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Appropriations Act Adopts Suite of Measures that Promote Carbon Capture and Impact Oil and Gas Leasing and Development on Federal Lands

January 7, 2021

On December 27, 2020, the Consolidated Appropriations Act, 2021 (H.R. 133) (“Appropriations Act”) became law. In addition to incentives for renewable energy projects, this densely-packed government spending bill and stimulus package contains provisions that extensively update federal policy regarding carbon capture, removal, use, and storage (“CCUS”), continue to limit the U.S. Department of the Interior (“Interior”) from listing certain species as threatened or endangered, and continue to limit oil and gas leasing on federal lands surrounding the Chaco Cultural National Historic Park in New Mexico.

Carbon Capture, Removal, Use, and Storage

The Appropriations Act commissions numerous research and development programs and directs the publication of reports and establishment of task forces focused on various aspects of CCUS. Notably, Section 102(d) of Division S (“Innovation for the Environment”) of the Appropriations Act directs the Council on Environmental Quality (“CEQ”) to develop a report on CCUS projects that focuses on streamlining the permitting process. The report should identify existing CCUS permitting frameworks, clarify the permitting responsibilities among federal agencies, and identify best practices and templates for permitting in an efficient, orderly, and responsible manner. Based on this report, the CEQ must develop guidance on how federal agencies should review CCUS projects and address the interplay between CCUS projects and various federal acts, including the National Environmental Policy Act, the Clean Air Act, the Safe Drinking Water Act, and the Endangered Species Act.

Additionally, the Energy Act of 2020 (Division Z, known as the “Energy Act”) and Division S of the Appropriations Act collectively appropriate billions of dollars to accelerate the development, deployment, and commercialization of carbon-capture technologies. Pursuant to Title IV, Section 4002 of the Energy Act, the Department of Energy (“DOE”) must establish a competitive, merit-reviewed process through which the DOE will enter into cooperative agreements with industry stakeholders for the construction and operation of six facilities that will use emerging technologies to capture carbon dioxide from coal electric generation facilities, natural gas electric generation facilities, and industrial facilities. The projects will be financed both by the private sector and the DOE, which will also provide technical support and publish studies and reports about the efficacy of the projects. Additionally, Title IV, Section 4003 of the Energy Act directs the DOE to provide funding for demonstration projects focused on collecting and validating information on the cost and feasibility of commercial deployment of large-scale carbon sequestration technologies.

The Appropriations Act includes other incentives for CCUS development. For example, the tax credit for carbon capture and sequestration projects under Section 45Q of the Internal Revenue Code was set to expire at the end of 2023, but Title I, Subtitle B, Section 121, of the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (Division EE of the Appropriations Act) extends the tax credit for two years through 2025 for any projects which commence construction by January 1, 2026. Additionally, Section 102 of Division S of the Appropriations Act commissions the development of a program through which parties may compete for financial awards for direct air capture projects that capture more than 10,000 tons of carbon dioxide per year.

Listing the Greater Sage-Grouse

Division G of the Appropriations Act limits Interior’s ability to list the greater sage-grouse and the Columbia basin distinct population segment of greater sage-grouse as threatened or endangered under the Endangered Species Act. Specifically, Title I, Section 116 prohibits Interior, including the U.S. Fish and Wildlife Service, from using federal funds to draft or issue a proposed rule to list these species as threatened or endangered. Prior spending bills have similarly limited on the use of federal funds to list these species.

Other Notable Components of the Appropriations Act

Division R of the Appropriations Act, known as the “Protecting Our Infrastructure of Pipelines and Enhancing Safety Act of 2020,” includes mandates regarding pipeline safety and requirements to mitigate methane emissions from gas infrastructure. It also makes allowances for operators to pilot new technologies and processes on existing systems and sets various new requirements for large scale liquified natural gas facilities.

Section 103 of Division S of the Appropriations Act aims to significantly reduce the use of hydrofluorocarbons, a widely used refrigerant in air conditioning and refrigerators that when released into the atmosphere is a significant greenhouse gas. By directing a shift to next generation technologies, while also allowing exceptions for essential uses where no substitute is available, the legislation targets an 85 percent reduction in the use of hydrofluorocarbons over a 15-year period.

If you have further questions, please contact Katie Schroder, Shalyn Kettering, or Courtney Shephard.

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