Renewable energy and carbon capture in USA – Lexology

Renewable energy and carbon capture

Renewable energy consumption, policy and general regulation

Give details of the production and consumption of renewable energy in your country. What is the policy on renewable energy? Describe any obligations on the state and private parties for renewable energy production or use. Describe the main provisions of any scheme for registration of renewable energy production and use and for trade of related accounting units or credits.

The US does not have a comprehensive national policy on renewable energy production or use. Instead, a patchwork of federal and state programmes and incentives drives the renewable power sector in the US.

Twenty-nine states, plus Washington, DC, have enacted binding renewable portfolio standards (RPS). Eight other states have non-binding RPS programmes or renewable energy goals. State RPS programmes operate by setting renewable energy targets for each year and requiring electric utility companies to achieve that level of renewable power. As a result, RPS programmes are the primary drivers for renewable energy investment in the US and are spurring significant investment in renewable energy infrastructure in many states. Collectively, these programmes are expected to dramatically increase the demand for wind power while also driving the expansion of solar and hydrokinetic power. About 16 states also have separate, smaller targets for solar energy, often referred to as a ‘solar carve out’, which usually operate in tandem with a net metering or feed-in-tariff programme. As solar energy becomes more price competitive, solar carve outs have experienced less support and lower expansion in recent years. RPS compliance is usually managed through a system of tradeable renewable energy credits (RECs), with one REC representing one MWh of renewable power. In general, RECs are registered by state agencies and are tradeable instruments. Most state programmes require compliance through use of RECs or renewable power generated in-state, with limited exceptions and eligible renewable resources and definitions can vary widely by state. This results in fragmented REC markets with prices varying widely by state and resource type.

In addition to mandatory RPS programmes, ‘green power’ programmes allow US energy consumers (typically residential and commercial) to purchase renewable or ‘green’ power from their utility company or independent power supplier. Energy suppliers purchase RECs on the voluntary market to meet green power demand. Voluntary REC supply is dominated by wind, though solar is increasing its market share. Prices for voluntary RECs hover around US$1/MWh, significantly lower than most RECs purchased for compliance purposes. It is estimated that more than 50 per cent of retail customers in the US now have an option to purchasing ‘green’ or low-carbon power from their utility. Net metering programmes allow grid-connected customers with renewable energy systems installed on their property to offset their electrical usage and sell excess electricity to their utility. Several states have also implemented feed-in-tariff programmes that provide a higher price to consumers generating certain types of renewable energy. These programmes have aided the expansion of residential and commercial solar projects in the US, but several states have recently moved to roll back or eliminate their net metering programmes and others are seeking new ways to properly value solar power. As this debate continues, numerous states have expanded their net metering programmes and are developing pricing mechanisms to reward solar power based on its value to the grid, factoring in time-of-service, displacement of new fossil-fuel generation and infrastructure, and environmental benefits, including GHG reduction.

At the federal level, the Department of Energy’s (DOE) loan guarantee programme backs investment in renewable power, energy efficiency and commercial climate technologies. Loans backed by the DOE have supported investment in solar, wind, geothermal, nuclear and energy storage technologies, among others. In 2013, the DOE announced the availability of US$8 billion in loan guarantees for advanced energy projects that substantially reduce GHGs and other air pollution. In 2014, the DOE announced availability of US$4.5 billion in loan guarantees available for innovative renewable energy and energy efficiency projects in the US that reduce GHG emissions. The DOE also runs parallel loan programmes for nuclear energy projects and ‘advanced fossil energy’ projects, each with its own solicitations and funding caps.

Two federal tax credits also provide financial support for renewable energy facilities. The production tax credit provides a tax credit for each kilowatt-hour produced by eligible renewable power facilities. Combined with state RPS programmes, the PTC has been a major driver of wind power development in the US: between 2007 and 2014, US wind capacity nearly quadrupled. In late 2015, the US Congress extended the PTC for facilities that begin construction before 31 December 2019. The business energy investment tax credit (ITC) was also significantly expanded in 2008, which provides tax credits for capital investments in solar energy facilities, fuel cells, small wind turbines, geothermal systems, microturbines, and combined heat and power. The ITC was extended in late 2015, with a gradual step-down in credits between 2019 and 2022.

The federal government is also working to facilitate renewable power generation on public lands through a variety of programmes that are designed to streamline permitting and leasing. For example, the Department of Interior and Bureau of Land Management facilitate a solar energy programme in six western states, and the Bureau of Ocean Energy Management is working to identify and lease offshore wind energy areas for commercial wind development. The Council on Environmental Quality’s National Environmental Policy Act (NEPA) rule is also intended to facilitate energy projects. That said, decisions to conduct additional NEPA analysis and ongoing litigation have stalled the realisation of significant offshore wind developments to date.

Wind energy

Describe, in general terms, any regulation of wind energy.

Wind energy projects are subject to a range of federal, state and local environmental, land use and natural resources laws and regulations. A project may require multiple permits and consultation and coordination between multiple agencies. Access to transmission also remains a significant constraint for many wind projects, since wind energy resources in the US are not always located near demand. Developing new or expanded transmission lines can increase the complexity of the above regulatory requirements.

For projects located on federal land, federal land management agencies will likely act as the primary permitting authority. For projects on private or state land, in some states permitting authority is vested in one or more state agencies. In other cases, the primary permitting authority for a wind facility is the local planning commission, zoning board, city council or county board.

The Bureau of Ocean Energy Management (BOEM) administers the offshore wind leasing process on the outer continental shelf (three nautical miles offshore) through a competitive bidding process. Offshore wind projects also must coordinate with the US Coast Guard during construction and to address any navigational hazards. BOEM has held several auctions, resulting in the sale of various leases to develop offshore wind projects, primarily on the east coast. The first wind turbines were installed in US federal waters off the coast of Virginia in 2020. Multiple east coast states have set targets to purchase offshore wind. The timeline for developing an offshore wind project is long and the Trump administration is expected to propose streamlining regulations.

Renewable energy projects have seen significant litigation over environmental impacts and other issues. Litigation may involve local issues, such as noise, siting and site-specific impacts, or may implicate broader state or national policies. With respect to wind energy, impacts on birds are a frequent focus of litigation. The Migratory Bird Treaty Act (MBTA), the Endangered Species Act and the Bald and Golden Eagle Protection Act all protect certain species of birds with civil and criminal penalties. The Trump administration has proposed regulations that would interpret the MBTA as not applying to ‘incidental’ injuries or killing of birds, such as those caused by wind projects.

Solar energy

Describe, in general terms, any regulation of solar energy.

Solar energy experienced a record year in 2019, accounting for approximately 40 per cent of all new generating capacity nationally, though solar power (both small- and large-scale) generated only 2 per cent of the total electricity in the US. Overall, the US solar market grew by 23 per cent from 2018, despite tariffs on imported solar cells and modules. Federal, state and utility incentives programmes, alongside CO2 emission reduction targets, largely drove this growth, though many of the incentive programmes are in the process of phasing out, including the federal solar ITC. The ITC, which allows customers of new residential and commercial solar to deduct the cost of installing solar energy systems from their federal taxes, is scheduled to taper off from 30 per cent to 26 per cent in 2020 and eventually expire in 2022. Other states and the District of Columbia continue to offer incentives, such as up-front rebates, tax credits (including exemptions from property and sales taxes), production-based incentives and solar renewable energy credits. Several newly enacted laws focus on ensuring that solar technologies are available to lower-income consumers, including Maine and Virginia. California led the country’s electricity generating capacity growth, comprising 43 per cent of small-scale sources, potentially owing in part to the solar mandate going into effect on 1 January 2020, requiring all new single- and multi-family homes under construction to have a solar system as an electricity source. In addition, an anticipated increase in the need for end-of-life management of photovoltaic (PV) solar panel waste is driving states such as California to take measures in support of streamlined solutions, including through a new 2020 regulation designating PV waste as ‘universal waste’, alongside electronics, batteries and other low-risk hazardous waste.

These trends reflect how residential solar, as well as commercial- and utility-scale, projects have gained notable traction in an increasing number of jurisdictions across the country. Even so, traditional regulatory approvals and permits are required for these projects, regardless of scale. Residential solar installations, such as rooftop solar projects, generally do not require major regulatory approvals, but are required to meet local and state building, zoning, land use and development regulations – including the acquisition of necessary permits. Rooftop solar projects also commonly face state and local requirements for grid interconnection standards, net metering eligibility, feed-in tariffs and state RPS regulations. Larger commercial- and utility-level solar energy projects implicate a much larger array of federal, state and local laws – including those concerning land access, siting, water rights, transmission and environmental review – all of which may be subject to litigation in the process of seeking regulatory approvals.

Hydropower, geothermal, wave and tidal energy

Describe, in general terms, any regulation of hydropower, geothermal, wave or tidal energy.

The Federal Energy Regulatory Commission (FERC) issues licences for construction of new hydropower projects. During the permitting process, FERC and the applicant must assure compliance with NEPA and must obtain a water quality certification from the appropriate state agency under the Clean Water Act (CWA). In many cases, permittees also must obtain authorisations under various federal laws, including those protecting wildlife, such as the Endangered Species Act. In some states, additional authorisation may be required for hydropower resources to qualify for RPS or net metering programmes. With climate change an increasing concern, some states have increased focus on hydropower as a source of energy; in particular, states in the north-east are exploring ways to import more hydropower from Canada and increase capacity and production at existing hydropower facilities. On 1 June 2020, EPA finalised a rule revising its regulations for the CWA water quality certification process intended to promote hydropower projects. This rule is expected to be challenged by litigation.

Geothermal projects are regulated by a mix of federal and state agencies, with requirements varying by state and whether the project is located on state, federal or private land. The Geothermal Steam Act of 1970 requires the Department of the Interior to establish rules and regulations for the leasing of geothermal resources on lands managed by federal agencies. These regulations are issued by the Bureau of Land Management. Existing EPA Underground Injection Control Regulations under the federal Safe Drinking Water Act define Class V injection wells to include injection wells associated with the recovery of geothermal energy.

Waste-to-energy

Describe, in general terms, any regulation of production of energy based on waste.

Waste-to-energy is defined as a renewable energy source in many states and plants are therefore eligible to sell RECs. By the end of 2019, the US had fewer than 75 waste-to-energy facilities that combust municipal solid waste. There has been little development of new waste-to-energy plants since the 1980s and the 1990s; the first new waste-to-energy plant since 1995 was built in 2015. As combustion units, waste-to-energy systems are subject to regulatory requirements that are similar to fossil-fuel fired power plants, but often significantly more stringent. The US Clean Air Act (CAA) imposes numerous requirements on waste-to-energy facilities, which also must comply with the CWA, the Resource Conservation and Recovery Act and other federal, state and local laws. Waste-to-energy facilities and related ash landfills have come under increased legal and regulatory scrutiny in recent years and are at times the subject of lawsuits brought under environmental laws.

Biofuels and biomass

Describe, in general terms, any regulation of biofuel for transport uses and any regulation of biomass for generation of heat and power.

In 2007, EPA established a national Renewable Fuel Standard (RFS) programme that requires transportation fuel refiners to displace certain amounts of petrol and diesel with renewable fuels such as cellulosic biofuel, biomass-based diesel and advanced biofuel. The programme established the annual renewable fuel standards, responsibilities of refiners and other fuel producers, a trading system, compliance mechanisms and record-keeping and reporting requirements. Companies that refine, import or blend fossil fuels are obligated to meet certain individual RFS quotas based on the volume of fuel they introduce into the market. The production of biofuels is also subject to regulation under the CAA and other environmental laws.

EPA has scaled back biofuel requirements to account for declining petrol use and technical limitations related to ethanol blending and biofuel production. In November 2015, EPA finalised a goal of 18 billion gallons of renewable fuels for 2016. This was a modest increase from the agency’s June 2015 proposal, but it is still short of the 22.25 billion gallons required by Congress. Still, the 18 billion gallons goal exceeds 10 per cent of the projected petrol production for 2016, which some US carmakers advised could negatively affect the performance of cars and may violate certain warranties. EPA adopted a new ethanol rule in 2019, which allows fuel blends containing up to 15 per cent ethanol to be sold year-round in 31 states.

Farming interests are pressing for an increase in biofuel requirements, in particular for increased cellulosic ethanol targets, while petroleum companies and some vehicle manufacturers advocate lower requirements. President Trump has expressed support for biofuel requirements and it is likely that EPA will continue its path of modest, year-over-year, increases in biofuels requirements. Reflecting that trend, on 19 December 2019, EPA adopted rules finalising RFS volume requirements for 2020, which contained modest biofuel increases from 2019 levels.

On 23 April 2018, EPA issued a policy statement indicating ‘EPA’s policy in forthcoming regulatory actions will be to treat biogenic CO2 emissions resulting from the combustion of biomass from managed forests at stationary sources for energy production as carbon neutral.’ Within the 2018 policy statement, EPA indicated that its policy ‘is not a scientific determination and does not revise or amend any scientific determinations that EPA has previously made’. Instead, EPA’s goal was to ‘promote the environmental and economic benefits of the use of forest biomass for energy at stationary sources, while balancing uncertainty and administrative simplicity when making programmatic decisions’, acknowledging the need for clear regulatory policy even in the face of continued debate on an accounting framework for biogenic CO2 emissions.

EPA has continued to work on its proposal declaring woody biomass carbon neutral. In February 2020, EPA submitted its woody biomass proposed rule to the White House Office of Management and Budget for review. The rule has not yet cleared review. One noted reason for the delay is disagreement between EPA and the Justice Department over potential conflicts the rule may have with the recently adopted Affordable Clean Energy Rule governing power plant GHG emissions. There is no anticipated date that the rule will clear review or be finalised.

Carbon capture and storage

Describe, in general terms, any policy on and regulation of carbon capture and storage.

Carbon capture and storage (CCS) has substantial potential to reduce GHG emissions from industrial sources, but has not been widely demonstrated on a commercial scale. Several large CCS demonstration projects in the US are largely supported by resources allocated by the American Recovery and Reinvestment Act of 2009, as well as a variety of federal and state incentives, including tax credits and loan guarantees. On 1 December 2010, EPA published its final rule concerning an expansion of its GHG reporting rule to include facilities that inject and store CO2 for geologic sequestration or enhanced oil and gas recovery. CCS has also begun to play an important role as a potential control technology for GHG regulations for power plants and President Trump has called for the expansion of technologies to reduce the emissions generated from coal-fired power plants.

In January 2014, EPA issued a final rule excluding CO2 streams in CCS projects from classification as a hazardous substance under the Resource Conservation and Recovery Act, provided that the streams are injected into Class VI wells and not mixed or co-injected with any hazardous wastes. CCS projects are potentially affected by several other regulatory programmes. For instance, NEPA and state equivalents may present regulatory hurdles by requiring environmental review of project impacts. State and local agencies may also impose permitting requirements on CCS projects. High costs, complex regulatory schemes and the low price of natural gas have hindered the widespread development of CCS projects. In the future, lower technology costs and the development of multiple revenue streams from the CO2 associated with CCS projects, particularly using captured CO2 for enhanced oil recovery (EOR), may help spur CCS additional development.

In mid 2020, the Treasury Department proposed rules to implement section 45Q of the Tax Code, which provides tax credits for capturing and sequestering carbon oxides that would otherwise escape to the atmosphere. If finalised, these rules will provide: tax credits of up to US$50 per ton of carbon captured and placed in secure geological storage; and tax credits of up to US$35 per ton of carbon injected into oil or natural gas wells for EOR, and for carbon captured and sequestered using photosynthetic or chemosynthetic processes or ‘for any other purpose for which a commercial market exists’.

Law stated date

Correct on

Give the date on which the above content is accurate.

20 August 2020.

Source: https://www.lexology.com/library/detail.aspx?g=f11966e1-5a95-48e0-971d-7c185df343d9

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