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.
news.bloomberglaw.com/…
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.
Strategic Dialogue With The European Automotive Industry
As announced by President Ursula von der Leyen to the European Parliament on 27 November 2024, and as formally incorporated into the Communication A Competitiveness Compass for the EU (COM(2025) 30 final), published on 29 January 2025, the European Commission launched a Strategic Dialogue with the European automotive industry, social partners, and other key stakeholders on 30 January 2025. This initiative responds to growing concerns from EU Member States and industry stakeholders regarding the declining competitiveness of the European automotive sector. The EU faces mounting competitive pressures from third-country manufacturers and the necessity of meeting increasingly stringent decarbonization objectives.
Pursuant to point 1.2, page 10 of the Communication Competitiveness Compass for the EU, the strategic dialogue will directly contribute to the development of an EU Industrial Action Plan for the automotive sector. This plan is expected to incorporate ambitious supply- and demand-side initiatives, including a proposal on greening corporate fleets. In this context, President von der Leyen has tasked Commissioner Apostolos Tzitzikostas with presenting an Automotive Industry Action Plan on 5 March 2025. It is anticipated that the findings of the Strategic Dialogue will be integrated into this Action Plan, ensuring a coherent and forward-looking strategy for the sector.
The inaugural high-level meeting of the Strategic Dialogue convened on 30 January 2025 and brought together 22 key industry organizations, including leading manufacturers, suppliers, trade unions, and consumer representatives. Participants included ACEA (The European Automobile Manufacturers’ Association), BEUC (The European Consumer Organisation), BMW Group, Robert Bosch GmbH, ChargeUp Europe, CLEPA (The European Association of Automotive Suppliers), Daimler Truck, ETF (European Transport Workers’ Federation), Forvia, IndustriAll European Trade Union, IVECO Group, MAHLE Group, MILENCE, RECHARGE, and Renault Group, among others.
The Strategic Dialogue will continue with a series of regular meetings and workshops that will engage industry representatives, social partners, and policymakers, as well as broader consultations involving additional stakeholders from across the automotive value chain.
The discussion will focus on the following key themes and priorities:
Innovation and future technologies – Address the EU’s lag in key technologies (e.g., batteries, software, autonomous driving) by fostering R&D collaboration, talent acquisition, and risk-sharing models
Clean transition and decarbonization – Focus on regulatory revisions, charging infrastructure expansion, and demand-stimulation measures to accelerate the shift to clean mobility while addressing affordability and equity issues
Competitiveness and resilience – Tackle high input costs, supply chain vulnerabilities, and workforce upskilling to ensure the sector’s long-term resilience
Trade and global competition – Address unfair practices in global markets, strengthen EU trade policies, and monitor foreign investments in the supply chain
Regulatory streamlining – Optimize the EU’s regulatory framework to enhance coherence, reduce industry burdens, and promote common technical standards
Upon completion of these discussions, the European Commission is expected to present a report to the European Parliament and the Council, outlining the challenges identified by stakeholders and proposing corresponding policy actions. In accordance with the Competitiveness Compass, this report is expected to be published in the first quarter of 2025.
For operators in the automotive industry, this is a critical moment that necessitates close monitoring of ongoing developments at the EU level. These developments include, in summary: the adoption of a report that will be submitted to Parliament and the Council, incorporating the challenges identified by stakeholders and the recommended policy actions arising from the Strategic Dialogue; the presentation of an Automotive Industry Action Plan, the precise scope of which remains undetermined, though it is anticipated to serve as a strategic political directive for the sector; and the introduction of a legislative proposal concerning the greening of corporate fleets, which is expected to be part of the Automotive Industry Action Plan.
Once the Automotive Industry Action Plan is published, we will have greater clarity on the specific regulatory measures that the European Commission intends to pursue. While the precise scope of the plan remains to be seen, it is already known that it will include a legislative proposal on greening corporate fleets. This proposal is expected to play a significant role in shaping industry obligations and opportunities in the transition to more sustainable mobility.
We will continue to monitor these developments and provide clients with timely insights and strategic guidance on how these forthcoming regulatory changes may impact their business operations.
Maine is Ready for Energy Storage. Are Energy Storage Developers Ready for Maine?
Maine has statutory goals for energy storage projects – 300 megawatts by the end of this year and 400 megawatts by the end of 2030. To help reach those goals, the state is beginning the process of developing and evaluating an energy storage procurement program for up to 200 megawatts of cost-effective energy storage in Maine. Companies interested in participating in any procurement program that Maine adopts should start the initial development process early to allow sufficient time to address some potential local zoning challenges that they may face.
In 2023, the Maine Legislature passed An Act Relating to Energy Storage and the State’s Energy Goals, which directed the Governor’s Energy Office, in consultation with the Maine Public Utilities Commission (Commission), to evaluate designs for a program to procure commercially available utility-scale energy storage systems connected to the state’s transmission and distribution systems.
The Commission is now reviewing a recommendation from the Energy Office for a program to procure up to 200 megawatts of cost-effective energy storage for Maine that increases grid resilience, lowers electricity costs, maximizes federal incentives, and advances Maine’s clean energy goals and statutory requirements. While it is not yet clear what process the Commission will undertake to design and implement a storage procurement program, it is reasonable to expect that this program will be offered before Governor Mills’ term ends in two years.
One of the major challenges for energy storage projects in other states has been local governments enacting zoning bylaws that preclude construction of battery energy storage facilities. These zoning bylaws are often inconsistent with a state’s renewable energy goals. Some states, such as Massachusetts, allow for state exemption of local zoning bylaws if, among other reasons, the bylaw is not consistent with the public interest to meet renewable energy goals. See Pierce Atwood’s November 2024 alert on this subject.
Maine has a long-standing tradition of home rule, enshrined in the constitution, that allows municipalities to enact laws on any topic that is not prohibited to them by state or federal law.
This means that municipalities can adopt all types of zoning rules and other performance standards to regulate energy storage projects. This could include traditional zoning, by limiting where such projects can be located, as well as various standards related to, among other things, fire safety, noise, visual screening, and buffering.
Maine’s municipalities can also impose moratoria, which temporarily prevent planning boards and code enforcement officers from even processing, let alone approving, certain types of projects while the municipality enacts more stringent regulations to address the perceived impacts of the project.
So, what do energy storage project developers need to do about municipal permitting in Maine?
Because of home rule, the rules potentially vary in every one of Maine’s 488 municipalities. Developers need to analyze the permitting process in each municipality where they are considering siting a project. Some municipalities will naturally favor energy storage projects, while some will not. Key questions include:
How does the municipality classify energy storage as a use and where is it allowed? Many local zoning ordinances may not have contemplated energy storage as a type of use, and thus it is likely prohibited in many cases.
What are the dimensional standards, such as minimum lot size and setbacks, that apply to energy storage?
Are there separate performance standards that apply to energy storage? These might be in a variety of ordinances, such as zoning, site plan, subdivision, or other ordinances.
Is there a specific ordinance applicable to energy storage or renewable energy projects?
Has the municipality adopted a moratorium?
By statute, a municipality can stop project development if it determines that existing ordinances are inadequate to prevent serious public harm from development. Although this sounds like a high standard, in practice it isn’t, and it is often used to pause review of controversial projects, such as solar projects, while municipalities adopt stringent requirements to either prevent or restrict development.
Because of Maine’s unusual deference to municipal regulation, it is critical to understand that a moratorium can be imposed to stop development even after all permits for the project have been issued. This is because of Maine’s deferential view of vested rights, allowing changes in laws to apply retroactively more or less right up until the moment that actual construction begins.
At the same time, there are options for developers to explore, including.
Consider proposing amendments to the applicable ordinance in question to clarify how energy storage projects fit into the ordinances.
Pursue a contract zone agreement, whereby the municipality rezones the specific parcel in question to allow the proposed project. This is done through a contract, approved by the legislative body of the municipality, that often exacts a benefit from the developer in exchange for the favorable zoning treatment.
Consider proposing a bill to enact something akin to what Massachusetts did for energy storage projects – provide an exemption for local zoning from the Legislature to ensure localized interests do not unduly prevent the state from accomplishing its energy storage goals. (Maine already provides a local zoning exemption in 30-A M.R.S. § 4352(4) that primarily applies to transmission lines, but an entirely new statutory scheme would be needed in Maine to establish a local land use exemption for storage.)
As with any development project, in addition to permitting and regulatory issues, energy storage projects in Maine require expertise, diligence, and planning to address real estate, title, and tax issues.
Biden USDA Issues Technical Guidelines for Climate-Smart Agriculture Crops Used as Biofuel Feedstocks
On January 17, 2025, the Biden U.S. Department of Agriculture (USDA) issued an interim final rule with a request for comment that establishes technical guidelines for quantifying, reporting, and verifying the greenhouse gas (GHG) emissions associated with agricultural production of biofuel feedstock commodity crops grown in the United States in the context of environmental service markets. 90 Fed. Reg. 5497. The rule establishes guidelines for the reporting and verification of practices and technologies used to produce certain commodity crops that result in lower GHG emissions or increases in carbon storage. The notice notes that these practices are referred to in the context of this rule as climate-smart agriculture (CSA) practices. The guidelines established through the rule articulate an approach for farm producers to quantify the GHG emissions associated with crops produced using one or more CSA practices. The guidelines also articulate a framework for how information regarding GHG emissions, resulting from the production of biofuel feedstock commodity crops, could be reported and tracked throughout the supply chain. The effective date was January 17, 2025. The notice states that USDA will consider comments received by March 18, 2025.
Foley Automotive Update 05 February 2025
Foley is here to help you through all aspects of rethinking your long-term business strategies, investments, partnerships, and technology. Contact the authors, your Foley relationship partner, or our Automotive Team to discuss and learn more.
Key Developments
Foley & Lardner LLP partner Vanessa Miller commented on the risk of increased costs in the automotive supply chain that could result from new import tariffs in The Wall Street Journal article, “Tariff Threat Prompts Automakers to Find New Suppliers, Consider Higher Prices.”
Foley & Lardner’s Vanessa Miller and Ki Lee Kilgore provided an overview of contractual provisions to cope with increasing tariffs and trade wars.
President Trump’s proposed 25% tariffs on U.S. imports from Mexico and Canada – paused for a “one month period” as of February 3 – could cost automakers up to $110 million daily and $40 billion annually. North American production shutdowns would be a significant risk within a week of the implementation of such tariffs, according to an executive at Canadian Tier One supplier Linamar. In addition, the price of a new vehicle could jump by at least $3,000 on average, to as much as $10,000, depending on the model.
A report in Automotive News remarked on the divergence between automakers’ and suppliers’ public statements on the impact of potential tariffs to the North American auto industry.
Mexico’s automotive exports reached $193.9 billion in 2024 and accounted for roughly 30% of U.S. imports from the nation, according to data from INEGI excerpted in Mexico News Daily.
Vehicles and auto parts accounted for 21% of Canada’s U.S. exports in the first eleven months of 2024. Canadian automotive exports were valued at over $100 billion in 2023.
At least four major automakers produce roughly 40% of their vehicles in Mexico and Canada, and of the major automakers, GM is believed to be the most vulnerable to the proposed 25% tariffs. In 2024, GM sold 2.7 million vehicles, of which over 653,000 were assembled in Mexico for export to the U.S., and at least another 235,000 were produced in Mexico for non-U.S. markets. GM models with significant U.S. import volumes included the Chevrolet Equinox and Blazer SUVs, as well as Chevrolet Silverado and GMC Sierra pickup trucks.
Approximately half of light vehicles exported by Mexico to the U.S. in 2024 were made by Detroit automakers.
TD Economics analysis indicates North American auto parts “cross all three borders up to 7 to 8 times prior to final assembly of a vehicle,” and given the high integration of North American automotive supply chains, the auto sector “would face some of the deepest negative impacts from tariffs.”
In response to President Trump’s launch of new 10% tariffs on all Chinese imports, China announced retaliatory actions including import tariffs that could soon impose a 10% levy on certain U.S.-made large-engine light vehicles and electric trucks.
On January 28 former U.S. congressman and Fox News contributor Sean Duffy was sworn in as the Secretary of the U.S. Department of Transportation. In his first act after being sworn in, Duffy directed the National Highway Traffic Safety Administration (NHTSA) to immediately review and reconsider all existing Corporate Average Fuel Economy (CAFE) standards for vehicles produced from the 2022 model year onward.
The Trump administration on January 24 asked the U.S. Supreme Court to pause three cases while the Environmental Protection Agency reviews previous regulatory decisions in areas that include the Clean Air Act waiver that allows California to implement its own greenhouse gas emissions standards for automobiles.
Preliminary estimates suggest U.S. new light-vehicle sales reached a SAAR of roughly 15.8 million units in January, up 5% year-over-year, but falling short of industry projections.
OEMs/Suppliers
The top five automakers ranked by 2024 global vehicles sales were Toyota, for the fifth consecutive year, followed by Volkswagen, Hyundai Motor Group, BYD and Honda. Last year, Toyota’s global sales declined 3.7% YOY to 10.8 million units, Volkswagen’s sales fell 2.3% to 9.03 million units, and BYD’s global sales increased 41% to 4.27 million units.
GM’s 2024 adjusted pre-tax earnings rose 21% to a record-high $14.9 billion last year, and total revenue rose 9.1% to $187.4 billion. However, net income fell 41% year-over-year to $6 billion, due to restructuring charges for its operations in China.
American Axle will acquire U.K.-based Dowlais Group for $1.4 billion. Dowlais’ businesses include driveline systems manufacturer GKN Automotive.
Following a meeting with President Trump, Stellantis committed to opening its idled plant in Belvidere, Illinois to produce a new mid-size pickup truck in 2027. The automaker had indefinitely postponed plans to reopen the plant following an initial commitment made during the 2023 labor contract negotiations. Stellantis also announced investments to support production at existing plants in Michigan, Ohio and Indiana.
Honda will invest $1 billion, up from a previous target of $700 million, in three plants in Ohio that will have the flexibility to produce ICE, hybrid and battery-electric vehicles on the same production lines.
Nissan will reduce U.S. production by 25%, and the automaker has offered voluntary buyouts to workers at its factories in Tennessee and Mississippi. Last year Nissan announced it would eliminate 20% of its global manufacturing capacity in response to weak sales in China and the U.S.
Chinese automakers are reported to be considering purchasing surplus production lines at Volkswagen’s factories in Germany.
A number of automakers have told dealers they plan to introduce lower-cost models as concerns over vehicle affordability push certain buyers out of the market.
Market Trends and Regulatory
The annual AlixPartners Disruption Index ranked automotive as the “most disrupted” major industry for the first time, reversing two consecutive years of improvement. Key concerns included a lack of real-time visibility into supply chains, the risk of tariffs and protectionism, and high costs for raw materials.
A Fifth Circuit panel invalidated the Combating Auto Retail Scams (CARS) rule issued by the Federal Trade Commission (FTC) in December 2023, after finding the FTC did not provide an advanced notice of proposed rulemaking. The CARS rule included requirements for certain dealership advertising, finance and insurance practices.
NHTSA paused a rule that would require nearly all new light vehicles to be equipped with automatic emergency braking (AEB) systems by 2029. The delay was in response to a January 20 Regulatory Freeze Pending Review Presidential Memorandum directed at executive departments and agencies. The regulation had been finalized in April 2024.
The AM Radio for Every Vehicle Act of 2025 (S.315) was introduced in the U.S. Senate in an effort to begin a rulemaking process to require the inclusion of AM receivers as standard equipment in all passenger vehicles sold in the U.S. Similar legislation failed to reach a full floor vote last year.
Newly elected U.S. Senator Bernie Moreno (R-OH) described plans to introduce an “Automotive Freedom Act” that would restrict battery production subsidies and eliminate the leasing loophole for consumer EV tax credits. Moreno said his bill wouldseek to harmonize NHTSA’s CAFE standards and the EPA’s tailpipe pollution limits to “one national standard” that extends 10 years.
The Alliance for Automotive Innovation filed a lawsuit in federal court in Maine to challenge enforcement of the state’s Right to Repair Law. The Alliance indicated compliance is not yet possible because the state’s Attorney General has not established the “independent entity” described in the law to develop and administer data access to vehicles.
The American Trucking Association projects truck volumes will increase 1.6% in 2025, following two consecutive years of sales declines.
Among the European automakers, Volkswagen is thought to be at high risk to proposed U.S. tariffs on Mexican imports. VW has one U.S. manufacturing plant in Chattanooga, TN. However, its Puebla plant is described as the largest vehicle assembly plant in Mexico.
Volkswagen estimated it could incur up to €1.5 billion ($1.6 billion) in compliance costs and penalties this year due to stricter CO2 emissions standards in the European Union that will apply starting in 2025.
Autonomous Technologies and Vehicle Software
Waymo plans to expand its autonomous vehicle testing to over 10 new cities in 2025, beginning with Las Vegas and San Diego.
NHTSA launched an investigation into Ford’s BlueCruise automated driving system following notice of two fatal collisions involving Mustang Mach-E vehicles.
Autonomous truck developer Kodiak Robotics announced the launch of commercial operations following the sale of two self-driving trucks to oil and gas service company Atlas Energy Solutions to haul fracking sand across a 75,000 square mile area of the Permian Basin.
Toronto-based Waabi Innovation Inc. will provide its generative artificial intelligence driver system to Volvo to support the companies’ joint development of autonomous trucks. Waabi Driver AI software has also been deployed in a small fleet of autonomous trucks for Uber Freight.
Acura and Honda announced a recall of nearly 295,000 vehicles due to a software issue in the fuel injection control unit that may cause vehicles to stall or lose power while driving.
Electric Vehicles and Low Emissions Technology
Automotive News provided a summary and additional context for recent EV-related policies and statements of President Trump.
Recently announced EV model cancelations include:
While Stellantis is planning to offer an electric RAM 1500 REV pickup truck with up to 350 miles of range beginning in 2026, the automaker is reported to have canceled plans for an extended-range version of the REV with up to 500 miles of range.
Stellantis’ Chrysler Airflow EV has been postponed indefinitely. The electric SUV debuted as a concept vehicle in 2022.
Nissan will no longer produce a crossover EV model at its Canton, Mississippi plant.
Volkswagen no longer plans to offer an ID.7 electric sedan in the U.S. market.
ZM Trucks, a subsidiary of ZO Motors, plans to manufacture zero-emission commercial vehicles at a new plant in Fontana, California starting in the first half of 2025.
A number of automakers are suing the European Commission over opposition to the EU’s import tariffs on EVs that are made in China.
Hyundai could finalize an agreement in the first quarter of 2025 to supply its re-badged commercial EVs to GM. The automakers announced a preliminary agreement last year to collaborate on parts procurement and production for certain passenger and commercial vehicles.
Analysis by Julie Dautermann, Competitive Intelligence Analyst
Tariffs Loom on Natural Gas Imports: Be Prepared
If you are a seller or purchaser of natural gas imported from Canada or Mexico, or exported to either country, under an NAESB Base Contract for the Purchase and Sale of Natural Gas (NAESB Contract), you should carefully review such agreements, including any special provisions or transaction confirmations to consider the impact of potential tariffs that may be imposed by the United States on natural gas imported from Canada or Mexico or imposed in retaliatory tariffs by those countries on natural gas exported from the U.S.
On February 1, 2025, the president announced the imposition of tariffs on goods imported from Canada and Mexico. The general tariff would be 25% for goods imported from both countries; however, a subset of defined energy resources imported from Canada would be subject to a 10% tariff.
Originally, the tariffs were scheduled to be effective on February 1, but on February 3, after discussions with both Canada and Mexico, the president announced that the tariffs would be effective March 4, 2025. Although it is not yet clear whether interim negotiations will affect the imposition of these tariffs, it is important to be prepared if the tariffs do go into effect as planned on March 4.
Many purchasers and sellers of natural gas use the NAESB Contract to buy and sell natural gas. Several base provisions of the NAESB Contract, or added Special Provisions, could affect which party is responsible for tariff payments, whether through a posted increase to the applicable published index price or as a tax to be paid in addition to the index price.
If the index price in your NAESB Contract is on the U.S. side of the border with either Canada or Mexico, that posted index price may take into account any U.S. tariffs since the gas has been imported. It is important to note that it is still unclear whether the cost of an import tariff on natural gas will be included in the posted index price, whether the NAESB Contract’s index price is at or near the border, or at a liquid trading hub. Special provisions or transaction confirmations under the NAESB Contract also may address this issue. Further, if your NAESB Contract includes a Canadian Addendum, that should be carefully reviewed as well.
Section 6 of the NAESB Contract defines “taxes” to include: “taxes, fees, levies, penalties, licenses or charges imposed by any governmental authority.” An argument can be made that tariff costs are government-imposed “taxes” under this definition.
Section 6 provides two options for responsibility for taxes. Either the buyer pays taxes at and after the delivery point, or the seller pays taxes before and at the delivery point. We suggest you review the selection box on page two of your NAESB Contract to determine which option applies.
Also, some parties have added a definition of “Applicable Laws” or other special provisions to their NAESB Contract for the purposes of addressing responsibility for new taxes. Accordingly, you should also review any special provisions or transaction confirmations to confirm the agreed-upon structure.
Finally, Section 14 of the NAESB Contract addresses market disruptions and defines “Market Disruption Events.” The definition includes, among other things, “(e) both Parties agree a material change in the formula for or the method of determining the Floating Price has occurred.” This provision may open the door to negotiations if the appliable index prices are adjusted by the index publishers to reflect any tariffs on imported natural gas.
Please note that this alert does not specifically address the terms of the ISDA Gas Annex, frequently used in connection with gas-fired power generation, or bespoke agreements. If you use an agreement other than the NAESB Contract to buy and sell imported gas, you should carefully review the relevant provisions of such agreements to determine the implications of or responsibility for any tariffs.
New Jersey Appellate Division Makes Clear Experts Must Demonstrate a Scientifically Recognized Methodology
Recently, the New Jersey Appellate Division, in Dorrell v. Woodruff Energy, Inc.,[1] vacated a 2018 judgment against Chevron U.S.A., Inc. (“Chevron”) that had found Chevron liable for gasoline contamination. More specifically, the Appellate Division found that plaintiff’s expert was not qualified to determine that the subject property was contaminated with gasoline because his methodology was flawed and wholly unsupported by any scientific resource.
Background
Plaintiff Sandra Dorrell filed a second amended complaint in 2016 in which she claimed that Chevron was liable for private contributions under the New Jersey Compensation and Control Act (the “Spill Act”),[2] for gasoline contamination in the soil and groundwater on property she purchased in 1984.
During trial, plaintiff called an expert witness, who the trial court qualified as an expert in subsurface investigations involving hydrocarbon contamination, but found he was not qualified to distinguish one type of petroleum product from another. The expert concluded that the soil and groundwater had been contaminated with petroleum products attributable to Chevron and judgment was entered against Chevron. Chevron appealed the judgment and the case was remanded to the trial court in order to conduct an N.J.R.E. 104 hearing to determine the admissibility of the expert’s testimony at trial. The Appellate Division specifically focused its remand order on the reliability of the methodology employed by the expert to support his opinion that gasoline was a contaminant found at the property.[3] The Appellate Division noted that the In re Accutane Litigation[4] case had adopted aspects of the Daubert v. Merrell Dow Pharmaceuticals, Inc.[5] test, requiring that the proponent apply a scientifically recognized methodology similar to how others in the expert’s field practice the methodology.[6] The trial court conducted a two-day hearing and found that the expert had been properly qualified and had used a reliable methodology as the basis for his opinion concerning causation. Chevron appealed again.
The Appellate Division’s 2024 Decision
On appeal, Chevron argued the lower court “misapprehended [the] remand order and erred by focusing on whether [the expert] was generally qualified to investigate spills, rather than on whether he was qualified to ‘distinguish between petroleum products based on the chemical constituents in dissolved phase samples.’”[7] Applying an abuse of discretion standard, the Appellate Division reversed. The Appellate Division focused on the reliability of the expert’s methodology. The plaintiff bore the burden of proving that there was gasoline contamination and the Appellate Division found that the record lacked evidence supporting the reliability of the methodology, including the fact that the expert failed to “cite to a single scientific resource, article, journal, publication, test, or study supporting the reliability of that methodology, and he acknowledged he was unaware if there is any known error rate for the methodology he employed.”[8] The Court went on to note that there were several reliable tests and investigative techniques the expert could have used, but he failed to employ any of them.[9] Consequently, the judgment against Chevron was vacated.
The Appellate Division’s decision reiterates the requirement that an expert must clearly identify the methodology utilized to come to an opinion, including the expert’s ability to identify the scientific sources he or she relied upon. For those litigating complex environmental cases, this serves as an important reminder that failing to establish the reliability of an expert’s methodology could be fatal to your case.
[1] Dorrell v. Woodruff Energy Inc., No. A-2636-21, 2024 WL 5251650 (N.J. Super. Ct. App. Div. Dec. 31, 2024). (“Dorrell”).
[2] N.J.S.A. 58:10-23.11 to -23.11z.
[3] Dorrell v. Woodruff Energy, Inc.,2021 WL 922446 (N.J. Sup. Ct., App. Div., Mar. 11, 2021). (“Dorrell II”).
[4] 234 N.J. 340 (2018).
[5] 509 U.S. 579 (1993).
[6] Dorrell II at *11, n.14.
[7] Dorrell, No. A-2636-21, 2024 WL 5251650, at *12.
[8] Id. at 16.
[9] Id. at 18.
New EPA Administrator, Same Freeze on EPA Activity
On January 29, 2025, Lee Zeldin was confirmed as the 17th Environmental Protection Agency (EPA) Administrator. After a week on the job, Zeldin continued to maintain several policies that had been put in place immediately after the Trump administration took office. Some of these policies are summarized below. While these actions are generally expected when a new administration begins, there is a sense that additional, significant changes are around the corner.
Freeze on External Actions
On January 24, 2025, the then acting EPA Administrator ordered a temporary halt on all environmental lawsuits to review and possibly change the agency’s stance on these issues. The Department of Justice’s (DOJ) Environment and Natural Resources Division, which enforces environmental protection laws, has also been ordered to freeze all activities. This included stopping pending court filings and delaying new complaints, with pending Comprehensive Environmental Response, Compensation, and Liability Act negotiations also on hold for an undetermined time.
This was followed by an internal memorandum instructing EPA staff to halt external communications (e.g., press releases, blog updates, and social media posts), except for discussions with state and federal agencies not related to enforcement, necessary communications regarding imports, and as related to the carrying out of inspections.
The EPA also announced delays for several finalized environmental rules from the prior administration. This includes rules regarding air pollution and the regulation of trichloroethylene (TCE).
The duration of each of these “freezes” is not clear at this time, but it seems aimed at helping the new administration evaluate what can be changed and likely beginning that change.
Staffing
As federal agencies implement a presidential order to limit telework and remote work, EPA employees must return to the office full-time next month. The EPA stated that regular telework and remote work agreements will be canceled to follow the recent Executive Order on the subject. EPA staff are expected to be in the office daily by February 24, unless they have a disability, medical condition, or other significant reasons certified by their supervisor.
It was also recently reported that the EPA is expected to cut over 1,000 employees who joined the agency within the past year, with a focus on those working on climate change, air pollution, and environmental regulation programs. Additionally, several senior civil service managers in the DOJ’s Environment and Natural Resource Division have reportedly been reassigned to focus on immigration matters rather than environmental issues.
MPCA Recommends Exempting until 2032 Intentionally Added PFAS in Electronic or Other Internal Components within the 11 Product Categories Prohibiting PFAS in 2025
The Minnesota Pollution Control Agency (MPCA) has posted a January 2025 report to the legislature regarding recommendations for products containing lead, cadmium, and perfluoroalkyl and polyfluoroalkyl substances (PFAS). During the previous legislative session, the legislature directed MPCA to support a report by January 31, 2025, with legislative recommendations related to the following chemicals and products:
The use of intentionally added PFAS in electronic or other internal components of upholstered furniture in the 2025 prohibition under Minnesota Statutes, Section 116.943;
The use of lead and cadmium in internal electronic components of keys fobs in the prohibition under Minnesota Statutes, Section 325E.3892;
The use of lead in pens or mechanical pencils included in the prohibition under Minnesota Statutes, Section 325E.3892; and
The use of intentionally added PFAS in firefighting foam used in fire suppression systems installed in airport hangers in the prohibitions under Minnesota Statutes, Section 325F.072.
The MPCA report recommends that the legislature grant an exemption until 2032 for the use of intentionally added PFAS in electronic or other internal components in the 11 product categories that prohibit intentionally added PFAS in 2025. MPCA notes that internal components pose less threat of direct human exposure and that products within the 11 categories often use similar electronic or other internal components as products outside these categories. MPCA states that there are currently limited available alternatives to PFAS for many electronic or other internal component applications and an exemption will allow manufacturers time to find, develop, test, and implement PFAS-free safer alternatives. According to MPCA, an exemption “will give manufacturers of products within the 11 categories the same amount of time provided to manufacturers of products outside these categories (until 2032) to find and implement PFAS-free electronic or other internal components.”
Tax Information for Those Impacted by the Los Angeles County Wildfires
As a Los Angeles-based firm, we are deeply saddened by the devastation caused by the recent wildfires. We remain committed to supporting our clients and friends during this time and are hopeful that the general tax information outlined below may be helpful as those affected by the wildfires begin to consider plans to recover and rebuild.
On January 10, the IRS announced tax relief for individuals and businesses affected by the Los Angeles County wildfires, following the disaster declaration issued by FEMA. The governor announced relief related to California state taxes on January 11, and on January 14, 2025, it was announced that eligible property owners may qualify for property tax relief in Los Angeles County.
Extensions
The IRS and the California Franchise Tax Board (FTB) extended certain filing and payment deadlines falling on or after January 7, 2025 and before October 15, 2025, to October 15, 2025. For individuals and businesses with an IRS address of record located in Los Angeles County, the IRS will automatically provide relief. If a taxpayer resides outside of Los Angeles County but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area (for example, non-resident partners of Los Angeles partnerships), that taxpayer will need to contact the IRS disaster hotline at 866-562-5227 to request the extension.
The October 15, 2025 deadline applies to:
Individual income tax returns and payments normally due on April 15, 2025 (federal and state).
2024 contributions to IRAs and HSAs (and note, additional relief might be available in the form of special disaster distributions or hardship withdrawals; each plan or IRA has specific rules).
Quarterly payroll and excise tax returns normally due on Jan. 31, April 30, and July 31, 2025.
Calendar-year partnership and S corporation returns normally due on March 17, 2025 (federal) and PTE tax returns and elective tax payments normally due on March 15 and June 15, 2025 (state).
Calendar-year corporation and fiduciary returns and payments normally due on April 15, 2025 (federal and state).
Calendar-year tax-exempt organization returns normally due on May 15, 2025 (federal and state).
A 2024 estimated tax payment normally due on Jan. 15, 2025, and estimated tax payments normally due on April 15, June 16, and Sept. 15, 2025 (federal and state).
Certain other time-sensitive actions, including those related to Section 1031 exchanges, as discussed below.
Note that while an extension will prevent penalties as long as taxes are paid before the October 15 deadline, the extension does not prevent interest from accruing.
The IRS and the FTB also have provided affected taxpayers until Oct. 15, 2025, to perform other time-sensitive actions described in Treas. Reg. § 301.7508A-1(c)(1) and Rev. Proc. 2018-58, including specific relief pertaining to like-kind exchanges of property (including for taxpayers who are not otherwise “affected taxpayers” under the general relief rule).
Finally, the California Department of Tax and Fee Administration (CDTFA) has granted a three-month extension on the ability to file and pay taxes or fees for various CDTFA-administered programs, including sales and use tax returns for certain taxpayers, as well as various programs related to natural resources.
Casualty Losses
Affected taxpayers will be able to claim fire-related casualty losses on their federal income tax return on either their current or prior year tax returns (i.e., a taxpayer can elect to treat the loss as offsetting its 2024 income). A casualty loss is typically limited to a tax basis, rather than fair market value, but taxpayers should carefully consider whether a casualty loss deduction makes sense for them, because it cannot be claimed if tax basis is expected to be reimbursed (e.g., through insurance or litigation proceeds). If any portion of a casualty loss deduction is reimbursed, a portion of the reimbursement will be treated as ordinary income (and not eligible for deferral).
For California state tax purposes, taxpayers can only take a casualty loss to the extent it exceeds 10% of adjusted gross income. It is unclear at this time whether a federal law signed at the end of last year will apply to these wildfires, eliminating this 10% adjusted gross income requirement for federal tax purposes.
For property tax purposes, taxpayers may be entitled to both a deferral of payment and monetary relief for property taxes already paid and future property taxes as a result of property being damaged or destroyed. The relevant forms are available on the Los Angeles County website under “Misfortune or Calamity,” linked here for convenience.
Insurance Proceeds and Casualty Gain
Certain insurance proceeds resulting from federally declared disasters (such as certain proceeds for temporary living expenses or personal property, in either case, resulting from a loss of principal residence) can be received tax-free. However, other insurance proceeds may be treated as sales proceeds, resulting first in a reduction in basis of one’s property and beyond that, taxable gain (a “casualty gain”). For the loss of a principal residence, to the extent a taxpayer has casualty gain, up to $250,000 for single taxpayers and $500,000 for married taxpayers can be excluded from income.
Tax-Deferred Exchanges
Taxpayers, including businesses, may be able to defer gain under Section 1031, Section 1033 or possibly both.
Section 1033 allows tax deferral when a taxpayer’s property has been involuntarily converted, including in circumstances involving a federally declared disaster. An election under Section 1033 can allow indefinite deferral on casualty gain. However, the rules relating to involuntary conversions, including the deadlines, can be complex. For example, for a principal residence, the casualty gain must be reinvested within 4 years of the first year in which casualty gain was realized. In many circumstances, a taxpayer can receive insurance proceeds and sell underlying land and use all of the proceeds as part of a Section 1033 exchange.
In certain circumstances, taxpayers may determine utilizing Section 1031 makes more sense, which allows for similar tax deferral. Generally speaking, Section 1031 is more limited as it is only available to taxpayers that hold their real property for use in a trade or business or for investment, and proceeds received as part of a Section 1031 exchange must be reinvested within six months.
Property Tax Relief
For any taxpayer that has had their property destroyed or damaged and decides to rebuild, the rebuilding will not cause an additional “new construction” assessment provided that the property after reconstruction is “substantially equivalent” to the property prior to the damage or destruction. Any reconstruction of real property, or portion thereof, that is not substantially equivalent to the damaged or destroyed property, shall be deemed new construction and only that portion that exceeds substantially equivalent reconstruction shall be newly assessed.
Similarly, any taxpayer that has had their property substantially damaged or destroyed by the fire may transfer their base-year value to a comparable property within the same county, which comparable new property must be acquired or newly constructed within five years after the disaster. Replacement property is comparable to the property damaged or destroyed if it is similar in size, utility, and function to the property which it replaces. As long as the replacement property is not worth more than 120 percent of the value of the damaged or destroyed property (immediately prior to the disaster), the base value will transfer with no adjustments. If the replacement property costs more than 120 percent of the value of the damaged or destroyed property, then the excess will be added to the base-year value.
For taxpayers who had their principal residence damaged or destroyed by the wildfire, they may transfer their base-year value to a replacement dwelling anywhere in California that is purchased or newly constructed by that person as their principal residence within two years of the sale of the original property.