| Regulatory and Reporting Developments |
United States
Federal Energy Regulatory Commission (FERC) Announces Rule Approving Electric Grid Overhaul
On May 13, 2024, FERC issued Order No. 1920, addressing transmission planning and cost allocation reform. The rule is the first time in more than a decade that FERC has addressed regional transmission policy and the first time it has addressed the need for long-term transmission planning. The rule adopts requirements that govern how transmission providers must conduct long-term planning for regional transmission facilities on a sufficiently long-term, forward-looking, and comprehensive basis. Specifically, the transmission providers must consider forward-looking factors when developing transmission plans and must measure and use at least seven enumerated economic and reliability benefits when evaluating or selecting long-term regional transmission facilities. In addition, the transmission providers must file one or more ex ante methods to allocate the costs of long-term regional transmission facilities. The rule also expands states’ roles through the process of planning, selecting, and determining how to pay for transmission facilities. Order No. 1920 will take effect 60 days after publication in the Federal Register and transmission providers will have 10 months to file plans to meet most of its requirements.
Federal Trade Commission (FTC) Issues Sweeping Non-Compete Ban
On April 23, 2024, the FTC voted to approve a final rule (the Rule) that prevents all for-profit employers nationwide from using non-compete agreements for nearly any worker (whether an employee, independent contractor, or other), regardless of whether they are designed to protect legitimate business interests of employers. The Rule declares that it is an unfair method of competition—and therefore a violation of Section 5 of the FTC Act—for businesses to impose non-compete restrictions (non-competes) on workers on or after the Rule’s effective date. If upheld in court, the Rule will have a sweeping impact on businesses in the U.S., rewriting millions of contracts and eliminating the patchwork of state laws that have traditionally governed non-competes. The Rule will take effect 120 days after its publication in the Federal Register and has already been challenged in court.
For more information on the Rule, please see our client alert.
California Department of Finance Proposes Revised Venture Capital Disclosure Rules
On May 14, 2024, California’s Department of Finance proposed revisions to SB 54, which Governor Gavin Newsom signed into law on October 8, 2023, will require venture capital companies to annually report certain diversity information beginning on March 1, 2025, by submitting a report to California’s Civil Rights Department. You can find more information about SB 54 in our related client alert. The proposed revisions, if enacted into law, would, among other things: 1) delay reporting until March 1, 2026; 2) require that reports be submitted to California’s Department of Financial Protection and Innovation; and 3) define a “founding team member” as someone who either: a) i) owned initial shares or similar ownership interests of the business, ii) contributed to the concept of, research for, development of, or work performed by the business before initial shares were issued, and iii) was not a passive investor in the business; or b) has been designated as the chief executive officer or president.
U.S. Department of Energy (DOE) Finalizes Rule to Phase Out Fossil Fuel Use in Newly Constructed Federal Buildings
On April 24, 2024, the DOE published a final rule that aims to propel federal buildings towards net-zero emissions by 2045. The rule requires federal agencies to phase out fossil fuel usage in new federal building construction or major renovation projects. The rule requires a 90 percent reduction in fossil fuel use for projects starting between fiscal years 2025 and 2029 and the elimination of on-site fossil fuel usage in projects beginning in fiscal year 2030 or later. DOE estimates that over the next 30 years, the rule will reduce carbon emissions from federal buildings by two million metric tons and methane emissions by 16,000 metric tons.
White House Council on Environmental Quality (CEQ) Finalizes Rule to Reform the Federal Environmental Review Process Under the National Environmental Policy Act (NEPA)
On May 1, 2024, the White House CEQ published a final rule to revise its regulations for implementing the procedural provisions of the NEPA. The rule aims to expedite federal agency permitting to help accelerate environmental reviews under NEPA. The rule sets clear deadlines for agencies to complete environmental reviews, sets specific expectations for lead and cooperating agencies, and creates a unified and coordinated federal review process. In addition, the rule provides agencies with other new tools to improve the efficiency and effectiveness of environmental reviews and promotes early public engagement in the environmental review process.
U.S. Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) Release Final Regulations on Credit Transferability
On April 25, 2024, the Treasury and the IRS issued final regulations (the Final Transferability Regulations) regarding the election to transfer certain energy tax credits under Section 6418 of the Internal Revenue Code of 1986, as amended (the Code), pursuant to changes authorized by the Inflation Reduction Act of 2022 (IRA). The Final Transferability Regulations update the initial proposed regulations issued on June 14, 2023 (the Proposed Regulations), relating to the transfer of eligible credits. The Final Transferability Regulations: 1) clarify how taxpayers may correct transfer election credit amounts claimed in error on an original tax return and also seek administrative relief; 2) provide further guidance on the anti-abuse provisions with respect to transfer elections; 3) illustrate the credit recapture rules with respect to partnerships and S corporation shareholders; and 4) retain the rule provided in previous guidance prohibiting “horizonal” slicing of credits (i.e., transferring bonus credits separate from the base credit), but still allow “vertical” slicing of credits (i.e., transferring only part of the entire eligible credit amount (base credit and any bonus credits) and retaining the remainder of the entire eligible credit amount). The Final Transferability Regulations will be effective as of July 1, 2024.
For more information on the Final Transferability Regulations, please see our client alert.
DOE and IRS Set to Open Second and Potentially Final Round of Section 48C Qualifying Advanced Energy Project Credit Applications
On April 29, 2024, pursuant to Notice 2024-36 (the Notice), the DOE and the IRS announced that they plan to open the second, and potentially final, round of Section 48C(e) Qualifying Advanced Energy Project (the 48C Program) applications for up to $6 billion in allocations. The 48C Program functions like a competitive grant, where entities may submit applications to receive tax credit allocations for the following purposes: 1) clean energy manufacturing; 2) industrial and manufacturing facility decarbonization; and 3) processing, refining, and recycling critical minerals. Several Wilson Sonsini clients were awarded 48C Program allocations in Round 1. The 48C Program provides up to a 30 percent investment tax credit for clean energy manufacturing facilities and emission reduction projects within the abovementioned three purposes. The Notice clarifies eligibility requirements for applicants, including prevailing wage and apprenticeship requirements, placed in service requirements, and selection criteria for claiming the competitive grants. Further, the Notice provides an updated timeline for applicants in two phases. In the first phase, applicants will have 30 days to submit concept papers to the DOE and IRS, beginning on May 28, 2024. In the second phase, the DOE will send letters to selected applicants to submit their full application. Taxpayers will have 50 days from their receipt of the DOE letter to submit their application. Final 48C Program credit allocations are expected no later than January 15, 2025.
For more information on Round 2 of the Section 48C applications, please see our client alert.
Treasury and IRS Release Final Regulations on Clean Vehicle Credits
On May 6, 2024, the Treasury and the IRS published final regulations (the Final Regulations) regarding Clean Vehicle Credits under Sections 25E and 30D of the Code, pursuant to changes authorized by the IRA. The Final Regulations adopt and clarify proposed regulations and guidance previously issued under both Code sections in 2023 regarding the transfer of credits, definitions of eligible entities, requirements for sourcing critical minerals and battery components, and sourcing from foreign entities of concern (FEOCs). Under the IRA, Section 25E allows qualified buyers of previously owned clean vehicles to claim a maximum credit of $4,000 for the purchase of an eligible previously owned clean vehicle with a sale price of $25,000 or less, subject to certain income limitations and placed in service requirements. Section 30D allows taxpayers to claim a maximum credit of $7,500 for each new clean vehicle, consisting of $3,750 for new clean vehicles meeting the requirements for critical mineral components and $3,750 for new clean vehicles meeting battery component standards.
The Final Regulations: 1) clarify the requirements for transferring credit amounts to eligible dealers for advance payments of Clean Vehicle Credits, provide requirements for dealers to become eligible entities to receive advance payments; 2) add limited transition relief (effective until January 1, 2027) under Section 30D for “impracticable-to-trace battery materials” with respect to qualified manufacturer reporting and FEOC compliance, which allows taxpayers to exempt such materials from the determination of whether a battery cell has been sourced from an FEOC; and 3) provide a new “Traced Qualifying Value Test” for purposes of taxpayers demonstrating that an applicable percentage of the critical minerals in the vehicle battery are extracted or processed in the United States or a country with which the United States has a free trade agreement, replacing a more lenient value-added test provided in proposed regulations. The Final Regulations will be effective as of July 5, 2024.
Treasury and IRS Issue Guidance on Sustainable Aviation Fuel Credit
On April 30, 2024, the Treasury and the IRS released Notice 2024-37 (the SAF Notice) regarding the Sustainable Aviation Fuel (SAF) Credit under Section 40B of the Code, as amended by the IRA. The SAF Notice provides a new model, the “40BSAF-GREET Model”, for taxpayers to calculate lifecycle greenhouse gas emissions to determine eligibility for the 40B credit. In conjunction with this SAF Notice, the DOE released the 40BSAF-GREET Model and an accompanying user manual for taxpayers to use to determine whether “qualified mixtures” of SAF and kerosene produced in the United States and sold or used by taxpayers in aircraft have sufficiently low greenhouse gas emissions to qualify for the credit.
California Public Utilities Commission (CPUC) Progresses Centralized Procurement Mechanism for California Offshore Wind Development
On April 26, 2024, Administrative Law Judge Julie Fitch of the CPUC issued a ruling (the Ruling) seeking comments on the use and implementation of a centralized procurement mechanism established in Assembly Bill (AB) 1373, through which the CPUC can instruct the California Department of Water Resources to procure electricity on behalf of all load-serving entities (LSEs) from certain eligible long lead-time generation resources, such as offshore wind (OSW), geothermal, long-duration energy storage, and out-of-state wind. This centralized procurement mechanism could play a critical role in the development of a variety of long lead-time resources and stimulate the growth of California's nascent OSW industry by providing market assurance to developers while sparing LSEs of much of the uncertainty surrounding emerging generation technologies and procurement risk associated with capital-intensive resources. The Ruling seeks comments on multiple aspects of the centralized procurement mechanism, such as how resources should be evaluated for eligibility for centralized procurement, how costs and benefits associated with centrally procured resources should be allocated among LSEs and ratepayers, and the proposed timeline for procurement. In addition, the Ruling includes an initial analysis in which CPUC staff found that offshore wind could be a particularly compelling choice for an initial need determination, as centralized procurement could reduce procurement barriers and facilitate market transformation for the OSW industry in California. Although CPUC staff were able to identify positive characteristics associated with geothermal, long-duration energy storage, and out-of-state wind, CPUC staff ultimately conceded that each have features or limitations that may be incompatible with centralized procurement. Interested parties had to file comments in response to the ruling by May 24, 2024.
For more information on the CPUC ruling, please see our client alert.
Europe
UK Regulator Provides Anti-Greenwashing Guidance
On April 23, 2024, the FCA published guidance to help companies comply with an anti-greenwashing rule, which will go into effect on May 31, 2024. The FCA anti-greenwashing rule obligates companies regulated by the FCA to only make sustainability‑related claims about their products and services that are fair, clear, and not misleading. The guidance outlines that sustainability references should be i) correct and capable of being substantiated, ii) clear and presented in an understandable way, iii) complete, and iv) that comparisons to other products or services should be fair and meaningful. The guidance contains examples of good and bad practices to illustrate this.
European Parliament Gives Approval to Forced Labor Regulation
On April 23, 2024, the European Parliament gave its final approval to the Forced Labor Regulation (the Regulation). The Regulation will prohibit selling goods on, importing goods into, and exporting goods from the European Union (EU) market which have been made using forced labor, whether inside or outside of the EU. The Regulation does not envision additional reporting requirements for companies. National authorities, or, if third-party countries are involved, the European Commission (EC), will be authorized to lead investigations into suspected use of forced labor in companies’ supply chains and make decisions enforcing compliance. Member States must develop effective and proportionate penalty regimes.
The Regulation still must be formally approved by the European Council, which is expected in the third quarter of this year after the European elections. The Regulation is expected to apply beginning in 2027.
EC Addresses Airlines over Potentially Misleading Green Claims
On April 30, 2024, the EC, together with EU consumer protection authorities (Network of Consumer Protection Cooperation - CPC Network), sent letters to 20 airlines outlining concerns over potentially misleading green claims and requesting the airlines bring their practices in line with EU consumer protection law within 30 days or face enforcement, including sanctions.
The authorities are concerned that the airlines’ claims, which included that their flights’ CO2 emissions may be offset by climate projects or through using sustainable fuels, to which consumers can choose to contribute by paying additional fees, may constitute misleading actions or omissions under the Unfair Commercial Practices Directive (UCPD). The EC and the CPC Network singled out as potentially misleading conduct such as i) using the term “sustainable aviation fuels” without clearly establishing the environmental impact of such fuels, ii) claiming that the airline is moving towards net-zero emissions or any other environmental goal, without clear and verifiable commitments, targets, and an independent monitoring system, and iii) showing a comparison of the CO2 emissions of flights without providing sufficient and accurate information on how this comparison was derived.
European Parliament Adopts Human Rights and Environmental Sustainability Due Diligence Directive
On April 24, 2024, the European Parliament approved the revised Corporate Sustainability Due Diligence Directive (the CSDDD), establishing a corporate due diligence standard for sustainability issues such as climate change and human rights and imposing a legal liability on covered businesses for violations within their supply chain. Covered businesses will also be required to adopt a transition plan to ensure their business models are compatible with the Paris Agreement's goal of limiting global warming to 1.5°C. The CSDDD applies to EU companies, non-EU companies, and parent companies with over 1,000 employees and worldwide revenues of more than €450 million. The CSDDD will also apply to companies with franchising or licensing agreements in the EU with worldwide revenues of over €80 million if at least €22.5 million was generated by royalties. The directive needs to be formally endorsed by the European Council and, if endorsed, Member States will have two years to transpose the new rules into their respective laws.
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