Texas Railroad Commission’s New Environmental Rules: A Step Toward Sustainability or Business as Usual?
In 1984, while Ronald Reagan was securing a landslide reelection and Apple introduced the Macintosh, the Railroad Commission of Texas (RRC) last updated the state’s primary oil and gas waste regulations. Now, four decades later, the RRC is revisiting these rules to better align them with modern industry practices and rising demands for stronger environmental protections.
Oil and gas extraction methods have evolved dramatically since the 1980s. Hydraulic fracturing (fracking) and horizontal drilling have sparked a production boom, significantly increasing both the volume and complexity of waste generated. This waste includes drilling fluids, fracking chemicals, and produced water—all of which, if mishandled, pose serious risks to soil, water, and public health.
While most oil and gas wastes are exempt from federal hazardous waste laws under the Resource Conservation and Recovery Act, states maintain broad authority to regulate their disposal and management. In Texas, the RRC oversees this responsibility. However, increasing environmental concerns and evolving industry practices have driven calls for regulatory updates, resulting in the recent revisions in the RRC’s rules.
Key Changes in the New Rules
The new rules, published in the Texas Administrative Code (“TAC”) on January 3, 2025, reflect a multiyear effort by the RRC to modernize waste management, encourage and expand recycling, and strengthen groundwater protections. These changes aim to balance industry needs with environmental stewardship, though their impact will depend on implementation and enforcement when they take effect on July 1, 2025.
Oil and Gas Waste Pits and Produced Water Recycling Pits (16 TAC §§ 4.113-114). A major change consolidates provisions from Statewide Rule 8 (“Disposal of Oil and Gas Waste”) and Rule 57 (“Produced Water Recycling”) into a new subchapter. Key updates include:
Authorization for certain pits (e.g., reserve and mud circulation pits) to operate without a specific RRC permit, with new registration requirements.
Updated standards for pit liners, groundwater monitoring, and closure procedures.
Stricter location restrictions, construction standards, and closure requirements for produced water recycling pits.
Produced Water Recycling (16 TAC § 4.112). One of the most significant shifts is facilitating produced water recycling. Operators can recycle produced water for reuse in drilling, fracking, and completion operations without requiring an RRC permit. However, they must still meet specific design, groundwater monitoring, and siting requirements. This change reflects growing interest in recycling as a solution to mitigate environmental risks, especially in areas like the Permian Basin, where seismicity concerns are increasing.
Transportation of Oil and Gas Waste (16 Tex. Admin. §§ 4.190-195). The new rules introduce enhanced accountability for waste transportation. Notable provisions include:
Detailed manifests for waste characterization.
Special waste authorizations.
Enhanced recordkeeping for waste haulers, improving tracking and compliance.
Public Participation (16 Tex. Admin. § 4.125). To boost transparency and public involvement, the new rules require that affected individuals and entities be notified about permit applications for waste facility construction. The notice must include details about the application, the protest process, and the location of the proposed facility. Notices must be sent via registered or certified mail, and recipients have 30 days to protest. If a protest is filed, the applicant must respond within 30 days. If no protests are received, the permit may be issued. Protests may lead to a hearing, with notice given to all affected parties.
Recycling Drill Cuttings (16 Tex. Admin. §§ 4.301-302)The rules aim to promote recycling of drill cuttings for beneficial use. Operators must comply with specific treatment and recycling requirements. The Commission may approve permits for using treated drill cuttings in commercial products like lease pads or roads, provided the products meet engineering standards, ensure public safety, and avoid water pollution.
Reactions to the New Rules
The revisions have sparked mixed reactions. For the oil and gas industry, the rules provide much-needed clarity, particularly on produced water recycling and waste transportation. However, many changes merely codify existing practices—like new registration requirements for certain pits—so their day-to-day impact may be minimal. That said, the ability to recycle produced water presents an opportunity for operators to reduce disposal costs and environmental impacts, especially in areas with limited disposal well capacity.
Environmental groups and landowners, however, view the revisions as insufficient. While the new rules offer clearer guidance on waste management and promote recycling, critics argue they fall short in addressing critical environmental issues. Concerns include a lack of more stringent regulations on pit liners, groundwater monitoring, and disposal in sensitive areas. Environmental advocates are also frustrated by the RRC’s decision not to require operators to notify landowners about waste disposal activities on their property. Despite these concerns, the RRC maintains it lacks the statutory authority to require such notifications or consent.
Practical Considerations for Landowners
Landowners whose properties are affected by oil and gas operations may need to take proactive steps to protect their interests. Since mandatory landowner notification is not required, surface owners should negotiate specific lease provisions, such as:
Restrictions on the types of waste disposed of on their land.
Designated disposal locations and management methods.
Operator notification before disposal activities—or even consent for certain types of waste disposal.
Landowners may also seek additional safeguards, such as stricter pit liner requirements, enhanced groundwater monitoring, or more comprehensive closure plans for waste pits.
Looking Ahead
The RRC’s overhaul of its oil and gas waste management regulations marks a significant step toward modernizing Texas’s regulatory framework in response to changing industry practices and environmental concerns. However, the real impact of these revisions will depend on how they are implemented and enforced when they take effect on July 1, 2025. Stakeholders—from industry operators to environmental advocates—should carefully consider the potential implications. For landowners, consulting legal counsel may be wise to ensure their interests are protected under the new rules. These final regulations could shape Texas’s oil and gas industry and environmental stewardship for years to come.
Advance Parole Process Unaffected by Trump EO, But Confusion + Delay Expected Anyway
Humanitarian parole programs for individuals from Cuba, Haiti, Nicaragua and Venezuela have been cancelled by President Trump’s Executive Order (EO) on Securing Our Borders. USCIS’s Uniting for Ukraine application process has also been paused. To date, although it has been reported that Afghan refugees have been removed from flight manifests, the Afghan parole program remains active on the USCIS website.
Despite the suspensions, individuals with valid advance parole documents (Forms I-512) may still board flights returning to the United States based upon guidance from the CBP’s Carrier Liaison Program (CLP). The CLP provides guidance to airlines, including guidance on requirements for allowing foreign nationals to board. Airlines are fined if individuals that they allow to board do not have the documentation required to enter the United States. The CLP has stated that the EO does not affect individuals holding valid I-512 Advance Parole documents and they can board airlines returning to the United States. This would also include DACA, TPS and general adjustment of status advance paroles.
Keep in mind that it takes time for guidance to be distributed and implemented. That means there may be confusion at airline counters and at the border. At best, entrance on advance parole is discretionary so individuals should be prepared for long waits, travel with all their relevant documentation and consider avoiding travel that is not necessary until the rules have been “tested.”
Coast Guard Issues Final Maritime Cybersecurity Rule: Key Requirements and Implementation Timeline
On January 17, the US Coast Guard released its much-anticipated final rule on cybersecurity in the US Marine Transportation System, which establishes mandatory minimum cybersecurity requirements for the maritime sector. The new regulations are effective July 16, 2025 and represent the most significant maritime cybersecurity regulations to date. Affected entities should review their existing policies, identify any gaps or deficiencies, and implement compliance procedures.
Jones Walker’s 2022 Ports and Terminals Cybersecurity Survey data was cited in the final rule, helping to shape some of the new regulations.
I. Scope and Applicability
The primary goal of the final rule is to enhance the cybersecurity of the US Marine Transportation System. The new regulations establish minimum mandatory requirements for US flag vessels, Outer Continental Shelf (OCS) facilities, and facilities subject to the Maritime Transportation Security Act of 2002. The rule aims to address the increasing risks posed by cyber threats due to the growing reliance on interconnected digital systems within the maritime industry. It emphasizes both preventing cyber incidents and preparing to respond to them effectively.
The rule applies to:
a. US flag vessels subject to 33 CFR part 104
33 CFR part 104 applies to:
Cargo vessels greater than 100 gross tons
Commercial passenger vessels certified to carry more than 150 passengers
Offshore Supply Vessels (OSVs)
Mobile Offshore Drilling Units (MODUs)
Towing vessels more than 26 feet long engaged in towing certain dangerous cargo barges
Cruise ships and passenger vessels carrying more than 12 passengers on international voyages
b. Facilities subject to 33 CFR part 105
These facilities are covered by the regulation:
Container terminals
Chemical facilities with waterfront access
Petroleum terminals
Cruise ship terminals
Bulk liquid transfer facilities
LNG/LPG terminals
Barge fleeting facilities handling dangerous cargo
Facilities that receive vessels carrying more than 150 passengers
Marine cargo terminals otherwise subject to the Maritime Transportation Security of 2002
c. OCS facilities subject to 33 CFR part 106
These OCS facilities are affected:
Offshore oil and gas production platforms
Offshore drilling rigs
Floating production storage and offloading units (FPSOs)
Deepwater ports
Offshore wind energy facilities
Offshore loading/unloading terminals
II. Core Requirements
The cybersecurity plan must include measures for account security (e.g., automatic account lockout, strong passwords, multifactor authentication), device security (e.g., approved hardware/software lists, disabling executable code), and data security (e.g., secured logging, data encryption). Entities must also create or implement the following:
a. Cybersecurity Officer — Each covered entity must designate a Cybersecurity Officer (CySO) responsible for implementing and maintaining cybersecurity requirements. The rule allows for designation of alternate CySOs and permits one individual to serve multiple vessels or facilities, providing welcome flexibility for operators.
b. Cybersecurity Plans and Assessments — Organizations must develop and maintain the following:
A comprehensive Cybersecurity Plan
A separate Cyber Incident Response Plan
Regular cybersecurity assessments
Plans must be submitted to the Coast Guard for review within 24 months of the rule’s effective date.
c. Training and Exercises — The rule mandates the following:
Cybersecurity training for all personnel using IT/OT systems beginning July 17, 2025
Two cybersecurity drills annually
Regular penetration testing aligned with plan renewal cycles
d. Technical Controls — Required security measures include the following:
Account security controls including multifactor authentication
Device security measures and approved hardware/software lists
Data encryption and secure log management
Network segmentation and monitoring
Supply chain security requirements
III. Implementation Timeline
Key phase-in compliance dates include:
Rule effective date: July 16, 2025
Training requirements begin: July 17, 2025
Initial cybersecurity assessment: Due by July 16, 2027
Cybersecurity Plan submission: Due by July 16, 2027
The Coast Guard is seeking comments on extending implementation periods for the new requirements by two to five years for US flag vessels. Comments are due no later than March 18, 2025. After review of these comments, the Coast Guard may issue a future rule to allow additional time for US flag vessels to implement the new regulations.
IV. Harmonization with Other Requirements
The Coast Guard has worked to align these requirements with other cybersecurity regulations, including the Cybersecurity and Infrastructure Security Agency’s (CISA) Cyber Incident Reporting for Critical Infrastructure Act of 2022 reporting requirements. The rule establishes the National Response Center (NRC) as the primary reporting channel for maritime cyber incidents, simplifying compliance for regulated entities.
V. Some Basic Questions and Answers
What are the mandatory cybersecurity measures outlined in the rule? Owners and operators must implement a range of cybersecurity measures that are based on “cybersecurity performance goals” developed by CISA. This includes vulnerability identification of critical IT and OT systems, addressing known exploited vulnerabilities in those critical systems, and conducting penetration testing in conjunction with renewing the Cybersecurity Plan.
What constitutes a reportable cyber incident, and to whom do I report it? A reportable cyber incident is defined as any incident leading to substantial loss of confidentiality, integrity, or availability of a covered system; to disruption to business operations; to unauthorized access to nonpublic personal information of a large number of individuals; or to operational disruption of critical infrastructure. Such an incident also includes any event that may lead to a “transportation security incident.” Such incidents must be reported to the NRC.
What is the Coast Guard’s approach to compliance and enforcement of this new rule? The rule takes a performance-based approach, meaning that it focuses on outcomes rather than prescribing specific technical solutions, thus providing some flexibility to the entities in meeting the requirements. However, the rule does not specify the methods of enforcement, and the Coast Guard is currently working with policymakers to define the compliance criteria. The Coast Guard will address those questions at upcoming symposiums. Noncompliance with the rule could lead to penalties, legal action, and financial losses.
Is there any flexibility or possibility of waivers in complying with this rule? Yes. After completing a cybersecurity assessment, owners and operators can seek a waiver or an equivalence determination for the requirements, based on the waiver and equivalency provisions of 33 CFR parts 104, 105, and 106. Owners and operators must also notify the Coast Guard of temporary deviations from the requirements.
VI. Key Takeaways
Begin preparation now — the 24-month implementation period will pass quickly given the scope of required changes.
Evaluate current cybersecurity staffing and capabilities against new CySO requirements.
Review existing security measures against the detailed technical requirements.
Plan for increased training and exercise obligations.
Consider whether to comment on the proposed implementation extension for vessels.
Our cross-disciplinary team has extensive experience helping clients navigate complex regulatory requirements. We can assist with:
Gap analysis against new requirements
CySO program development
Cybersecurity Plan creation and review
Training program development
Technical compliance assessment
LNG by Rail: The D.C. Circuit Vacates a DOT Rulemaking and Outlines a Path for Challenges Yet to Come
In Sierra Club v. United States Dep’t of Transportation[1], a panel of the United States Court of Appeals for the District of Columbia Circuit (“D.C. Circuit”) vacated and remanded a final rule[2] issued by the Department of Transportation (“DOT”) permitting the transportation of liquefied natural gas (“LNG”) in approved rail cars. The final rule was subsequently stayed and never took effect.
DOT Rulemaking & the Sierra Club Decision
The rulemaking proceeding began with an executive order published on April 10, 2019. Then President Trump directed the Secretary of Transportation to propose a rule to permit LNG to be transported in approved rail cars within 100 days from the date of the executive order and to finalize the rule within thirteen months.[3] DOT subsequently issued a proposed rule that would permit the transportation of LNG by rail in DOT-113 rail cars. The proposed rule proposed no limit on the number of cars to be used to transport LNG on a single train and imposed no mandatory speed limit. The proposed rule also included a preliminary environmental assessment finding that the proposed rule would have no significant environmental impact.[4]
The proposed rule was challenged by environmental organizations, states, and the National Transportation Safety Board, all citing potentially grave risks related to potential explosions or fires related to transportation of LNG by rail and separately arguing that the proposed rule failed to mitigate those risks.[5]
In July 2020, the DOT modified the final rule in several respects. The Court summarizes the changes as follows:
The final Rule authorizes transportation of LNG by rail, but it differs from the Proposed Rule in several respects. First, the final LNG Rule imposes new requirements for the outer tank of approved railcars: The outer tank must be both thicker and made of stronger steel than that used in existing 120W cars. Specifically, the tanks must be 9/16″ thick, rather than the current minimum of 7/16″. The outer tank also must be made of TC-128 Grade B normalized steel, which is less likely to crack or puncture than the steel typically used in DOT-113 cars. Second, the Pipeline and Hazardous Materials Safety Administration (“PHMSA”) boosted the maximum filling density from 32.5% to 37.3%. Finally, the LNG Rule includes additional operating controls to promote safety: (1) Tank cars carrying LNG must be equipped with remote monitoring devices for detecting and reporting each car’s internal pressure and location; (2) Any train with at least 20 LNG tank cars in a continuous block or with 35 such cars throughout the train must be equipped with advanced braking capabilities; and (3) PHMSA adopted the routing requirements of 49 C.F.R. § 172.820, which require railroads to consider safety risk factors, such as population density, when analyzing potential routes for transporting LNG.[6]
The final rule reiterated the finding that the rule would have no significant environmental impact. As a result, no environmental impact statement was prepared. The petitions for review that are the subject of the Sierra Club case followed.
The Court determined that the case was ripe for review even though the rule had never been finalized and was at the time of the decision stayed.[7]
The Court affirmed that each class of petitioners had requisite standing to pursue its appeal.[8]
On the merits, the Court found that the final rule authorizing transportation of LNG by rail was arbitrary and capricious:
[Petitioners] claim that PHMSA failed to take a hard look at how the LNG Rule would affect public safety and therefore violated [National Environmental Policy Act (“NEPA”)]. In support of their argument, they note that PHMSA disregarded the checkered safety record of the 120W tank car and ignored the risks of including numerous cars of LNG within a single train without any required speed limit. We agree and vacate the LNG Rule.[9]
The Court’s decision in this respect was very narrow. The error was not preparing an Environmental Impact Study (“EIS”). The Court explained:
In this case, PHMSA determined that an EIS was not required because authorizing LNG transport by rail under the LNG Rule would have no significant impact on the environment. But the record reflects that transporting LNG by rail poses a low-probability but high-consequence risk of a derailment that could seriously harm the environment: A breach of one or more rail cars containing LNG could cause an explosion, an inferno, or the spread of a freezing, flammable, suffocating vapor cloud. The real possibility of such catastrophes significantly affects the quality of the human environment. For that reason, NEPA required PHMSA to prepare an EIS.[10]
The Court reminded observers that the scope of NEPA review is itself narrow:
NEPA is “primarily information-forcing,” so it “directs agencies only to look hard at the environmental effects of their decisions, and not to take one type of action or another.” Sierra Club v. FERC, 867 F.3d 1357, 1367 (D.C. Cir. 2017) (cleaned up). After preparing an EIS, the agency will be best positioned to determine whether the environmental risk is worth taking. Any future legal challenges to the substance of that decision would then be brought under some other statute, not NEPA. Because we vacate the instant LNG Rule due to PHMSA’s failure to prepare an EIS, such questions are left for another day.[11]
Takeaways for Future Regulatory Reforms
The challenges the Court elected not to address are also significant. These include variations on the argument that the DOT’s modification to the standards applied to the cars to be used to transport LNG by rail after the notice of proposed rulemaking was issued violated the notice and comment provisions of the Administrative Procedure Act and the public participation requirement of NEPA, as well as arguments related to the failure to take into account environmental justice concerns and the impact of LNG transport by rail on greenhouse gas emissions. At least some of these challenges (perhaps variations of all) could be deployed against future regulatory reform efforts. For example, in Liquid Energy Pipeline Ass’n v. FERC[12], a panel of the D.C. Circuit vacated a Federal Energy Regulatory Commission (“FERC”) oil pipeline index rule that was modified on rehearing by FERC without being subjected to another round of notice and comment rulemaking.
For those industry stakeholders who support, wholly or in part, regulatory reform initiatives, this decision highlights the need to anticipate and to address alleged administrative process flaws at an early stage in policy development to ensure that any such concerns are fully addressed and resolved on the administrative record. The failure to do so can delay or undermine entirely proposed changes, regardless of their public policy bona fides. It will likely not be enough to wait and hope that affected departments and agencies who are managing multiple initiatives and challenges will have the time and resources to develop a full and adequate administrative record that can withstand judicial review. All affected stakeholders need to take affirmative steps to ensure that procedural missteps do not take on outsized consequences.
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[1] No. 20-1317, 2025 WL 223869 (D.C. Cir. Jan. 17, 2025).
[2] Hazardous Materials: Liquefied Natural Gas by Rail, 85 Fed. Reg. 44,994 (July 24, 2020).
[3] Sierra Club at *2 (citing Executive Order 13,868, 84 Fed Reg. 15,495, 1497 (April 10, 2019)).
[4] Id. at **2-3.
[5] Id.
[6] Id. at *3
[7] The Court also found that the stay did not moot the case. “Voluntary cessation does not moot a case unless it is absolutely clear that the allegedly wrongful behavior could not reasonably be expected to recur.” Id. at 5 ( citing West Virginia v. EPA, 142 S.Ct. 2587, 2602 (2022)).
[8] Id. at **6-7.
[9] Id. at *7.
[10] Id. at *8.
[11] Id. *10, n. 6.
[12] 109 F.4th 543 (D.C. Cir. 2024).
Essentials Every Teen Should Have in Their Car
As Teen Driving Awareness Month rolls around this January, it’s another reminder for young drivers to equip their vehicles with essential items for their safety and comfort. Whether they’re going to school, hanging out with friends, or setting out on a road trip, being prepared can make a stressful situation more manageable and prevent issues on the road.
Below is a list of necessities every teen should keep in their car:
1. Must-Haves
License, registration, and insurance: Keeping important documents organized and easily accessible is key, especially if your teen gets pulled over. Vehicle registration and proof of insurance should be kept in the glove compartment, and they should always keep their driver’s license in their wallet.
Phone charger: A charged phone is necessary for navigation and for them to always have a way to reach you and authorities.
Blanket: If a breakdown happens and it is freezing outside, it’s important to keep a blanket in the vehicle if the driver must wait for roadside assistance, which can sometimes be up to an hour or longer.
2. Safety Gear
First-aid supplies: Create a first-aid kit that includes band-aids, hand sanitizer, alcohol and antiseptic wipes, antibiotic ointment, and medications (for allergies, motion sickness, or pain relief.)
Flashlight: A reliable flashlight with working batteries can be helpful in low-light situations.
Seatbelt cutter and window breaker: These should be kept in the door next to the driver’s seat or in the glove compartment.
3. Car Maintenance Supplies
Jumper cables and emergency battery booster: Dead batteries are common, and jumper cables can help get a vehicle back on the road. If there aren’t any other motorists to assist with jumping their battery, emergency battery boosters are ideal.
Tire pressure gauge, inflator, and tire sealant: If your teen notices their tire pressure is low or gets a flat tire, these small, inexpensive tools can temporarily help until arriving at an auto shop.
Spare tire and jack: Show your teen how to change a tire in case of emergencies, or have them watch a YouTube video, so they are prepared in case of emergency.
Emergency contact list: A physical contact list or saved phone numbers, including roadside assistance numbers, your insurance company, and a local car repair shop, can be vital in emergencies.
Ice scraper: If you live in a cold climate, an ice scraper is a lifesaver to clean off your car and make it safer for the road.
4. Personal Comfort and Convenience Items
Umbrella: When it’s raining outside, the last thing anyone wants to forget is an umbrella.
Sunglasses: Protecting their eyes from the sun is essential and prevents them from squinting, which could affect their driving.
Water bottle: Having a sealed water bottle in case of a vehicle breakdown or vehicle maintenance is key.
Conclusion
Stocking their car with these essential items can help your teen driver feel safer, more confident, and better prepared for the road ahead. Teen Driving Awareness Month is a reminder for young drivers to prioritize safety and responsibility through good driving habits and preparedness.
Top 10 Safe Driving Tips for Teens
Driving is an exciting milestone for many teenagers, but it also comes with significant responsibilities and preparation. According to the Governors Highway Safety Association (GHSA), young drivers are almost four times more likely to be involved in a fatal car crash. January is Teen Driver Awareness Month and to ensure your child stays safe on the road, here are some essential driving tips to teach them:
1. Always Buckle Up
Make it a habit to wear your seatbelt, regardless of how short the trip is. Seatbelts are one of the simplest and most effective ways to protect yourself in an accident.
2. Stay Focused
Distractions can come from your cell phone, passengers, or even the radio. Avoiding distractions can be challenging, so it’s crucial to keep your attention on the road. If you need to make a call or send a text, pull over safely first.
3. Follow the Speed Limit
Speed limits are designed for your safety as well as everyone else on the road. Following them not only keeps you safe, but also gives you more time to react to unexpected situations.
4. Avoid Driving Under the Influence
Never get behind the wheel if you’ve been drinking alcohol or using drugs. Plan for a designated driver or use a rideshare service if you do not plan on staying sober. Your safety—and the safety of others—depends on it.
5. Get Enough Sleep
Driving while sleep-deprived can be just as dangerous as driving under the influence of alcohol or drugs. Poor sleeping habits can lead to fatigue, which can cause a driver to fall asleep or lose focus behind the wheel. It’s important to pull over to a safe place and take a break if you feel drowsy.
6. Keep a Safe Distance
Maintain a safe following distance from the vehicle in front of you. Tailgating is never a good idea. This gives you enough time to react in case the car suddenly stops or brakes.
7. Use Turn Signals
Always signal your intentions when changing lanes, merging, or turning. This communicates your plans to other drivers and helps prevent accidents.
8. Be Cautious in Poor Conditions
Rain, snow, and fog can substantially impact visibility and traction. Slow down and drive with extra caution in these conditions, especially when there may be ice on the roads.
9. Know Your Vehicle
Familiarize yourself with your car’s features, including hazard lights, brakes, headlights, and windshield wipers. Understanding how your vehicle works can help you react better in emergencies and feel more comfortable while driving.
10. Be a Defensive Driver
Always be aware of your surroundings. Anticipate the actions of other drivers and be prepared to react appropriately. Stay alert and keep your eyes moving to scan the road.
Conclusion
By following these safe driving tips and teaching them to your teen, they can help ensure a safer driving experience for everyone on the road. Remember, responsible driving not only protects you but also those around you. Drive safe!
Foley Automotive Update 22 January 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 assessed automotive supply chain implications of the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) Final Rule prohibiting the import and sale of connected vehicles and related components linked to the People’s Republic of China (PRC) and Russia.
Foley & Lardner evaluated a number of import risks and opportunities under the Trump administration. On January 20, President Trump stated he intends to establish 25% tariffs on imports from Canada and Mexico on February 1. Trump on January 20 indicated he is “not ready” to impose universal tariffs, but he subsequently mentioned the possibility of a 10% tariff on Chinese imports, as well as potential levies on goods from the European Union. Multiple federal agencies were directed to evaluate U.S. trade policy and provide recommendations by April 1.
The Canadian government developed a draft list of C$150 billion ($105 billion) of U.S.-manufactured items that could be subject to retaliatory tariffs.
Unspecified sources in The Wall Street Journal suggest the Trump administration may pursue early renegotiation of the U.S.-Mexico-Canada (USMCA) trade agreement instead of maintaining the timetable for statutory review scheduled in 2026.
Foley & Lardner reviewed potential scenarios for the regulation of vehicle, engine, and equipment emissions under the new Trump administration.
President Trump on January 20 issued a broad Unleashing American Energy executive order directing all agencies to “immediately pause the disbursement of funds appropriated through the Inflation Reduction Act of 2022 (Public Law 117-169) or the Infrastructure Investment and Jobs Act (Public Law 117-58), including but not limited to funds for electric vehicle charging stations.” The same order called for “terminating, where appropriate, state emissions waivers that function to limit sales of gasoline-powered automobiles,” and it revoked an August 2021 executive order that established a goal for 50% of all new light vehicle sales to be zero-emissions by 2030.
S&P Global Mobility assessed the automotive industry impact of the executive orders and announcements issued during Trump’s first day in office. Shifting policies in areas that include tariffs and emissions regulations are expected to present notable risk to suppliers in 2025.
Bain & Company analysis published this month suggests a growing number of automotive suppliers are at risk for liquidity challenges that will require OEM support to prevent insolvency.
Cox Automotive estimates total U.S. new-light-vehicle inventory reached 2.88 million units at the start of January 2025, representing a 75 days’ supply industrywide and an increase of 18% compared to January 2024.
Foley & Lardner provided an overview of the National Highway Traffic Safety Administration’s (NHTSA) final rule formalizing its whistleblower program under the Motor Vehicle Safety Whistleblower Act.
Auto industry consolidation may increase in the coming decade, due to factors that include the high development costs for automated, autonomous and software-defined vehicles, as well as increased competition from Chinese automakers. Certain legacy automakers may experience a “slow contraction” as they eliminate brands, close plants, and exit underperforming markets.
Market research firm Gartner predicts several North American and European auto plants are at risk of being closed or sold in 2025, as automobile brands struggle with overcapacity and price competition.
The China Association of Automobile Manufacturers (CAAM) estimates China’s automotive exports rose 19% year-over-year in 2024, and exports across all engine types are forecast to rise by 5.8% YOY to 6.2 million units in 2025. CAAM predicts vehicle sales within China will increase 4.7% YOY to 32.9 million units in 2025, from sales of just under 23 million units in 2024. The nation’s domestic battery electric vehicle (BEV) and plug-in hybrid electric vehicle (PHEV) sales are projected to rise 24.4% in 2025, compared to a jump of 35.5% in 2024.
New vehicle registrations in the European Union reached 10.6 million units in 2024, up by 0.8% YOY, according to analysis from the European Automobile Manufacturers’ Association (ACEA). In 2024, registrations of BEVs fell by 5.9%, PHEV registrations fell by 6.8%, and hybrid-electric registrations increased 20.9%.
OEMs/Suppliers
Chrysler owner Stellantis, in a January 9 brief, asked a California federal judge to preserve its lawsuit accusing the United Auto Workers of making an unlawful strike threat. Foley & Lardner recently provided a summary of the ongoing litigation between Stellantis and the UAW and its local chapters regarding the union’s threats to strike if Stellantis does not move forward with planned investment in its U.S. operations.
BMW, GM and Volkswagen reported their China sales volumes declined by double-digit percentages YOY in 2024.
Toronto-based Markdom Michigan Plastics Inc. will invest over $19 million to establish its first U.S. operations near Lansing, Michigan later this year.
Italian automotive design and engineering company Italdesign will invest $20 million to establish its new U.S. headquarters in Bloomfield, Michigan.
Nikkei Asia reports certain automotive suppliers from China are evaluating manufacturing opportunities in the U.S. in pursuit of growth opportunities.
Aptiv announced plans to separate its electrical distribution systems business into a new company.
Following the departure of former CEO Carlos Tavares, Stellantis has pursued plans to strengthen its U.S. brands by reviving certain Jeep and Dodge models. Separately, a Stellantis executive indicated that certain vehicle production decisions are on hold while the automaker awaits clarity on the Trump administration’s policies.
Electric Vehicles and Low Emissions Technology
Global sales of BEVs and PHEVs rose 25% to over 17 million units in 2024.
Global BEV sales in 2025 are forecast to represent 16% of total light-vehicle sales, according to analysis from S&P Global Mobility and BloombergNEF. The combined category of BEVs and PHEVs could rise 30% YOY to 22 million units globally in 2025, for a global light-vehicle market share of 27%. However, S&P expects significant cuts in North American BEVs, “with over 1.7 million units of dedicated BEV nameplate production removed from projections through 2032.”
Automotive News provided a summary of EV launch delays and production pauses.
The California Air Resources Board withdrew an Environmental Protection Agency waiver request to implement the Advanced Clean Fleets (ACF) rule. The ACF regulation would have required medium- and heavy-duty vehicle fleets in the state to adopt a phased transition to zero-emission vehicles. A separate rule, the Advanced Clean Trucks regulation, requires manufacturers to only sell zero-emission trucks in the state beginning in the 2036 model year.
UBS estimates Tesla could earn over $1 billion in compensation this year from competing automakers that pursue regulatory credits in response to stricter emissions standards in the European Union. The ACEA recently stated the industry’s most urgent action for EU leaders is identifying a solution for “compliance burden relief” in regard to 2025 CO2 emissions targets in the bloc, and pursuing realistic decarbonization goals that are not “penalty-driven.”
Lithium-ion battery prices are projected to decline 3% to roughly $112 per kilowatt-hour in 2025, compared to declines of 20% in 2024 and 13% in 2023.
Robert Bosch LLC, a part of the Bosch Group, will invest $13 million to create a Regional Hydrogen Research and Development Hub at the company’s headquarters in Farmington Hills, Michigan.
GM signed a multibillion-dollar supply deal with Norway’s Vianode for synthetic anode graphite battery materials in North America beginning in 2027. The supply agreement is expected to reduce reliance on imports of the critical mineral from China.
Panasonic Energy intends to eliminate reliance on Chinese suppliers in its U.S. vehicle battery production.
Rivian closed a loan agreement with the U.S. Department of Energy for up to $6.6 billion to support construction of a new manufacturing facility in Georgia.
European battery recycling company Envergia Inc. will invest $33 million to establish an EV battery recycling facility in Detroit.
Reuters reports Ford joint venture battery plant workers in Kentucky petitioned the National Labor Relations Board for a vote to unionize with the UAW.
Canada’s federal rebate program for qualifying EV purchases was abruptly paused this month when the program ran out of funding ahead of its original termination date of March 31, 2025. The Incentives for Zero Emissions Vehicles program (iZEV) received consumer rebate claims that surpassed $1 billion last year.
The Associated Press provided an update on the electric vehicle production plans and investments of electronics manufacturers, including Foxconn, Huawei Technologies, and Xiaomi.
Autonomous Technologies and Vehicle Software
The proportion of vehicles impacted by software-related recalls rose to 42% in 2024, up from 13% in 2023, according to a report in Forbes. The article estimated that as little as 13% of software-related recalls can be resolved through over-the-air (OTA) updates.
Over half of the U.S. survey respondents in Deloitte’s 2025 Global Automotive Consumer Study would be willing to pay more for connected services such as collision detection, automatic detection of vehicles and pedestrians, and anti-theft tracking. However, a significant percentage of respondents do not trust automakers, dealers, financial services providers, insurance companies or other entities to manage drivers’ connected vehicle data, and this could present challenges for companies hoping to monetize certain connected services.
Autonomous tech company Aurora announced a strategic partnership with Continental and NVIDIA to deploy driverless trucks at scale, beginning in 2027.
Market Trends and Regulatory
The Federal Trade Commission (FTC) reached a settlement with GM over claims the automaker collected and shared drivers’ location and driving data without consent. As part of the settlement, the FTC will ban GM from sharing drivers’ data with consumer reporting agencies.
The Alliance for Automotive Innovation filed a petition with the U.S. Court of Appeals for the District of Columbia to overturn a Biden administration regulation that requires nearly all new light vehicles to be equipped with “no-contact” automatic emergency braking (AEB) systems by 2029. The finalized AEB rule “requires all cars be able to stop and avoid contact with a vehicle in front of them up to 62 miles per hour and that the systems must detect pedestrians in both daylight and darkness.”
The International Longshoremen’s Association (ILA) and the United States Maritime Alliance (USMX) averted a strike and tentatively agreed to a six-year labor contract covering U.S. East and Gulf Coast ports.
NHTSA is investigating reports of engine failures in certain GM models that could affect over 877,000 vehicles produced between 2019 and 2024.
Analysis by Julie Dautermann, Competitive Intelligence Analyst
Flying Taxis Brisbane 2032—Olympic Dream or Reality?
Over the next eight years as elite athletes train with their eyes on winning gold at the 2032 Olympic and Paralympic Games in Brisbane, there is another Olympic dream that edges closer to reality—that of flying taxis transporting competitors and spectators around South East Queensland to Olympic venues.
It was hoped that a small fleet of flying taxis would make their Olympic debut at the 2024 Paris Olympics. Unfortunately, flying taxis ‘missed the flight’ in Paris as there were delays in obtaining the requisite air safety certifications from the European Union Aviation Safety Agency (EASA) in time for the Games. Nevertheless, a test flight was carried out on the last day of the 2024 Olympics over Versailles palace, carrying luggage but no people.1
Now air taxi manufacturers have turned their hopes towards the Los Angeles Games in 2028.2 In a positive step forward, in October 2024, the US Federal Aviation Administration (FAA) issued a final rule for operating air taxis and how pilots will be trained to fly them.3 If flying taxis are successfully integrated into the airways for the Los Angeles Games, then in a further four years’ time, they could play an important role at the Brisbane Games.
Flying taxis could assist in managing congestion, with the RACQ Red Spot Congestion Survey 2023 raising concerns about how Queensland roads would cope in 2032.4 Flying taxis could also support Queensland’s tourism industry to allow fast access to regions from Brisbane. The recent Brisbane Olympic and Paralympic Games Arrangements and Other Legislation Amendment Act 2024 inserted a new requirement on the Games Independent Infrastructure and Coordination Authority that the Games deliver legacy benefits for all of Queensland, including regional areas.5
The last few months of 2024 have seen flying taxis progress further towards becoming a reality at the Brisbane Olympics:
In November 2024, it was announced that Archerfield Airport Corporation (AAC) and Wisk Aero had signed a Strategic Alliance Agreement to support electric vertical take-off and landing aircraft (eVTOL) air taxis at Archerfield Airport, Queensland. AAC Executive General Manager Rod Parry said at the time that the airport was uniquely well-placed to service the emerging advanced air mobility (AAM) sector given “Archerfield’s central location only 11 kilometres from Brisbane’s CBD and between three 2032 Olympic and Paralympic zones.” He further noted that “By the time of Brisbane’s Olympic Games, eVTOLs will likely be providing essential emissions-free transport services from vertiports around the region, keeping traffic off our busy roads and ensuring the efficient transfer of personnel to key sites throughout South East Queensland.”6
November 2024 also saw AMSL Aero announce that it had completed the first free flight of Vertiia, its passenger-capable, emission-free, long range eVTOL aircraft. The flight was heralded a landmark as it was the first made by an Australian-designed and built eVTOL.7
In December 2024, it was reported that three Civil Aviation Safety Authority (CASA) senior certification engineers had travelled to Santa Cruz, California, to look at how the FAA and Joby Aviation (Joby) are working together to certify the company’s eVTOL Advanced Air Mobility aircraft, the JAS4-1. Joby has applied for the aircraft to be certified by CASA for use in Australia. CASA is collaborating with other aviation authorities on standardising type certification of AAM aircraft.8
Also in December 2024, CASA issued its updated ‘RPAS and AAM Strategic Regulatory Roadmap’ which charts a path for safely integrating remotely piloted aircraft systems and advanced air mobility into Australian airspace and the future regulatory program.9
Over the last three years since it was announced that Brisbane would host the 2032 Games, a lot of conjecture has focused on the location of the stadium. Whichever venue is ultimately selected, to deliver an Olympic legacy that will be fit for purpose for years to come, the stadium and indeed any new infrastructure built for the Games like new hotels and transport hubs, will need to incorporate vertiports and other facilities to cater for flying taxis as they become a way of life in the future.
There is a complex web of Australian laws that govern the innovative technologies of AAM, including flying taxis. AAM operations fall within the domain of regulation by CASA to ensure aviation safety under the Civil Aviation Safety Act 1988 (Cth) and the Civil Aviation Safety Regulations 1988 (Cth).
Beyond CASA requirements, AAM operations and their vertiports are also governed by a broad but fragmented system of different pieces of legislation ranging from town planning to environmental, privacy, safety, property damage, personal injury and radio-communications.
We have extensive experience in assisting clients comply with CASA requirements and advising on the rapidly evolving legal framework that governs AAM operations.
Footnotes
1 Caroline Petrow-Cohen, ‘Aviation startup seeks to bring air taxis to Los Angeles in time for Olympics’, Los Angeles Times (online, 26 September 2024) https://www.latimes.com/business/story/2024-09-26/startup-seeks-to-bring-air-taxis-to-los-angeles
2 Jack Daleo, ‘Air Taxis Missed Paris Olympics Goal – Could They Soar in LA?’, Flying (12 August 2024) https://www.flyingmag.com/modern/air-taxis-missed-paris-olympics-goal-could-they-soar-in-la/
3 The Associated Press, ‘Flying air taxis move closer to US takeofff with issuing of FAA rule’, AP (online, 23 October 2024) https://apnews.com/article/faa-air-taxis-regulation-electric-aviation-85fd3c8b905a003eff64590afb5da339
4 Rebecca Borg, ‘Making things difficult: New survey finds QLD roads aren’t match fit for 2032 Olympics’, News.com.au (2 July 2023) https://www.news.com.au/national/queensland/news/making-things-difficult-new-survey-finds-qld-roads-arent-match-fit-for-2032-olympics/news-story/d2c63c828589679cb3772156dcb637be
5 S.53AE(b) Brisbane Olympics and Paralympics Games Arrangements Act 2021 (Qld)
6 ‘Archerfield Airport and Wisk Aero Sign Strategic Agreement’, Archerfield Airport News (21 November 2024) https://archerfieldairport.com.au/wp-content/uploads/2024/11/Archerfield-Airport-and-Wisk-Aero-Sign-Strategic-Agreement-1.pdf
7 ‘AMSL Aero Makes Aviation History by Completing Landmark Free Flight of Zero-Emissions Aircraft “Vertiia”, AMSL Aero (18 November 2024) https://www.amslaero.com/news/landmark-free-flight
8 Civil Aviation Safety Authority, ‘Collaboration on advanced air mobility’ (3 December 2024) https://www.linkedin.com/pulse/collaboration-advanced-air-mobility-umytc/?trackingId=WNO26%2BqGI0SQocvEDS44RA%3D%3D
9 Civil Aviation Safety Authority, ‘Our updated RPAS and AMM Strategic Regulatory Roadmap is now available’ (11 December 2024) https://www.linkedin.com/company/civil-aviation-safety-authority-casa-/posts/?feedView=all
US Treasury and IRS Unveil Proposed Regulations for Commercial EV Tax Credit, Sparking Questions on Recapture Provisions
On January 10, the US Treasury Department (Treasury) and the US Internal Revenue Service (IRS) released proposed regulations under Section 45W of the US Internal Revenue Code of 1986, as amended (the Code), which provides a US federal income tax credit (Commercial EV Credit) for the purchase and placing in service of a qualifying commercial electric vehicle (EV) after 2022 and before 2033. The Inflation Reduction Act of 2022 (P.L. 117-169) added the Commercial EV Credit to the Code along with two other EV tax credits: the current new clean vehicle tax credit under Code Section 30D (originally enacted in 2008) and the previously owned clean vehicle tax credit under Code Section 25E. The proposed regulations, among other things, would provide rules with respect to determining the qualification of an EV for the Commercial EV Credit, the amount of the Commercial EV Credit for a qualifying vehicle, and the situations in which the Commercial EV Credit would be unavailable or subject to recapture. Certain requirements of the Commercial EV Credit under Code Section 45W and under the proposed regulations are discussed more fully below.
The proposed regulations leave many important questions open, especially with respect to the recapture provisions. In the last section below, we discuss these issues and others that will likely become topics for taxpayer comments on the proposed regulations, which are due by March 17.
Commercial EV Credit, Generally
The Commercial EV Credit provides for a US federal income tax credit in an amount equal to the lesser of (x) 15 percent of the taxpayer’s basis in the commercial EV (30 percent in the case of a commercial EV not powered by a gasoline or diesel internal combustion engine (ICE)), or (y) the “incremental cost” of the commercial EV. The “incremental cost” of a “qualified commercial EV” is an amount equal to the excess of the purchase price for the EV over the purchase price of a comparable ICE vehicle in both size and use. The Commercial EV Credit for each qualified commercial EV cannot exceed $7,500 in the case of an EV with a gross vehicle weight rating (GVWR) of less than 14,000 pounds, or $40,000 in the case of a heavier commercial EV.
The Commercial EV Credit is a general business tax credit under Code Section 38. It is available for qualified commercial EVs that are “placed in service” by a taxpayer during the taxable year. The proposed regulations would provide that a qualified commercial EV is considered “placed in service” on the date that the taxpayer takes possession of the EV.
Qualified Commercial EVs
Under Code Section 45W, a “qualified commercial EV” for purposes of the Commercial EV Credit includes a commercial EV that:
is made by a qualified manufacturer that has registered as such with the IRS;
is acquired for use or lease by the taxpayer and not for resale;
either is a motor vehicle for purposes of title II of the Clean Air Act, or is manufactured primarily for use on public streets, roads and highways, or is mobile machinery;
either is propelled to a significant extent by an electric motor that draws electricity from a battery that has a capacity of not less than 7 kWh (for a commercial EV with a GVWR of less than 14,000 pounds) or 15 kWh (for a commercial EV with a higher GVWR) and is capable of being recharged from an external source of electricity, or is a motor vehicle that is a new qualified fuel cell motor vehicle; and
is used by the taxpayer in a trade or business in the United States (and, therefore, is subject to an allowance for depreciation).
Incremental Cost
Code Section 45W provides that the “incremental cost” of a qualified commercial EV is an amount equal to the excess of the purchase price for the EV over the purchase price of a comparable ICE vehicle in both size and use. The IRS released safe harbors for determining the incremental cost of commercial EVs in 2023 and 2024 (Notices 2023-9 and 2024-5).
Under the proposed regulations, incremental cost is determined by multiplying the manufacturer’s cost of the components necessary for the powertrain of the qualified commercial EV by the retail price equivalent (RPE) of that EV and then subtracting from that amount the product of the manufacturer’s cost of the powertrain of the comparable ICE vehicle and the RPE of the comparable ICE vehicle. The IRS stated that it intends to determine incremental cost based on the propulsion technologies of the vehicles while eliminating, to the extent possible, any cost differences unrelated to those propulsion technologies. The IRS further stated that it intends to issue RPE safe harbors for different vehicle market segments.
The proposed regulations provide that a vehicle powered solely by a gasoline or diesel ICE is comparable in size and use to a qualified commercial EV if the vehicles have substantially similar characteristics, including GVWRs, number of doors, towing capacity, passenger capacity, cargo capacity, mounted equipment, drivetrain type, overall width, height and ground clearance, and trim level. Where a qualified manufacturer produces an ICE vehicle and a qualified commercial EV of the same model and model year with substantially similar characteristics, such ICE vehicle will be the only comparable vehicle to determine incremental cost. If no comparable ICE vehicle exists for a qualified commercial EV, the proposed regulations would provide that a taxpayer may use the incremental cost safe harbors that the IRS may publish on an annual basis. If a qualified manufacturer discloses its incremental cost calculation for a qualified commercial EV, then taxpayers may rely upon that incremental cost calculation to determine the amount of Commercial EV Credit. In addition, taxpayers may rely on the incremental cost safe harbors in Notices 2023-9 and 2024-5, as any subsequent safe harbors issued by the IRS.
Previously Owned Commercial EVs
Unlike the EV tax credit under Section 30D, the Commercial EV Credit under Code Section 45W is not limited to “new” commercial EVs. The proposed regulations would provide that the incremental cost of a qualified commercial EV previously placed in service by another person is calculated by multiplying the incremental cost of that EV when new by a residual value factor determined by the age of the vehicle and as provided in the residual value factor table in the proposed regulations. The proposed regulations also would provide that the age of such a vehicle is determined by subtracting the vehicle’s model year from the calendar year in which the taxpayer places the vehicle in service as a qualified commercial EV.
Although a previously used commercial EV may be eligible for the Commercial EV Credit under Code Section 45W, the Commercial EV Credit is only allowed once per EV, and the Commercial EV Credit is not allowed for any EV for which an EV tax credit under Code Section 30D was previously allowed. A taxpayer claiming the Commercial EV Credit under Code Section 45W for an EV previously placed in service must maintain evidence in their books and records sufficient to establish that no EV tax credits under Code Sections 30D or 45W have been allowed previously with respect to the EV, and in the case of any prior EV tax credit allowed under Code Section 25E, the amount of such prior credit and the taxpayer must provide such information to the IRS upon request. That evidence may include signed attestations from all previous owners of an EV that a credit was not claimed with respect to that EV.
Ineligibility for the Commercial EV Credit and Recapture
Cancelled Sales. If the sale of a qualified commercial EV is cancelled before the taxpayer places the EV into service, then the proposed regulations would provide that the taxpayer cannot claim the Commercial EV Credit for that EV and a subsequent buyer of that EV will not be required to apply the proposed residual value rules applicable to previously owned commercial EVs in determining the incremental cost of the EV.
Returned Commercial EVs. If a taxpayer returns a qualified commercial EV to the seller within 30 days of placing that EV into service, then the proposed regulations would provide that the taxpayer cannot claim the Commercial EV Credit for the returned EV, the returned EV may still be eligible for the Commercial EV Credit, and a subsequent buyer of that EV must apply the proposed residual value rules applicable to previously-owned commercial EVs in determining the incremental cost of the EV.
Commercial EVs Sold Within 30 Days. If a taxpayer sells a qualified commercial EV within 30 days of placing that EV into service, then the proposed regulations would provide that the taxpayer is treated as having acquired the EV with the intent to resell, the taxpayer cannot claim the Commercial EV Credit for that EV, the EV may still be eligible for the Commercial EV Credit, and a subsequent buyer must apply the proposed residual value rules applicable to previously-owned commercial EVs in determining the incremental cost of the EV.
Commercial EVs With Less Than 100 Percent Business Use. If a taxpayer’s trade or business use of a qualified commercial EV for the taxable year that the taxpayer places the EV into service is less than 100 percent of the taxpayer’s total use of that EV for that taxable year (other than incidental personal use, for example, a stop for lunch on the way between two job sites), including because the EV is sold or otherwise disposed of, then the proposed regulations would provide that the EV is ineligible for the Commercial EV Credit.
General 18-Month Recapture Rule. If a taxpayer ceases to use the qualified commercial EV for 100 percent trade or business use during the 18-month period beginning on the date that the EV is placed in service — including because the EV is sold or otherwise disposed of — then the taxpayer cannot claim the Commercial EV Credit for that EV (and if the taxpayer already claimed the Commercial EV Credit for that EV then the credit is recaptured), the EV may still be eligible for the Commercial EV Credit. A subsequent buyer must apply the proposed residual value rules applicable to previously owned commercial EVs in determining the incremental cost of the EV.
Reporting Requirements
Code Section 45W provides that no Commercial EV Credit is allowed for an EV unless the taxpayer includes the vehicle identification number (VIN) of such EV on the taxpayer’s tax return for the taxable year the EV is placed in service by the taxpayer. To report the VIN, the proposed regulations would provide that the taxpayer must attach to its US federal income tax return for the year the qualified commercial EV is placed in service, a completed IRS Form 8936, Clean Vehicle Credits, along with a completed IRS Form 8936 Schedule A, Clean Vehicle Credit Amount.
The proposed regulations would provide that the Commercial EV Credit may only be claimed by a single taxpayer, and the credit cannot be allocated or prorated if a qualified commercial EV is placed in service by multiple individual taxpayers who do not file a joint tax return. In the case of a qualified commercial EV placed in service by a grantor trust, the Commercial EV Credit is allocated among the trust’s grantors. In the case of a qualified commercial EV placed in service by a partnership or S corporation, the Commercial EV Credit is allocated among the partners or shareholders under the partnership tax rules or S corporation rules, respectively.
Comments and Public Hearing
Written or electronic comments on the proposed regulations under Code Section 45W must be received by March 17, 2025. A public hearing on the proposed regulations is scheduled for April 28, 2025.
Effective Date
The proposed regulations under Code Section 45W will generally apply to qualified commercial EVs placed in service in taxable years ending after the date that final regulations are published in the Federal Register and to taxpayers’ taxable years ending after the date that final regulations are published in the Federal Register.
Further Considerations and Subjects for Taxpayer Comments
Code Section 45W(d)(1) provides that rules similar to the rules of Code Section 30D(f), including the recapture rules under Code Section 30D(f)(5), shall apply for purposes of Code Section 45W. The recapture rules in the proposed regulations deviate from Code Section 30D(f)(5) in several significant ways. For example, the regulations under Code Section 30D provide for the recapture of that credit if a sale is cancelled or if an EV is returned or sold within 30 days. That credit does not otherwise provide for recapture upon a later sale or other disposition of the EV. The proposed regulations, however, would provide for recapture if a commercial EV is not used for 100 percent business use (other than incidental personal use) or if the commercial EV is sold or otherwise disposed of within 18 months of the date of the commercial EV is placed in service. This longer and broader recapture provision raises several questions:
Why is the proposed recapture period 18 months? The notice of proposed rulemaking states that Treasury and the IRS considered longer and shorter periods of time to require as a minimum period for the vehicle to be used in a trade or business. “Based on knowledge of commercial vehicle leasing practices (fleet leasing), the Treasury and the IRS determined that it was appropriate to require a qualified commercial clean vehicle to be used for 100 percent trade or business use for 18 months after it is placed in service.” The drafters’ focus on fleet leasing does not seem to take into account the practices of the large consumer lease market. A recapture period ending after 12 months of business use would be less burdensome for taxpayers and still prevent the “lease for sale” abuses that could occur with a shorter recapture period (e.g., 30 days). A 12-month period coordinates well with depreciation rules and “pull ahead” incentives sometimes offered to consumer lessees.
Why are there no reasonable exceptions from recapture for certain sales or dispositions occurring in fewer than 18 months? When most leased vehicles come off-lease and are returned to the lessor, they are not re-leased and are sold to third parties. The proposed recapture rule does not take into account or provide reasonable exceptions for many common events that result in a consumer lessee returning a vehicle (that will then be sold) in less than 18 months. Casualty losses: EVs are moveable property and often are subject to casualty losses such as accidents and weather events. These can happen at any time and are not indicative of the lessor’s intention to sell the vehicle or to stop using the vehicle for a commercial purpose. Death of the lessee: Most consumer leases are terminated at the lessee’s death. Upon termination of the lease and return of the vehicle, the vehicle generally will be sold. Recapture in this circumstance doesn’t serve the purpose of incentivizing uninterrupted business use of the vehicle. SCRA: The Servicemembers Civil Relief Act allows active duty military members to terminate consumer lease obligations. Upon termination of the lease and return of the vehicle, the vehicle generally will be sold. Recapture in this circumstance doesn’t serve the purpose of incentivizing uninterrupted business use of the vehicle. Similar exceptions were allowed under the regulations issued under former Code Section 30 (Credit for Qualified Electric Vehicles) and apparently were not considered for inclusion in the proposed regulations.
Why are there no exceptions for certain returned commercial EVs? If a lessee leases a vehicle and immediately regrets the transaction, the lessee often may return the vehicle to the lessor within a fairly short period. Sometimes the lease agreement is cancelled then as a matter of courtesy, and other times, it is required to be cancelled under state law (i.e., during a 3-5 day contract rescission period). That vehicle may then go on to be leased again as a “new” vehicle because of its excellent condition and low mileage; however, the proposed regulations would treat that vehicle as a previously owned vehicle for the purpose of determining the Commercial EV Credit.
IRA Developments to Watch in the EV and Battery Supply Chain for 2025
The incoming Trump Administration’s approach to the Inflation Reduction Act (IRA) and tax policies is generating significant interest within the electric vehicle (EV) sector.
Generally, reports indicate that some Republican politicians, including individuals connected with the Trump Administration, intend to repeal or limit certain IRA tax incentives. US Congress could limit tax incentives by capping a tax credit, for example, or narrowing the activity or outputs eligible for a tax credit.
However, Republican states have invested substantial amounts into projects that benefit from IRA tax incentives. Accordingly, the repeal or limitation of many of the IRA tax incentives could negatively affect Republican constituents, and the Republican-controlled Congress and Trump Administration may seek to avoid such a result.
While exact policy directions are still unfolding, here are some critical areas to follow.
Key Points to Watch in 2025
1. Changes to EV Tax Credits
Reports indicate that Trump’s transition team aims to eliminate the $7,500 consumer tax credit for EV purchases, which was enacted as part of the IRA.
However, other reports suggest that Republicans might leave the IRA largely untouched because Republican states and constituencies have largely benefited from the IRA.
Modifications to the EV tax credits could make EVs more expensive for consumers, potentially slowing adoption and affecting industry growth. The outcome will depend on legislative negotiations and pressures from various constituencies.
2. FEOC Restrictions
Under the IRA, Foreign Enemy of Concern (FEOC) restrictions prevent taxpayers from claiming the $7,500 consumer tax credit if certain critical minerals contained in the EV battery of the purchased EV were extracted, processed, or recycled by an FEOC. Reports indicate that the Trump Administration may extend such FEOC restriction to other IRA tax incentives.
For example, it has been suggested that Congress impose FEOC restrictions on the IRA tax credit available to manufacturers under Section 45X (Advanced Manufacturing Production Credit).
Revisions to the FEOC restrictions under the Trump Administration might impact trade dynamics.
3. FEOC Equity Thresholds
The FEOC restriction limits eligibility for the $7,500 consumer tax credit for EV purchases if certain critical minerals contained in the battery of such EV were extracted, processed, or recycled by a foreign entity that is owned by, controlled by, or subject to the direction of another entity connected with certain foreign governments (generally, China, Russia, Iran, and North Korea). A foreign entity is owned by, controlled by, or subject to the direction of another entity if 25% or more of the entity’s board seats, voting rights, or equity interests are held by the other entity.
The Trump Administration may choose to maintain or adjust the current 25% equity threshold for FEOC entities.
If the Trump Administration opts to make the FEOC rules more stringent or tightens other investment regulations for FEOC entities, the Trump Administration may prevent such FEOC entities from benefitting from certain IRA tax incentives.
Investments by these entities in free trade agreement countries or the United States could face additional scrutiny or restrictions, although the extent of permissible equity stakes in such ventures remains uncertain and could be influenced by broader trade considerations, national security, and economic priorities. The Trump Administration’s stance on China and related economic strategies will significantly influence these policies.
4. National Security and IRA Coverage
Changes to the IRA’s coverage of components and constituents, particularly in the context of battery-related products, could be influenced by national security considerations. The Trump Administration might prioritize restrictions on Chinese-made energy storage systems (ESS) and related components due to their strategic importance in critical infrastructure and grid security.
The new Republican Congressional majority could seek amendments through tax reform aiming to address these concerns, potentially modifying or phasing out certain IRA incentives related to clean energy and battery production.
As discussed above, the Trump Administration may seek to impose FEOC restrictions on certain IRA incentives and may cite to national security concerns as a reason for imposing restrictions at certain points in the supply chain through changes to these incentives. However, specific policy directions will also depend on the Trump Administration’s assessment of risks and priorities at the time of such legislative developments.
ETA Travel Requirement for Visitors to The United Kingdom
Most individuals who are visiting the UK or transiting through the UK, and who are exempt from obtaining a visitor visa, will now need to obtain an Electronic Travel Authorization (ETA) prior to travel. The ETA requirement takes effect for US citizens (as well as citizens for nearly 50 other countries) for travel to the UK on January 8, 2025 or later. The ETA is also required for those who are transiting through the UK.
The cost to apply for an ETA is UK £10. The UK Home Office states that processing will be completed within three business days, and possibly sooner. An approved ETA is valid for a period of two years, or until the applicant’s passport expires, and can be renewed.
The link to electronic registration is here. Travelers can also utilize the UK ETA app on their smartphones.
Additional information about the ETA scheme can be found here:
UK Home Office ETA scheme factsheet: ETA Factsheet
Guidance from our friends at Kingsley Napley: Kingsley Napley ETA guidance
PHMSA Suggests Tighter CO2 Pipeline Safety Regulations Amid Growing Infrastructure for Carbon Capture
On January 15, 2025, the Pipeline and Hazardous Materials Safety Administration (PHMSA) of the U.S. Department of Transportation released a pre-publication version of a notice of proposed rulemaking (NPRM) that would propose new safety regulations for pipelines that transport carbon dioxide (CO2). The NPRM would extend PHMSA’s regulatory oversight to pipelines transporting CO2 in all phases, to include the first-ever safety requirements for pipelines transporting CO2 in gas and liquid-phase, while also reinforcing existing standards for transporting CO2 in its supercritical phase. This much-anticipated NPRM introduces several significant and targeted proposals that would create a uniform nationwide set of safety regulations for CO2 transportation by pipeline. Comments on the proposal will be due 60 days after the NPRM is published in the Federal Register.
Background on CO2 Pipelines
The U.S. Department of Energy (DOE) has projected a major expansion of the nation’s CO2 pipeline network, driven by global efforts to capture and store excess CO2. According to a December 2023 Congressional Budget Office report, the number of carbon capture and storage (CCS) projects is expected to increase nearly tenfold by 2050. A substantial increase in commercial development of CO2 pipelines has occurred in the past several years and is expected to continue.
Although CO2 pipelines historically have a clean safety record, a major incident, coupled with the expanding CO2 pipeline infrastructure, prompted PHMSA to revisit the need for targeted safety regulations for pipelines transporting all phases of CO2.
PHMSA’s Proposed Rule
While PHSMA has long regulated pipelines transporting CO2 in a supercritical phase (at a 90% or more concentration of CO2 in the product stream), PHMSA’s proposed rule expands its authority over CO2 pipelines significantly, in part to address the growing need for expanded carbon capture and storage (CCS) infrastructure, driven by significant new incentives from the President’s Bipartisan Infrastructure Law and the Inflation Reduction Act. If adopted, the rule will introduce several key changes, including:
The first-of-its-kind requirements for the design, installation, operation, maintenance, and reporting of CO2 gas and liquid-phase pipelines.
New guidelines for operators converting existing pipelines to transport CO2 in different phases.
Mandates for CO2 pipeline operators to train emergency responders and ensure access to CO2 detection equipment for effective emergency management.
Enhanced public communication protocols during emergencies.
Detailed vapor dispersion analysis requirements to safeguard public health and the environment in the event of a pipeline failure.
First-of-its-kind Requirements
The proposed rule will enhance safety standards for newly constructed, replaced, relocated, or converted CO2 pipelines through the introduction of updated fracture control requirements. Among the key provisions, operators would be required to evaluate and adjust pipeline toughness based on operating conditions, ensuring fracture arrest within specific pipe lengths (320 feet for 99% probability and 200 feet for 90%), conduct toughness tests per industry, and meet toughness requirements outlined in API Specification 5L, which could lead to mandated crack arrestors.
The proposed rule also seeks to add several new sections; §§ 195.263 (Fixed vapor detection and alarm systems), 195.309 (Spike hydrostatic pressure test), 195.429 (Maintenance and testing of fixed vapor detection and alarm systems), and 195.456 (Vapor dispersion analysis). Each of these proposed new regulatory sections introduce new concepts that are prescriptive in nature and may raise practical considerations that are ripe for comment and discussion with PHMSA as the rulemaking process progresses.
Operational Guidelines
PHMSA proposes enhanced requirements for pipelines converted to CO2 and hazardous liquid service under part 195. Operators seeking to convert a pipeline to CO2 transportation would need to meet design and construction standards from subparts C and D. Specifically, pipelines converted to CO2 service must undergo a spike hydrostatic pressure test before being placed into service. Additionally, operators would be required to conduct in-line inspections within 12 months and close-interval and coating surveys within 15 months of the service initiation. These measures are designed to ensure the integrity and safety of converted pipelines by identifying and addressing any defects or issues early on.
Training Key Individuals
PHMSA’s proposed rule includes three key safety improvements for CO2 and hazardous liquid pipelines. First, it calls for enhanced training for emergency responders, ensuring they have the necessary equipment and expertise to handle pipeline emergencies, particularly asphyxiation risks. Second, the proposal mandates additional safety equipment for operators, including tools to detect hazardous vapor and gas concentrations in excavated areas. Lastly, it requires pipeline operators to communicate with affected entities and the public during emergencies, ensuring clear and consistent messaging and coordination with emergency response organizations.
Enhanced Public Communication Protocols
PHMSA’s NPRM proposes enhanced emergency response plans for CO2 pipelines, building on the Valve Rule to address safety risks. The proposal includes additional training for emergency responders, requiring operators to provide equipment and training on CO2-related emergencies, including asphyxiation risks. It also mandates the provision of safety equipment in excavated trenches and tools for detecting hazardous vapor and gas concentrations. Lastly, operators would be required to communicate with affected entities, including the public, using population density data to ensure clear, coordinated messages during emergencies. These changes aim to improve emergency response effectiveness and public safety, but details surrounding the level of training and type of equipment provided to first responders remains unclear and will need to be flushed out in comments and public meetings as the rulemaking matures.
Detailed Vapor Dispersion Analysis
PHMSA is proposing new requirements for vapor dispersion analyses for hazardous liquid and CO2 pipelines. Operators would be required to update their models every 15 months, or at least once a year, to reflect updates to software and changes in relevant factors. These updates aim to ensure that operators’ assessments of pipeline segments potentially affecting High Consequence Areas (HCAs) are accurate and based on the latest science. However, recognizing potential resource challenges, PHMSA proposed to allow operators the option to use a default 2-mile radius on either side of the pipeline as a basis for determining impacts on high consequence areas. This proposal aims to improve pipeline safety by ensuring up-to-date risk assessments and enhancing regulatory oversight.
The Big Picture
About 5,000 miles of CO2 pipelines exist in the United States, and their main purpose is to improve oil drilling operations. However, according to a 2020 Princeton research study, 65,000 miles of CO2 pipes will be required by 2050 to achieve net-zero emissions targets. As a result of worldwide CO2 collection and storage initiatives, the DOE has also predicted a large growth of the CO2 pipeline network. According to a Congressional Budget Office assessment released in December 2023, the number of CCS projects might nearly double, and by 2050, the length of CO2 pipelines could increase by 10 times their current size.