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FROM THE HILL: Energy Policy #2

House Unveils and Passes Debt Reduction Plan Eliminating Many Renewable Energy Credits


Estimated Read Time: 1 min. 50 secs. for summary

Written for:

  • Energy and Water Clients

 

Policy Brief:


  • The plan increases the debt ceiling by $1.5 trillion – essentially enough to make it through March 2024

  • Brings the overall U.S. discretionary spending to FY2022 levels and caps the next decade of discretionary spending to a one-percent increase per year. This equal a $130 billion cut.

  • The plan eliminates or reverts back to FY2022 levels all of the renewable energy tax credits contained in the Inflation Reduction Act of 2022.

  • The bill rescinds (claws back) any unspent CARES Act (“COVID Relief”) amounts.

  • Imposes Executive Order limitation on the Executive Branch

  • Restates the previously passed House Energy Policy Bill (see “Energy Policy #1”)

 

To be fair, the President did ask House Republican to “provide a 10-year plan” and in response they have released the Limit, Save, and Grow Act of 2023 (HR 2811), which provides for a limited extension of the debt ceiling, expected recissions of certain unallocated amounts, limitation of discretionary spending for the next decade, limitations on Executive powers relative to increasing spending (e.g., prohibiting the student loan forgiveness program) and significant modifications to the President’s signature legislation – The Inflation Reduction Act of 2022, particularly in the area of renewable energy.


In what House Leadership hopes to be the “opening salvo” for negotiations concerning the debt ceiling, the bill in its current form barely passed the House of Representatives by a vote of 217 to 215, will not pass the Senate, and would not withstand a veto by President Biden. Our concerns lie on the short-term impact to the renewable energy sector which may see a reduction in investment due to the proposal’s impact at a time when the economy nears recession. In addition, pending IRS regulations concerning the bill’s provisions may be slowed creating confusion for 2023 tax filings. Brinkmanship on the debt ceiling is increasing and there is no sign the U.S. Senate is willing to begin negotiations on spending issues. With such a slim vote-margin in passage of the bill, debate will continue.


The House Rules Committee approved a closed rule for floor debate that would make some changes to the draft bill released by Republican leaders on April 19, 2023, such as starting some work requirements earlier and dropping changes to tax provisions related to carbon oxide sequestration and biofuels.


Speaker Kevin McCarthy (R-Calif.) said April 26 he’s confident there’s enough support among House Republicans for the debt limit bill to pass.


The White House issued a veto threat on April 25, calling the measure “a reckless attempt to extract extreme concessions as a condition for the United States simply paying the bills it has already incurred.”


The summary of the bill below is “as passed” by the House of Representatives.


Impacts on Energy:


The bill restated the previously passed Lower Energy Costs Act of 2023 (HR 1) attaching the provisions of the Republican energy “wish list” to the debt ceiling issue. Senate Majority Leader Schumer (D-NY) previously stated HR 1 was “dead on arrival” and attaching it to the debt ceiling demonstrates the far-reaches of the brinkmanship happening in the Nation’s Capital.


In addition to restating HR 1, the bill rescinds unallocated but previously authorized/appropriated amounts under the Coronavirus Aid, Relief and Economic Security Act (CARES Act) which were used by some states for infrastructure development. It also returns discretionary spending levels to FY2022 amounts and only allows an increase of one-percent per year in discretionary spending. This action may have the impact of limiting infrastructure funding for the remaining IIJA amounts both in the water, transportation, and communications areas. In addition, it returns energy spending to FY2022 and limits any growth of public spending for the next decade. Both of those provisions were expected to be included in the Republican debt ceiling bill and would serve as the starting point for the negotiations.


For the renewable energy industry, the most concerning provisions are contained within Title III, which repeals or returns to Fiscal Year 2022 level (aka, “modifies”), the vast majority of energy tax credits contained in the President’s Inflation Reduction Act of 2022. These include the various Production Tax Credit, Investment Tax Credit, and accelerated depreciation provisions contained in Sections 42-48 of the U.S. Tax Code.


Specifics for the bill include:


Energy and Infrastructure Funds: The revised measure would rescind unobligated balances under the Inflation Reduction Act related to energy, environment, and infrastructure initiatives.

The affected funding pools include:

  • $5 billion for energy infrastructure reinvestment financing.

  • $5 billion for climate pollution reduction grants.

  • $1.89 billion for a neighborhood access and equity grant program and $1.26 billion for Federal Highway Administration grants in economically disadvantaged areas.

  • $1 billion for adopting latest energy building codes and zero energy codes.

  • $200 million for National Park Service deferred maintenance projects.

Energy Taxes


Clean Energy Tax Repeals: The measure would repeal new tax incentives established by Democrats’ 2022 tax, health care, and climate change law, including credits for:


· Previously-owned plug-in electric and fuel cell vehicles and commercial clean vehicles.

· Domestic production of clean fuels based on their carbon emissions.

· Sale or use of a qualified mixture of sustainable aviation fuel.

· Sale of domestically produced electricity with zero emissions.

· Investment in qualifying zero-emissions electricity generation facilities or energy storage technology.

· Production of zero-emission nuclear power.

· Production of clean hydrogen based on lifecycle emission rates.

· Domestic production and sale of qualifying solar and wind components.

The revised measure would allow the sustainable aviation fuel credit and the clean fuel production credit to apply to investments made between Aug. 26, 2022 — after that law was enacted — and April 19, 2023.


The measure also would repeal:


· The enhanced investment tax credit for solar and wind facilities that serve low-income communities.

· Additional allocations of the advanced energy manufacturing tax credit.

Provisions under Democrats’ 2022 reconciliation law allowing claimants to apply for tax refunds or payments equal to the value of certain tax credits through 2032 would be terminated.


Production and Investment Credits: The measure would modify the production and investment tax credits related to renewable energy, which were expanded under the Inflation Reduction Act.

The production tax credit would only apply to certain facilities, including wind facilities, that began construction before 2022, instead of 2025. The measure also would increase the base rate for the credit by 1.5 cents, from 0.3 cents.


The investment tax credit for renewable energy property would only apply to certain properties, including solar equipment, that begin construction before 2024, instead of 2025. The credit wouldn’t apply to energy storage technology, qualified biogas property, and microgrid controllers.


The measure would also repeal for both credits the:


· Additional increased credit amount that could be claimed in certain cases if properties comply with domestic content requirements, such as ensuring that any steel, iron, or manufactured product is produced in the US.

· Bonus rates for projects that meet certain prevailing wage and apprenticeship requirements.

Electric Vehicles: The measure would modify the clean vehicle credit by:

· Defining vehicles that qualify for the credit as “qualified plug-in electric drive motor” vehicles instead of “clean” vehicles.

· Removing the requirement for such vehicles to have their final assembly in North America.

· Phasing out the credit after at least 200,000 qualifying vehicles are sold by the manufacturer.

Energy-Efficient New Homes: The measure would end the credit available to eligible contractors for building and selling qualifying energy-efficient new homes for those acquired after 2021, instead of 2032. It also would decrease the credit amounts to:


· $2,000, from $2,500, for homes that meet certain Energy Star efficiency standards.

· $1,000, from $5,000, for homes certified as zero-energy ready homes.

Residential Energy Property: The residential clean energy credit would be renamed as the credit for residential energy efficient property.


The credit would be modified so that it wouldn’t apply to any property, such as solar electric property and geothermal heat pumps, installed in a home after 2023, instead of 2034. Battery storage technology wouldn’t be eligible for the credit.


Commercial Buildings: The measure would modify the maximum deduction for energy efficient commercial buildings and require buildings to meet a higher target for reducing energy costs to be eligible.


It also would require the Energy Department to issue a rule allowing the allocation of a deduction to a property’s designer instead of the owner for commercial building property owned by a federal, state, or local government.


Energy Permitting and Leasing


The measure includes an energy package (H.R. 1) that the GOP-led House passed 225-204, largely along party lines, on March 30th.


It would:


· Streamline the federal permitting process for all industries and expand oil and gas leasing.

· Modify how revenue from energy leasing is shared among states and the federal government,

· Give the Federal Energy Regulatory Commission exclusive authority to approve or deny natural gas export or import applications.

· Repeal several incentive programs established or expanded by Democrats’ 2022 tax, health care, and climate change law, including a program imposing fees for methane emissions.

NEPA Permitting Process: The measure would set target timelines for environmental reviews under the National Environmental Policy Act.


A lead agency would be required to develop a schedule to complete any environmental review, permit, or authorization to carry out the proposed action. The agency would have to complete an environmental impact statement within two years or an environmental assessment within one year, unless a deadline extension is agreed to by the project sponsor.


The measure would specify certain activities that wouldn’t be considered a major federal action under NEPA, including drilling certain geothermal exploratory wells, repairing existing transmission and distribution infrastructure, and certain oil and gas development activities on nonfederal surfaces.


The lead agency for the review process would be directed to analyze a reasonable number of alternatives to a proposed major action, among other information.


An environmental review wouldn’t be required if a proposed action isn’t final, is covered by a categorical exclusion, or if the analyses would conflict with the requirements of another law.


Oil and Gas Leasing: The Interior Department would have to reinstate quarterly onshore lease sales on federal lands. At least four oil and gas lease sales would be required each fiscal year in states with land available for oil and gas leasing. Reinstated leases wouldn’t be considered a major federal action under NEPA.


The department would be required, by Sept. 30, to conduct all remaining offshore lease sales outlined in the 2017-2022 Outer Continental Shelf Oil and Gas Leasing Proposed Final Program. The measure would also require the department to issue a leasing program every five years.


Current offshore oil and gas leasing moratoria wouldn’t be affected, but the measure would lift the existing moratorium on new coal mining leases.


The measure would reduce royalty rates for oil and gas leases, and reduce fees associated with land leases.

Lands without any bids or with bids less than the national minimum would be offered within 30 days for leasing without competitive bidding. The land would remain available for leasing for two years after the competitive lease sale.


Revenue Sharing: State funds from revenue derived from offshore oil and gas leasing would be increased under the measure. It would also eliminate the cap on the total amount of revenue disbursed to states each year.

The measure would eliminate a 2% annual deduction for administrative costs from payments to states relating to onshore land sales, bonuses, royalties, and rentals.


The revenue sharing provisions would sunset on Sept. 30, 2032.


Natural Gas Regulation: FERC would have the exclusive authority to approve or deny applications to construct, expand, or operate facilities to export or import natural gas to or from a foreign country, including liquefied natural gas terminals. FERC would be the only lead agency to assess the environmental effects of natural gas projects through the NEPA review process.


The measure wouldn’t affect the president’s authority to sanction imports or exports that involve a state sponsor of terrorism.


Budget Caps


The measure would cap topline fiscal 2024 discretionary spending at fiscal 2022 levels — $1.47 trillion. It would also limit future increases to such spending to 1% annually for 10 years, reaching $1.61 trillion in fiscal 2033.


The measure wouldn’t set separate caps for security and nonsecurity programs as was the case under the Budget Control Act of 2011 (Public Law 112-25) and subsequent laws that increased the amount of spending allowed under those caps.


The proposal would allow additional new budget authority for certain activities, including for health care fraud and abuse prevention and wildfire suppression. It also would allow for adjustments to the cap for disaster spending.


 

From the Hill is an industry snapshot for Capitol Core Group clients in select industries of interest. It is compiled from Capitol Core research and discussions as well as outside resources including Bloomberg Government, Roll Call, and other relevant sources. All data provided is public data but is compiled for ease of understanding.


This is the second in the series on the topic of energy policy.


As a 30-year veteran of electric energy policy, Michael W. McKinney leads Capitol Core Group’s energy practice (m.mckinney@capitolcore.com)

 

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