Funding Package Provides Opportunities for Clean Energy Industries

Funding Package Provides Opportunities for Clean Energy Industries

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On December 27, President Donald Trump signed a $1.4 trillion appropriations package funding the government through September 2021 and a $900 billion fiscal stimulus law for coronavirus aid. Media attention has focused on the stimulus law’s critical economic relief provisions, but the spending package also includes some of the most significant energy and climate legislation in years. The energy- and climate-related provisions will deliver billions of dollars of funding to the research, development, and deployment of low-carbon energy, extend vital tax credits for the solar and wind industries, and call for the phaseout of the use of hydrofluorocarbons, a major contributor to global warming. Collectively, these provisions present important public-private partnership opportunities, opening doors for energy and technology companies to leverage federal funding and participate in evolving national policies.

In this client alert, we analyze three of the key energy and climate components of the appropriations law. We then look ahead to the political implications of these provisions as the country transitions to the Biden-Harris Administration.

Investment in Zero-Emission Energy Technology

The appropriations law authorizes over $35 billion in government funding for various clean energy technologies and initiatives, representing a significant investment in research, development and deployment of low-carbon energy. For example, the law allocates $1.5 billion for R&D related to various solar technologies and $625 million for wind energy programs overseen by the Department of Energy (DOE). The legislation also appropriates just over $1 billion to establish a new DOE “Energy Storage System Research, Development, and Deployment Program,” which seeks to advance energy storage technologies, and establishes a grant program for demonstration energy storage systems pilot projects.

The law also appropriates $933 million to DOE for waterpower research and development, including specific designations for marine energy and hydropower technologies. It authorizes $2.14 billion for advanced nuclear reactor technology, as well as $4.7 billion for research into fusion energy, also overseen by the DOE.

In addition to addressing energy generation technologies, the law contains funding for DOE programs related to carbon capture, storage and utilization. It includes $910 million for a carbon capture research and development program, $1 billion for “large-scale pilot projects” with carbon capture technology, $2.6 billion for a carbon capture demonstration project program, $800 million for efforts on carbon storage validation and testing, and additional appropriations related to a new carbon utilization program.

Finally, the law includes $2.93 billion in funding for DOE’s Advanced Research Projects Agency-Energy (ARPA-E) program, which advances high-potential energy technologies. This funding will support projects related to nuclear waste management and clean-up; energy infrastructure resilience, reliability and security; and ARPA-E’s existing goals related to reducing energy imports, reducing energy-related emissions and improving energy efficiency in all sectors of the economy.

Senators Lisa Murkowski (R-AK) and Joe Manchin (D-WV), two moderates who were principal architects of energy provisions in the funding bill, have characterized the legislation as “the first modernization of our nation’s energy policies in well over a decade,” and “a down payment” on the low- and no-carbon energy technologies that are necessary to address climate change. Indeed, the law amounts to a bipartisan investment in the transition to clean energy, and it presents significant opportunities for companies that operate in the energy generation, storage and carbon capture sectors. Experienced clean-energy companies with demonstrated expertise will be able to take advantage of the law’s opportunities. At the same time, the law provides incentives for newcomers to the clean energy industry to engage in public-private partnerships in research, development and other innovation areas supported by these programs.

Extension of Renewable Energy Tax Credits

The appropriations law includes extensions of the production tax credit (PTC) and investment tax credit (ITC) for solar and wind energy. The PTC is a credit calculated per kilowatt hour produced by a project over its first ten years of operation. The ITC is a credit provided at the outset of a project that is particularly useful for capital-intensive energy developments, such as offshore wind. The law provides a one-year extension of the PTC and ITC for land-based wind energy projects at 60 percent of the project’s full value. It also extends by two years the solar ITC at 26 percent. And the law includes a 30 percent ITC for offshore wind projects that commence construction between January 1, 2017, and December 31, 2025.

The ITC and PTC have been vital to financing renewable energy projects. The extension of these credits bodes well for solar and wind developers with projects that will be become construction-ready in the next year. The ITC for offshore wind signals Congress’s acknowledgement of the significant potential of energy development in federal waters. The offshore industry is turning the corner from smaller pilot-scale projects to becoming a crucial part of states’ renewable portfolio standards. Several large-scale offshore projects are expected to be operational in the next few years, including in Virginia, New York and Massachusetts. The ITC through 2025 for offshore projects will encourage an increase of offshore wind activity throughout the Biden Administration.

Phaseout of HFCs

As part of what has been called “one of the most significant pieces of climate legislation that Congress has passed,” the package provides for the phaseout of the “production” and “consumption” of hydrofluorocarbons (HFCs).

Used by heating and cooling manufacturers, HFCs are a greenhouse gas (GHG) with 1,000 times the heat-trapping potency of carbon dioxide. A complete, global phaseout of HFCs will reduce global warming by nearly one degree Fahrenheit.

The decision to phase out HFCs is notable because it returns the United States to an international commitment the Obama Administration made in 2016 in Kigali, Rwanda, along with 197 other countries to renounce HFCs in favor of climate-friendly alternatives, although the Trump Administration refused to ratify that commitment. According to reports, piecemeal moves by eight states have led to a splintered domestic market; heating and cooling manufacturers, preferring a single national-standard, have pushed for a uniform benchmark, which the funding bill will provide by directing the phaseout of HFCs.

The main implications of this provision in the appropriations law are threefold. First, substantively, ceasing the production and consumption of HFCs by the United States and, in time, the scores of signatories of the Kigali agreement will have a major, salutary effect to reduce global warming. Second, procedurally, it suggests a return of the United States to cooperative international climate policymaking after a four-year hiatus. As others have observed, the successful inclusion of this provision in the funding legislation was born in part because the HFC phase-out provision flew “below the radar” in a must-pass bill. Time will tell if other climate efforts follow a similar tack—attaching themselves stealthily to larger, broadly popular legislation. In the meantime, the HFCs provision provides industry with a much-desired national standard that obviates the need for businesses to contort themselves to variable state restrictions.

Looking Ahead

The passage of the energy and climate provisions outlined above comes at the same time President-elect Biden has named key members of his cabinet and White House climate and environmental team. The legislation sets the stage for the implementation of the President-elect’s comprehensive climate agenda. Perhaps no nominee’s portfolio will be more affected than that of Energy Secretary nominee Jennifer Granholm, who, if confirmed, will oversee DOE’s execution of the energy R&D programs strengthened or created by the appropriations package. Interior Secretary nominee Deb Haaland will play a critical role in the development of renewable energy on public lands and offshore (through Interior’s Bureau of Ocean Energy Management), and the tax credits included in the law will facilitate that effort. The phaseout of HFCs, meanwhile, provides momentum for Michael Regan, the nominee for EPA administrator, Gina McCarthy, the incoming White House climate czar, and John Kerry, Biden’s special presidential envoy for climate, as they seek to significantly decrease GHG emissions domestically and globally.

This law may mark the last piece of bipartisan climate and energy legislation for the foreseeable future. If the Georgia Senate runoffs result in a divided Congress, Senate Republicans are unlikely to pass legislation that advances the bolder aspects of President-elect Biden’ climate agenda. That will leave the incoming administration to focus on executive actions and leveraging the provisions in this stimulus law to further its plans to address climate change.

WilmerHale’s Energy, Environment and Natural Resources and Public Policy and Legislative Affairs teams are ready to help clients navigate this evolving landscape.

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