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New Support for Energy Projects and Transition to Low-Carbon Power

December 5, 2022

Major federal investments are allowing state legislatures to pursue new energy policy goals and manage the impacts on consumers, workers and industry of the ongoing transition away from fossil fuels to low-carbon energy sources.

The federal Infrastructure Investment and Jobs Act of 2021 and Inflation Reduction Act of 2022 give states billions of dollars to help finance and build energy projects, including upgrading the electricity grid and expanding electric vehicle charging infrastructure. The new laws’ changes to federal energy policy have significant implications for states. Meanwhile, states are grappling with how to provide affordable, reliable, resilient and clean energy.

Hot Topic — Using Federal Energy Funds

The federal infrastructure law and the Inflation Reduction Act create a multitude of new tax incentives, funding streams and programs to support transportation electrification, new and existing electricity generation, investments in electric grid infrastructure, and consumer home energy upgrades, among others. The new laws have the potential to unlock a massive transition toward a cleaner energy sector, including programs to support emerging technologies such as hydrogen and advanced nuclear power. In 2023, lawmakers will continue to explore how best to position their states to benefit from that new funding, including by identifying matching funds, creating or amending statutory authorities and overseeing executive branch implementation.

While most states have yet to implement new federal energy funds, a few have enacted laws to take advantage of funding for the Clean School Bus Program (Colorado SB 193) and the National Electric Vehicle Infrastructure Program (Arkansas SB 632) by creating sources of matching funds.

Trending: Hydrogen and Nuclear

The infrastructure law also includes new federal support for the use of hydrogen in the energy system, and some states are already exploring ways to take advantage of this opportunity. Illinois (SB 2613) and Washington (SB 5910) enacted legislation to establish “hydrogen hubs,” and Arizona (SB 1396) and Nebraska (LB 1099) created hydrogen energy study committees. With numerous provisions in both new federal laws encouraging the development of nuclear energy, legislatures are likely to support existing and advanced reactors. California, for example, enacted a bill (SB 846) to continue operations at the Diablo Canyon nuclear power plant by accessing funds through the Civilian Nuclear Credit Program established by the infrastructure law.

Hot Topic — Managing the Energy Transition

A second trend for 2023 involves states addressing the sometimes competing priorities of providing clean, reliable, resilient and affordable energy. Some states recently adopted legislation establishing or amending policies aimed at increasing the capacity of renewable and other carbon-neutral technologies. During this period of transition, states are simultaneously working to ensure that the reliability, resilience and affordability of the energy system is not compromised, with several states signaling increased action on these issues. Overlap in these two broad initiatives can be seen in policies to develop transmission infrastructure; incentivize clean and dispatchable power (Maryland HB 31); bolster regional planning; address resource adequacy; and support microgrids and backup power (Colorado HB 1013 and New Jersey AB 336). In 2023, state legislatures will continue to manage these interrelated priorities.

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