SEC Asks Court to Put Climate Change Litigation on Hold
As previously reported in our last post, The Fate of the New U.S. Climate Change Rules Under the New Republican Administration, legal challenges to the SEC’s rules mandating extensive new climate change disclosure is ongoing in the 8th Circuit U.S. Court of Appeals, and has been fully briefed and awaiting oral arguments.
Today, the Acting Chairman of the SEC reiterated his prior position that the agency lacked authority to promulgate the rules, and announced that he would ask the court to pause the litigation so that the SEC can consider its next steps. The Acting Chairman likely wishes to await Senate confirmation of the permanent Chairman before taking action. It remains unclear what the SEC will ultimately do, although today’s announcement suggests that the SEC would likely withdraw the new rules in due course. If the SEC decides to materially amend the rules, in light of international pressure, it would withdraw the current rules and re-commence the process for issuing new rules.
Doubt as to the future of the SEC’s climate disclosure rules is likely to accelerate efforts in some states to follow California’s lead and adopt their own rules. For further information on California climate change rules, please see here: Climate Reporting in 2025: Looking Ahead
California’s Fashion Environmental Accountability Act: Proposed Regulations for Sustainability in the Fashion Industry
Fashion Industry
On February 4, 2024, California legislators introduced a bill, the Fashion Environmental Accountability Act (AB 405), which would require fashion brands to disclose their environmental impact, carbon emissions, water use, and waste. The proposed regulation would apply to brands with total annual revenue over $1 billion and that do business in California. The law would not apply to retailers that sell used fashion goods and does not include multibrand retailers, unless the total annual gross receipts of all of the private labels under the retailer exceeds $100 million.
Starting in 2026, fashion brands would be required to publicly disclose, and annually thereafter, their scope 1 and scope 2 greenhouse gas emissions, and their scope 3 greenhouse gas emissions in 2027.
Additionally, the proposed bill would require fashion brands to carry out effective environmental due diligence that complies with certain environmental guidelines. These guidelines, at a minimum, require fashion brands to embed responsible business conduct into their policies and management systems, identify areas of significant risk for societal and ecological harm, and assess and mitigate the adverse impacts of those risks. Beginning July 1, 2027, the bill would also require brands to submit an Environmental Due Diligence Report to the department and state board, outlining their environmental diligence efforts and certain information related to their greenhouse gas emissions. By January 1, 2028, fashion sellers will also be required to ensure significant tier 2 dyeing, finishing, printing, and garment washing suppliers annually report wastewater chemical concentrations and water usage in the due diligence report.
AB 405 now awaits referral to its first policy committee. This proposed legislation appears to be part of a broader effort to address the environmental impacts of the fashion industry, as California has already passed and signed into law the Responsible Textile Recovery Act (SB 707) on September 22, 2024.
Calling All Apprentices: National Guidelines for Apprenticeship Standards Approved by DOL for Renewable Energy Projects
Nearly two and a half years after the Inflation Reduction Act of 2022 (IRA) became law, developers and contractors continue to adjust to the new normal for renewable energy projects: compliance with prevailing wage and apprenticeship requirements. As most renewable industry participants are aware, under the IRA, compliance with these requirements is necessary to realize the full value of federal investment tax credits, production tax credits, and commercial buildings’ energy efficiency tax deductions.
On January 13, 2025, the U.S. Department of Labor certified National Guidelines for Apprenticeship Standards, developed jointly by the Interstate Renewable Energy Council (IREC) and the Solar Energy Industries Association (SEIA). The first set of guidelines are for the occupation of construction craft laborer, but guidelines for other occupations commonly utilized by solar companies are under development.
The new guidelines establish a framework for developing registered apprenticeship programs that will have common standards to ensure that apprentices across the country receive a baseline of similar education and training, while also providing space for any specific training required by a geographic area. They are presented as “a blueprint for developing an apprenticeship program” and focus on the following eight components:
The Apprenticeship Approach – utilizes a time-based approach (as opposed to competency-based or hybrid) focusing on the apprentice’s skill acquisition through completion of on-the-job learning and related instruction tasks and corresponding hour requirements.
Term of Apprenticeship – establishes the duration — number of hours of on-the-job learning (2000 hours annually; 4000 hours total) and related instruction (144 hours annually; 300 hours total) — that must be completed by an apprentice to complete the program.
Ratio of Apprentices to Journey workers – uses a 1:1 apprentice-to-journey worker ratio (this may vary by project location and state law).
Apprentice Wage Schedule – provides a general template for wage increases at defined intervals as apprentices progress through the program and gain knowledge/skills (to be filled in by a registered apprenticeship program sponsor).
Probationary Period – notes that programs should require a probationary period that should not exceed the lesser of one year or 25% of the apprenticeship term (term to be filled in by a registered apprenticeship program sponsor).
Selection Procedures – notes that program sponsors have flexibility to determine selection procedures so long as they are consistent with general nondiscrimination obligations and federal Uniform Guidelines on Employee Selection Procedures (i.e., no discrimination based on race, color, religion, national origin, sex, sexual orientation, genetic information, disability or age, and compliance with equal opportunity requirements of Title 29 of the CFR, part 30).
Work Process Schedule for On-the-Job Learning – outlines a work process schedule for on-the-job learning tasks to be completed by apprentices to demonstrate proficiency that must be satisfied before a completion certificate can be awarded. For construction craft laborers, supervised work experience is devoted to safety and work habits (400 hours), use and care of tools/equipment (600 hours), construction activities (2,000 hours), preparation and quality assurance (600 hours), and code/drawing review and utilization (400 hours).
Related Instruction – describes coursework on theoretical and technical subjects to be completed by apprentices (minimum of 175 hours of core skill training and 125 hours of elective coursework). Solar-specific instruction in the elective section includes 20 hours for introduction to solar construction, 10 hours for solar site assessment study, 40 hours on solar design and installation, eight hours on utility vegetation management, four hours on erosion control, 20 hours on renewable energy systems, and eight hours on battery basics. It provides for other educational methods, including classroom/online/self-study courses for apprentices (each program must include at least 144 hours of related instruction annually).
Overall, the National Guidelines for Apprenticeship Standards provide additional, practical guidance and support for contractors committed to creating high-quality apprenticeship programs compliant with IRA requirements.
PFAS and Consumer Class Actions: The New Wave of PFAS Litigation
With a new year has come a new wave of litigation involving PFAS (per- and poly-fluoroalkyl substances), also known as “forever chemicals.” While PFAS litigation up to this point has often involved either claims of personal injury or those concerning damage to natural resources and municipal water systems, an increasing trend of class actions is emerging implicating consumer protection laws. Recently, several large companies in the United States dealing in consumer goods have found themselves the targets of class action suits brought by plaintiffs asserting claims of consumer fraud involving PFAS.[1] The allegations asserted in these suits have a common thread in that the plaintiffs are arguing that the presence of PFAS in certain of the companies’ products was never disclosed to the consumer. The plaintiffs are, therefore, seeking to prohibit these companies from allegedly making misleading advertisements or selling these products without proper disclosures in the future.
“Forever Chemicals” Everywhere
These cases result from an increased awareness of PFAS, their wide range of uses and presence in daily life, and their alleged association with negative health and environmental effects. However, it is the widespread use of PFAS that could lead to a significant increase in consumer protection claims, as PFAS can be found in everything from clothing to furniture, pizza boxes and food wrappers, our cellphones, pots and pans, mattress pads, household dust, and even in every drop of rain.
A New Trend
Over the past couple of years, these types of lawsuits have been growing and diversifying in terms of the targeted industries. Since 2022, class action consumer lawsuits involving PFAS have been brought in courts across the country (i.e., New York, New Jersey, Illinois, California, etc.) against numerous entities in the cosmetics industry; the food, beverage and packaging industries; apparel companies; and those dealing with both regular and feminine hygiene products.[2]
Furthermore, a recent increase in legislation aimed at eliminating or at least limiting PFAS from consumer products is likely to fuel continued litigation. Over the past few years, more than 20 states, including Maine, Minnesota, and California, have enacted or are in the process of enacting consumer protection legislation addressing PFAS. At the federal level, the Toxic Substances Control Act (“TSCA”) now imposes record-keeping and reporting requirements on companies that manufacture, import, and sell products containing PFAS in the United States.
Although there has been an increase in these types of cases, many of the class actions related to PFAS consumer fraud claims have been dismissed by different courts, often either on the basis of a failure to state a claim when the specific PFAS compound at issue was not identified, or because the complaint did not establish the plaintiff’s reasonable reliance on the alleged deceptive representations.
Despite these dismissals, however, plaintiffs are not being deterred. With each dismissal, the plaintiffs’ bar is adapting and becoming more sophisticated and, thus, new lawsuits with more facts and more specific representations concerning PFAS are more likely to survive early dismissals as has been seen recently with several California cases where the courts denied motions to dismiss on the basis that consumers rely on a manufacturer’s health and wellness statements when making purchasing decisions.[3] Therefore, while early losses for plaintiffs may have originally stemmed the tide of mass PFAS consumer class actions, numerous cases are now working their way through the courts and are far more prepared for defensive challenges.
Conclusion
Considering that many states are in the process of enacting legislation responsive to PFAS, and that there is still no federal law banning the manufacture or sale of consumer products containing PFAS, the increase in related consumer class actions is all but guaranteed to continue. Therefore, those in the consumer goods industries, including their insurers and investment companies, will need to keep a close eye on this emerging trend and potentially put litigation risk mitigation plans in place in the event the trend continues to grow. These mitigation plans could include providing notice of PFAS in product labeling and any marketing strategies to ensure appropriate disclosure, finding suitable substitutes for PFAS where possible, and retaining firms like Blank Rome with significant experience in PFAS matters and defending class action suits. There is still much to be determined, but we will continue monitoring this emerging litigation trend closely.
[1] See Brown v. Cover Girl; Davenport v. L’Oreal; Azman Hussain v. Burger King; Bedson v. Biosteel; Esquibel v. Colgate-Palmolive Co.; Gemma Rivera v. Knix Wear Inc.; Anthony Ray Gonzalez v. Samsung Electronics America, Inc.; Dominique Cavalier and Kiley v. Apple Inc.
[2] See natlawreview.com/article/apples-pfas-consumer-fraud-lawsuit-latest-growing-trend
[3] See id.
EPA Postpones Addition of Nine PFAS to Toxics Release Inventory for Reporting Year 2025
On February 5, 2025, the U.S. Environmental Protection Agency (EPA) delayed until March 21, 2025, the effective date of a January 2025 rule adding nine per- and polyfluoroalkyl substances (PFAS) to the list of chemicals subject to toxic chemical release reporting under the Emergency Planning and Community Right-to-Know Act (EPCRA) and the Pollution Prevention Act (PPA). 90 Fed. Reg. 9010. As reported in our January 13, 2025, blog item, the January rule updates the regulations to identify nine PFAS that must be reported pursuant to the National Defense Authorization Act for Fiscal Year 2020 (FY2020 NDAA). The PFAS added to the Toxics Release Inventory (TRI) are:
Ammonium perfluorodecanoate (PFDA NH4) (Chemical Abstracts Service Registry Number® (CAS RN®) 3108-42-7);
Sodium perfluorodecanoate (PFDA-Na) (CAS RN 3830-45-3);
Perfluoro-3-methoxypropanoic acid (CAS RN 377-73-1);
6:2 Fluorotelomer sulfonate acid (CAS RN 27619-97-2);
6:2 Fluorotelomer sulfonate anion (CAS RN 425670-75-3);
6:2 Fluorotelomer sulfonate potassium salt (CAS RN 59587-38-1);
6:2 Fluorotelomer sulfonate ammonium salt (CAS RN 59587-39-2);
6:2 Fluorotelomer sulfonate sodium salt (CAS RN 27619-94-9); and
Acetic acid, [(γ-ω-perfluoro-C8-10-alkyl)thio] derivs., Bu esters (CAS RN 3030471-22-5).
In the February 5, 2025, notice, EPA states that it is delaying the effective date of the rule in response to President Trump’s January 20, 2025, memorandum entitled “Regulatory Freeze Pending Review.” The memorandum directed the heads of executive departments and agencies to consider postponing for 60 days from the date of the memorandum the effective date for any rules published in the Federal Register that had not yet taken effect for the purpose of reviewing any questions of fact, law, and policy that the rules may raise.
EPA Administrator Zeldin Announces Five Pillar Initiative to Guide EPA; What Does It Mean for OCSPP?
U.S. Environmental Protection Agency (EPA) Administrator Lee Zeldin on February 4, 2025, announced the “Powering the Great American Comeback Initiative” (PGAC Initiative). It consists of five pillars and is intended to serve as a roadmap to guide EPA’s actions under Administrator Zeldin.
The five pillars are:
Clean Air, Land, and Water for Every American;
Restore American Energy Dominance;
Permitting Reform, Cooperative Federalism, and Cross-Agency Partnership;
Make the United States the Artificial Intelligence Capital of the World; and
Protecting and Bringing Back American Auto Jobs.
Administrator Zeldin explained Pillar 3 by stating, “Any business that wants to invest in America should be able to do so without having to face years-long, uncertain, and costly permitting processes that deter them from doing business in our country in the first place.” [Emphasis added.] We agree and would urge Administrator Zeldin to consider the years-long new chemical approval process under the Toxic Substances Control Act (TSCA).
There has been much discussion about the Trump Administration’s desire to reduce the size of the government by reducing the federal workforce and restore common sense to the decision-making process. What is getting lost in the discussion and actions taken to “right-size” the government is that chemical manufacturers and formulators rely on EPA action to bring new products to market. The public seldom hears about how agencies like EPA play a vital role in promoting innovation and supporting job creation. Instead, political rhetoric has been about reducing agency headcounts and budgets, but not enough about how to improve agency performance and efficiency.
This is not new. Dr. Richard Engler and I wrote in November 2024 about the newly unveiled Department of Government Efficiency (DOGE), “If DOGE can identify ways to improve the operation and efficiency of [EPA’s Office of Chemical Safety and Pollution Prevention (OCSPP)] (e.g., by ensuring appropriate resources and updated technology), this could lead to economic gains, greater investment, innovation, and sustainability, and yes, more jobs in the United States.” I would expand what we wrote in November to include the PGAC Initiative.
American businesses need OCSPP, a critically important EPA office charged with conducting safety reviews of existing products and the gatekeeper for new chemical products, to be properly resourced (with funds, people, and technology), operate efficiently and effectively, and be held accountable for performance. If the PGAC Initiative and DOGE efforts lead to OCSPP’s proper resourcing, it would go a long way in reversing the trend of fewer new chemicals being submitted to EPA for approval in the United States and reducing the commercialization of innovative new chemistries overseas instead of here in the United States.
McDermott+ Check-Up: February 7, 2025
THIS WEEK’S DOSE
Key Nominations Move Forward. Having advanced from the Senate Finance Committee this week, Robert F. Kennedy Jr.’s nomination for secretary of Health & Human Services will now go to the Senate floor.
Pathway on Reconciliation Is Uncertain. While the House Budget Committee was expected to start the reconciliation process this week with a markup of a budget resolution, that did not happen.
House Energy & Commerce Health Subcommittee Holds Hearing on Drug Threats. Members examined solutions to the opioid crisis.
Trump Issues EO Modifying the Regulatory Process. The executive order (EO) calls for fewer regulations and rescinds changes to the regulatory cost-benefit analysis.
Administration Modifies Public Health Data. The Centers for Disease Control & Prevention scrubbed its websites of mentions of gender identity and diversity, equity, and inclusion.
Legal Challenges Continue in Response to Trump Administration Actions. Federal judges have taken additional actions to block efforts to freeze certain federal funding, and a lawsuit was filed in response to a Trump EO on care for transgender youth.
CONGRESS
Key Nominations Move Forward. The Senate Finance Committee advanced Robert F. Kennedy (RFK) Jr.’s nomination to lead the US Department of Health & Human Services (HHS) in a 14 – 13 vote along party lines. The nomination now moves to the Senate floor. If every Democrat opposes the nomination in the floor vote, RFK Jr. could lose up to three Republican votes and still be confirmed as HHS secretary.
The Senate confirmed Russell Vought as director of the Office of Management & Budget (OMB) by a 53 – 47 vote. The Senate voted to confirm Doug Collins to lead the US Department of Veterans Affairs in a vote of 77 – 23. Dr. Mehmet Oz, President Trump’s nominee to lead the Centers for Medicare & Medicaid Services (CMS), began meeting with senators on Capitol Hill this week, the first step in his nomination process. He has not spoken publicly on Medicaid much before, but he was quoted this week as saying, “We have to take care of the most vulnerable among us. It’s a social calling for all of us . . . that funding freeze was not designed to affect Medicaid at all.”
Pathway on Reconciliation Is Uncertain. While the House was expected to start the reconciliation process with a markup of a budget resolution in the Budget Committee this week, that did not happen. House Republicans continue to negotiate with one another about the level of spending cuts and held a meeting at the White House with President Trump, after which they announced they were moving closer to an agreement. Because this will be a partisan process, Republicans need to be largely unified in order to proceed. During this uncertainty, Senate Budget Committee Chairman Lindsey Graham (R-SC) made it clear that the Senate is prepared to move forward with its own budget resolution, which would begin a two-bill approach to reconciliation, with an immigration, energy, and defense bill completed first and a tax bill tackled later in the year. Senate Republicans are set to meet with President Trump Friday night at Mar-a-Lago to promote this approach. The budget resolution is a necessary first step in the reconciliation process, and healthcare programs are expected to be on the table for spending cuts. For an overview on the budget reconciliation process and its impact on health policies, read our +Insight.
House Energy & Commerce Health Subcommittee Holds Hearing on Drug Threats. The hearing discussed the importance of expanding access to addiction and mental health services and ensuring wide availability of Narcan. Republican members primarily focused on the importance of border security in combatting the opioid crisis, and Democratic members emphasized the funding freeze’s adverse impacts on medical research and the critical roles that Medicaid and federally qualified health centers play in enabling access to care for substance use disorders.
ADMINISTRATION
Trump Issues EO Modifying the Regulatory Process. This EO requires that whenever an agency promulgates a new rule, regulation, or guidance, it must identify at least 10 existing rules, regulations, or guidance documents to be repealed. The EO tasks the director of OMB with ensuring standardized measurement and estimation of regulatory costs, and it requires that, for fiscal year 2025, the total incremental cost of all new regulations, including repealed regulations, be significantly less than zero. It is unclear what this 10 – 1 ratio means in practice or how it will be implemented.
Administration Modifies Public Health Data. To comply with President Trump’s EOs related to gender identity and diversity, equity, and inclusion, the Centers for Disease Control & Prevention first removed, then uploaded a modified version of, public information and data related to HIV and health information for teens and LGBTQ+ people on both its data directory and main webpage. In response, a medical advocacy group has sued multiple health agencies, stating that the removal of data deprives physicians and researchers of access to necessary information.
COURTS
Legal Challenges Continue in Response to Trump Administration Actions. Following legal challenges last week to the Trump administration’s now-rescinded OMB memo directing agencies to freeze certain federal funding, more federal judges have acted to halt the federal freeze. On January 31, a federal judge in Rhode Island granted a temporary restraining order to block the freeze, following a lawsuit from Democratic attorneys general from 22 states and the District of Columbia. On February 3, a federal judge in the District of Columbia issued a similar injunction in a lawsuit filed by several coalitions of nonprofits.
PFLAG National, GLMA, and transgender individuals and their families filed a federal lawsuit against the Trump administration’s EO “Protecting Children from Chemical and Surgical Mutilation.” The EO states that federal agencies shall not “fund, sponsor, promote, assist, or support the so-called ‘transition’ of a child from one sex to another.” Plaintiffs in the lawsuit, filed in the US District Court for the District of Maryland, argue that the EO will create harm by denying access to physician-prescribed, medically recommended care. Read the press release here.
In response to a lawsuit brought by unions representing federal workers, a federal judge in Massachusetts paused the deadline for the administration’s buyout program for federal workers. There is another hearing set for next week.
QUICK HITS
HHS OCR Announces Action on Anti-Semitism. The HHS Office for Civil Rights (OCR) will initiate compliance reviews related to reported incidents of anti-Semitism at four medical schools.
House Democratic Leaders Send Letter to GAO on Medicare Drug Price Negotiation. In the letter, Energy & Commerce Ranking Member Frank Pallone (D-NJ), Ways & Means Ranking Member Richard Neal (D-MA), and Education & Workforce Ranking Member Bobby Scott (D-VA) urged the US Government Accountability Office (GAO) to monitor the Medicare Drug Price Negotiation Program to ensure the Trump administration complies with the Inflation Reduction Act, which directed and authorized the GAO to conduct oversight of the program.
CMS Releases Statement on DOGE Collaboration. The short statement notes that two senior CMS officials are working with Elon Musk’s Department of Government Efficiency (DOGE).
NEXT WEEK’S DIAGNOSIS
Both chambers will be in session next week. The House Veterans’ Affairs Health Subcommittee will hold another hearing on community care, the House Ways & Means Health Subcommittee will hold a hearing on modernizing healthcare, and the Senate Special Committee on Aging will hold a hearing on optimizing longevity. As noted, the House Budget Committee may mark up a budget resolution that would start the budget reconciliation process, or the Senate could move first. The full Senate is on track to approve RFK Jr.’s nomination, and we expect the administration to continue taking executive action related to healthcare.
EPA Releases Third Triennial Report to Congress on Biofuels and the Environment
The U.S. Environmental Protection Agency (EPA) announced on January 21, 2025, the availability of a final document entitled “Biofuels and the Environment: Third Triennial Report to Congress” (Third Report). 90 Fed. Reg. 7135. The document was prepared by EPA’s Offices of Research and Development (ORD) and Air and Radiation (OAR), in consultation with the U.S. Departments of Agriculture (USDA) and Energy (DOE). The report builds on the first and second triennial reports, released in 2011 and 2018, respectively. According to EPA, it reinforces the broad conclusions from those reports on biofuels in general and further evaluates the attribution of those effects to the Renewable Fuel Standard (RFS) Program more specifically. The Third Report updates the previous assessments of the environmental impacts of the RFS Program and includes new analyses to separate better the effects of the RFS Program from the broader set of factors influencing biofuels. According to EPA, in the first two reports, it could not separate the effects of the RFS Program from the impact of other factors (e.g., market or other policy effects). The Third Report includes an “attribution analysis” that better separates the effects of the RFS Program from other factors that affect biofuels production and consumption in the United States. The Third Report concludes that the RFS Program had a modest positive effect on biofuel production and consumption and thus had a modest negative effect on the environment. EPA states that these endpoints include air and water quality, water quantity, ecosystem health and biodiversity, soil quality, invasive species, and international impacts. The impacts of the RFS Program overlap with the more significant effects of biofuels as an industry.
The New Administration and Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA) Developments — A Conversation with Jim Aidala [Podcast]
This week, I sat down with Jim Aidala, Senior Government Affairs Consultant at B&C and its consulting affiliate, The Acta Group (Acta®), to discuss the early days of the new Administration, what changes we can expect at the U.S. Environmental Protection Agency (EPA) generally, and key issues the Office of Pesticide Programs (OPP) can be expected to tackle. Jim’s unique perspective as a former Assistant Administrator of what is now called the Office of Chemical Safety and Pollution Prevention (OCSPP) and keen understanding of the pesticide world always make for a wonderful and insightful conversation.
Project Financing and Funding of Nuclear Power in the US
The past several decades have seen minimal greenfield nuclear plant development in the U.S. Units 3 and 4 of the Vogtle power plant in Greensboro, Ga., came online in 2023 and 2024, respectively, representing the first new projects in nearly a decade. Since 1990, the only other project placed in service was Watts Bar Unit 2 outside Knoxville, Tenn., which is owned and operated by the Tennessee Valley Authority (TVA). Financing is one of the principal challenges that needs to be overcome for nuclear energy to realize its full promise and potential.
Financing Traditional Nuclear Projects: Cash (Flow) Is King
Non-recourse or limited-recourse financing for nuclear energy projects has been difficult to obtain. Traditionally developed nuclear generating assets are among the most expensive infrastructure projects. Typically in the range of approximately 1 gigawatt (GW) per unit, they are principally characterized by their technical and regulatory complexity.
Long and often-delayed permitting and construction lead to cost overruns, creating a highly unpredictable cash flow that may not be realized for 20+ years. Given the scale and capital investments involved in developing and constructing nuclear power plants, as well as the lack of greenfield development in the U.S. over the past three decades, there are few (if any) engineering and construction firms currently able to deliver projects on a lump-sum, turnkey basis.
A further complication to attracting private sector financing arises from the deregulated structure of power markets in many regions across the U.S. Debt financiers will typically look to predictability of future cashflows as a primary measure of assessing risk with any power project. For nuclear facilities in liberalized wholesale markets, this will often be difficult due to energy price fluctuations and the frequent absence of dedicated offtake terms.
Although nuclear power plants can participate in forward capacity auctions, these are generally conducted three years in advance with a limited capacity commitment period. Due to the aforementioned construction timelines, nuclear project developers are rarely in a position to bid on future capacity auctions prior to the commencement of construction.
The nature of funding required to build large-scale traditional nuclear plants severely limits – if not precludes – private investment . Governmental support has been provided in a number of different contexts. The Inflation Reduction Act (IRA) introduced a new zero-emissions nuclear production tax credit, which provided a credit of up to 1.5 cents (inflation adjusted) for projects that meet prevailing wage requirements.1 Further, the IRA’s transferability sections have allowed project sponsors the ability to unlock greater revenue streams.2 In addition to the tax credits, the IRA allocated $700 million in funding for the development of high-assay low-enriched uranium (HALEU), while the Infrastructure Investment and Jobs Act (IIJA) allocated funding for the development of modular and advanced nuclear reactors. A more direct form of project-level governmental support comes in the form of direct lending or loan guarantees. For instance, the development of Vogtle Units 3 and 4 received a $12 billion loan guarantee from the Department of Energy.
Permitting Reform Can Help
Ultimately, a stable and favorable regulatory regime would lower the discount rate and hence the required rate of return for nuclear power projects. The Trump administration has signaled its intention to promote the nuclear industry through a number of early executive actions, though legislation would likely be needed to create meaningful changes in this regard.
Notwithstanding this apparent support for nuclear energy, federal agencies have been ordered to pause the disbursement of funds appropriated under the IRA and the IIJA for at least 90 days, creating some uncertainty as to the status of funding for nuclear energy projects (as well as a broad range of clean energy projects) appropriated thereunder. Permitting reform and further funding to encourage greater development of nuclear projects receives strong bipartisan support, but is subject to delays if made part of a larger political compromise.
Permitting reform and further funding to encourage greater development of nuclear projects receives strong bipartisan support, but is subject to delays if made part of a larger political compromise.
Small Modular Reactors, Lower Hurdles to Financing and Deployment
In order to sidestep some of the technical challenges that have traditionally resulted in delays and cost-overruns, the nuclear industry has moved towards the adoption of small modular reactors (SMRs) as a means to lower delivery costs, and in turn, reduce financing hurdles. Based on the International Atomic Energy Agency’s definition, SMRs include units of up to 300 megawatts (MW) of generating capacity. There are numerous technologies currently competing under the umbrella SMR classification, but in general, these technologies allow generating assets to be largely fabricated off-site on a standardized basis, potentially reducing manufacturing costs and regulatory uncertainties, and hastening deployment of new technologies.
SMR financing is rapidly evolving. Since there are currently no operational SMR projects in the U.S., the first generation of projects to come online will require “first-of-a-kind” (FOAK) financing. This can be challenging for a number of reasons, as it will require financiers to accept the elevated risks associated with a commercially unproven technology. Government can and does derisk initial equity financing through loan guarantees and/or grants. In fact, we saw evidence of such this in 2021’s Bipartisan Infrastructure Law, in which the US Department of Energy announced $900 million in funding to support SMR deployment. Earlier this month, the TVA and American Electric Power (AEP) led an $800 million application with partners including Bechtel, BWX Technologies, Duke Energy to pursue advanced reactor projects. The substance of the proposals is to add SMRs at existing generating sites including TVA’s Clinch River site and Indiana Michigan Power’s Spencer County site. It is unclear if the Trump Administration’s funding freezes and priority changes will jeopardize disbursements from this legislation, but general support for the nuclear industry appears to continue.
Since there are currently no operational SMR projects in the U.S., the first generation of projects to come online will require “first-of-a-kind” (FOAK) financing.
Even without governmental support, innovative financing structures will be available to assist in the deployment of SMR projects. A number of companies developing SMR designs are doing so together with corporate customers that plan to deploy these reactors as sole-source providers for facilities such as AI data centers. With a dedicated power purchase agreement with a creditworthy offtaker, many SMR projects will be considered bankable notwithstanding the novelty of the technology being deployed.
Conclusion
Although nuclear energy is widely seen as playing a key role in grid expansion and decarbonization initiatives, there are a number of obstacles which render financing challenging. Strong political support alongside appropriately tailored policy tools can help unlock the private capital needed to deploy nuclear energy at scale. The arrival of SMR technology will produce initial challenges with FOAK financing, but in time more predictable returns will attract the financing to permit a more widescale adoption of nuclear energy in countless use cases.
Knowledgeable and experienced legal counsel can assist with the proper structuring and risk allocation in transaction documents to help unlock financing and drive projects forward. Given the enthusiasm for the role of nuclear in supporting energy expansion, however, there is room for optimism about the opportunities for greenfield nuclear projects in the coming decades.
1 26 U.S.C. § 45U.2 26 U.S.C. § 6417.
California Climate Disclosure Laws Survive Significant Challenge
Judge Wright (C.D. Cal.) has significantly narrowed the Chamber of Commerce’s lawsuit challenging California’s climate disclosure laws. (These disclosure laws mandate disclosure of Scope 1, Scope 2, and Scope 3 greenhouse gas emissions for companies with over $1 billion in revenue, and the disclosure of climate-related financial risks for companies with over $500 million in revenue.) The Chamber of Commerce had filed a lawsuit challenging these laws on a number of grounds, including that California’s disclosure regime violated the supremacy clause and improperly applied extraterritorially–i.e., outside California. Both of these arguments were rejected by the federal district court.
Significantly, the Court rejected the Chamber of Commerce’s argument that a “law [] ‘aimed at stigmatizing’ and ‘shaming’ companies to ‘pressure[] them to lower their emissions’”–in other words, “a disclosure regime intended to regulate emissions through third-party actions”–constituted a “de facto regulatory scheme subject to preemption.” Further, the Court also held that the law survived a challenge that it improperly burdened interstate commerce by regulating extraterritorial conduct by holding that the Chamber of Commerce “fail[ed] to plausibly allege a significant burden on interstate commerce.” In other words, even though this decision was limited in scope–for example, certain claims could be re-filed as they were dismissed without prejudice–the Court nonetheless rejected the legal theories underpinning common challenges to state-level climate disclosure laws. (Also, certain claims were dismissed due to technical legal issues–e.g., the challenge to the mandatory disclosure of greenhouse gas emissions was dismissed as not yet being ripe for adjudication.) This decision may encourage other states to implement mandatory climate disclosure regimes similar to that enacted by California.
However, the challenge to California’s climate disclosure laws by the Chamber of Commerce remains unresolved. The State of California had not moved to dismiss the First Amendment challenge brought by the Chamber of Commerce–the court had previously rejected the Chamber of Commerce’s facial challenge to the law’s validity under the First Amendment–and so the Chamber of Commerce’s lawsuit can continue as it endeavors to construct a record to sustain its challenge based upon its argument that the First Amendment bars the climate disclosure laws as a form of compelled speech.
A US Chamber of Commerce challenge to California’s emissions reporting law was narrowed after a district judge said it failed to state a sufficient claim against a disclosure provision. The state’s climate-related financial risk disclosure requirement isn’t a regulatory scheme subject to preemption, the US District Court for the Central District of California said when it dismissed that claim with prejudice. That requirement, also known as SB 261, doesn’t discriminate against or sufficiently burden interstate commerce to support an extraterritoriality claim either, Judge Otis D. Wright II said, but he added the chamber could refile that claim. Claims against SB 253, California’s greenhouse emissions disclosure requirement, weren’t ripe, the court said, dismissing Supremacy Clause and extraterritoriality claims against it without prejudice. The state’s dismissal motion declined to address the chamber’s First Amendment argument.
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Boston Accelerates Net Zero Carbon
Last week, the Boston Zoning Commission adopted Net Zero Carbon (NZC) zoning. As addressed in our 2021 and 2023 advisories, this completes a three-part decarbonization strategy, along with the Specialized Energy Code and the Boston Emissions Reduction and Disclosure Ordinance (BERDO 2.0).
NZC requires carbon neutrality for new buildings of at least 20,000 square feet or 15 dwelling units, or additions of at least 50,000 square feet, that file for Large Project Review or Small Project Review on or after July 1, 2025. It will not apply to renovations or changes of use. It requires carbon neutrality once new buildings become operational, with exceptions for lab use (until 2035), and hospital and general manufacturing uses (until 2045).
Here is how NZC interrelates to the other prongs:
The Specialized Energy Code, adopted by Boston in 2023, provides stricter energy efficiency requirements than the frequently iterated Stretch Energy Code, which in turn exceeds the Massachusetts Base Energy Code. The Boston Planning Department estimates that the 2023 Specialized Code may have halved greenhouse gas emissions from new buildings compared to the version of the Stretch Code in effect when Boston’s 2019 Climate Action Plan was adopted. NZC is intended to address the remaining half for new construction.
BERDO 2.0 also targets carbon neutrality, but for covered buildings that already exist (i.e., containing at least 20,000 square feet or 15 dwelling units), phased in to 2050. Emissions levels must decrease every 5 years following a prescribed schedule unless the Emissions Review Board approves an alternative compliance pathway. The Planning Department estimates that 70% of covered existing buildings will have to take steps to comply with emissions reduction requirements by the first milestone in 2030.
NZC compliance will be assessed through Article 80B Large Project Review or Article 80E Small Project Review based on Planning Department review of a project’s already required Leadership in Energy and Environmental Design (LEED) scorecard, together with a new Greenhouse Gas Emissions checklist. Projects with at least 50,000 square feet will also submit a new structural life cycle analysis addressing embodied carbon emissions from fabrication, transportation, demolition disposal, construction materials, and the like. After becoming operational, the new building becomes an existing building subject to, but presumably already compliant with, BERDO 2.0.