Environmental Update

Environmental Update Oct 2022

October 25, 2022 | By Andrew Skroback in New York

Solar generating equipment withstood much of the wrath of the two hurricanes that struck Puerto Rico and Florida in September, providing advocates for the industry with reason to argue that renewables paired with battery storage are a reliable form of energy even in the face of natural disasters.

Hurricanes Fiona and Ian knocked out electricity to 2.7 million users in Florida and to the three million residents of Puerto Rico. While causing widespread flooding, knocking out electricity supplied by power lines and washing away bridges and roads, solar panels and batteries reportedly performed well during the storms.

Media reports suggest that the grid bounced back faster than under past hurricanes not only because of recent efforts to bury power lines and otherwise harden power networks in Florida, but also because of the large number of rooftop systems coupled with batteries that have been installed in both Florida and Puerto Rico.

Electric Cars

More electric cars are expected to be sold in China than in the rest of the world combined in 2022: somewhere in the neighborhood of six million vehicles.

China’s domestic electric vehicle market has expanded rapidly in the last decade, with the percentage of new all-electric or hybrid vehicles sold growing from about 5% of domestic Chinese sales in 2018 to more than 25% expected in 2022.

Approximately 300 Chinese companies now manufacture electric vehicles, or EVs, though they face fierce competitive infighting, and the market floor is strewn with many losers. While Tesla remains the world’s single largest manufacturer in terms of global market, half of the world’s 10 best-selling EV brands are Chinese.

To match the boom in Chinese production and domestic sales, availability of charging stations has been growing apace. There are now about four million charging units in China, about twice as many as there were just a year ago.

To be sure, the maturity of China’s EV production, buildout of supportive infrastructure and now-thriving domestic sales market were achieved through more than a decade of long-term investments, financial subsidies and infrastructure spending, all driven by top-down government direction and planning.

While built on government subsidies, China’s current car market now appears close to the point where electric vehicles can compete directly with gas-powered vehicles on price, even as government support is reduced.

By comparison, the US market for manufacturing EVs and building the supporting infrastructure has been starved of game-changing investment over the same decade in which the Chinese market has thrived. Many EV models have waiting lists and cost more than gas-fired alternatives.

While growing quickly, sales of EVs in the United States only recently passed the 5% threshold, a vastly smaller number both in the number of vehicles sold and as a percentage of domestic auto sales. US domestic sales went from a little more than 300,000 in 2020 to more than 600,000 in 2021.

The Inflation Reduction Act, signed into law in August, is a needle-moving investment that will inject hundreds of billions of dollars into both clean energy and electric vehicle incentives and programs. That said, the needle will probably move slowly.

In the absence of further legislative incentives, the factors that will drive the US market are likely to be high gas prices, climate concerns, price reductions from eventual increases in production and availability, and US manufacturers not wanting to lose out to advances by foreign competitors in an area of obvious future industrial importance.

The Inflation Reduction Act will clearly benefit the US EV industry, but it is less focused on increasing the number of EVs bought in the US in the near term than it is on slowly building up a comparatively embryonic US EV industry.

The Inflation Reduction Act expands tax credits for those buying a limited range of qualifying new EVs. Credits on models that meet the legislative conditions are capped at $7,500. The IRA will also provide a new tax credit of $4,000 toward the purchase of used electric cars after 2023, with sales subject to various other qualifying conditions. Importantly, and in contrast to previously existing programs, the IRA allows tax credits to be claimed at the time and point of sale starting in 2024, instead of when buyers file tax returns. Dealerships will be able to accept transfer of a buyers’ tax credits in exchange for an equivalent discount on the car purchase. While leases do not qualify since the manufacturer receives the tax credit, some dealers may be willing to pass on the savings by reducing monthly payments.

Tax credits can only be claimed on new models that meet specific “made in America” qualifications. The goal is to build the industry here through tax credit-driven sales, protecting the US industry by not offering benefits to buy autos made in other countries.

The IRA imposes US-centric conditions for qualifying. These include minimums for US content in battery production as well as geographic requirements for manufacturing and assembly.

The conditions become tougher over time.

The 10-year time frame for EV credits provides some much-needed stability to the US market. The EV tax credits will remain available for vehicles placed in service by the end of 2032.

Some automakers criticized the IRA because a majority of EVs available in the US currently do not qualify for tax credits. The sourcing requirements are also likely to lead to higher vehicle prices.

To qualify for the $7,500 tax credit, final assembly must occur in North America and a certain percentage of materials used in the battery must have been extracted, processed, manufactured or assembled in the US or certain US-allied nations. Cars that meet only one of the requirements may be eligible for a half credit of $3,750.

Starting in 2023, tax credits can be claimed on electric vans, SUVs, and pickup trucks only if the manufacturer’s suggested retail price is $80,000 or less, and to electric sedans, coupes, wagons and convertibles with manufacturer’s suggested retail prices of $55,000 or less. The IRS also puts a $125,000 annual income limit on single tax filers and a $300,000 limit on joint filers.

For previously-owned EVs, buyers can claim a credit of up to the lesser of either $4,000 or 30% of the sale price. A tax credit can only be claimed on the first resale of a used vehicle. There are restrictions on sales between related parties. Tax credits cannot be claimed on used vehicles sold for more than $25,000. They may only be claimed by buyers with adjusted gross incomes of $75,000 or less ($150,000 for married couples filing jointly).

In addition to buyer incentives, the IRA also creates a new advanced manufacturing production credit for the US production of components used in solar, wind and battery storage and for mining about 50 critical minerals. The IRA also authorizes $10 billion in tax credits for building new factories or re-equipping existing factories to make equipment for the green economy and another $2 billion in grants to revamp existing factories.

Forever Chemicals

The US Environmental Protection Agency published proposed in September to designate two “forever chemicals” as hazardous substances under the Comprehensive Environmental Response, Compensation, and Liability Act, known as CERCLA or the Superfund law.

The two chemicals are perfluorooctanoic acid (PFOA) and perfluorooctane sulfonate (PFOS), including their salts and structural isomers. Both have largely been phased out of current use, but both were used commonly in the past and their legacy in the environment could be considerable.

PFOA and PFOS belong to a class of chemicals called perfluoroalkyl and polyfluoroalkyl compounds, or PFAS (pronounced PeeFAS). The class of chemicals is sometimes referred to as “forever chemicals” because they build up in the environment over time and are difficult to break down even with the passage of time.

PFAS are a broad group of fluorinated chemicals that are added to a wide variety of consumer products to make them non-stick, waterproof, stain-resistant and fire-resistant.

Consumer products containing PFAS include carpets and upholstery, waterproof apparel, floor waxes, non-stick cookware, camping gear, fast-food wrappers, cleaners, dental floss and firefighting foams for putting out intense fuel fires. PFOA have been used in non-stick cookware, flame repellants and cosmetics. PFOS have been used in water- and stain-resistant products.

Until now, no PFAS have been regulated as “hazardous” under CERCLA.

The proposed designation of PFOA and PFOS as hazardous would trigger regulation under CERCLA and lead eventually to investigations and enforcement by EPA at sites across the country.

This could not only trigger the listing of new Superfund sites contaminated by PFOA and PFOS, but could also lead to reevaluation of remedies at active Superfund sites and the reopening of investigations at sites that had achieved regulatory closure but where these previously-unregulated chemicals were released into the environment and not remediated.

This could mean significant new cleanup costs for responsible parties.

Responsible parties will have to report releases of PFOA and PFOS that meet or exceed the reportable quantity eventually assigned to these substances.

EPA is collecting comments on the proposal through November 7. It may also ask for comments on designating other PFAS as hazardous substances.

EPA is likely to regulate in piecemeal fashion. PFOA and PFOS are two of the most widely studied PFAS, but EPA has identified 24 other classes of PFAS that require study before concluding how toxic they are. It will take time for studies to inform any new regulation, if needed.

While EPA has inched toward broader regulation, many states have been actively regulating PFAS on a wider scale without waiting for federal action.

Companies likely to be affected by the proposed hazardous substance designation include PFOA and PFOS manufacturers and processors, manufacturers of products containing the chemicals, downstream users and waste management and wastewater treatment facilities, including landfills.

PFAS have been found in drinking water in many parts of the country. Whatever the sources, the Centers for Disease Control and Prevention has found PFAS in the blood of nearly all people tested, with levels varying widely.