What the Inflation Reduction Act Would Do, and Not Do, to Support Continued Offshore Wind Development
The Inflation Reduction Act spending bill, reflecting compromise between Senator Joe Manchin and Majority Leader Chuck Schumer, contains several measures to bolster offshore wind and other renewable energy development in the United States. If passed, the bill would allocate hundreds of billions of dollars to help facilitate a clean energy transition, primarily through clean energy tax credits, as we discuss here. Several provisions related to offshore wind and related transmission infrastructure stand out, and the incentives they provide may succeed in spurring necessary infrastructure development, though some constraints remain.
Transmission Bottlenecks and Siting Constraints
The spending bill earmarks $2 billion in loans to support new and upgraded electric transmission facilities, and another $760 million in grants to siting authorities to assist high voltage interstate projects and offshore electricity transmission projects in navigating the review and approval processes. This funding reflects a key reality: the clean energy “transition” is not just a shift in the type of energy source used (e.g., fossil fuels to renewables like wind and solar), but also a shift in where electric generation occurs. The electric grid needs new large-scale transmission lines to deliver power generated at onshore and offshore wind and other renewable generation facilities, and siting these lines can be a challenge. For example, we have previously discussed the limited siting and interconnection options necessary to deliver offshore wind power, as well as the gap in the Federal Energy Regulatory Commission’s backstop siting authority in overcoming a state or siting authority’s rejection of a transmission project, since that authority withholds the power of eminent domain for state-owned land.
The new spending bill does not solve the backstop siting authority problem, but it does offer financial incentives to address the problem. First, it offers grants to siting authorities to fund studies and analyses of proposed transmission projects, negotiations with project proponents and opponents, and “other measures and actions that may improve the chances of, and shorten the time required for, approval.” (Sec. 50152). The bill incentivizes faster approvals, as receipt of grant funds requires the siting authority to agree to make a final siting decision within two years of grant funding. It also incentivizes approvals by allowing “economic development” money to flow to siting authorities and state, local, or tribal governments that approve projects, in order to address communities that may be affected by a transmission project’s construction and operation.
The spending bill also includes an additional $100 million specifically allocated to address planning and modeling for interregional and offshore wind electricity transmission projects. Funded activities include studying cost allocation methodologies that facilitate expansion of the bulk power system, power flow modeling, evaluating existing rights-of-way and the need for additional transmission corridors, and planning for a national transmission grid to optimize the grid for interconnection to offshore wind farms.
Expanding Offshore Wind Opportunities
The spending bill would open additional areas to offshore leasing in two main ways. First, it would amend the Outer Continental Shelf Lands Act (“OCSLA”) to extend the act’s coverage to federal offshore waters within the exclusive economic zone of U.S. territories, including Puerto Rico, Guam, American Samoa, the U.S. Virgin Islands, and the Northern Mariana Islands. For several years, members of Congress have introduced bills to bring offshore wind development to these areas. This bill would require the government to issue calls for information and nominations for proposed wind lease sales in waters offshore of U.S. territories by September 30, 2025.
Second, the spending bill would override the Trump-era moratorium that currently prohibits federal leasing on the outer continental shelf off the Southeast United States coast. The ten-year moratorium took effect on July 1, 2022, but despite the Biden administration’s desire to revoke or sidestep that moratorium to advance clean energy development in that area, revocation requires legislative action. (The Trump administration faced this same barrier in trying to undo an Obama-era withdrawal of unleased federal lands off the coast of Alaska, where a federal court in League of Conservation Voters v. Trump found that the President lacks authority to reinstate previously withdrawn lease areas.)
However, a potential hurdle for both of these changes remains since the spending bill is being advanced through the reconciliation process. That process allows fast-tracked tax and spending bills to have House and Senate differences “reconciled” before being forwarded to the President for approval. The Senate’s “Byrd Rule” prevents legislators from using the reconciliation process to include “extraneous” provisions unrelated to tax and spending matters. If a senator objects to an “extraneous” provision, the Senate Parliamentarian reviews and may strike offending provisions, which then cannot be re-added by amendment. The spending bill’s provisions expanding OCSLA’s coverage area and overriding the leasing moratorium could potentially be challenged, as they make no mention of the budgetary impact of reinstating the lease areas, contain no tax provisions, and do not discuss government spending.
The spending bill’s attempt to override the Southeast area moratorium is not alone. Separately, an amendment to the National Defense Authorization Act for FY 2023 would similarly override the Trump-era withdrawal. It would also clarify that presidential withdrawals of leasing areas are presumed to only apply only to oil, gas, and sulphur leases unless explicitly written to apply to other leasing. The impetus behind that provision is to avoid general and broad language like that Trump used in issuing the moratorium from applying to renewable energy projects, and to force specificity in such withdrawals.
Fossil Fuel Strings Attached
The spending bill’s expansion of wind and solar opportunities on federal land and in federal waters comes with a catch: the government would only be able to grant these new leases and rights-of-way if the government’s oil and gas leasing meets certain metrics. For offshore wind, the government could only issue a lease if, during the prior year, the government offered at least 60 million acres in oil and gas lease sales. To put that volume in perspective, a recent oil and gas lease sale (the November 2021 auction for Lease Sale No. 257) offered approximately 81 million acres for oil and gas leasing, with only 1.7 million acres receiving bids. At present, only about 12 million acres out of over two billion acres on the outer continental shelf have current oil and gas leases. This provision and a sister provision applying to onshore oil and gas leasing have already drawn fierce opposition, but reflect a compromise between renewable energy development and measures to support energy security and reliability, and presumably were necessary to obtain Sen. Manchin’s support.
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.