Although 2022 is coming to a close, the Biden administration and Congress have their share of loose ends to pick up in the new year, from managing inflamed trade tensions to implementing the new climate law.
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Here are three energy stories to watch in 2023:
Trade conflict with allies
The Democrats’ Inflation Reduction Act was an immense accomplishment for the party’s climate change agenda, but it’s also created new diplomatic challenges for the Biden administration.
Trade partners in Europe and Asia are angry with provisions in the new law that give larger subsidies to homegrown green energy technologies. The most controversial of these is the clean vehicle tax credit, which provides that electric vehicles can only be eligible for a max $7,500 consumer tax credit if the vehicle is assembled in North America and follows increasingly stringent component sourcing requirements.
Leaders in the European Union, Japan, and South Korea believe the credit breaches global free trade rules.
The EU and United States set up a joint task force to work through the EU’s concerns, although Treasury Secretary Janet Yellen, whose department is responsible for drafting guidance laying out how manufacturers can comply, has downplayed the possibility of much flexibility in its guidance.
“The legislation is what it is,” Yellen said earlier year, and the department “[has] to implement the law that was written.”
EU leaders, meanwhile, are lobbying for the subsidies to be significantly reformed or axed altogether.
“The US and Europe have nothing to win from raising new costly trade disputes,” EU trade official Margrethe Vestager said in a recent blog post, adding she expects the joint task force “will translate into concrete solutions to limit and ideally reverse the damage.”
Permitting reform
Democrats and Republicans have repeatedly failed over the last few months to reach agreement on legislation to speed up the review and permitting of energy infrastructure, but many lawmakers in both parties support so-called permitting reform, making the issue ripe for deal-making in the new Congress.
Sen. Joe Manchin’s (D-WV) permitting reform legislation received President Joe Biden’s full backing, putting Biden at odds with dozens of liberal Democrats in the House and some in the Senate who rejected it for the bill’s provisions favoring fossil fuels.
Although the bill failed, dozens of Democrats in the Senate supported it. Sen. Angus King (I-ME), an independent who caucuses with the Democrats and voted for Manchin’s bill, said the legislation “should not be controversial.”
“It would have made simple changes that both sides of the aisle have long called for to expedite energy projects without diluting environmental standards in the slightest,” King said following the vote, challenging the primary argument leveled against the bill by liberals and environmentalists.
Senate Republicans, who will be in a stronger position to negotiate the contents of a prospective permitting reform bill beginning in January when the party takes over control of the House, overwhelmingly voted against Manchin’s bill, although seven members supported it.
The House Republican caucus has made permitting reform a priority issue for the next Congress.
Grid reliability
Regulators sounded the alarm with several reports this year that detail vulnerabilities within the nation’s bulk power system, which continues to evolve at a rapid rate in the direction of greener generating sources.
Nearly all regional grids face reliability shortcomings in extreme weather circumstances, while others are being challenged even in normal demand conditions, according to the North American Electric Reliability Corporation, which is charged with developing performance criteria for utilities and their regional transmission organizations.
The reliability challenges are being driven by the strain of more frequent extreme weather events, NERC has concluded, as well as the consequences of a rapid transformation in the mix of resources used to generate electricity.
Utilities have engaged in large-scale retirements of coal-fired power plants in recent years, and retirements are scheduled to continue as utilities weigh the cost of regulations and implement their own decarbonization initiatives.
Much of that electricity generation is being replaced with renewable sources like wind and solar, and although those resources are exponentially cleaner, they are variable, unlike ”always-on” coal, and that can leave grid operators with tight generating capacity on peak demand conditions.
Supply chain and labor disruptions are also delaying new projects and adding challenges for grid operators, according to NERC.
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“A number of the resource additions are dependent on receiving the supplies, the material, and the expertise, and the personnel to be able to install them,” NERC executive Mark Olson said in a recent grid assessment, “and so supply chain issues, they can threaten the completion of the timelines and some of the projections for new generation and transmission coming into development.”
