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Murkowski & Manchin’s Bipartisan Energy Legislation Proposal Revealed

On February 27, 2020, Senators Lisa Murkowski (R-Alaska) and Joe Manchin (D-W.Va.) introduced S. 2657, or the American Energy Innovation Act (the “AEIA”). The AEIA consolidates more than 50 energy-related measures considered by the Senate Energy and Natural Resources Committee in 2019 into a comprehensive proposal to modernize energy policy and promote emerging energy technologies. The legislation does not establish greenhouse gas emission reduction targets, but rather focuses on generally enhancing energy industry innovation and specifically providing incentives in the following areas: (i) energy efficiency; (ii) renewable energy; (iii) energy storage; (iv) carbon capture, utilization, and storage; (v) advanced nuclear; (vi) industrial and vehicle technologies; and (vii) mineral security, cyber and grid security and modernization.

Since its introduction, the AEIA has faced significant opposition. Negotiations appear to have stalled, pending agreement on certain proposed amendments, including those related to residential energy efficiency measures and phase-downs of hydrofluorocarbons (“HFCs”) used in refrigerants, which are powerful greenhouse gases. A Senate roll call on March 9 for cloture, which would end debate and allow a vote, failed to receive the support necessary to advance the bill.

Details of the Bill

As originally proposed, the AEIA is intended to “strengthen our domestic economy, national security, and international competitiveness while facilitating cleaner energy that protects human health and the global environment.” The bill addresses a broad range of elements impacting the energy industry, including:

  • Innovation: The AEIA highlights the need to maintain global competitiveness and encourage research and development of innovative energy technologies. The AEIA would encourage the development of new and emerging technologies, with a focus on low and zero-emission energy generation, and “smart” manufacturing, including the increased use of automation, artificial intelligence, and modeling to optimize energy use in manufacturing and product design.
  • Energy Efficiency and Recycling: The AEIA directs the Secretary of Energy to study and award multi-year grants to certain eligible entities to encourage the use of recyclable materials in solar and wind energy technologies. The bill also would extend existing federal programs to weatherize homes and separately requires the federal government to extend its own energy reduction targets applicable to federal agencies, while adding new targets for water use and low-emission vehicle use. The legislation would offer rebates for consumers to buy more efficient home appliances. Additional public funding measures include:
    • Issuance of grants and technical assistance from the Department of Energy (“DOE”) for states and local governments to develop energy efficiency, renewable energy, and retrofit projects for school buildings or facilities. Funds would generally be available only to nonprofit, public or public charter institutions, and tribally-controlled schools, colleges, or universities.
    • Implementation of “smart” building technology in “key” federal agency buildings, including buildings that are federally owned and commercially operated, with a goal of accelerating the domestic transition to smart building integration and technology. These “smart” technologies include, among others, automated, operational monitoring and communication connectivity, with a systems-based approach for overall building energy generation, consumption, and storage, and communication with utilities and other third-party commercial entities, and if appropriate, technologies that are cybersecure. Certain military, veteran and General Services Administration buildings would be considered “key” federal agencies whose buildings may qualify under the smart building program.
  • Renewable Energy: The AEIA would authorize further research and development for traditional wind and solar energy, as well as emerging forms of renewable energy, such as hydrokinetic and certain geothermal energy. The bill would authorize $120,000,000 per fiscal year from 2021 through 2025 for wind energy research and development; $160,000,000 per fiscal year 2021 and 2022 for marine energy development; and $165,000,000 per fiscal years 2021 through 2025 for geothermal energy development. The legislation does not specify whether DOE would choose to use grants, loan guarantees, or other forms of support.
    • The bill would also authorize the establishment of National Marine Renewable Energy Research, Development, and Demonstration Centers at institutions of higher education and directs the U.S. Geological Survey to update its geothermal resource assessment and expand geothermal research.
    • Additionally, the bill proposes to extend incentives for hydroelectric production authorized in the Energy Policy Act of 2005 through fiscal year 2036.
  • Energy Storage and Grid Electrification: The AEIA proposes allocating $200 million per year for a series of DOE programs that address energy storage, microgrids and distributed energy resources, including electric vehicle charging stations and “behind-the-meter batteries”, which could be integrated into power grids.
    • Specifically, the bill seeks to accelerate the development of technologies that can reliably store and discharge energy in daily durations of 6 hours, or in monthly durations between 10 and 100 hours. The bill proposes to establish an Energy Storage System Research, Development, and Deployment program for federal research of electrical grid storage improvements, power conversion technologies, grid-scale testing, and electric storage device safety and reliability.
    • The bill would also advance energy storage innovation through the use of grants and prize competitions targeting recycling of critical energy storage materials and pilot energy storage systems.
    • In addition, the bill would support the development of pumped storage hydropower projects by granting DOE the exclusive right to develop pumped storage hydropower projects using Bureau of Reclamation reservoirs, although this right can be leased out to non-governmental entities.
  • Carbon Capture, Utilization, and Storage: The AEIA proposes several programs to accelerate the large-scale development and adoption of carbon capture, utilization, and storage (“CCUS”) programs. These include establishing research and development programs and tiered annual appropriations for research and development programs and large-scale pilot project programs to demonstrate viability of certain CCUS technologies.
    • In addition to large-scale atmospheric removal and sequestration of carbon dioxide, the AEIA proposes to establish a program addressing the identification and assessment of new uses for carbon, carbon dioxide, and coal. As proposed, DOE would coordinate with the National Academies of Sciences, Engineering, and Medicine to study barriers and opportunities relating to commercializing carbon, coal-derived carbon, and carbon dioxide products.
    • The bill also authorizes the appropriation of tens of millions of dollars per year towards partnering with private institutions on commercial demonstration projects to accelerate the deployment of coal-carbon products. Although the bill does not specify whether such funds would be administered in the form of grants, guarantees, or otherwise, the AEIA indicates that these programs would be subject to cost sharing in accordance with section 988 of the Energy Policy Act of 2005.
  • Nuclear Energy: The AEIA directs DOE to create a 10-year strategic research and development plan to support nuclear innovation. Specifically, the legislation directs DOE to research and develop new nuclear technologies, including advanced nuclear fuels, reactors, and nuclear hybrid energy systems.
    • The bill also proposes a light water reactor sustainability program that would, among other things, accommodate an increase in applications for existing nuclear power plant license renewals.
    • DOE will be required to provide U.S. developers with a minimum amount of high-assay, low-enriched uranium and facilitate the development of a domestic supply of uranium and uranium transportation equipment. The legislation also authorizes an international nuclear energy cooperation program.
  • Industrial and Vehicle Technologies: The AEIA directs DOE to develop programs to support “smart manufacturing” technologies to improve the productivity and efficiency of the domestic manufacturing sector. These “smart” technologies include, among others, advanced information automation, monitoring, computation, sensing, modeling, artificial intelligence, analytics, and networking that will assist manufacturers managing production lines, optimizing energy efficiency, monitoring performance, and digitally connecting the supply chain network.
    • The legislation also authorizes the appropriation of over $300 million per year through 2025 for research and development programs across a broad range of vehicle classes.
    • These programs are aimed at increasing vehicle efficiency, developing advanced vehicle manufacturing technologies, evaluating vehicle performance, and improving efficiency of nonroad equipment, such as agricultural, construction, air, and sea port equipment.
  • Critical Minerals: The legislation may also impact the mining industry by requiring the federal government to both develop a list of “critical” minerals and establish a policy objective to process federal permits for such minerals “efficiently.”
    • As proposed in the AEIA, the Secretary of the Interior would issue a draft methodology and list, including: (i) a description of the proposed methodology for identifying a list of critical minerals; (ii) a proposed list of such minerals, elements, substances, and materials that would be considered critical minerals; and (iii) a proposed list of critical minerals recoverable as byproducts.
    • The language used in the AEIA is similar to that from Executive Order 13817 published in December 2017, which resulted in the development of a list of critical minerals published by the Secretary of the Interior in May 2018. While the list developed under the AEIA may differ, there would likely be substantial overlap. While used in multiple industries, many of the minerals on this list are essential for expanded energy storage such as batteries, modern steel alloys, and other electronics systems.
  • Cybersecurity and Electric Grid Resiliency: The AEIA seeks to strengthen the domestic grid to reduce cybersecurity vulnerabilities to attacks by authorizing $100 million per year through 2029 to fund new programs within DOE.
    • These programs are designed to identify, enhance, and test supply chain vulnerabilities and response capabilities within the energy sector.
    • To carry out these cybersecurity programs, the bill directs the Secretary to consult with state regulatory authorities, the energy utility industries, the Electric Reliability Organization, and other relevant federal agencies. The bill would also amend the Energy Policy and Conservation Act to authorize the Secretary to provide financial assistance to state programs seeking to ensure that such state has “reliable, secure, and resilient energy infrastructure” to protect against potential cybersecurity threats to the electric grid.

The AEIA also seeks to reform federal permitting processes, including in the natural gas and mineral development and geothermal sectors. The AEIA would expedite the approval process for exporting small volumes of liquified natural gas through an amendment to the Natural Gas Act. This revision would deem applications to export up to 51.75 billion cubic feet per year of natural gas to any country “as consistent with the public interest”, triggering a requirement for the Secretary of Energy to grant applications for these exports without modification or delay. In addition, the AEIA proposes to require the Bureau of Land Management and the Forest Service to establish permitting timelines and performance metrics to expedite processing of permits issued under their purview.

Bill Support & Opposition

Senator Murkowski, the Energy and Natural Resources Committee Chair, stated that “this bill is our best chance to modernize our nation’s energy policies in more than 12 years.” The bill has bipartisan support and as introduced, includes provisions of bills sponsored or co-sponsored by 60 senators from both parties. The bill has also been endorsed by the U.S. Chamber of Commerce’s global energy institute, the American Gas Association, and the Nature Conservancy.

However, certain provisions, including those addressing mining and fossil fuels, will likely face scrutiny. The Heritage Foundation objects to the AEIA’s alleged preferential treatment for certain energy sources, and calls the bill “wasteful” and “redundant.” The Audubon Society recognized the bill as “the start of an important bipartisan effort to address our energy needs” but expressed concern over the bill’s promotion of expedited approvals of liquefied natural gas exports, instead of encouraging rapid deployment of clean energy.

Other environmental groups, including the Sierra Club, have indicated their disapproval, stating that the bill includes “egregious non-starters” and would “vastly expand the permitting of destructive mining operations, as well as an expansion of fracked gas exports.”

While the bill supports emission-reducing initiatives like energy efficiency and renewable energy deployment, critics also caution that the political capital needed to pass a comprehensive energy bill such as the AEIA would be better allocated to a bill that addresses climate change and sets specific carbon emission reduction targets.

Current Status

On Monday, March 9, lawmakers voted against ending debate on an updated version of the bill. Although this delays a swift passage of the original bill, continued debate would allow consideration of the approximately 220 amendments proposed to date.

Senator Murkowski now plans to “regroup and look for a path forward” for the AEIA, although remarking on the HFC amendment debate, she noted that “[i]t is beyond frustrating to have our bill, which contains priorities from more than 70 senators, held up by an unrelated dispute that was never part of our discussions in the lead-up to this floor process.”

It remains unclear how any energy bill emerging from the Senate would be received by the Democratic leadership in the House.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.