Energy Update: Week of August 15th
Energy Update - August 15, 2022
Minutes after passage, House progressives are already vowing to fight any permitting legislation, part of agreement struck earlier with Senate Democrats to gain Manchin's vote on the legislation (See Rep. Jared Huffman quote below). And Senate Republicans are also signaling that they might block Manchin's permitting reform deal, as Democrats look to gain some Republican support to ensure passage of the permitting measure with 60 votes. The proposal to streamline energy project permitting is expected to be attached to budget legislation that Democrats are expected to introduce in late September, which must pass to avoid a government shutdown before national midterm elections.
I have been saying for months that there are many things in the climate legislation that Republican already have and will support again. I said it again Friday morning on Julie Mason’s Sirius XM POTUS show. The only reason the climate provisions remains so partisan is they are 3 months from an election where the wind is generally at Rs’ back. Maybe this and the other recent legis successes may help Dems some, but it is still unclear that they won’t pay a big price in the mid-terms regardless.
Either way, I have been reading/seeing a lot of stories and social media about the climate package being a miraculous turning point. Don’t get me wrong, this climate package is very important and will make a difference, but we need to tread carefully on being overly optimistic on its social, political, economic, policy and international impacts. Happy to discuss in more detail.
The big event this week is tomorrow at 4:00 p.m. when SAFE holds a forum on congressional landmark legislation – the Inflation Reduction Act(IRA), the Infrastructure Investment and Jobs Act (IIJA), and the CHIPS Act – covering a broad array of transportation, infrastructure, supply chain challenges. Finally, on Friday at 11:00 a.m., the US Energy Assn holds a media brief on US nuclear power and its future.
This is also American Clean Power Week with events nationwide highlighting clean energy and the good-paying jobs the industry creates for Americans across all 50 states. Its purpose is to showcase the clean energy technologies, including land-based wind, offshore wind, solar, energy storage, and transmission infrastructure.
Finally, I am LIVE from New York today for some meetings with reporters. As a prelude to the day, Hannah and I saw Rage Against the Machine last night in NYC at the Garden. It was the last show of the tour and they really rocked the entire set. We also caught the Harry Potter play at the Lyric. It was very Back to the Future-ish, but clever and good (maybe a little long).
I have a little time before I head to the train later this evening so let know if you are in NYC and want to connect. Call with questions.
Best,
Frank Maisano
(202) 828-5864
C. (202) 997-5932
FRANKLY SPOKEN
“The biggest political malpractice over the last 30 years was buying into the Econ 101 notion that government shouldn't pick technology, that Congress and elected officials should support a strategy which will be perceived as painful with no political narrative of success.”
Jason Grumet, founder and president of the Bipartisan Policy Center in an Axios interview where he said the environmental movement and lawmakers made a mistake by following the economists.
“I am not going to be steamrolled into a bunch of fossil fuel giveaways just because Manchin cut a deal in a closed room with Chuck Schumer. He doesn’t get to run the show on something like this, and many of us will have a say on what that deal looks like if it even happens.”
Rep. Jared Huffman (D-CA) told POLITICO's Josh Siegel, proving again that no good deed goes unpunished by environmental and progressive activists
ON THE PODCAST
Stavins, Holmstead Discuss SCOTUS, Clean Air Rules – In the latest episode of his weekly “Environmental Insights: Discussions on Policy and Practice from the Harvard Environmental Economics Program,” host Robert Stavins features a clean air act and environmental Law discussion with Bracewell’s Jeff Holmstead. Stavins says although he’s featured economists, he’s also been privileged to host some top environmental lawyers and legal scholars, including Sue Biniaz (now at the State Dept), Ricky Revesz (NYU Law School), Dan Esty (Yale Law School, now at the WTO), Jody Freeman (Harvard Law School) and Jonathan Wiener (Duke U’s School of Law). Stavins admits that while it is a diverse group in terms of gender, it is not a very diverse group politically. Stavins: “In my latest podcast, I begin to make up for that with an environmental lawyer who has worked closely and held important positions in Republican administrations. But I did not invite him to the podcast because of his political background and viewpoint, but simply because he is one of this country’s leading and most prominent environmental lawyers. As I assume people of all political stripes will readily acknowledge, he’s both smart and articulate. I’m talking about Jeffrey Holmstead, who served as Associate Counsel to the President in the George H.W. Bush administration, Assistant Administrator for Air and Radiation at the U.S. Environmental Protection Agency in the George W. Bush administration, and now leads the Environmental Strategies Group at Bracewell in Washington, DC. Stavins conversation with Jeff Holmstead is featured HERE.
WSJ’s Katherine Blunt Discusses CA Fires, Book – In 2018, PG&E equipment sparked the most devastating wildfire in California history – and it forced one of America’s largest utilities into bankruptcy protection. The story isn’t likely to be an anomaly. As journalist Katherine Blunt writes in her new book, California Burning, the story is “a harbinger of challenges to come” as climate change threatens the grid built for a different era. Katherine joins Bill Loveless on the Columbia Energy Exchange this week. She’s a Wall Street Journal reporter who covers the power industry. Her team’s reporting on PG&E was honored with multiple awards for business investigative journalism. Bill spoke with her about the PG&E saga – and what it tells us about the risks facing utilities and the power grid in a rapidly-warming world.
FUN OPINIONS
Holmstead: Major Questions Doctrine Changes Scope of Regs – In an opinion piece in Bloomberg, Bracewell’s Jeff Holmstead writes the US Supreme Court’s embrace of the major questions doctrine to strike down the EPA’s Clean Power Plan could have ramifications for other agency rulemaking. The court embraced the approach that if a federal agency wants to adopt an “extraordinary” regulation like this one, it must show that Congress clearly authorized it to do so. In cases involving major questions, the court held, it is not enough for an agency to show that its regulation is based on a “textually plausible” interpretation of an underlying statute like the Clean Air Act.
Everhart: Time for NOPEC to Stop Cartel – In an opinion piece on RealClearEnergy, Gen. Carlton Everhart, the former commander of the U.S. Air Force’s Air Mobility Command and currently a member of the Energy Security Leadership Council of SAFE, writes President Biden’s recent trip to the Middle East was a reminder of the major role oil plays in America’s relationship with Saudi Arabia and other Gulf monarchies. Getting beyond the current crisis and achieving true energy security means breaking the grip of oil on the American economy and influence on American policymaking. Getting the energy transition right means that future U.S. presidents should not be forced to haggle with foreign strongmen over energy supplies – be they Saudi princes or Chinese Communist Party apparatchiks. Then we will have achieved something better and more attainable than energy independence – true energy security for the American people and our allies.
FROG BLOG
API: Recent Budget Plan Has Some Good, but Lots of Bad – In a recent blog post, API’s’s Lem Smith writes that independent energy experts have warned the world is in or at the brink of a serious energy crisis, potentially more challenging and damaging than the global supply shocks and energy embargoes of the 1970s. In fact, the International Energy Agency said the surge in energy demand and subsequent supply chain disruptions and price increases could soon grow worse. As The Wall Street Journal recently pointed out, this energy crisis has been exacerbated by overregulation on one hand and abysmally slow permitting approvals on the other. Any bill should take a comprehensive approach and result in the increase of American natural gas and oil supply consistent with the goals of the “10-in-2022” plan. IRA does not, but there is still time to make a few tweaks for the better.
AEI: Banning Crude Exports Would Increase Prices – In a blog post for AEI, energy tax and economy expert Benjamin Zycher writes proposals to ban the export of crude oil are a blatant attempt to divert attention from the Biden administration’s energy policies as the central causes of the increase in international crude-oil prices by about 75 percent since January 2021. policies and proposals have contributed to the sharp increase in energy costs because crude oil can be produced and refined during the current time period or reserved (in the ground or in inventories) for some future time period. A policy-driven suppression of investment in fossil-fuel discovery, production, and transport means that expected future supplies will decline, and expected future prices will increase. A ban on oil exports would be yet another perverse policy added to those already hurting American producers and consumers.
FUN FACTS
- Manufacturers Getting More Efficient: Manufacturing has become more fuel efficient in the US in the last 25 years; in that time, manufacturing gross output grew by 12%, while its fuel consumption decreased by 16%. The top 6 manufacturing subsectors that consume the most energy:
- Chemicals
- Petroleum and coal products
- Paper
- Primary metals
- Food
- Nonmetallic mineral products
THE BIG NEWS
On Friday, the House of Representatives passed the Inflation Reduction Act of 2022 on a vote of 220-207. The House passed the Senate version of the legislation without making any changes to the legislative text. This will allow the bill to go directly to President Biden’s desk for signature without the need for the House and Senate to form a conference committee and reconcile any differences between the two pieces of legislation. President Biden is expected to sign the Inflation Reduction Act of 2022 early next week.
Our Expert Liam Donovan’s Bottom Line
Just over one year to the day after the Senate kicked off an epic reconciliation process with the adoption of the FY22 budget resolution, the House sent the rechristened Inflation Reduction Act to President Biden’s desk, with Democrats voting unanimously to concur in the Senate Amendment over party-line GOP opposition. The bill will provide roughly $369 billion in energy-related tax incentives and spending over the next decade, extend Affordable Care Act premium subsidies through 2025, and provide $80 billion to the Internal Revenue Service to improve compliance and enforcement. In addition to anticipated “tax gap” revenue, the package is financed by a new 15 percent minimum tax calculated against the book income of larger corporations, a new one percent excise tax on corporate stock buybacks, a two-year extension of existing limitations on excess business losses, and comprehensive drug pricing reforms, with the balance put toward deficit reduction.
While the bill bears little resemblance to the sweeping, transformative social spending proposal envisioned by President Biden in his first 100 days and comes in an order of magnitude smaller than what Congress afforded themselves under the budgetary instruction, Democrats nonetheless managed to salvage a core plank of the original plan—clean energy incentives—which stayed largely intact amid the otherwise precipitous legislative triage.
The counter-intuitive triumph of reconciliation as a climate policy vehicle in a process dictated almost entirely by the senior Senator from West Virginia is a testament to Democratic tax-writers like Senate Finance Chairman Ron Wyden (D-OR) who took Manchin’s stated positions and his “innovation not elimination” worldview seriously and literally. Dating back to the House Build Back Better bill, the green energy title was conspicuously tailored to Manchin’s preference for carrots over sticks and included key incentives for fossil-adjacent technologies like carbon capture and hydrogen. This deference to Manchin’s philosophical and jurisdictional prerogatives was a critical part of the effort’s success and made energy the default centerpiece of the package as trillions of dollars in other spending fell by the wayside.
The single biggest hurdle throughout this process—far more than any substantive or ideological disagreement—had been a lack of intraparty trust, an acute problem that only worsened as time wore on and frustrations grew. It informed the initial commitment of Speaker Nancy Pelosi (D-CA) to rebuff the bipartisan infrastructure bill unless and until the reconciliation package had passed the Senate; it manifested in House moderates’ demand for a certain infrastructure date before they would support the requisite budget resolution, as well as progressives’ repeated stonewalling of such a vote; it endured for months in the face of unmistakable (if hardly explicit) signals from the President, and was momentarily elided only by a crushing loss in the first major election of the Biden era. It finally reached its nadir with the December collapse of Manchin's talks with the White House, a bitterly personal spat that played out on cable news and, though blamed on staff, ended Biden's direct involvement with the process, marking the nominal death of the Build Back Better Act.
As we anticipated in this space, however, the public demise of "Build Back Better" proper opened the door for Manchin to support reconciliation in another form. And while it played out quite slowly over the course of nearly eight months, it was the unique, sometimes rocky relationship between Manchin and Senate Majority Leader Chuck Schumer (D-NY) that willed this process back to life, ultimately more than once, overcoming an abundance of skepticism and scar tissue at both ends of Pennsylvania Avenue.
In the end, Democrats chose to take the win, and however gratuitous the political pain endured in the interim, they are billing their victory in superlative terms as the largest climate investment of all time. Passage of IRA adds an exclamation point to the sudden burst of congressional productivity, adding to a narrative drumbeat that has markedly shifted in the party's favor in recent weeks, albeit from a meager baseline. And while the bill is not without ripe fodder—Republicans are already having a field day with the notion of 87,000 new IRS employees harassing middle class taxpayers—the dramatic paring of the scope and scale of the old BBB leaves the GOP with far less to shoot at on the campaign trail.
As Republicans learned with the passage of the Tax Cuts and Jobs Act heading into a bumpy 2018 cycle, when it comes to rallying the base, success is better than failure and futility. But at the end of the day, the political implications are incidental. Indeed, the historical likelihood that the President’s party will lose the House is precisely what drove the majority’s urgency to act in both instances. Democrats realized this was their last best chance to pass whatever policies they could find consensus on, certainly during the Biden administration, perhaps for the next decade. You win elections to achieve power, and while in power you do what you can, while you can. Beyond that you have to be willing to let the chips fall where they may. At best, the long tail of IRA may be redemption of the Biden legacy; not with a mishmash of new spending programs in a pale imitation of FDR, but with a discrete set of policies that fulfill a generational goal of the progressive movement despite negotiating the narrowest Congressional margin in modern history.
Ultimately that is the proper frame for this legislation—not judged against the bloated post-ARP expectations of Summer 2021, or even the heady days following the Georgia run-off victories, but compared to what the President-elect and his party thought possible that first Wednesday in November as the surprisingly tepid election results came in. On its own terms, to paraphrase a certain former Vice President, this is a big freaking deal.
Exit Questions:
What can we expect in terms of implementation?
- With a host of new incentives and a reformed regime for the old ones, taxpayer questions already abound. Guidance is called for throughout the statute to sort out anticipated ambiguities and interpretations, in some cases stipulating time timelines. The bill appropriates $80 billion to fund a beleaguered IRS that has been stretched to its limits—these new resources will be needed to bring clarity to over 700 pages of statutory complexity in the coming months and years.
What will happen to the permitting sidecar?
- It has been overshadowed by the news around IRA itself, but much of Manchin’s desire for fossil parity in his negotiation was not achievable in the context of reconciliation, meaning he had to settle for promises from leadership. Among other considerations, Schumer and Pelosi committed to moving permitting reform before the September 30 end of the fiscal year. Of course, that would require significant GOP support materializing over the next 6 weeks for a legislative product we haven’t even seen yet. While Republicans would support permitting reform in the abstract, the devil is in the details. And no matter how good the deal might be, its association with a Manchin-Schumer-Pelosi IRA deal stands to poison the well. Republicans are keenly aware that anything they would be inclined to support now would stand to improve with more leverage in the new Congress.
What is the outlook for tax policy in the lame duck and beyond?
- It’s hard to overstate the degree of interparty angst in the wake of the CHIPs/reconciliation rope-a-dope. The GOP’s hard line against efforts to reboot BBB has delayed any bipartisan negotiations on an eventual government funding deal, one that would be necessary to carry anything of note. An otherwise-clean CR is unlikely to prove a suitable vehicle for substantial legislation of any sort to hitch a ride. At the end of the day, beyond spite, the lame duck calculation will come down to whether the outcome of the election creates a significant advantage for either party in the new Congress. If the GOP cavalry is coming in in a big way, Republicans have less incentive to cooperate; but if House gains are muted and/or the Senate remains in Democratic hands, striking a year-end deal may make sense, particularly with several temporary TCJA policies (R&D, 163(j), 100% bonus depreciation) hanging in the balance. The secondary tax implications of IRA are two-fold: creating the likely need for a corrections bill (technical and otherwise) at some point in the future; and synchronizing up the ACA premium subsidies with the broader fiscal cliff shaping up at the end of 2025, when the TCJA individual title is poised to expire.
IN THE NEWS
Trade Associations Say No to Budget Bill – Nearly 60 other trade groups representing America’s natural gas and oil industry are opposing the Inflation Reduction Act (IRA) as passed by the Senate. In a letter to House Speaker Nancy Pelosi and Minority Leader Kevin McCarthy, the organizations outlined problematic provisions, including punitive new taxes and regulatory red tape that undermine the industry’s ability to promote energy security for the American consumer. “We share the goal of addressing climate change, as evidenced in the policies we support and in the actions that we take every day,” the letter states. “However, the considerable tax increases and new government spending in the IRA amount to the wrong policies at the wrong time.”
Missing Permitting – The letter further cited the absence of comprehensive of permitting reform legislation, which is required to advance America’s infrastructure needs and meet growing demand for affordable and reliable energy. “Finally, the IRA fails to address permitting reform, which is desperately needed and is essential to effectively deliver affordable, reliable energy to consumers in a growing economy,” the signatories wrote. “To date, neither the House nor the Senate have introduced comprehensive permitting reform legislation. We urge Congress to quickly consider and pass permitting reform without delay.”
Oil Production Hits 2-Year High – Speaking of oil, the Energy Information Administration reported US crude oil and distillate inventories climbed by 5.5 million barrels and 2.2 million barrels, respectively, last week, while gasoline supplies shed 5 million barrels, the biggest decline in 10 months. Weekly domestic oil production edged up by 100,000 barrels per day to 12.2 million bpd, the highest since April 2020, while refinery capacity utilization jumped by 3.3 percentage points to 94.3%.
Solar Expects Delays – New EIA data also shows that power plant developers plan to install 17.8 gigawatts (GW) of utility-scale solar photovoltaic (PV) generating capacity in 2022, according to our June 2022 Preliminary Monthly Electric Generator Inventory. Over the first six months of 2022, 4.2 GW of that capacity came online, less than half of what the industry had planned to install in those months. From January through June 2022, about 20% of planned solar photovoltaic capacity was delayed. Various factors could cause delays, including broad economic factors, such as supply chain constraints, labor shortages, and high prices of components, and factors specific to electric generator projects, such as obtaining permits or testing equipment.
Ford Increasing EV Truck Prices – Ford Motor Co. announced that the cost of its new electric F-150 Lightning pickup truck will rise anywhere from $6,000 to $8,500 per vehicle. The price increase will bring the cost to anywhere from $47,000 to $97,000 per truck.
Ash Grove Hosts NE Rep for Tour of Plant – Ash Grove Cement hosted Rep. Mike Flood and PCA staff for a tour of its facility in Louisville, Nebraska. At the beginning of the visit, Ash Grove and PCA staff discussed the industry, its economic impact, public policy priorities and the company’s and industry’s decarbonization efforts. Ash Grove staff then took Flood on a tour of the facility showing him the kilns, control room and raw and finish mills.
ON THE SCHEDULE THIS WEEK
Forum to Look at Major Questions Doctrine, SCOTUS Case – The Federalist Society for Law and Public Policy Studies holds a webinar today at 1:00 p.m., on West Virginia v. EPA and the Major Questions Doctrine. The SCOTUS decision closes the window on the most viable regulatory route for sweeping climate action by federal agencies without a clear congressional mandate, while raising the bar still higher for options such as NAAQS for greenhouse gases.
WRI Forum to Look at NDCs – The World Resources Institute will holds a discussion tomorrow at 8:00 a.m. This webinar, hosted by the Adaptation Action Coalition, will highlight the areas of progress being made in using NDCs to advance adaptation action and the gaps that need to be addressed to accelerate action. We will hear from experts from World Resources Institute, NDC Partnership, NAP Global Network and GIZ about successes, challenges and tools that can support countries to improve and implement their NDCs from an adaptation perspective.
Forum Focused on Offshore Wind – Vinson & Elkins will hold a discussion tomorrow about recent offshore wind developments and the challenges facing these projects. The event will look at the most recent development in Ohio, where the Lake Erie Energy Development Corp. received the green light from the Ohio Supreme Court to proceed with constructing its $127 million Icebreaker offshore wind project in Lake Erie. Additionally, the California Energy Commission unanimously approved a plan last week to install as much as 5 gigawatts of wind turbines off the coast by the end of this decade and as much as 25 GWs by 2045, in an effort to meet the state's goal of getting all its electricity from carbon-free sources by 2045.
Forum to Look at Peaker Plants – Tomorrow at 1:00 p.m., the Clean Energy States Alliance holds a forum to discuss a report on peaker plants. More than 4.4 million people in urban areas in the United States live within one mile of a peaker power plant and are unnecessarily and directly exposed to air pollutants that cause significant health problems and higher incidence of premature death, according to The Peaker Problem: An Overview of Peaker Power Plant Facts and Impacts in Boston, Philadelphia, and Detroit. This report, released by Clean Energy Group with the consulting firm Strategen, examines the environmental justice and public health impacts of peaker power plants in these three U.S. cities.
SAFE to Look at Legislation – Tomorrow at 4:00 p.m., SAFE holds a forum to hear from an expert panel assessing the impact of the recent legislation (IRA, IIJA and the CHIPs Act), looking at outcomes, opportunities, and implementation challenges. Former Director of National Intel Admiral Dennis Blair (SAFE Chairman and Energy Security Leadership Council member) will provide an overview. Then, Robbie Diamond moderates a discussion with Electrification Coalition’s Ben Prochazka (EV Vehicles), SAFE Center for Critical Minerals Strategy Director Abigail Wulf (Battery Sourcing/Supply Chain), Electrification Coalition’s Katherine Stainken (Electric Grid Security/Charging Infrastructure), SAFE Center for Strategic Industrial Materials Director Joe Quinn (Aluminum and Materials Production) and SAFE American Semiconductor Center Senior Fellow Peter Flory (Semiconductors).
Cornyn to Hold Hydrogen Workshop – On Wednesday, Sen. John Cornyn will hold a Texas hydrogen workshop.
Forum Looks at FERC Order – The World Resources Institute holds a virtual discussion Thursday at Noon on how local governments can benefit from FERC Order No. 2222. FERC 2222 requires regional transmission organizations (RTOs) and independent system operators (ISOs) to open their markets to DER (Distributed Energy Resource) aggregations.
Forum Looks at DOE – Vinson & Elkins holds a virtual discussion on Thursday at 1:00 p.m., on navigating the foreign investment and national security priorities of the Department of Energy. Michael Considine, Deputy Assistant Secretary for Foreign Investment, National Security, and Technology Collaboration within the Office of International Affairs at DOE will be featured.
AAAS Hosts Fellows – The American Association for the Advancement of Science holds a virtual discussion on Thursday at 3:00 p.m. with science and technology policy fellows. The panel will discuss what it’s like to be a fellow in each branch of the federal government.
USEA Presser to Focus on Nuclear Power – On Friday at 11:00 a.m., the US Energy Assn holds a media brief on US Nuclear power and its future. The event will feature GE Hitachi’s Jon Ball, US Nuclear Industry Council head Bud Albright and NEI’s Doug True. Journalist’ questioners will be Rod Kuckro, WSJ’s Jennifer Hiller, Forbes Ken Silverstein and Markham Hislop of Energi.
IN THE FUTURE
Forum Look sat FERC Order 2222 – The World Resources Institute holds a forum on Thursday August 18th looking at how local governments can benefit from DER aggregation opportunities enabled by FERC Order No. 2222. The event will highlight findings from new WRI research on how local governments can leverage DER aggregations to advance their clean energy and climate goals and will feature an expert panel discussion on the opportunities presented by this Order for local governments.
Forum to Look at Building Decarb – The GWU Security and Sustainability Forum holds a discussion on Thursday August 18th at 1:15 p.m. on the building decarbonization. Reducing energy use and converting to renewables go a long way toward decarbonizing a building. But energy is one system in a whole set of building systems. Focusing on the whole building has additional energy and carbon reduction payoffs. The event features Smita Chandra Thomas, the founder and principal of Energy Shrink – a Washington DC consulting practice focused on decarbonizing buildings for international, national, and local clients.
Forum Host IA Mayor on Climate, Flooding Challenges – The Center for Climate and Energy Solutions (C2ES), the US Conference of Mayors and the Alliance for a Sustainable Future host a webinar on Thursday August 25th featuring Dubuque, Iowa Mayor Brad Cavanagh. He and his team will share lessons and strategies to successfully fund a comprehensive flood mitigation effort. Chief among these strategies is “stacking” various federal funding sources with state and local resources to implement a multi-faceted plan that integrates green and grey infrastructure solutions for maximum benefit. This strategy is featured in the Alliance for a Sustainable Future publication, “Cities Advancing Climate Action: Federal Funds for Local Impact,” in which a variety of other funding strategies for maximizing impact is explored.
Climate Week NYC –Climate Week NYC will be on September 19-25th. Climate Week NYC will bring together hundreds of leaders from business, government and civil society to showcase the best climate action and discuss how to do more. But just as importantly, it will explore and confront where the world is still falling short. Climate Group runs a series of events which form the main program of the week. The Climate Week NYC Opening Ceremony and The Hub Live bring together a global audience of senior leaders from business, government and the climate community.