ML Strategies Article
January 21‚ 2014
Energy & Environmental Legislative & Policy Outlook for 2014
By David Leiter, Sarah Litke, Bryan Stockton, Jordan Collins, and Neal Martin
Senate Energy and Natural Resources Committee Chair Ron Wyden (D-OR) and Ranking Member Lisa Murkowski (R-AK) plan to pack the panel’s January calendar in the hope of moving forward with a substantial energy agenda early in the year. That ambitious agenda is probably driven by Senator Wyden’s anticipated move to the chairmanship of the Senate Finance Committee once current chairman Max Baucus (D-MT) is confirmed as the new U.S. Ambassador to China.
Senator Baucus had already announced his plans to retire this year after six terms in the Senate, but his early departure will trigger a domino effect on Senate committees with jurisdiction over energy issues, namely the Finance Committee and the Energy and Natural Resources (ENR) Committee.
We anticipate that Senator Mary Landrieu (D-LA) — who is up for reelection in 2014 — will become the next Chairman of the ENR Committee.
The Obama Administration will move forward with a robust energy and climate regulatory agenda in 2014. Upcoming regulations from the Environmental Protection Agency (EPA) in particular are expected to catch the ire of House and Senate Republicans, many of whom may charge that the agency is overstepping its Clean Air Act authority.
Climate Change: Senate Environment and Public Works (EPW) Chair Barbara Boxer (D-CA) said late last year that she and Senator Sheldon Whitehouse (D-RI) are planning to focus anew on climate change this year. Noting that they have been working on it with Majority Leader Harry Reid (D-NV) for the past few months, she said that they would offer details at a press conference in January. The Senate EPW Committee kicked off this effort by holding the first climate change hearing of 2014 on January 16, focusing primarily on regulatory actions in the absence of Congressional action — a theme we’re likely to see repeated throughout the year. EPA Administrator Gina McCarthy will testify, as will other federal agency representatives who are working on President Obama’s Climate Action Plan.
Farm Bill Energy Title: Congress came close to finishing in late 2013 a rewrite of the 2008 Farm Bill (H.R. 2642, S. 954). House and Senate conferees are optimistic about finalizing a compromise Farm Bill in the coming weeks, though disagreements over new dairy management provisions have delayed, as of the publication of this report, the final deal. The Senate-passed version of the Energy Title may largely survive, with major Energy Title programs standing a good chance of being reauthorized (and perhaps expanded for renewable chemicals) at almost $900 million in mandatory funds over five years.
Water Resources Development Act (WRDA) Reauthorization: Senate EPW Chair Barbara Boxer and Ranking Member David Vitter (R-LA) are still working with their House counterparts on reaching a compromise on several issues impeding the WRDA reauthorization.
Despite the delay, conferees are planning to finish the legislation as soon as possible this year, building on water resources bills passed by overwhelming margins in both the House (H.R. 3080) and Senate (S. 601) last year.
Energy Efficiency (Shaheen-Portman): ENR leadership recently reaffirmed their commitment to moving in 2014 the energy-efficiency legislation of Senators Jeanne Shaheen (D-NH) and Rob Portman (R-OH), now several years in the making and on its third iteration.
Just before the holiday recess the cosponsors announced they are working to improve and incorporate bipartisan amendments into their package. They hope to bring the new bill to the floor the first part of 2014.
Toxic Substances Control Act (TSCA) Reform: As EPW Ranking Member, Senator David Vitter has listed the measure as one of his top priorities for the committee in the new year, though it will face a difficult battle, as Committee Chair Boxer believes the compromise measure to be too weak and lacking safeguarding provisions.
Last May, Senators Frank Lautenberg (D-NJ) and Vitter negotiated the first bipartisan compromise on a major TSCA overhaul since enactment of the law in 1976. The deal came after the reform’s long-time champion Senator Lautenberg dropped some of his long-standing calls for strict new provisions, including a safety standard and pre-emption language.
With Senator Lautenberg’s passing last summer, Senator Tom Udall (D-NM) has taken over the leadership role on the Democratic side, working with Senator Vitter and the bill’s other cosponsors to negotiate further amendments. As a result, the bill is likely to face a push to amend provisions addressing its safety standard, state pre-emption regime, funding limits, lack of deadlines, and more, as it moves through the chamber.
Renewable Fuel Standard (RFS) Reform: EPA’s recent determination to scale back the RFS biofuel blending requirements has elicited a spectrum of reactions from industry leaders, state governors, and members of Congress.
While a 20% drop in corn prices and EPA’s partial waiver has relieved supply and price pressure on corn users as well as reducing the required volumes that refiners must blend, it has not halted industry efforts to reform — or repeal — the RFS. Bipartisan, bicameral signals have suggested forthcoming significant changes to the underlying law, or to repealing the corn ethanol mandate entirely.
Senate Appropriations Energy and Water Subcommittee Chair Dianne Feinstein (D-CA) and Senator Tom Coburn (R-OK) are drafting legislation that would remove the RFS mandate, which under current law requires 15 billion gallons of conventional corn ethanol and 21 billion gallons of advanced ethanol in the country’s mobile fuel supply by 2022. The Feinstein-Coburn measure would retain advanced biofuel requirements. Senator Vitter (R-LA) and Senator Ben Cardin (D-MD) are also working on a measure to keep the advanced biofuel portion intact while reducing or eliminating the corn ethanol mandate.
The efforts of House Energy and Commerce Committee Chairman Fred Upton (R-MI) and Ranking Member Henry Waxman (D-CA) to reform the RFS seemingly stalled after the EPA released the volume requirements for 2014, even though the committee had solicited numerous comments.
EPW Chair Barbara Boxer stands out as the only chair or ranking member of a committee of jurisdiction who has publicly opposed major reform of the RFS. “As chairman of this committee, and I have the gavel for now, I’m not going to let us reverse course…. I’m just not,” Boxer said at a hearing on the RFS last month.
Energy Tax Extenders: At the close of 2013, Congress allowed 57 various tax provisions to expire, including 16 sections impacting the energy sector. Notable energy tax incentives include the Production Tax Credit (PTC), as well as tax credits and depreciation allowances for second generation biofuels. Expiration of these incentives has inserted policy uncertainty into the financial markets, impacting renewable project developers’ ability to secure project financing. A complete list of expired tax extenders can be found here.
In the face of an increasingly uphill battle to complete comprehensive tax reform this year, policymakers are faced with extending those energy tax incentives, which were allowed to lapse at the end of 2013.
Finance Committee staff have begun developing extenders legislation in earnest, though a path forward is unclear. Though Senate Majority Leader Harry Reid (D-NV) had hoped to fast track a series of 57 temporary tax provisions just before the recess, Republicans objected to the motion, and the effort is expected to resume shortly. House Ways and Means Committee Chairman Dave Camp (R-MI) views tax extenders as a distraction from comprehensive tax reform and will only seriously consider extenders if an extenders proposal is being put together by the Senate.
If the impetus for tax extenders falls to the Senate, Senator Baucus’s departure could ironically make early passage of extenders more likely. The leadership change likely makes comprehensive tax reform in 2014 effectively dead for the year as Senator Wyden will want to make his own mark and does not have the time to do so this year.
That reality could clear the deck for getting something, even if only a temporary and retroactive extension of certain tax provisions passed before June and the height of campaign
season. In fact, increasing numbers of senators are calling for tax extenders legislation early this year. Senate Finance Ranking Member Orrin Hatch (R-UT) is open to considering extending some, though not all, extenders in 2014, though he wants to proceed carefully. Some observers might argue that the time it would take for Senator Wyden to assume the chair, as well as the realities of election-year politics, makes a retroactive extension possible, but not until after the election.
Energy Tax Reform: Shortly after suggesting that tax extenders efforts, particularly those related to energy issues, might be readdressed early in 2014, Senate Finance Chairman Max Baucus (D-MT) unveiled on December 18 his energy tax concept paper, capturing his proposal for a major overhaul of the energy sections of the tax code.
Fundamentally, the proposal would extend current law for several years, then implement a new incentive framework for electricity and clean fuels linking the value of a production or investment tax credit to the amount of carbon dioxide emission reductions achieved. When carbon dioxide emissions from the U.S. generating fleet or transportation fuel supply decreases by 25% relative to 2013 levels, the incentives phase out over four years.
In addition to the common wisdom that comprehensive tax reform could only occur in non-election years, energy tax reform efforts are further complicated by the aforementioned leadership transitions on both the Senate Finance and Energy Committees. Senator Wyden has called Senator Baucus’s energy tax reform proposal a “promising approach” to addressing the issue, but Wyden will likely want to further refine the details before embracing the reform as his own, probably in the 114th Congress.
Energy Exports: Congressional Republicans, and some Democrats, will keep pressure on the Obama Administration to promote domestic oil and gas development. The State Department is expected to release its analysis of the Keystone XL pipeline this year; in past years, Republicans have tried to force the agency to act through legislation. A new issue for the oil and gas industry will be lifting the current ban on crude oil exports, which Congress enacted in the 1970s. Senator Murkowski’s white paper issued at the beginning of the year suggested change is needed in the country’s energy export policy.
The Department of Energy has also been making its way through applications to export liquefied natural gas (LNG) to non-Free Trade Agreement countries, and the policy discussion surrounding LNG exports, in addition to other energy exports such as oil, will continue to garner significant attention by both policymakers and industry.
Nuclear Waste Administration Act: The Senate Energy and Natural Resources Committee has also listed among its top priorities for the first part of the year a markup of bipartisan nuclear waste legislation from Chairman Wyden and Ranking Member Murkowski, and Senators Dianne Feinstein (D-CA) and Lamar Alexander (R-TN). Last summer, the four senators introduced a comprehensive plan, the Nuclear Waste Administration Act of 2013 (S. 1240), for safeguarding and permanently disposing of thousands of tons of radioactive nuclear
waste that are currently accumulating at sites across the country. The measure implements the recommendations of the president’s Blue Ribbon Commission on America’s Nuclear Future. After receiving more than 2,500 public comments on a draft April measure, the committee held a hearing on the updated bill in late July, and hopes to return to the issue early in 2014.
We anticipate the Environmental Protection Agency (EPA), and Departments of Energy, Interior, and State will continue to pursue an aggressive agenda throughout the year.
EPA: On January 8, the EPA published in the Federal Register a historically significant proposed rule aimed at reducing greenhouse gas (GHG) emissions from new power plants, triggering a 60-day public comment period. The rule limits CO2 emissions from future fossil-fired power plants, requiring that new coal-fired power plants capture between 30–60% of CO2 emissions. Once final, EPA’s new source performance standards (NSPS) trigger an additional requirement under Section 111(d) of the Clean Air Act for EPA to promulgate similar emissions guidelines for existing power plants, the largest source of GHG emissions in the United States.
An EPA draft regulation for existing plant emissions — often referred to as Existing Source Performance Standards (ESPS) — is anticipated to be issued this summer, and the rule should prove just as politically divisive as rules for new plants. Taken together with the emissions regulations for new sources and the corporate average fuel economy standards (CAFE), an ESPS rule would go a long way towards helping the Obama Administration achieve its goal of reducing GHG emissions 17% from 2005 levels by 2020.
In February, the Supreme Court will hear a limited challenge to EPA’s authority to regulate GHG emissions. Court rulings on GHG regulations, as well as arguments in a challenge to the Cross-State Air Pollution Rule (CSPAR) in December, are due by June.
Additionally, regulations on cooling water towers and coal ash are facing January deadlines. After the deadline was extended several times, the agency faced a court-ordered January 14 deadline for finalizing its new technology standards for cooling water towers at existing power plants. The agency must also tell the U.S. Court of Appeals for the D.C. Circuit by January 29 what it plans to do about its years-delayed proposed waste regulations governing coal ash. The agency, environmentalists, and recyclers reached a tentative agreement January 2, requiring the agency to complete the standards by the end of the year.
EPA will also release a draft report analyzing the potential hazards associated with hydraulic fracturing. With opponents of hydraulic fracturing saying the process contaminates water supplies and proponents arguing the process is safe, the EPA’s analysis could either validate Department of Interior, as well as state and local, draft regulations, or expose efforts to prevent hydraulic fracturing as overreaching.
Department of Energy: The Department of Energy (DOE) released a draft of its strategic plan for 2014–2018 in early December, and is scheduled to finalize the plan this February. The agency continues to utilize its regulatory authorities to promulgate energy conservation standards and test procedures for residential, commercial, and industrial equipment. DOE aims to build on the success it had last year in beginning to unclog the backlog of energy-efficiency standards that had accumulated over the past five years while also using existing authorities to establish energy-efficiency standards for new products. The agency has been making its way through applications to export liquefied natural gas (LNG) to non-Free Trade Agreement countries, and LNG exports will continue to garner significant debate.
Department of State: The State Department is poised to release its final environmental impact statement on the proposed Keystone XL pipeline by the end of March, though there is no guarantee that the agency will deliver by then.
As Secretary of State Kerry works to shift the agency’s focus on climate change, the Department of State submitted its 2014 U.S. Climate Action Report to the United Nations January 1. The report includes recent legal precedent on climate regulations as well as estimated carbon mitigation broken down by federal program.
Department of Interior: As the nation considers the best path forward for domestic energy exports, energy production on federal lands — and a particular focus on Arctic drilling — will garner substantial attention. After facing significant difficulty two years ago, Shell pulled out of its nascent Arctic operations, but the company is renewing a smaller effort this summer, and the Interior Department will keep a close eye on its plans. The Interior Department is scheduled to release rules regulating hydraulic fracturing on public lands. As increasing numbers of states and municipalities consider moratoria or regulations on fracking, the Interior’s rule could serve as a model for states. Meanwhile, as part of an effort to promote renewable energy development on federal lands and waters, the department will move ahead with plans for lease sales of two offshore wind blocks in Maryland.
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