Regulation on Preventing the Loss of Plastic Pellets to Reduce Microplastic Pollution – Draft Agreement Reached Between the Council and the Parliament
On 16 October 2023, the European Commission (EC) proposed a Regulation [1] aimed at preventing plastic pellet losses in order to tackle one of the main sources of unintentional microplastic pollution.
A provisional Draft Agreement on the final text was reached between the European Parliament and the Council on 8 April 2025 [2]. The Council’s first reading position is expected to be adopted in the autumn, followed by a second EP vote recommending final approval. It will then be formally adopted by both institutions, following a legal and linguistic review, and published in the Official Journal of the EU.
The Regulation applies to economic operators in the EU handling quantities of plastic pellets equal to or exceeding five tonnes per year, based on the previous calendar year. It also covers economic operators of facilities within the EU that clean plastic pellet containers and tanks. Furthermore, the scope extends to both EU and non-EU carriers.
The overarching objective of the Regulation is to ensure the safe handling of plastic pellets at every point in the supply chain, regardless of their intended end use. The main obligations are as follows:
Article 3 sets out the duty to take immediate action to contain and clean up any pellet losses, as well as to notify the relevant national authorities about each installation involved in pellet handling.
Under Article 4, economic operators must develop a risk management plan for each of their installations. This plan must comply with the requirements of Annex I of the Regulation and be submitted to the competent authority in the Member State where the installation is located, accompanied by a declaration of conformity as specified in Annex II. Operators must also ensure that all relevant staff receive appropriate training. Additionally, both EU and non-EU carriers are required to keep annual records detailing the estimated volume of plastic pellets handled and any losses incurred.
Article 5 introduces a certification regime. Operators handling 1,500 tonnes or more of plastic pellets annually will be required to obtain certification from an independent third party two years after the Regulation enters into force, and every three years thereafter. Medium-sized operators handling more than 1,500 tonnes must obtain certification within 36 months, with renewal required every four years. Small enterprises handling over 1,500 tonnes must also obtain certification within 60 months of the Regulation’s entry into force, with certification valid for five years. However, Member States may grant permits under Article 5a, exempting certain operators from this certification requirement.
The Draft Agreement introduces new labelling obligations for any manufacturer, importer, downstream user, or distributor placing on the market plastic pellets that qualify as synthetic polymer microparticles, as defined in Annex XVII, entry 78, to Regulation (EC) 1907/2006) [3]. The required information, detailed in Annex IVb of the Regulation (see image below), must be included on the label, packaging, packaging leaflet, or safety data sheet.
The Draft Agreement also sets out rules governing compliance and access to information. While it is the responsibility of Member States to establish specific penalties for infringements of the Regulation, the Regulation itself sets minimum standards for enforcement. In cases of the most serious infringements committed by a legal entity, the maximum level of administrative financial penalty must be at least 3% of the operator’s annual EU turnover in the previous financial year. In addition to administrative penalties, Member States retain the discretion to impose criminal sanctions where appropriate.
The Regulation includes a delayed application date, taking effect two years after its official entry into force. To ease the transition for the maritime sector, the co-legislators have introduced a further one-year delay in the application of the relevant provisions for operators, agents, and masters of sea-going vessels. This additional time is intended to facilitate compliance with the new requirements specific to maritime transport.
[1] Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on preventing plastic pellet losses to reduce microplastic pollution, COM(2023) 645 final – 2023/0373 (COD). Available at: https://www.europarl.europa.eu/RegData/docs_autres_institutions/commission_europeenne/com/2023/0645/COM_COM(2023)0645_EN.pdf
[2] Provisional Draft Agreement, adopted 15 May 2025, at the ENVI Committee, available at: https://www.europarl.europa.eu/meetdocs/2024_2029/plmrep/COMMITTEES/ENVI/DV/2025/05-12/Item10_2023_0373COD_consolidatedandmarked_EN.pdf
[3] Please refer to COMMISSION REGULATION (EU) 2023/2055 of 25 September 2023 amending Annex XVII to Regulation (EC) No 1907/2006 of the European Parliament and of the Council concerning the Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH) as regards synthetic polymer microparticles, available at: https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32023R2055
DOJ Files Suit against Hawaii, Michigan, New York, and Vermont Related to Climate Legal Actions
The U.S. Department of Justice (DOJ) recently filed four lawsuits against states related to specific climate change actions they have taken or planned to take. On April 30, 2025, DOJ preemptively sued Hawaii and Michigan to prevent both states from going forward with their stated intent to pursue legal action against fossil fuel companies for alleged harms caused by climate change and to declare those states’ claims unconstitutional. The following day, on May 1, 2025, DOJ sued New York and Vermont for their enactment of climate “superfund” laws, which create retroactive cost recovery claims on producers of fossil fuels, seeking to enjoin the enforcement of those statutes and to have them declared unconstitutional as well.
DOJ’s lawsuits come on the heels of President Trump’s April 8, 2025 Executive Order, Protecting American Energy From State Overreach. The Executive Order directs the DOJ to identify any and all laws “burdening” the use or production of domestic energy and to “expeditiously take all appropriate action to stop the enforcement of [the] laws.”
While state and local government initiated climate lawsuits have been ongoing through state courts for some time, the lawsuits filed by DOJ under this Administration are a new approach building the federal government’s “active and continuous” interest in maintaining its control over energy and climate policy. The four lawsuits allege the climate “superfund” laws and any state-based claims pertaining to climate-related damages are preempted by the comprehensive nature of the Clean Air Act. Similarly, DOJ avers that constitutional due process prevents the states from imposing extraterritorial liability for primarily out-of-state activity.
DOJ additionally claims that the laws and lawsuits facially discriminate against interstate commerce and would impose substantial undue burden that would disrupt the national market for fossil fuels. Likewise, DOJ alleges violations of the Foreign Commerce Clause because the lawsuits and laws discriminate against foreign commerce and impose liability that is not fairly related to the services provided in the states. Lastly, DOJ claims the laws and lawsuits seek to regulate a “uniquely international problem” and undermine and interfere with U.S. foreign policy, which is exclusively in the purview of the federal government, and thus are preempted by the Foreign Affairs Doctrine.
DOJ’s proactive strategy of filing original lawsuits to attack the four states’ actions puts the full weight of the federal government behind arguments that have been made by defendants in other cases. It also serves as a signal to other states that may be considering similar actions.
Hawaii and Michigan Announced Climate Lawsuits
DOJ’s lawsuits against Hawaii and Michigan are notable for seeking to preemptively block the states from filing lawsuits against fossil fuel producers for alleged climate related damages. Attorneys General for both states had previously announced their intention to sue fossil fuel producers, but, at the time of DOJ’s filings, neither state had initiated any legal action. Subsequent to DOJ’s filings, Hawaii moved forward to file its lawsuit against seven oil and gas companies in the First Circuit Court in Honolulu.
New York and Vermont Climate Superfund Laws
Vermont was the first state to enact a climate “superfund” law, with New York quickly following suit. These laws claim to draw inspiration from the federal Superfund law; however, they are very different from the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). They create retroactive liability for responsible parties but apply it to prior emissions of greenhouse gas (GHGs) into the environment by companies that have previously extracted or refined fossil fuels. The Vermont and New York laws explicitly establish strict liability on out-of-state sources of GHG emissions. 10 V.S.A. § 597(1); N.Y. Env’t Conserv. § 76-0103(2)(a).
Both statutes enable cost recovery claims on any entity engaged in the trade or business of extracting fossil fuel or refining crude oil and is determined to be responsible for one billion tons of global greenhouse gas emissions. 10 V.S.A. § 596(22); N.Y. Env’t Conserv. § 76.0101(20). Funds collected in response to cost recovery demands will be placed in a “climate superfund” to be used to pay for qualifying climate change adaptation projects and implement climate adaption action as identified by their respective agencies designated to oversee the funds.
Vermont’s statute covers GHGs from fossil fuels extracted or refined by a responsible party from January 1, 1995, to December 31, 2024, and New York’s law covers a wide range of conduct, including production, transport, and sale or distribution of fossil fuels, that occurred from January 1, 2000, to December 31, 2018. New York’s statute places an overall $75 billion cap on recovery from responsible parties, holding them strictly liable for their respective shares of the $75 billion based on the amount of emissions. Vermont’s law, however, places no cap on the recovery of penalties and allocates liability for each responsible party “equal to an amount that bears the same ratio to the cost to the State of Vermont and its residents” from emissions during the applicable time period under the statute. N.Y. Env’t Conserv. § 76-0103(3); 10 V.S.A. § 598(b).
These laws are novel because each attempts to recover compensatory damages from companies that have lawfully sold substances in commerce, and each purports to reach conduct wholly outside of the enacting state’s borders. Several other states, including California, Maryland, Massachusetts, New Jersey, and Oregon, are in the process of considering similar legislation. Both the proposed California and Oregon climate “superfund” legislation would include a private right of action provision which could allow individuals or entities allegedly harmed by climate-related impacts to sue fossil fuel companies for damages.
EAB Issues Consent Agreement and Final Order for TSCA Section 5 Violations
On May 5, 2025, the U.S. Environmental Protection Agency (EPA) Environmental Appeals Board (EAB) issued a consent agreement and final order between EPA and Cytonix, LLC (Cytonix). According to the consent agreement, in 2022, EPA inspectors discovered Cytonix’s potential noncompliance with requirements under Section 5 of the Toxic Substances Control Act (TSCA) for a manufactured chemical substance consisting of short-chain polyfluorinated materials (Chemical A) that was developed as a replacement for a chemical substance containing long-chain (C8) perfluorinated alkyl groups. In 2024, EPA identified potential TSCA Section 5 violations for manufacturing Chemical A prior to submitting a premanufacture notice (PMN) or a low volume exemption (LVE) application. According to Cytonix, it mistakenly believed Chemical A was included on the TSCA Inventory at the time of manufacture. As soon as Cytonix learned of the illegal manufacture, it immediately ceased manufacture and quarantined all of its existing stocks of Chemical A. Cytonix does not intend to process or use the quarantined existing stocks of Chemical A but seeks only to dispose of them under the terms of the consent agreement. Cytonix neither admitted nor denied the specific factual allegations. Cytonix agreed to pay a civil penalty of $190,525 for the alleged violations. The terms of settlement state that:
As a condition of the consent agreement, Cytonix shall consult the Interim Guidance on the Destruction and Disposal of Perfluoroalkyl and Polyfluoroalkyl Substances and Materials Containing Perfluoroalkyl and Polyfluoroalkyl Substances-Version 2 (2024) for analyzing disposal options of quarantined existing stocks of Chemical A that minimize potential environmental releases;
If Cytonix chooses to dispose of the existing quarantined stocks of Chemical A, Cytonix shall dispose of any unused portion of its existing stocks in accordance with applicable federal and state requirements. Cytonix should coordinate with the applicable state(s) where disposal may occur to determine if additional requirements or a preferred approach (e.g., incineration) should be considered before disposing of Chemical A; and
Cytonix shall submit documentation showing compliance with these terms of settlement within 30 days of disposal of all existing quarantined stocks of Chemical A containing PFAS and specify the disposal method used.
Coalition of States Dispute Trump Administration’s “National Energy Emergency” Claim
On the heels of an action by states challenging the Trump administration’s efforts to block federal permits for offshore wind development a lawsuit filed by 15 states on May 9, 2025, claims that the administration misapplied the National Emergencies Act in declaring a national energy emergency. The emergency declaration, announced in a January 20, 2025, executive order, compels federal agencies to accelerate permit approvals for specified energy projects. The order excludes solar and wind production from its definition of “energy” and as a result those renewable projects are not subject to expedited permitting. The plaintiff states, led by Washington and including Arizona, California, Connecticut, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, Oregon, Rhode Island, Vermont, and Wisconsin, allege the emergency order is unlawful and will cause federal agencies to bypass or shorten critical environmental reviews. In light of the nation’s strong domestic energy production outlook, the states are claiming that the emergency order is a ruse to implement the administration’s policies that favor oil and gas production and undermine renewable and clean energy development. The complaint alleges that fast-tracking permit approvals for fossil fuel projects favored by the administration poses an imminent harm to critical habitats and will damage precious resources in affected states.
While a host of energy projects are covered by the order, no federal agency has yet invoked that authority to issue a permit on an accelerated basis. As a result, the lawsuit may be susceptible to challenges based on principles of ripeness and standing. The states also face an uphill battle in disputing emergency declarations under the National Emergencies Act, which, like other executive actions, are afforded a high degree of judicial deference.
In this rapidly evolving dispute over the treatment of renewable energy development under the Trump administration, on May 12, 2025, proposed plaintiff-intervenor the Alliance for Clean Energy New York filed a Motion for Preliminary Injunction in the offshore wind development case pending in federal court in Massachusetts. The Alliance seeks to restrain the Trump administration from imposing an effective ban on wind energy development.
U.S. State PFAS Initiatives — A Conversation with Richard E. Engler, Ph.D. and Carla N. Hutton [Podcast]
This week, I discuss with my colleagues, Carla N. Hutton, Senior Regulatory Analyst for B&C, and Dr. Richard E. Engler, Director of Chemistry for B&C and The Acta Group (Acta®), our consulting affiliate, the ever-expanding and complicated scope of per- and polyfluoroalkyl substances (PFAS) regulation in the United States. We convened a webinar on this topic in mid-May and attracted a record-breaking 1000+ registrants, suggesting to us that PFAS continues to be a topic of enormous interest.
In our discussion, Carla, Rich, and I address the federal Toxic Substances Control Act (TSCA) reporting obligation and the diverse constellation of state-specific reporting and product restrictions that are mushrooming around the country. Keeping up with these restrictions is important and increasingly diverse and thus challenging to track and with which to comply. Our hope is our discussion will focus our listeners on this important, sprawling topic and offer some tips to help manage it.
April 2025 Bounty Hunter Plaintiff Claims
California’s Proposition 65 (“Prop. 65”), the Safe Drinking Water and Toxic Enforcement Act of 1986, requires, among other things, sellers of products to provide a “clear and reasonable warning” if use of the product results in a knowing and intentional exposure to one of more than 900 different chemicals “known to the State of California” to cause cancer or reproductive toxicity, which are included on The Proposition 65 List. For additional background information, see the Special Focus article, California’s Proposition 65: A Regulatory Conundrum.
Because Prop. 65 permits enforcement of the law by private individuals (the so-called bounty hunter provision), this section of the statute has long been a source of significant claims and litigation in California. It has also gone a long way in helping to create a plaintiff’s bar that specializes in such lawsuits. This is because the statute allows recovery of attorney’s fees, in addition to the imposition of civil penalties as high as $2,500 per day per violation. Thus, the costs of litigation and settlement can be substantial.
The purpose of Keller and Heckman’s Prop 65 Pulse is to provide our readers with an idea of the ongoing trends in bounty hunter activity.
Beyond the Headlines: Key Medicaid and Health Policy Changes You May Have Missed
On May 11, the House Energy and Commerce Committee released a detailed legislative text and a section-by-section summary of a broad health package affecting Medicaid, the Children’s Health Insurance Program (CHIP), ACA marketplace plans, and Medicare pharmacy benefit manager (PBM) oversight.
While high-profile elements related to Medicaid — such as proposed changes to provider taxes, noncitizen coverage, and Medicaid expansion populations — are drawing significant media attention, the legislation also contains several under-the-radar but consequential policies.
Program Integrity:
The legislation includes multiple provisions aimed at improving data accuracy and curbing waste, fraud, and abuse in Medicaid. These measures target administrative loopholes that have led to inefficiencies and duplicate spending. While these baseline oversight functions existed in different formats, they will now be uniform and codified:
Dual Enrollment Prevention: Requires a system that prevent individuals from being enrolled in more than one state’s Medicaid program at the same time.
Quarterly Death File Checks for Providers and Enrollees: States must conduct quarterly checks of both beneficiary and provider records against the Social Security Administration’s Death Master File. While many states already run monthly enrollee checks — particularly in managed care programs — this provision adds providers to the review process, helping further prevent erroneous payments.
Monthly Termination Checks: States must perform monthly cross-checks to identify providers who have been terminated by HHS or other states. Those flagged will be automatically disenrolled from Medicaid. Although the ACA required disenrollment of terminated providers, this new monthly verification requirement strengthens enforcement.
Regulatory Delays:
The legislative package includes targeted rollbacks or delays of rules introduced under the Biden administration:
Staffing Standards Moratorium for LTC Facilities: Implementation of federal staffing mandates for long-term care facilities will be delayed until January 1, 2035.
Delay in Streamlining Medicaid & MSP Eligibility: Proposed changes to streamline eligibility determinations for Medicaid and the Medicare Savings Program (MSP) will be delayed until January 1, 2035.
Medicaid Enrollment Rule Delay: Delays implementation of the federal rule aimed at streamlining eligibility and enrollment processes for Medicaid, CHIP, and the Basic Health Program until January 1, 2035.
Importantly, despite these delays, the Medicaid access-to-care rules remain intact, signaling continued federal emphasis on strengthening access and equity in care delivery.
Out-of-State Provider Enrollment
A standout provision for providers is the requirement that states create a streamlined enrollment process for out-of-state pediatric providers in Medicaid and CHIP. This change eliminates duplicative screening processes and lowers administrative barriers, making it easier for qualified providers to serve children across state lines.
This is a notable win for pediatric specialists and facilities that frequently treat children referred from other states, especially those with rare or complex conditions, and a step forward in improving continuity of care for medically vulnerable children.
Medicaid DSH Cuts Postponed
The bill postpones the scheduled $8 billion in annual Medicaid Disproportionate Share Hospital (DSH) cuts, originally set to begin in FY 2026, to FY 2029. This extension offers critical financial relief for safety-net hospitals and allows states more time to prepare budget adjustments.
Additionally, Tennessee’s DSH funding — previously set to expire at the end of FY 2025 — is extended through FY 2028, ensuring continued support for the state’s uncompensated care system.
As the legislative process moves forward, stakeholders should monitor implementation timelines, particularly around the program integrity provisions, and begin preparing systems and staff for compliance with new federal mandates.
Tax Revolution: Come Together for The One, Big, Beautiful Bill
On May 14, the US House Ways and Means Committee advanced its initial markup version of The One, Big, Beautiful Bill, following 17 hours of a Committee meeting to markup the bill with no changes from the 389-page text that was released on May 12.
The Ways and Means portion is part of a larger budget reconciliation bill that Congressional Republican leadership intends to finalize and send to the President’s desk by July 4. The legislation awaits further consideration in the US House of Representatives, with a Budget Committee markup now scheduled for Friday, and then eventually in the US Senate.
Accordingly, the legislative text of the Bill is likely to change, and the ultimate timing of a final reconciliation bill remains uncertain. For example, if the Senate modifies federal spending cuts elsewhere in the comprehensive budget reconciliation bill, it could impact the net revenue impacts of the legislation. With extremely narrow majorities in the House and Senate, just a few members can bring the process to a halt by withholding their support for provisions outside of the tax title or for the tax package itself. Thus, the tax provisions remain a moving target and may well merit advocacy by stakeholders who so far have not engaged with Congress. This client alert summarizes some of the key tax policy initiatives affecting for-profit, business enterprises that are addressed in the Bill and that could impact many industries, ranging from sports franchises to renewable energy.
Qualified Business Income (QBI) Deduction (Code Section 199A)
An individual may generally deduct 20% of qualified business income (QBI) earned through a disregarded entity, S corporation, or partnership. This QBI deduction is set to expire for taxable years beginning after December 31, 2025. The Bill proposes to make the QBI deduction permanent and increase the rate from 20% to 23% for taxable years beginning after December 31, 2025, among other changes, such as modifying the phase-in of certain limitations.
Permanent Elimination of Miscellaneous Itemized Deductions (Code Section 67(g))
The Bill proposes to completely repeal miscellaneous itemized deductions (making permanent the temporary suspension of these deductions under the 2017 Tax Cuts and Jobs Act).
SALT Cap
The Bill proposes to increase the current $10,000 cap on the deductibility of state and local taxes (set to expire on December 31, 2025) to $30,000 subject to phase-out for married filing jointly taxpayers with modified adjusted gross income (AGI) above $400,000 (with a lower $200,000 threshold for married individuals filing separately). For certain Republican House members, the SALT cap is a pivotal policy issue that will dictate their vote on the Bill. Thus, it is expected that this provision will be heavily negotiated among Republicans.
Bonus Depreciation (Code Section 168(h))
The Bill proposes to allow taxpayers to permanently deduct 100% of the cost of “qualified property” acquired on or after January 20, 2025. Under current law, taxpayers generally may deduct the costs incurred to acquire “qualified property” (i.e., equipment and machinery) used in a trade or business on an accelerated schedule. The accelerated schedule for such deductions is set to fully phase out in 2027.
Increase Expensing Limitations (Code Section 179)
The Bill proposes to expand expensing limitations on qualifying property by increasing (1) the $1,250,000 cap to $2,500,000 and (2) the phase-down threshold to $4,000,000. Under current law, taxpayers may elect to immediately expense 100% of the cost of certain qualifying property (i.e., machinery and equipment), instead of recovering those costs through depreciation. Current law imposes a $1,250,000 cap on such expensing, with a phase-down beginning once the qualifying property costs exceeds $3,130,000.
Research and Experimental Expensing (Code Section 174)
The Bill proposes to allow taxpayers to deduct 100% of expenditures incurred with respect to research and experimental activities conducted in the United States beginning after December 31, 2024, and before January 1, 2030. Under current law, taxpayers are required to amortize expenditures incurred with respect to research and experimental activities conducted in the United States over a five-year period, with expenditures attributed to research conducted outside the United States subject to a longer 15-year amortization schedule.
Interest Deductions (Code Section 163(j))
The Bill proposes to expand a taxpayer’s ability to deduct business interest expense. Under current law, a taxpayer’s business interest expense deduction generally is capped at the sum of (1) business interest income for the taxable year or (2) 30% of adjusted taxable income (i.e., the taxpayer’s earnings before interest and taxes (EBIT)), plus (3) “floor plan financing interest” for the taxable year (generally, interest with respect to debt incurred to finance motor vehicles held in inventory for sale or lease to customers). The Bill proposes to expand the limit on deductible interest expense by revising the definition of adjusted taxable income to equal the taxpayer’s EBITDA (earnings before interest, taxes, depreciation, and amortization), thereby allowing for larger interest deductions. The Bill also would include in the calculation of the cap any floor plan financing interest for certain trailers and campers designed to be towed by or affixed to a motor vehicle.
Special Depreciation for Qualified Production Property
The Bill proposes to allow taxpayers to deduct 100% of the cost of “qualified production property” in the year such property is placed in service. Qualified production property generally would include depreciable property that is used by the taxpayer as an integral part of a “qualified production activity” (the manufacturing, production, or refining of tangible personal property). In effect, the Bill would allow taxpayers to immediately deduct 100% of the cost of certain new factories and improvements to existing factories and certain other structures, a significant change from the current law, under which taxpayers generally are required to deduct the cost of nonresidential real property over a 39-year period.
Qualified Opportunity Zones (QOZ) (Code Section 1400Z-2)
Under current law, taxpayers may invest capital gains into qualified opportunity zones and (1) defer the recognition of those gains until December 31, 2026, and (2) exclude from taxation the gains generated from the sale of certain qualified opportunity zone (QOZ) property that has been held for at least 10 years. Investments made after December 31, 2026, are not eligible for such QOZ tax benefits. The Bill proposes to reopen the QOZ program by extending tax benefits to investments made after January 1, 2027, and before December 31, 2033. The Bill also proposes several modifications to the QOZ program. It would establish a process for re-designating QOZs and would require certain rural areas to be designated as QOZs. Additionally, it would provide a 20% step-up in basis for investments in rural QOZs that meet certain holding-period requirements, allow taxpayers to invest up to $10,000 of after-tax ordinary income into QOZs and reduce the rehabilitation cost requirements for investments in rural QOZ areas.
Exclusion of Interest on Loans Secured by Rural or Agricultural Real Estate
The Bill proposes to create a new 25% exclusion of interest income for certain loans secured by qualifying rural or agricultural real estate.
Limitation on Amortization of Sports-Related Intangibles (Code Section 197)
The Bill proposes to limit the amortization of intangible property (e.g., goodwill) of sports franchise businesses to 50% of the cost basis of such intangible property. Under current law, when a buyer acquires a sports franchise business, the buyer generally is able to amortize 100%of the acquired goodwill of the sports franchise over 15 years.
Termination of Certain Energy Tax Credits
The Bill proposes to terminate the following energy tax credits, effective December 31, 2025: the previously owned clean vehicle credit (Code Section 25E), the clean vehicle credit (Code Section 30D), the qualified commercial clean vehicles credit (Code Section 45W), the alternative fuel vehicle refueling property credit (Code Section 30C), and the clean hydrogen production credit (Code Section 45V), (with respect to the clean hydrogen production credit, for facilities the construction of which begins after December 31, 2025).
Phase-Out and Restrictions on the Clean Electricity Production Credit (Code Section 45Y) and the Clean Electricity Investment Credit (Code Section 48E)
The Bill proposes to phase out the clean electricity production credit (i.e., the new Production Tax Credit or PTC) and the clean electricity investment credit (i.e., the new Investment Tax Credit or ITC) as follows: a 20% credit reduction for facilities placed in service in 2029, a 40% reduction for facilities placed in service in 2030, a 60% reduction for facilities placed in service in 2031, and complete phaseout after December 31, 2031.
Repeal of “Transferability” of Certain Clean Energy Tax Credits
The Bill proposes to repeal “transferability” (i.e., a new method of credit monetization created under the Inflation Reduction Act) of various clean energy tax credits generally with effect for facilities placed in service after December 31, 2027, and certain other types of credits generated after 2027. Affected credits include the Clean Electricity Production Credit (Code Section 45Y), the Clean Electricity Investment Credit (Code Section 48E), the Clean Fuel Production Credit (Code Section 45Z), Zero-Emission Nuclear Power Production Credit (Code Section 45U), Carbon Oxide Sequestration Credit (Code Section 45Q), the Advanced Manufacturing Production Credit (Code Section 45X), and the Energy Credit (Code Section 48).
Restrictions on Certain Energy Tax Credits for Taxpayers Connected with Certain Foreign Entities
The Bill also proposes to restrict eligibility for certain energy tax credits for taxpayers connected with certain foreign entities (i.e., “foreign entities of concern” and certain other foreign entities). Affected credits include the Clean Electricity Production Credit (Code Section 45Y), the Clean Electricity Investment Credit (Code Section 48E), the Clean Fuel Production Credit (Code Section 45Z), Zero-Emission Nuclear Power Production Credit (Code Section 45U), Carbon Oxide Sequestration Credit (Code Section 45Q), the Advanced Manufacturing Production Credit (Code Section 45X), and the Energy Credit (Section 48).
Phase-Out of Zero-Emission Nuclear Power Production Credit (Code Section 45U)
The Bill proposes to phase out the zero-emission nuclear power production credit (Code Section 45U) as follows: 20% credit reduction for electricity produced in 2029, a 40% reduction for electricity produced in 2030, a 60% reduction for electricity produced in 2031, and no credit available after December 31, 2031.
Phase-Out of Advanced Manufacturing Production Credit (Code Section 45X)
The Bill proposes to eliminate the advanced manufacturing production credit (Code Section 45X) for wind energy components sold after December 31, 2027, and eliminates the credit for all other components sold after December 31, 2031.
Phase-Out of Credit for Certain Energy Property (Code Section 48)
The Bill proposes to phase out the energy property credit (Code Section 48) with respect to geothermal heat pump property as follows: the base credit for geothermal heat pump property that begins construction after December 31, 2029, and before January 1, 2031 is 5.2%; the base credit for geothermal heat pump property that begins construction after December 31, 2030, and before January 1, 2032 is 4.4%; and complete phaseout for geothermal heat pump property that begins construction on or after January 1, 2032.
The House Ways and Means markup has produced a tax rewrite that better reflects the politics of reconciliation than the ideal of tax policy. Ultimately, the Ways and Means legislation will face a buzz saw of parochial roadblocks, like the SALT dispute, before the Senate offers its perspective. If this reconciliation bill passes, it will likely contain something close to this.
– Phil English, Former Ways and Means Committee member
Rachel Scott , Jivesh Khemlani , William R. Mitchell , and Philip S. English also contributed to this article.
Public Finance Provisions in the House Tax Bill Impacting Municipal Market Participants
The House Committee on Ways and Means advanced a tax bill on May 14, 2025, as part of the budget reconciliation legislation aimed at enacting the Trump administration’s fiscal priorities. Notably, the proposed legislation does not eliminate or limit the exclusion of interest from gross income for federal income tax purposes for any class of municipal bonds. Among the proposed changes to current tax law, the bill includes provisions impacting the municipal market and its participants that would:
i.
enhance the low-income housing tax credit,
ii.
increase the rate of, and the range of institutions subject to, the endowment tax added in 2017,
iii.
make technical amendments to the small issue manufacturing bond provisions, and
iv.
curtail the continued availability of clean energy credits for new projects.
Low-Income Housing
The bill proposes several changes to the low-income housing tax credit program, including:
Temporarily lowering the tax-exempt bond-financing requirement for projects using the “4%” low-income housing tax credit to 25% of the project’s aggregate basis, down from the current 50%. This lower threshold would apply to buildings placed in service after Dec. 31, 2025, where at least 5% of the financing is sourced from bonds issued between Dec. 31, 2025, and Jan. 1, 2030.
Increasing the ceiling on housing tax credits allocable by states by 12.5% for calendar years 2026 through 2029.
Raising the eligible basis for buildings placed in service between Dec. 31, 2025, and Jan. 1, 2030, by up to 30% for projects in rural and Indian areas, as defined under section 4(11) of the Native American Housing Assistance Self Determination Act of 1996.
Endowment Tax
The proposed legislation includes changes to the excise tax imposed on private colleges, universities, and foundations:
Increasing the excise tax rate for private colleges and universities with endowments of more than $750,000 per eligible student from the current flat rate of 1.4% to an annual rate ranging between 7% and 21%, depending on the institution’s student-to-endowment value ratio.
Narrowing the definition of eligible students to those meeting the student eligibility requirements under section 484(a)(5) of the 7 Higher Education Act of 1965, generally limited to U.S. citizens and permanent residents.
Including income derived from student loan interest and royalties from federally subsidized research in the calculation of net investment income subject to the excise tax.
Exempting certain religiously affiliated colleges and universities from the endowment tax.
Raising the excise tax rate on private foundations’ net investment income from the current flat rate of 1.39% to an annual rate of up to 10% for private foundations with assets of at least $5 billion.
Small Issue Bonds
The bill proposes technical changes to Section 144 of the Internal Revenue Code to reflect updates made to the capitalization of certain startup costs.
Clean Energy Tax Credits
The bill aims to accelerate the phase-out and termination of various clean energy tax credit programs:
Gradually phasing out the 48E Investment Tax Credit and 45Y Production Tax Credit starting in 2029, with full elimination by 2032.
Repealing the transferability of credits for projects commencing construction after Dec. 31, 2027, and clean fuel production starting after the same date.
Terminating tax credits for electric vehicles and chargers sold or placed in service after Dec. 31, 2025, with limited exceptions.
Next Steps
The reconciliation bill, including these tax provisions, will be consolidated by the House Budget Committee and subsequently reviewed by the Rules Committee before consideration on the House floor. Once passed, the bill will require approval by both chambers of Congress, with differences resolved before enactment. The legislative process may bring changes to these tax provisions.
New White House Guidance Moves ‘Social Cost of Carbon’ Metric to Side Burner
For decades, regulators have tried to quantify harm related to emissions, including the “social cost of carbon” (SCC), but that approach has now changed. The Trump Administration recently released a memorandum seeking to discontinue regulatory use of SCC except as required by law.
The guidance, available here, entitled “Guidance Implementing Section 6 of Executive Order 14154, Entitled ‘Unleashing American Energy’” states that regulators have frequently used SCC where not explicitly required by statute and that the Administration has already pared back many of those programs.
Below, we will describe SCC, discuss how prior Administrations addressed it, and outline issues the regulated community should watch for in coming years.
What Is in the Guidance?
The new Guidance — issued by the White House in consultation with the Environmental Protection Agency (EPA) — initially states that “calculation of the social cost of carbon ‘is marked by logical deficiencies, a poor basis in empirical science, politicization, and the absence of a foundation in legislation.’” (For more on “Unleashing American Energy,” see here.) The Guidance continues by elaborating on Section 6’s requirements:
That situations “where agencies will need to engage in monetized greenhouse gas emission analysis will be few to none.”
That where legally required to calculate estimates, regulatory personnel should be guided by the 2003 Circular A-4, and not by the 2023 replacement.
That any regulatory or permitting analysis should be limited to “the minimum consideration required to meet a statutory requirement” and that agencies should consult with EPA to see what this entails.
That no “Supreme Court case law of which OIRA or the EPA is aware provides that greenhouse gas emissions must be quantified or that agencies must monetize the impact of such quantifications in connection with any particular statutory regime or as a general matter” and that agencies should consult with the US Department of Justice (DOJ) if lower court decisions appear to require quantification to ascertain whether agencies should deploy the “nonacquescence” doctrine.
That quantification of SCC can be uncertain and misleading due to reasons ranging from climate changes having multiple factors to changes in world birth rates to disputes over the appropriate discount rates to deploy.
What Is SCC?
The SCC is a metric used to quantify the economic damages associated with an incremental increase in carbon dioxide emissions in a given year. It represents the monetary value of the long-term harm caused by a ton of carbon dioxide emissions, including impacts on agriculture, health, property damages from increased flood risk, and changes in energy system costs. While controversial, SCC has been crucial for policymaking, helping governments and organizations assess the benefits of reducing emissions versus the costs. By incorporating SCC into decision-making, regulators are able to guide investments and regulations toward more sustainable and climate-friendly practices.
History of SCC
The primary tool regulators use to estimate the cost and benefits of regulation is called Circular A-4. This and other tools are often widely debated and contentious. Key precedent here includes the Clinton Administration’s 1993 Executive Order instructing agencies to “assess all costs and benefits of available regulatory alternatives, including the alternative of not regulating [when] deciding whether and how to regulate.”
Subsequent Administrations implemented the Clinton Executive Order under the George W. Bush Administration’s 2003 Circular A-4, which compelled agencies to measure and report the “benefits and costs of Federal regulatory actions” using a standard set of metrics. Relevant here, Circular A-4 instructs agencies to use both a 3% and 7% discount rate when conducting regulatory analyses and to consider domestic, and not global, costs and benefits.
The Obama Administration was the first to directly consider the “social cost of carbon” in 2009. While it purported to follow guidance contained in Circular A-4, it rejected the use of both 3% and 7% discount rates as well as consideration of only domestic effects based on the global impact of carbon dioxide emissions. (See here.) After the first Trump Administration halted these efforts, the Biden Administration reinstated them through its own Executive Order. After a Louisiana District Court struck down the Biden Administration’s efforts citing the “major questions doctrine,” in 2022, the Fifth Circuit overturned this decision and permitted the Biden Administration to return the metric to use. In 2023, The Biden Administration proposed further modifications to Circular A-4. (For more see here.) After the Trump Administration took office in January, it sought to rescind the Biden Administration’s changes and claimed to revert to the 2003 version.
What to Watch
The Trump Administration’s SCC efforts focus on these themes:
SCC and “Energy Dominance”
TheTrump Administration’s energy policies emphasize increased development of fossil fuels driving down per-unit costs of energy even if energy consumption were to increase. Accounting for carbon costs could serve to make fossil fuels appear more costly and less viable as regulatory analyses would need to factor in costs associated with climate change which are believed to follow from fuel use. (For more see here and here.)
“Nonacquiescence”
The guidance invokes the legal “nonacquiescence” doctrine in which agencies assert that court decisions which are incongruent with agency preferences are nonbinding. This note builds on both the “Unleashing America Energy” Executive Order and the Trump Administration’s April suite of actions, which call for agencies to search out for escape hatches for regulations determined to be inconsistent with Administration priorities.
SCC and Deregulation
The effort to deemphasize calculation of SCC is consistent with other recent “deregulatory” developments including directing the DOJ to evaluate whether state energy-related actions interfere with federal priorities, moving toward “zero-based” regulatory budgeting including far broader incorporation of regulatory sunset provisions which terminate regulations after relatively short periods of time, and directing agencies to take a hard look at regulations to assess whether they were inconsistent with US Supreme Court precedent. (For more see here.)
Deemphasized Climate Data
Finally, the SCC guidance was released on the heels of news accounts indicating that federal regulators including the National Oceanic and Atmospheric Administration (NOAA) would no longer track the cost of climate-fueled weather events like floods, heat waves, and wildfires. In a statement released with this policy change, NOAA indicated that the change was “in alignment with evolving priorities, statutory mandates, and staffing changes.”
EPA Denies TSCA Section 21 Petition Concerning Prohibition of Hydrogen Fluoride in Domestic Oil Manufacturing
As reported in our February 14, 2025, blog item, on February 11, 2025, community and environmental groups submitted a petition under Section 21 of the Toxic Substances Control Act (TSCA) to the U.S. Environmental Protection Agency (EPA) to prohibit the use of hydrogen fluoride in domestic oil refining “to eliminate the extreme and unreasonable risks this use presents to public health and the environment.” On May 12, 2025, EPA denied the petition, stating that the request to initiate a proceeding for a TSCA Section 6(a) rule is deficient. EPA notes that the releases are described as “catastrophic, accidental, and worst-case scenarios, as well as circumstances involving extreme weather and natural disaster events.” EPA states that it has consistently maintained that “it is not appropriate for a risk evaluation in accordance with TSCA section 6(b) to consider catastrophic or accidental releases, extreme weather events, and natural disasters that do not lead to regular and predictable exposures.” According to EPA, the petition does not establish unreasonable risk under the conditions of use of using and distributing in commerce hydrogen fluoride for domestic refining, and, “[b]y extension, the petition’s claim that governmental authorities and industry programs cannot eliminate such unreasonable risk is moot.” EPA has posted a pre-publication version of a Federal Register notice announcing its decision.
Pennsylvania PUC Reviews Data Center Impacts Amid New Energy Plan
Key Takeaways:
During a recent Pennsylvania Utility Commission (PUC) hearing to evaluate how the rise in data centers is impacting energy demand, grid reliability and utility regulation, stakeholders emphasized fair cost allocation for infrastructure, opposing special treatment for data centers and favoring standard tariff processes.
Primary concerns include infrastructure investment and cost allocation, generation and reliability issues, and tariff design.
Six proposed bills in connection with Governor Shapiro’s “Lightning Plan” were unveiled on the same day of the PUC hearing, aimed at modernizing Pennsylvania’s energy landscape through a carbon cap-and-invest program, expanded clean energy targets, streamlined project approvals, infrastructure tax incentives, support for rural and low-income communities, and enhanced energy efficiency rebates.
As data centers surge across Pennsylvania, the PUC is taking a closer look at their impact on energy systems and regulatory oversight. At the same time, Governor Shapiro’s Lightning Plan proposes sweeping changes to modernize the Commonwealth’s energy systems, setting the stage for potential shifts in utility law and oversight. This update explores the legal context, policy drivers and impacts that may emerge from the intersection of infrastructure growth and state energy policy.
On April 24, 2025, the PUC convened an en banc hearing to address the growing impact of data centers and other large electricity consumers on the state’s power grid. In the Motion calling for the hearing, the Chair recognized what has been a running theme across the nation for large load consumers and developers looking to attract data centers — uncertainty regarding both the interconnection timeline and the costs these users will face to procure power in the Commonwealth.
The hearing brought together stakeholders from tech, public utility and consumer advocacy groups to discuss the opportunities presented by the rapid expansion of energy-intensive facilities and the challenges posed by the new demand on the grid. The testimony bore out three primary themes: (1) generation and reliability concerns, (2) infrastructure investment and cost allocation and (3) tariff design.
Infrastructure and Cost Allocation
Fair cost allocation was articulated as a priority by utility and data center panelists alike. The utilities explained in detail how their large load interconnection process works, including how infrastructure investment costs specific to large load customers are allocated. Panelists encouraged the PUC to avoid the creation of a data center customer class and instead rely on cost-of-service studies and rate case proceedings to ensure transparency and that proper allocation of costs to data center customers. This would mean that data centers would be customers under tariffs and not under special contracts, which are often filed for commission approval on a confidential basis.
Tariff Design
The panelists expressed differing views around a model tariff versus a policy statement. Some panelists advocated for a policy statement citing concerns around changes in the market and the potential of a model tariff that is too restrictive or cannot adapt to a changing environment. Others, particularly the statutory advocates, believe a model tariff will level the playing field for utilities serving data centers and not force the utilities to compete against each other in attracting them.
Commissioner Zerfuss noted at the end of the utility panel that she saw no difference between a model tariff and a policy statement, as both would be considered recommendations and not mandates.
Generation and Reliability
With the anticipated surge in electricity demand, the PUC acknowledged the strain on the existing grid infrastructure. The PUC emphasized that simply building more generation or transmission facilities may not suffice, advocating for a diversified approach that includes load management and demand response strategies. Panelists discussed the concept of a “bring your own generation” (BYOG) model, where data centers would provide their own power generation infrastructure, such as solar panels or wind turbines, to support their primary generation needs.
From a regulatory compliance perspective, BYOG could convert a data center to a utility, thus obligating compliance with a host of utility regulations. While some data centers are already navigating complex FERC guidelines resulting from recent FERC orders allowing them to monetize their on-site generation, a BYOG data center could also be subject to grid interconnection laws, energy trading restrictions and local zoning laws around where on-site generation can be located. It remains unclear whether BYOG would slow the development of data centers in the Commonwealth given the potential regulatory and legal obstacles that the data centers may face. There is a possibility, however, that the legal framework may change because of Governor Shapiro’s “Lightning Plan.”
The Lightning Plan
On the day of the PUC hearing, Governor Josh Shapiro’s Lightning Plan was introduced into the General Assembly through six pieces of legislation.
The Pennsylvania Climate Emissions Reduction Act (PACER) (HB 503) introduces a cap and invest program requiring power plants to pay for their carbon emissions with 70 percent of the revenues funneled back to consumers through utility bill rebates and the rest funding low-income assistance and clean energy initiatives.
The Pennsylvania Reliable Energy Sustainability Standard (PRESS) (HB 501) aims to increase the Commonwealth’s clean energy requirement from eight to 35 percent by 2035.
The Pennsylvania Reliable Energy Siting and Electric Transition (RESET) Board (HB 502) would expedite energy project approvals by streamlining the siting and permitting process in the Commonwealth, which is one of only 12 states without a state siting and permitting entity for such projects.
Improvements to the EDGE Tax Credit (HB 500) would add tax incentive credits for investment in energy infrastructure, including up to $100 million annually for new power plants over three years.
The community energy bill (HB 504) would support rural communities, farmers and low-income residents by promoting shared energy resources — such as methane digesters on farms — to reduce energy costs.
Modernizing energy efficiency in the Commonwealth (HB 505) through an amendment to Act 129 would provide more money to consumers in the form of rebates and incentives for buying energy efficient appliances.