The Inflation Reduction Act Applies the Polluter Pays Principal: Carbon Tax Will Accelerate Reduction of Methane Emissions

The Biden administration’s environmental policies and the future of infrastructure projects are facing pivotal legal challenges and political shifts. The U.S. Court of Appeals for the D.C. Circuit questioned the viability of the Environmental Protection Agency’s (EPA) 2024 power plant emissions rule, particularly its reliance on carbon capture technology, while the 6th Circuit overturned the EPA’s rejection of Kentucky’s smog plan, which comes only three days after the EPA issued its defense of its “good neighbor” smog control plan responding to the Supreme Court’s decision to halt its implementation in June. Meanwhile, the Supreme Court’s handling of the first National Environmental Policy Act (NEPA) case in some time, Seven County Infrastructure Coalition v. Eagle County, could substantially alter the scope of environmental reviews, with potential immediate implications for the oil & gas industry. These judicial reviews may be influenced by a potential change in administration and Congress, as Trump-era officials, including Vivek Ramaswamy, advocate for scaling back NEPA regulations to expedite infrastructure projects. Additionally, the Department of Energy’s recent clarity on liquified natural gas (LNG) export authorizations underscores the broader tension between expanding fossil fuel infrastructure and adhering to environmental regulations amidst a polarized political and legal landscape.

NYC Climate Week included over 900 events with an estimated 100,000 participants swarming the City. While indicative of growing interest in climate action, some note that the record turnout foreshadows a smaller presence at COP 29 in Azerbaijan.

Recent legislative and regulatory developments reflect ongoing tensions between environmental policies and economic priorities in the U.S. energy landscape. The House Energy and Commerce Committee’s advancement of three resolutions targeting Environmental Protection Agency (EPA) rules on power plants, vehicle emissions and air quality standards marks a broader Republican effort to counter President Biden’s environmental agenda, though these resolutions face likely vetoes. In contrast, House Speaker Mike Johnson has signaled openness to retaining certain green energy tax credits, reflecting a pragmatic approach as some Republican districts benefit from these investments. Simultaneously, bipartisan efforts to boost critical mineral production, led by Senators Hickenlooper and Tillis, aim to reduce U.S. reliance on Chinese imports, while the White House has raised tariffs on Chinese electric vehicles and solar products, a move seen as both protective of domestic industries and potentially disruptive to supply chains. Legal battles continue, as seen in the judicial blocking of the Interior Department’s methane rule in five states and ongoing litigation over EPA’s cross-state pollution rule, which the agency has been allowed to revise. Meanwhile, grid operators have expressed concerns that the EPA’s carbon emissions rule could threaten power plant operations, pushing for legal revisions to protect grid reliability. Together, these developments reflect the broader debate over balancing environmental regulations with economic and energy security concerns.

After a recent permitting reform bill was passed out of a Senate Committee, House Republicans took steps to draft their own permitting reform legislation. Rep. Westerman (R- AR) held a hearing to discuss his draft bill, which most notably places limitations on the environmental permitting process for energy projects. This comes as both parties position energy policy as a key election issue, with Vice President Harris recognizing a role for oil and gas production during the Presidential debate in response to Republican criticism of her climate policies. Meanwhile, former President Trump vowed to pull back unspent dollars approved for greenhouse gas reduction and energy transition projects under the Inflation Reduction Act (IRA). The IRA has already spurred significant renewable energy investment, particularly in rural electric co-ops using the funds to replace coal generation with clean energy and battery storage.

With U.S. elections rapidly approaching, presidential candidates are expected to foreshadow key aspects of their energy and environmental legislative and policy agendas. In particular, the Energy Permitting Reform Act of 2024 may prompt Vice President Kamala Harris to balance legislative progress with her environmental justice commitments. The proposed bill promises to expedite clean energy projects but also aids fossil fuel industries and potentially at odds with front-line environmental justice communities. While White House climate adviser John Podesta expresses cautious optimism about the bill’s post-election prospects, environmental groups are calling on Harris to oppose the bill. Similarly, Harris’ running mate, Minnesota Governor Tim Walz, takes a nuanced stance on mining projects near sensitive watersheds, balancing the difficult trade-offs in advancing clean energy mandates while maintaining resource development. This exhibits the complex negotiations required to align bipartisan support behind the democratic ticket’s climate goals ahead of the presidential election.

On August 6, 2024, Vice President Kamala Harris selected Minnesota Governor Tim Walz as her running mate in the 2024 election. Walz, a little-known figure in national politics, serving in his second term as governor in Minnesota, has implemented far reaching energy policies after winning a democratic trifecta in 2023. Two bills establishing a mandate for carbon-free electricity in Minnesota by 2040 and simplifying the energy permitting process mirror current federal policy proposals. Expect to see Walz on the campaign trail linking his experience to the need for federal action.

On Wednesday, July 31, the Senate Energy and Natural Resources Committee approved a permitting and grid development package, spearheaded by Chair Joe Manchin (I-WV) and Ranking Member John Barrasso (R-WY). The bipartisan bill paves the way for renewable energy projects, oil and gas leases, and grid improvements, as well as reversing the Biden administration’s pause on liquefied natural gas export permits. This legislative progress aligns with the U.S. Department of Energy’s allocation of $30 million in initial funding to the Appalachian hydrogen hub, which aims to significantly reduce carbon dioxide emissions through hydrogen fueling stations and carbon storage sites. However, environmental groups are pushing back against the Manchin-Barrasso permitting bill as well as newly proposed exemptions to the 45V hydrogen tax credits by Senate Democrats, arguing that these changes would undermine carbon-reduction goals. Simultaneously, the Biden administration is investing $575 million in federal grants to enhance climate resilience in coastal communities, indicating a comprehensive approach to addressing both immediate and long-term climate challenges through legislative, financial and infrastructural measures.

Key topics in Akin’s July 2024 Sustainability/ESG Policy and Regulatory Update include: