Top 5 Issues in 2012: Energy & Environmental Policy

Few issues generate as much passion as those surrounding energy and environmental policy. In  2012, states and territories (“the states”) will continue to grapple with the challenges, opportunities and benefits of new Clean Air regulation and historic expansion of domestic energy production. Expect the focus of energy and environmental policy debates to become more granular and focused at the state level as election-year politics in Washington likely will produce little federal legislation. States will have added pressure and face new complexities to incentive alternative energy as weak economic recovery persists and public opinion has hanged substantially on the proper and best role of government involvement in supporting renewable energy development. Here are the top five energy and environment issues states will face in 2012:

1. Clean Air Regulation:

Several proposals by the Environmental Protection Agency would significantly impact states with large numbers of coal-fired power plants and neighboring downwind states. The Cross-State Air Pollution Rule would cost upward of $2.4 billion and substantially reduce emissions of sulfur dioxide and nitrogen oxide below 2005 levels. A panel of federal judges in December stayed the new rule, which impacts 27 states, but legal action likely will continue into 2012. Additional rules to reduce mercury and ozone emissions will encounter substantial debate over cost and public health concerns.

2. Hydraulic Fracturing:

Techniques like hydraulic fracturing have created new domestic energy frontiers and made the U.S. a net energy exporter for the first time in 62 years. The excitement over new jobs and economic development from large shale reserves has been tempered by concerns that hydraulic fracturing may cause or contribute to groundwater pollution, increase air emissions, strain local water supplies, and may exacerbate seismic events during wastewater disposal. Many states have addressed these issues by requiring disclosure of “fracking” solutions used by companies, but the continued public scrutiny and our nation’s energy needs will keep this a high-profile issue.

3. Siting and Construction of New Energy Pipelines:

A recent industry report found that the U.S. and Canada will need up to 62,000 miles of additional natural gas pipelines and 600 billion cubic feet of additional storage capacity to meet future market demands. Similar trends are expected in the liquid pipeline industry to accommodate growing output from across the country and oil sands development in Canada. The Keystone XL project heightened public scrutiny over the states’ siting role for oil pipeline projects, which before was not controversial. Expect to see more interest in new and existing lines that move unconventional fuels like oil sands crude.

4. Electricity Transmission, Siting and Reliability:

Major investments are still needed to help the burdened and overloaded electric transmission system. Further complicating efforts, significant bottlenecks persist in bringing renewable energy to faraway markets in an efficient and affordable manner. The Federal Energy Regulatory Commission took action in 2011 to compel public utility transmission providers to align transmission planning and cost allocation across regions. In addition, the EPA’s Utility MACT Rule and other actions may impact grid reliability by retiring up to 40,000 megawatts of older coal-fired units in many states in order to reduce emissions.

5. Energy Incentives and the Struggling Economy:

Continued weak economic growth and increased public unease over the national deficit have created paradigm shifts in federal support for alternative and renewable energy projects. Few would have predicted the precipitous drop in political support for sustained stimulus funding. High-profile bankruptcies like Solyndra increased scrutiny of federal loan guarantee programs and historically popular energy tax benefits. States will face challenging decisions to balance budgets and continue incentives for renewable and alternative energy development.