The U.S. government recently announced that it would award up to $2.3 billion in tax credits under the American Recovery and Reinvestment Act in accordance with Section 48C of the Internal Revenue Code to 183 clean energy manufacturing projects across the United States.  Following a competitive application process that opened in August of 2009, and the submission and review of over 500 applications for clean energy manufacturing projects, these tax credits were awarded to manufacturing projects in order to promote economic growth and encourage a robust domestic manufacturing capacity for renewable and clean energy projects.  The application process considered specific criteria for these projects, including, among others, domestic job creation; the net impact in avoiding or reducing air pollutants or greenhouse gas emissions; the greatest potential for technological innovation and commercial deployment; and the shortest project time from certification to completion.  The Internal Revenue Service has already notified the projects that have been awarded the tax credit, as well as the amount of the tax credit, which will be allocated to these projects until the program funding is exhausted.  Importantly, this investment in the manufacturing tax credit will be matched by up to $5.4 billion in private sector funding. 

Because the clean energy manufacturing tax credit program was substantially oversubscribed by “technically acceptable applications” during the application period, the White House “has called on Congress to provide an additional $5 billion to expand the program” in order to provide further tax incentives to “worthy applicants who are willing to invest private resources to build and equip factories that manufacture clean energy products in America.” The Administration’s statement that recommends expansion of the program includes the observation that “there is already an existing pipeline of worthy projects and substantial interest in this area, [and] these funds will be deployed quickly to create jobs and support economic activity.” 

The pie chart below reflects the individual sectors that received the energy manufacturing tax credit, according to an Excel spreadsheet linked in the Department of Energy press release announcing the tax credits.  The Solar Photovoltaic, Solar Components and Materials, Industrial, and Buildings sectors are the largest recipients, by dollar amount, of the clean energy manufacturing tax credits, and more than a dozen additional clean energy manufacturing sectors also received tax credits under the program. 

(1)  Approximately 137 of the 183 projects were identified by technology sector.  The remaining projects were not identified by a technology sector.  Given the lack of data relating to these projects and their respective sectors, these projects were not included in the chart.

(2) The “Other” category on the pie chart includes the following sectors that represent 2% or less of the total dollar amount awarded: Batteries ($29,360,400, 5 projects); Biomass ($29,304,480, 2 projects); Carbon Capture & Storage ($4,842,438, 2 projects); Fuel Cells ($5,510,100, 2 projects); Geo/Buildings ($8,941,626, 1 project); Smart Grid ($35,652,663, 9 projects); and Solar-Hot Water ($806,501, 3 projects).

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The Department of Treasury last week released guidance and application information on the Qualifying Advanced Energy Project Credit (”Advanced Energy Tax Credits”) available to manufacturers of certain clean technologies.  The American Recovery and Reinvestment Act of 2009 (”Recovery Act”) allocated $2.3 billion in Advanced Energy Tax Credits.  The purpose of the program is to encourage taxpayers to re-equip, expand, or establish manufacturing facilities for the production of certain advanced energy related property.Applicants seeking to receive the Advanced Energy Tax Credits are required to submit (1) a preliminary application and final application for recommendation to the Department of Energy (”DOE”); and (2) an application for certification of the project by the Internal Revenue Service (”Service”).  The pre-application deadline to the DOE for the 2009-2010 solicitation is September 16, 2009 and final applications must be received by October 16, 2009.  Application to the Service must be received by December 17, 2009.  The Service will allocate available funds to projects in based upon DOE project rankings.  If funds are not exhausted in the initial solicitation round, an additional solicitation round will be conducted for the 2010-2011 period.The Advanced Energy Tax Credits would function similar to the Investment Tax Credit utilized in renewable energy projects, equal to a tax credit of 30 percent of the basis of qualified investment once the project is placed into service.  The credit allocation is limited, however, to $2.3 billion and whether an applicant will receive credits will depend upon the results of the competitive solicitation process and Service certification.  Following certification, the taxpayer will have three years to place the qualifying project into service, or the certification is no longer valid.

Projects Must Re-Equip, Expand, or Establish a Manufacturing Facility for Eligible Advanced Energy Property

The Advanced Energy Tax Credits are available for facilities that will manufacture, re-equip, or expand production of specified advanced energy property.  Property that, after further manufacture, will become specified energy property (for example, wind turbine blades) is also eligible. Under the Treasury Guidance, advanced energy property is defined to include: (1) property designed for use in the production of energy from renewable resources; (2) fuel cells, microturbines, or an energy storage system of use with electric or hybrid-electric motor vehicles; (3) electric grids to support the transmission of intermittent sources of renewable energy, including property for the storage of such energy; (4) property designed to capture and sequester carbon dioxide and sequester carbon dioxide of emissions; (5) property designed to refine or blend renewable fuels, but not fossil fuels, or to produce energy conservation technologies; (6) new plug-in electric drive motor vehicles, qualified plug-in electric vehicles, or components designed for use with such vehicles; and (7) other property designed to reduce greenhouse gas emissions.  The project must not produce any property that is used in the blending or refining of transportation fuels other than renewable fuels.

Advanced Energy Tax Credits will not be allocated to a project with respect to any qualified investment for which a credit is allowed under certain existing tax incentives, including the Section 48 (the renewable energy Investment Tax Credit), 48A (Advanced Coal Project Credit), or 48B (Qualifying Gasification) credits.  Additionally, projects that receive payment under the Department of Treasury Grant Program established by Section 1603 of the Recovery Act will not qualify for the Advanced Energy Tax Credit.

Application Process Has Opened; the Initial Deadline to DOE is September 16, 2009

DOE will provide to the Service a recommendation and a ranking for projects if it determines the advanced energy manufacturing project has a reasonable expectation of commercial viability and merits a recommendation based on evaluation criteria.  In reviewing applications, DOE will equally weigh the following four criteria: (1) domestic job creation during the credit period (February 17, 2009 through February 17, 2014); (2) net impact in avoiding or reducing air pollutants or anthropogenic emissions of greenhouse gases; (3) greatest potential for technological innovation and commercial deployment; and (4) shortest project time from certification to completion.  The applicant must also calculate the incremental energy produced, saved, or stored due to the project.  DOE anticipates the completion of merit reviews by December 16, 2009.

Applicants must also apply to the Service for project certification before December 17, 2009.  The Service will allocate the amount of qualifying advanced energy project credit at the time the Service accepts the application for certification.  The DOE will rank projects in descending order, and the Service will allocate the full amount of Advanced Energy Tax Credit to the project receiving the highest ranking before lower-ranked projects are allocated any credits.  The same process will apply to the second and lower-ranked projects until the amount available for allocation is exhausted.  For the 2009-2010 application round, the Service will accept or reject the taxpayer’s application by January 15, 2010, and will notify the taxpayer by letter of its decision.  The acceptance letter will state the amount of the credit allocated to the project and the taxpayer will have three years to place the certified project into service or the certification will become void.

Projects that are accepted by the Service will be required to enter into an agreement and agree to provide additional information to the Service, including milestones to project completion.  Accepted projects have one year to submit supplemental information to establish that the project will be completed within three years from the receipt of the certification letter.  Within one year, accepted projects must receive all federal, state, and local permits, including environmental reviews.  In addition, the taxpayer must demonstrate has completed steps necessary in that period to place the project in service before the three-year anniversary of the certification.  Recapture rules apply to the Qualified Energy Tax Credit.

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As the Senate continues its work on a comprehensive climate and energy bill, it is drawing ideas from a broad range of sources, from the American Clean Energy and Security Act (H.R. 2454) which passed the House in late June and the various alternatives to that Bill, introduced during the 110^th  and 111^th Congress, to the work done by Senator Jeff Bingaman’s Energy and Natural Resources Committee.  To the extent that the bill will address smart grid and cleantech policy, one source which should not be overlooked is the Storage Technology of Renewable and Green Energy Act of 2009, (S.1091).That 9-page bill, introduced by Senator Ron Wyden (D-OR) on May 20, 2009, would extend the IRS energy investment credit and clean renewable energy bond programs to include investments in grid-level and residential energy storage equipment.  In doing so, the bill would fill a gap in current federal energy tax policy, which provides tax incentives for investments in a wide range of renewable (e.g., solar, wind, thermal, etc.) and low-carbon energy generation (example, carbon capture and sequestration) technologies, but not the grid level-storage necessary for these technologies to meet their full potential.

S.1091 helps to bring current tax policy in line with Congressional and Administrative energy policy, which has recognized the importance of grid-level energy storage technology to any long-term effort to reduce the carbon intensity of the domestic electric industry.  In, 2005, Congress included energy storage in its list of critical research areas for electric transmission and distribution programs under Energy Policy Act of 2005.  In 2007 the Energy Independence and Security Act provided dedicated funding for research into thermal energy storage and directed DOE to “carry out a research, development, and demonstration program to support the ability of the United States to remain globally competitive in energy storage systems.”

Most recently, Congress highlighted energy storage in the stimulus package (the American Reinvestment and Recovery Act of 2009 (ARRA)), providing the Department of Energy with funding to promote research into energy storage systems, funding demonstration projects for smart-grid energy storage technologies, and establishing a Qualified Advanced Energy Project Tax Credit for businesses that invest in manufacturing facilities to build grid-level storage equipment.  The Department of Treasury has also interpreted section 1603 of ARRA, which authorizes Treasury to issue grants in lieu of the investment tax credit for renewable energy investments, to include energy storage systems integral to the project’s operation.

These programs are important, but, with the exception of the grants-in-lieu-of tax credit guidance, they tend to focus incentives on a limited number of marquis smart-grid storage projects - important work, but not enough to move energy storage technology from the demonstration level to wider penetration in homes and on the grid.  The Wyden bill takes the next step, putting energy storage investment on an equal footing with other cleantech projects, promoting widespread commercial and residential (and in the case of renewable energy bonds provisions, public) adoption of energy storage technologies.  These investments will advance the penetration of renewable generation and storage technologies without picking winners in the storage marketplace. Increased residential and grid-level storage, in turn, provides multiple benefits to the national power system by:

• Increasing the capacity for renewable generation assets on the grid;
• Increase the reliability and stability of the electric grid;
• Reducing reliance on old, inefficient, and dirty peak-generation facilities; and
• Encouraging residential storage investment that builds distributed storage capacity.

Congress, DOE, and even the Treasury Department have acknowledged that developing the nation’s energy storage capacity is a core requirement for maximizing the nation’s clean, renewable energy capacity.  The Storage Technology of Renewable and Green Energy Act of 2009 provides Congress with a simple vehicle for incentivizing the private deployment of this much needed storage capacity.

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Hydrofracturing, also known as “hydraulic fracturing” or “fracking”, involves injecting specialized liquids down natural gas wells to create small fractures in the rock, increasing the rate at which gas flows into the well.  Hydrofracturing is also used as an Enhanced Oil Recovery (EOR) technique at depleted oil fields, where liquid CO₂ or other substances are injected into one well in order to sweep remaining oil towards an operating pump. (See here for diagrams explaining EOR techniques and the usefulness of hydrofracturing.) 

This technique for enhanced oil and gas recovery is receiving increasing scrutiny on Capitol Hill.  Most of the debate concerns the potential tradeoffs between promoting domestic oil and natural gas production and protecting drinking water sources.  While other forms of underground injection are regulated by EPA to protect groundwater resources, Congress exempted hydrofracturing from regulation under the Safe Drinking Water Act (SDWA) in the Energy Policy Act of 2005 (EPAct).  Adding a layer of complexity to this policy discussion is the role hydrofracturing techniques and previously-fracked oil and gas fields may play in providing United States’ geologic sequestration capacity  for captured carbon.

In recent days, complementary bills to regulate hydrofracturing under the SDWA have been introduced in both chambers.  Bill supporters argue that excess hydrofracturing fluid has the potential to contaminate underground water supplies and migrate to the surface.  Opponents respond by citing EPA’s 2004 study concluding that hydraulic fracturing posed little or no threat to drinking water sources and warning that the regulatory burden would reduce or prevent development of significant amounts of natural gas.

Viewed in the context of the wider climate debate, these issues could have broader implications.  First, natural gas, with its significantly lower carbon emissions per unit energy than coal or oil, is an important bridge to a low-carbon energy future.  Second, because oil and gas recovery sites provide many of the most promising and practical opportunities for CCS injection, particularly in the near term, the creation of any new regulatory hurdles could decrease or delay momentum for sequestration project deployment

Hydrofracturing — A Potential Role for CCS

While hydrofracturing  has been used for years to support natural gas and oil recovery, the technique has also become a potential tool in increasing the domestic geologic sequestration capacity.

• Sequestration in Unmineable Coal Seams: These seams, which are too deep or narrow to be cost-effectively mined, provide carbon storage potential in the pores of the coal itself. As carbon dioxide is pumped into these coal seams, it displaces methane previously stored in the pores of the coal, a process known as enhanced coalbed methane (ECBM) recovery. Hydrofracturing allows CO₂ to penetrate into these seams, providing complementary benefits - accessing previously unreachable pockets of methane, allowing for both increased natural gas production, and increasing CO₂ storage capacity. (See page 6 of this document for a diagram showing the role of fracking in ECBM.)
• Sequestration in Deep Saline Formations: These formations, of saltwater-saturated rock, hold the most promise for widespread carbon storage, as they are more extensive than other potential storage reservoirs and are located in areas with exisiting coal-fired power plants. These formations, however, have lower permeability, meaning that fracking of injection zones could improve injection rates and cost effectiveness.
• Sequestration in Depleted Oil and Gas Fields: The majority of carbon sequestration projects demonstrated to date have been conducted on former oil and gas fields. Many, if not most domestic oil and gas fields have been or will be subjected to hydraulic fracturing in the course of their operations (indeed, the federal government provides tax credits to companies that use enhanced oil recovery methods to maximize well productivity). This means that even if hydrofracturing activities were to stop today, policymakers would have to develop working methods for making CCS viable and safe in previously drilled (and fracked) areas.

Reconciling Hydrofracturing Regulation and CCS Policy

In July 2008, pursuant to the SDWA, EPA released proposed Underground Injection Control (UIC) regulations governing carbon sequestration wells. The proposed regulations would prohibit various activities that could endanger sources of drinking water.  The proposed regulations would allow limited fracking “to improve wellbore injectivity” where the responsible EPA or state officials deems it permissible.  The proposed regulations also acknowledge the current statutory exemptions for unmineable coal seam sequestration and enhanced oil recovery, stating that “these hydraulic fracturing operations are used to enhance oil and gas recovery and for ECBM recovery, and in general are exceptions to the definition of underground injection under the SDWA.”  EPA nonetheless requested comments on “the extent and scope to which hydraulic fracturing should be allowed during GS injection, and whether the use of fracturing for the purposes of well stimulation is appropriate.” 

The impact of new hydrofracturing restrictions on CCS operations and capacity will vary from site to site.  Sequestration sites utilizing former-ECBM and deep saline formations typically occur at depths far below level of drinking water aquifers, making it unlikely that any associated fracturing activities would affect drinking water sources. The relationship between fracking at EOR sites and any sort of drinking water regulations are not addressed in the EPA’s proposed rule, even though many of the most promising domestic sequestration site locations are in pre-existing oil and gas fields.  If policymakers are to avoid a head-to-head standoff between developing CCS capacity and exploiting US energy reserves, they may have to find a way to resolve hydrofracturing’s role in oil and gas production with the potential that oil and gas fields have as future host-sites for geologic sequestration.

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Congressional debate in recent weeks has focused on the Waxman-Markey American Clean Energy and Security Act and the significant cleantech provisions contained within it (covered on ClimateIntel here). The release of the President’s FY2010 budget shows that the Obama Administration is also focused on commercializing promising cleantech and renewable technologies. Spearheading this effort is the Department of Energy, which released its 2010 budget request on May 7^th. The $26.4 billion request, combined with the $38.7 billion the Department received in the American Recovery and Reinvestment Act (the stimulus bill), gives the DOE a considerable amount of money—and therefore considerable influence—on the future of cleantech research. What is notable about the 2010 budget is not the size of the budget—the 2010 request is actually over 20% lower than the 2009 appropriation—but how the budget restructures and refocuses programs within the agency to create new R&D priorities.

Focusing on Renewable Energy, Energy Efficiency

DOE also makes significant changes to the funding of renewable energy projects, increasing the funds available to solar, wind and geothermal research by 83%, 36% and 14%, respectively. These funds will go toward developing “less expensive, more efficient and highly reliable” solar photovoltaic systems, developing concentrated solar technologies “that can compete on the baseload power market,” “accelerat[ing] the market penetration of wind energy,” and advancing the development of geothermal power “as a major contributor to baseload electricity generation.” In the vehicle and building technologies programs, extra funds are targeted toward “facilitating cost effective PHEVs [Plug-In Electric Hybrid Vehicles]” and “enab[ling] production of Net-Zero Energy Homes and Buildings.” (See pages 24-26 of the summary budget document for more.)

Another program, the Office of Electricity Delivery and Energy Reliability, receives significant funding increases—an increase of 52% over 2009—to support smart grid investment, as does the building and vehicle technologies programs.

Cleaner Traditional Fuels
Programs designed to promote cleaner use of traditional fuels also see a boost in the 2010 budget. The fossil fuel and nuclear programs are cut, while funding for both carbon capture and storage and advanced nuclear fuel cycles is increased. (The fossil energy program’s budget begins on page 57 of the summary document; nuclear energy on page 54.)

In contrast to the renewable programs, which have stated goals of improving the market penetration of mature, or nearly mature, technologies, the fossil and nuclear programs shift their focus toward long-term research. The budget even “zeroes out” a program, known as Nuclear Power 2010, which helped the nuclear industry with siting and licensing of new plants.

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The Australian Government announced yesterday a AUD$4.5 billion Clean Energy Initiative as part of its commitment to ensure 20% of Australia’s electricity comes from renewable sources by 2020.  (All dollars figures referenced in this post are Australian Dollars.)  Under the plan (which includes $1 billion in existing funds), the Government is proposing to spend:

1. $465 million to establish Renewables Australia to support leading-edge technology research and capacity building;
2. $2.4 billion in low emissions coal technologies, including new funding of $2 billion in industrial-scale Carbon Capture and Storage (CCS) projects under the CCS Flagships program.  This program will support the demonstration of industrial-scale projects in Australia, potentially including a carbon dioxide storage hub;
3. $1.6 million in solar technologies, including $1.365 billion in a Solar Flagships Program to help position Australia as a world leader in this technology.  This program will aim to create an additional 1,000 MW of solar generation capacity, which is triple the size of the largest project of its kind currently operating anywhere in the world; and
4. $14.9 million over three years, added to the Government’s Clean Energy Trade and Investment Strategy, to attract productive investment into Australia’s clean energy sector and assist Australian clean energy companies to access international markets through export and investment.

The Government’s announcement follows upon the “Carbon Capture and Storage Initiatives in Australia” event at the Australian Embassy in Washington, DC.  Speakers James McGregor, Energy Systems Manager, CSIRO; Mark Taylor, Senior Associate, New Energy Finance and a representative from the newly-created Global Carbon Capture and Storage Institute (GCCSI), an Australian organization developed to accelerate the deployment of CCS technology globally, discussed CCS projects both in Australia and worldwide.

The Australian experience with CCS research and development is particularly pertinent to the United States because both countries depend heavily on coal-fired generation of electricity. Eighty percent of Australia’s energy comes from coal-fired power stations, accounting for one-third of Australia’s GHG emissions.  While there are 238 CCS projects, excluding lab-scale initiatives, at various stages in twenty-seven countries, both Australia and the United States are likely to require successful CCS technologies to attain the GHG emissions reduction targets contemplated.

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As regular readers of ClimateIntel are aware, the Waxman-Markey draft bill—the American Clean Energy and Security Act of 2009 (ACESA)—contains sweeping provisions to reshape the domestic energy landscape.  ACESA would establish an economy-wide greenhouse gas (GHG) cap-and-trade program to reduce GHG emissions 20 percent from 2005 levels by 2020 and 83 percent by 2050. The bill contains a host of other provisions, such as a low-carbon fuel standard, funding for carbon capture and sequestration technologies and a federal renewable electricity standard (RES). While the bill is expected to change in form in the coming months as it goes through the markup process, there is a growing consensus that certain energy provisions, including the RES, could well become law in this Congress.

That an RES is contained in ACESA highlights the central role renewable energy will play in a low-carbon future. Currently, half of U.S. states mandate that utilities and retail electricity providers procure annually increasing percentages of renewable energy. State programs vary substantially with respect to the percentage of renewable energy required, the definition of eligible renewable energy resources and the ability to use out-of-state resources, or credits, to fulfill compliance obligations.

The RES proposed in ACESA would require renewable electricity in amounts exceeding most state requirements, beginning at 6 percent in 2012 and incrementally increasing to 25 percent by 2025. Retail electricity suppliers with annual sales in excess of 1 million megawatt hours (MWh) would be subject to the federal requirements. Eligible renewable energy resources exclude certain resources qualifying under state programs; specifically, low-carbon fossil fuels and nuclear energy are ineligible. For states disadvantaged in meeting the RES, a governor of any state is allowed to meet one-fifth of the renewable goal through energy efficiency measures. All eligible renewable resources, new or existing, are eligible to meet the utility’s compliance obligation.

To track and verify compliance, the Waxman-Markey legislation would create a federal tradeable renewable electricity certificate (REC) program. Utilities would be required to submit RECs for each MWh of their renewable energy obligation. If covered utilities do not meet their compliance obligation, alternative compliance payments are required. These payments are capped at $50/MWh, effectively serving as a ceiling on the price of RECs. Civil penalties equivalent to double the federal alternative compliance payment apply to entities failing to comply with the RES for each deficient MWh.

While most renewable energy projects would receive 1 REC per MWh of production, the Waxman-Markey legislation incentivizes small distributed renewable energy projects under 2 MW through triple bonus RECs. The bill would also allocate RECs between a renewable energy generator and retail supplier, where renewable energy generator receives financial support from a retail electric supplier pursuant to a state renewable electricity program. Unlike the Senate Energy and Commerce majority draft RES legislation, the House version proposes no bonus RECs for renewable generation from facilities on Indian land.

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Earlier today Tom Vilsack, Secretary of Agriculture; Steven Chu, Secretary of Energy; and Lisa Jackson, Administrator of the Environmental Protection Agency (EPA) held a conference call to discuss the Obama Administration’s commitment to biofuels. Highlights of the call were EPA’s issuance of the Renewable Fuel Standard Program (RFS2) Notice of Proposed Rulemaking and the Department of Energy’s (DOE) announcement of $786.5 million in Recovery Act funds to accelerate biofuels research and commercialization.

Secretary Chu indicated that of the $786.5 million in Recovery Act funds, $480 million will go to soliciting integrated pilot- and demonstration-scale biorefineries; $176.5 million to commercial-scale biorefinery projects; $110 million to fundamental research in key program areas; and $20 million to ethanol research. Secretary Chu addressed questions about ethanol’s impact on food prices in the U.S., stating that our agricultural resources can provide food, both domestically and internationally, and much-needed energy.

Administrator Jackson focused on EPA’s commitment to the Energy Independence and Security Act (EISA) and stated that the proposed rulemaking implements EISA and grandfathers in 15 billion gallons of ethanol. She expressed the need for home-grown energy - specifically mentioning corn-based ethanol and cellulosic ethanol - to lower our dependence on foreign oil and our vulnerability to price spikes; reduce GHG emissions; create green jobs, especially in rural America; and meet the RFS of 36 billion gallons of ethanol by 2022. Administrator Jackson renewed her commitment to utilizing the best available science and indicated there would be a 60-day comment period on the proposal.

On the issue of indirect land use, which ClimateIntel previously examined, Administrator Jackson stated EPA is gathering peer reviews on satellite data, land conversion and other factors affecting GHG emissions. She added that EPA’s data shows that corn-based has 16% lower emissions than fossil fuel. She also stressed the need for development of new product technology for non-grandfathered, corn-based ethanol plants and new pathways for biodiesel to meet the 50% reduction required to comply with the EISA.

Secretary Vilsack discussed that USDA will work to create new biorefinery resources and convert existing refineries to biofuels. He indicated that the three agencies have drafted a memorandum that reflects Obama’s commitment to rural US, creates clean jobs and new opportunities, and creates additional income for farmers.

Today’s inter-agency commitment, backed by President Obama, to both corn-based and advanced biofuels is yet another boost to the ailing biofuels industry. In recent weeks, ClimateIntel reported on the Congressional Budgets Office’s report entitled “The Impact of Ethanol Use on Food Prices and Greenhouse-Gas Emissions,” and the E 15 waiver request. So far, at least, it appears that federal policy remains fully supportive of ethanol-based biofuels and reconciliation with the direction of the California-led effort to move away from such fuels remains for another day.

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The American Clean Energy and Security Act of 2009 (ACES) Carbon Capture and Sequestration (CCS) provisions appear at first blush like a wish list for the coal industry and other CCS proponents.  Between directing the Environmental Protection Agency (EPA) to create an improved regulatory framework for CCS, authorizing billions in new ratepayer-generated funds to support early commercial CCS projects, and authorizing EPA to make direct payments to companies that sequester CO₂, the bill, as developed by Congressmen Henry Waxman and Ed Markey, appears intent on removing regulatory and economic barriers to commercializing CCS technology.  Those incentives come with a lofty condition, however, as the final section in the CCS subtitle lays out the expectation that CCS will reach commercial viability by the middle of the next decade - and become a necessary element of any new coal-fired power plant. Should ACES become law, the expectations for CCS commercialization will high, but the stakes for the coal industry will be even higher.

A Regulatory Framework for CCS

ClimateIntel has reported previously on the legal and regulatory barriers investors and project developers face in moving forward with large-scale CCS projects under the current (or even EPA’s proposed) regulatory framework.  ACES would amend both the Clean Air Act (CAA) and the Safe Drinking Water Act (SDWA) to address some of these key barriers: First, ACES would give EPA’s air program new authority under the CAA to regulate the siting and permitting of these CCS facilities to help prevent atmospheric releases of sequestered CO₂.  Also, EPA’s drinking water regulatory program would gain additional authority necessary to impose financial assurance requirements on owners and operators of CCS facilities, building on EPA’s existing authority to regulate those facilities to protect water resources.

In contrast, on some issues ACES reverts to traditional fact-finding and reporting in lieu of charging forward with rulemaking.  The bill would establish a multidiscliplinary task force to study and report on various legal issues associated with CCS regulation, including options for management of long-term liability at CCS facilities-another issue previously examined on ClimateIntel.  The Bill would also direct the Department of Energy (DOE) and the Federal Energy Regulatory Commission to prepare a Report to Congress on barriers to constructing and operating the extensive web of pipelines that would be needed to transport CO₂ to suitable sequestration or enhanced oil recovery sites.

 A Dedicated Funding Stream for Early Movers

In addition to regulatory certainty, the CCS industry has struggled to generate the capital needed to take CCS from a promising demonstration technology to a proven commercial-scale application.  ACES would establish a quasigovernmental corporation, the Carbon Storage Research Corporation (CSRC), to subsidize early CCS commercial projects using an assessment fee passed through to rate-payers.  The CSRC would operate as a division of the nonprofit Electric Power Research Institute (EPRI), under the direction of a Board of Directors composed of representatives from industry, municipal governments, and nongovernmental organizations.  Absent opposition from 40 percent of state regulators, the CSRC would collect a small assessment fee on each kilowatt-hour of fuel-based electricity delivered directly to retail consumers, tailored to each utility based on their energy mix, providing up to $1 billion per year in funding for CCS projects for the next ten years.

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As reported earlier, the Department of the Interior (DOI) and Federal Energy Regulatory Commission (FERC) have been negotiating an agreement to outline and clarify the agencies’ respective jurisdiction and responsibilities for renewable energy projects in offshore waters on the Outer Continental Shelf (OCS).  On April 9, Secretary of the Interior Ken Salazar and FERC Chairman Jon Wellinghoff finally signed a Memorandum of Understanding (MOU) to facilitate development of a “cohesive, streamlined process” to accelerate wind, solar, and hydrokinetic (wave, tidal, and ocean current) energy projects on the OCS, ending a long dispute between the agencies.

In short, the MOU preserves the authority of DOI’s Minerals Management Service (MMS) over offshore wind and solar projects and gives MMS authority to issue leases, easements, and rights-of-way for OCS hydrokinetic projects, for which projects FERC will then have exclusive jurisdiction to issue construction and operating licenses or exemptions.  MMS had previously asserted jurisdiction over all energy projects on the OCS, including hydrokinetic projects, and even sought to block preliminary permits issued by FERC.  Specifically, the agencies agree that:

• MMS will retain exclusive jurisdiction over the production, transportation, and transmission of energy from non-hydrokinetic OCS projects;
• MMS will: (1) have exclusive jurisdiction to issue leases, easements, and rights-of-way for hydrokinetic OCS projects; and (2) conduct any necessary environmental reviews for those actions, including reviews under the National Environmental Policy Act (NEPA), while FERC has discretion to act as a cooperating agency in those reviews;
• FERC will not issue preliminary permits for hydrokinetic OCS projects, but will: (1) have exclusive jurisdiction to issue licenses and exemptions for those projects, with active involvement of federal land and resource agencies, including DOI; and (2) conduct any necessary environmental reviews for those actions, including under NEPA, while MMS has discretion to act as a cooperating agency in those reviews;
• The agencies will coordinate to ensure that: (1) hydrokinetic OCS projects meet the public interest, including adequate protection, mitigation, and enhancement of fish, wildlife, and marine resources and other beneficial public uses; and (2) any FERC license or exemption or FERC-regulated operations under an MMS lease, easement, or right-of-way are consistent with the Outer Continental Shelf Lands Act, the Federal Power Act, and other applicable laws;
• MMS may condition leases, easements, and rights-of-way for hydrokinetic OCS projects and FERC will include in any license or exemption for those projects a requirement to comply with the MMS conditions;
• FERC will not issue a license or exemption for any hydrokinetic OCS project until the applicant has obtained an MMS lease, easement, or right-of-way;
• MMS will provide in all leases, easements, and rights-of-way for hydrokinetic OCS projects that construction or operation cannot begin without a FERC license or exemption, unless FERC notifies MMS that no license or exemption is required;
• FERC may inspect hydrokinetic OCS projects to ensure compliance with licenses or exemptions and MMS may inspect those projects to ensure compliance with any applicable lease, easement, or right-of-way; the agencies will work to coordinate inspections through development of joint policies or regulations, as appropriate;
• Each agency will use its own appropriations to fulfill its respective responsibilities;
• The agencies will work together, to the extent practicable, to develop policies and regulations for hydrokinetic OCS projects, including processes to address “hybrid” (wind/hydrokinetic) projects or projects that straddle state waters and the OCS; and
• The MOU is “strictly for internal management purposes,” does not expand or alter the scope of either agency’s authority, and shall not be construed to create any legal obligation on either agency or any private right or cause of action.

The MOU is effective as of April 9, 2009, may be modified only upon further written agreement of the agencies, and can be terminated 120 days after written notice to the other agency.

In a joint press release, Secretary Salazar noted that the MOU “will spur the development of clean, renewable energy,” while Chairman Wellinghoff noted the MOU, “[b]y removing all the regulatory barriers to the development of hydrokinetic energy” on the OCS, “will advance the development of a promising renewable resource” that will benefit consumers.

As noted earlier, however, others have questioned whether the agencies’ agreement will be effective.  For example, Senate Energy and Natural Resources Committee Chairman Jeff Bingaman has expressed doubt that the agreement will actually streamline the development process and both Chairman Bingaman and Ranking Member Senator Lisa Murkowski have suggested that a more definite legislative solution could be included in a forthcoming energy bill.

Even if not fully effective to minimize delays and inefficiencies in developing renewable energy projects in OCS waters, the MOU does end the confusion over the respective jurisdiction of the two agencies.  Still, as suggested by other recent commentary, the MOU does not resolve how MMS will address criticisms lodged against its proposed regulations for alternative energy projects in OCS waters or when either agency will issue further proposed or final rules for their respective processes.  Secretary Salazar has suggested that MMS regulations could be ready in as little as a few months, while the timeline for new FERC rules, if any, remains to be seen.  Both issues will need to be resolved before either agency can begin siting projects.

For further information about this topic, please contact Akin Gump.