As Climate Change Legislation Cools, "Climate-Friendly" Legislation Heats Up

January 8, 2010
Client Alert Newsletter Forecast 2010

While the prospects of comprehensive climate change legislation have dimmed over the last several months, many expect a shift in focus towards wide-ranging energy legislation in 2010. In January, Senator Byron Dorgan (D – N.D.), the second-ranking Democrat on the Senate Energy and Natural Resources Committee, predicted that the Senate "likely will not do climate change [in 2010] but will do an energy bill instead, and that the energy bill will be climate friendly for sure."

The starting point for any energy bill will likely be the American Clean Energy Leadership Act ("ACELA") (S. 1462), which was reported out of the Energy and Natural Resources Committee on June 17, 2009. ACELA had bipartisan support at the committee level where it was passed 15-8. Some of the key sections of ACELA that may impact developers as well as commercial and industrial energy consumers are summarized below:

Renewable Electricity Standard ("RES") – ACELA would establish a national RES, which would require all sellers of electricity to obtain a certain percentage of electricity from renewable resources or from energy efficiency improvements. The RES would start at 3 percent for 2011 and ramp up to 15 percent by 2039. "Renewable" resources would be defined to include wind, solar, waves, geothermal, biomass, landfill gas, incremental hydropower, hydrokinetic, and new hydropower at existing dams with no generation. Notable energy sources that are missing from this list include municipal solid waste incineration and new nuclear power. In addition to renewable sources, State Governors may petition to allow up to 26.67 percent of the RES to be met with energy efficiency improvements. Electricity sellers could comply with the RES by producing/purchasing its own renewable electricity (or making energy efficiency improvements), purchasing renewable energy credits, or by making alternative compliance payments (i.e. penalties).

Manufacturing Energy Efficiency – ACELA would authorize the Department of Energy ("DOE") to provide grants of up to $100 million to support state-level revolving loan programs for both small and large manufacturers. To be eligible for loan funds, the project must accelerate the implementation of energy efficient technologies and processes and enhance the industrial competitiveness of the U.S. In addition, ACELA would increase funding for research and development of energy efficiency technologies and industrial processes, and would allow manufacturers to request onsite technical assistance from the DOE to help identify more sustainable technologies/processes.

Increase Energy Efficiency of Building Codes – ACELA would require DOE to support improvements to national model building energy codes The revised building codes would set an initial target of 30 percent energy savings in model codes released during or after 2010 as compared to the 2006 International Energy Conservation Code and ASHRAE Standard 90.1-2004 energy efficient building codes. The target would increase to 50 percent savings for model codes released during or after 2016.

Within a defined time period after promulgation of the new energy efficient codes, states would be required to certify that they have updated their codes and that their codes meet or exceed the model energy savings. While the requirements are not mandatory, states would be provided with incentive funding to help implement the building efficiency codes and verify compliance. In states that do not comply with the energy efficient building codes, local governments would be able to adopt the model codes and would be eligible for the financial incentives.

Clean Energy Deployment Administration – ACELA would establish the Clean Energy Deployment Administration ("CEDA"), a new independent administration within the DOE. CEDA would provide loans, guarantees, bonds, and other financial incentives and credit enhancements to encourage the deployment of clean energy technologies. CEDA would support technologies that have the potential to address climate and energy security, but are perceived as too risky for commercial lenders.

Energy Efficiency Incentive Programs – ACELA would authorize DOE to award grants to states to carry out energy efficiency retrofit programs for residential and commercial buildings. Under the home energy efficiency retrofit program, homeowners could receive rebates for implementation of specific measures (i.e. compact fluorescent light bulbs) or customized measures that reduce whole home energy consumption by 10 or 20 percent. Under the commercial buildings program, states would be authorized to provide building owners with financial incentives for retrofits that improve energy performance by at least 20 percent as compared to consumption in the previous year.

Building Energy Performance Information – ACELA would encourage voluntary implementation of building energy performance labeling. The labeling would provide information to consumers and allow building owners to compare and identify efficiency improvements.