Developments in Energy By Thomas J. Spulak and Allison F. Kassir

by King & Spalding

Extension of Wind Tax Credit Gaining Momentum

The production tax credit for wind energy (the “PTC”) set to expire on December 31, 2012, is beginning to show serious signs of life. The PTC is one of the more than 50 tax credits and related provisions that have either expired or will expire at the end of this year. Many in Congress, particularly Republicans, have argued that a majority of these provisions should be allowed to die a peaceful death. Many Democrats, however, have insisted that the PTC is critical for the environment and energy independence and should be retained. Most recently, White House Counsel on Environmental Quality Chair, Nancy Sutley, weighed in and urged Congress to extend the PTC.

A recent development in the House of Representatives makes the extension of the PTC more likely - the support of freshmen Republican House members. A group of 18 freshmen House members, including 16 Republicans, recently sent a letter to the Republican leadership urging them to support an extension of the PTC. In their letter, the freshmen members said “many of us do not support permanent tax credits and we would like to see the tax code overhauled . . . however, if the PTC is allowed to expire before comprehensive tax reform, this industry will have already lost half its workforce, the manufacturing infrastructure, and investor confidence it will need to survive on its own.” The fate of the PTC and other expiring tax credits won’t be known until after the election in November.

The Administration’s “All of the Above” energy strategy could include Arctic drilling

A top White House aide on energy issues, Heather Zichal, is predicting that an exploratory drilling project in the Arctic Ocean will receive Obama Administration approval. After years of work and the expenditure of billions of dollars, Royal Dutch Shell needs only the approval from the Interior Department before it can move forward. Zichal’s comments appear to foretell that that approval will be granted. Environmentalists are not at all pleased and continue to raise concerns about the adequacy of the company’s response to a worst-case scenario spill.

Biofuels Get a Boost

The Obama Administration has announced the first $62 million in $510 million of funding for the development and production of biofuels through the joint initiative by the Departments of Energy, Agriculture and the Navy. Under this first project solicitation, companies can compete for federal funding to ramp up biofuel production to commercial scale and must match the federal investment.

The Department of Defense (“DOD”) is the largest energy consumer in the country accounting for one percent of total consumption and had an energy bill last year alone of $19 billion, up $3 billion from the year before. Ensuring energy security for operations and installations is a top priority for DOD. In response to these concerns, DOD has set an ambitious goal of obtaining 25% of its energy from renewable sources by 2025. For example, the Army recently announced plans to proceed with four utility-scale renewable power projects. The Navy and the Air Force have been testing 50/50 blends of biofuels in aircraft and ships.

These efforts are not without some criticism, however. Some Republicans in Congress have chastised the Administration for what they believe is prioritizing renewable energy over core missions. The House passed an amendment to its defense authorization bill prohibiting the Navy from purchasing biofuels at a higher price than petroleum, and the Senate will soon consider its defense authorization bill which contains a similar prohibition. Nevertheless, this week’s announcement by the Administration signals that it intends to move forward notwithstanding objections on Capitol Hill.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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