator Regan has directed all EPA offices to update their adaptation plans to reflect Environmental Justice.

In addition to the work of EPA and the White House, DOJ is also working to promote environmental justice.  DOJ introduced an Environmental Justice Enforcement Strategy in May of this year and plans to prioritize cases where enforcement would achieve significant reductions of environmental harm, public health harm, or injury to natural resources in overburdened and underserved communities.  In order to pursue this goal DOJ is renewing its use of supplemental environmental projects and is expanding the laws it brings environmental enforcement actions under to include statutes such as the Occupational Safety and Health Act, the Consumer Product Safety Act, and the Federal Food, Drug, and Cosmetic Act.

The IRA is the latest step in pursuing the Biden Administration’s environmental justice goals and it continues to push them forward by funding a variety of projects.  The IRA would inject billions of dollars in funding into environmental justice initiatives and, according to Senator Edward Markey (D-Mass.), represent “…the most significant investment in environmental justice and climate action in American history.”  President Biden said that it would make a “real” investment into environmental justice and many environmental groups have rushed to support the bill calling it “an incredible breakthrough.”

If passed the IRA would provide major incentives to produce clean energy and reduce pollution in low-income and disadvantaged communities. The act would provide tax breaks for up to 3.6 gigawatts of solar and wind generating capacity, enough to power millions of homes, in low-income communities.  IRA § 13103. The act also allocates $4.75 billion to states to reduce greenhouse gas emissions, with a focus on disadvantaged communities.  IRA § 60114.  The act would also allocate hundreds of millions of dollars specifically to tribal communities across the U.S.  IRA §§ 80001–04.

Disadvantaged communities would also benefit from over $3 billion in funding for the Federal Highway Administration for programs to improve transportation access, reconnect low-income areas to their neighbors, and reduce the negative impacts of transportation hubs.  IRA § 60501.  The IRA would also provide $3 billion to community non-profit organizations to reduce pollution, address toxic contamination, monitor local pollution levels, and invest in climate resiliency projects.  IRA § 60201.  The Department of Housing and Urban Development would also receive $1 billion to improve the climate resilience and electrification projects in public housing.  IRA § 30002.

Multiple e-NGOs have urged passage of the IRA and highlighted the contributions it will make to environmental justice.  For example, The Sierra Club’s statement identifies multiple areas of environmental justice impact that will stem from passage of the IRA.  Similarly, WE ACT’s statement of support noted, “We acknowledge Members of Congress for returning to the negotiating table and producing an inflation reduction package that has billions of environmental justice funding that can deliver the once-in-a-generation investments needed to make communities of color and areas of low income healthier, cleaner, and economically viable.” 

The transportation sector constitutes the largest source of greenhouse gas emissions in the United States, and the Inflation Reduction Act (IRA) takes significant steps to transition the U.S. vehicle fleet to zero-emissions technology.  The proposed legislation takes a multi-faceted approach in doing so: it not only provides incentives for increased consumer use of electric vehicles, it also promotes domestic zero-emissions vehicle manufacturing. 

Continue Reading Inflation Reduction Act Shows Strong Support for the Electric Vehicle Sector and Domestic Supply Chains

If enacted in the coming days, the recently announced Inflation Reduction Act (IRA) could be the most significant step the U.S. has taken to mitigate the worst effects of climate change.  In a joint statement, Senators Joe Manchin and Majority Leader Charles Schumer claimed the IRA would “fight inflation, invest in domestic energy production and manufacturing, and reduce carbon emissions by roughly 40 percent by 2030.”  The IRA’s primary mechanism for achieving this goal is the allocation of $369 billion to support energy production and reduce greenhouse gas emissions. 

Continue Reading Inflation Reduction Act accelerates efforts to decarbonize the economy and address climate change