An Analysis of the Lower Energy Costs Act
Landmark legislation passed by the U.S. House could reduce energy prices and emissions.
By George P. Bush , Grant Dever, and David Winter
Introduction
Lowering the cost of energy for Americans should be a national priority. According to one estimate, 16 percent of U.S. households experience energy poverty. These vulnerable households spend roughly six percent of household income on energy consumption needs. In addition, more than 5.2 million households above the federal poverty line also face hardship because of rising energy costs.
A new bill passed by the U.S. House of Representatives, the Lower Energy Costs Act, attempts to streamline processes that impede, add complexity to, or prevent our ability to develop hydrocarbons and renewable projects alike. LECA also clears a way for private industry to mine for rare earth minerals that are desperately needed for national defense and tech innovation. Finally, it reforms arguably one of the most arcane processes in modern government that has drifted far from the original legislative intent: the National Environmental Policy Act. Delays in transportation projects, litigation against hydrocarbon development, and stymieing construction of commercial nuclear energy facilities all come from the abuse of NEPA and it has exacted a large burden on all Americans.
The Biden administration’s energy agenda has sought to move the United States away from its historical reliance on fossil fuels, which provided 60.2 percent of the nation’s total energy use in 2022. For better or worse, however, oil, natural gas, and nuclear-powered energy still play a major role in securing our nation’s prosperity and security. Although domestic renewable energy production increased modestly after the Russian invasion of Ukraine, there is no currently reliable, scalable, and exploitable substitute for non-renewable sources. Not surprisingly, Americans endured a spike in energy prices these last two years, with price increases taking more than $180 per month out of the average family’s budget, or roughly five percent of the average monthly household income.
With supply chains still recovering from the effects of the COVID-19 pandemic, and American families and businesses continuing to struggle with inflated energy and commodity prices, the House Republican majority has introduced a package of bills to resolve policies that have undermined U.S. national and energy security. Signaling that fixing energy policy will be its top priority, the newly elected House majority made the Lower Energy Costs Act its first order of legislative business by designating it as H.R. 1, the bill number traditionally reserved for the majority party’s most important agenda item. The proposed legislation is a compendium of energy reforms originating in three House committees: Energy and Commerce, Natural Resources, and Transportation and Infrastructure. Republican leaders have reserved this entire week to debate and ultimately approve the package.
Below, we evaluate the merits of the Lower Energy Costs Act, which would reform land leasing, overhaul environmental protections that strictly limit resource extraction, and streamline the regulatory approval process for mineral resource extraction and nuclear energy development.
Oil and gas lease sale reforms
Federal oil and gas production royalty revenues have decreased significantly and have been mismanaged relative to the track record of state trusts. Federal policy has dramatically reduced American oil and gas production and associated revenues, such as regulatory roadblocks imposed by the Biden administration on oil and gas exploration on federal lands. Title II of LECA tightens the timelines for permits regarding lease sales and places strict limits on litigation meant to delay granting of permits, both clear signals that the Congress wants to see action sooner rather than later.
Language from the Committee on Natural Resources would promote oil and gas development on federal lands by establishing a series of minimum leasing thresholds. This would require the Department of the Interior (DOI), which oversees this type of oil and gas production, to be more transparent with respect to the pace of leasing approvals.
First, Section 20101 requires DOI to immediately resume quarterly lease sales on federal onshore lands in addition to holding at least four lease sales per year in each state with eligible lands. Similarly, Section 20107 would compel DOI to conduct all lease sales described in the 2017–2022 Outer Continental Shelf Oil and Gas Leasing Proposed Final Program that have not been conducted as of the date of enactment, no later than September 30, 2023. Moving forward, DOI would be required to hold a minimum of two oil and gas lease sales annually in available federal waters in the Central and Western Gulf of Mexico Planning Area, and in the Alaska Region of the Outer Continental Shelf.
Finally, the legislation would modernize lease sales by requiring DOI to publish information online, and report to Congress, on the processing of onshore and offshore drilling and exploration permits; which parcels are nominated for lease; leases granted; and usage of fees from applications for permits to drill. Together, these actions could increase the number of leases held by energy companies while stimulating the infrastructure development required to grow domestic energy markets. The recently passed Infrastructure Investment & Jobs Act (Bipartisan Infrastructure Bill), which authorized $1 trillion to modernize domestic infrastructure, does not focus on developing the energy sector’s refining and transportation capacity. Rather, this exorbitant new law emphasizes the underdeveloped and still-unreliable renewable energy sector, which cannot supplant our nation’s fossil fuels any time soon. Increased domestic sourcing and production can stabilize energy prices and undo the harm caused by misplaced faith in alternate energy sectors. The ongoing demand for energy will require a comparable increase in energy infrastructure.
Streamlining the National Environmental Policy Act
The nation’s most byzantine and costly regulatory law may very well be the National Environmental Policy Act (NEPA) and the regulations that flow from it. The NEPA approval process peaked at an average of just over five years in 2016–over 50 percent longer than just six years earlier–and has remained unacceptably high since. One study by R Street scholar Philip Rossetti determined that:
Delayed infrastructure deployment can result in economic impacts from delayed productivity, as well as reduced incentives for infrastructure investment. Further, from an environmental perspective, NEPA is increasingly becoming an involuntary impediment to clean energy and conservation-related projects. This is especially problematic given that this analysis finds 42 percent of the Department of Energy’s (DOE) active NEPA projects are related to clean energy, transmission or conservation, while only 15 percent of the DOE’s projects are related to fossil fuel — most of which were for Liquefied Natural Gas (LNG) exports that typically displace foreign coal.
In both the transportation or energy sectors, burdensome regulation, excessive litigation, endless document preparation, and increased costs of construction diminish everyone’s quality of life because fewer projects are completed. By way of background, NEPA is triggered when any federal agency develops a proposal to take a “major federal action” as it is defined in the Federal Register (40 CFR 1508.1). A federal agency then must prepare an Environmental Assessment (EA) or an Environmental Impact Statement (EIS). The EA is a brief document that provides evidence and analysis to determine whether an EIS is necessary. Where the process gets bogged down is the determination of whether the relevant federal agency issues a Finding of No Significant Impact. Despite prior attempts by Congress to expedite the process, there are no current time limits on the agency review process; if approvals of multiple agencies are required, completion times stretch on for as long as each agency deems necessary , even for an EA that ultimately determines a full EIS is not needed. The Council of Economic Quality found that the average length of a final EIS conducted by the Federal Highway Administration is 742 pages, and the average time to conduct these NEPA reviews is nearly seven and a half years. Not surprisingly, a study completed in 2017 estimated that by simply shortening the timeline for EIS statements, an additional $250 billion in private investment would be available for transit and energy projects, freeing capital for investment and job creation for everyday Americans.
The second major component of LECA would significantly reform the NEPA process for all sectors of the economy and provide decisionmakers with greater visibility into construction projects being completed to benefit the public. In the context of natural resource extraction projects it would, first, require that certain low-impact activities and activities in previously studied areas on public lands would not be defined as “major federal actions” under NEPA. This would apply to a variety of energy projects and activities such as geotechnical investigations; transmission infrastructure upgrades; off-road vehicle use in existing rights-of-way; meteorological towers; and geothermal exploratory wells. It would clarify that environmental reviews for lease sales should be limited to impacts directly related to that sale.
LECA imposes a 120-day deadline on filing litigation in connection with final agency actions concerning energy and mining projects, and a similar deadline to file a claim on any final agency action subject to NEPA. Additionally, it sets deadlines for completion of NEPA review at one year for environmental assessments and two years for environmental impact statements, unless a deadline extension is agreed to by the project sponsor.
Finally, LECA appropriates funds for the Council of Environmental Quality to conduct a study on the potential to create an online permitting portal for NEPA. This platform would further streamline these processes by providing a unified portal for applicants to submit the required documents and materials. The system would allow applicants to track the status of their applications and improve communications with the relevant agencies.
Overall, these reforms would insulate energy markets from shocks like those the United States experienced due to the war in Ukraine. Securing supply chains, moreover, is important not only to energy, but to other components that drive our modern economy.
Permits for Mining of Rare Earth Elements
LECA would enhance America’s ability to develop critical energy resources by improving the environmental permitting processes for facilities that refine and process essential minerals. The nation’s vital supply chain for precious and rare earth metals and resources now ranks as one of our greatest defense and manufacturing vulnerabilities.
At the moment, China is responsible for 63 percent of total rare earth mineral mining, 85 percent of processing, and 92 percent of rare earth magnet production, which has provided significant leverage over developed economies including the United States. In 2022, the United States imported more than 80 percent of its rare earth minerals. Though this is an improvement from 2018, when the United States imported 100 percent of its rare earth minerals, the economic threat remains. This not only is an issue of national security, but of economic security as well. China controls the majority of refining for cobalt, lithium, and rare earth minerals. These minerals are necessary for everyday goods like cellphones, computers, and automobiles. Perhaps more concerning, these minerals are used in national-security technology such as planes, missiles, guidance systems, and sensors. These minerals, and the magnets that are produced from them, are also crucial components for the production of renewable energy technologies like wind turbines and electric vehicles. The COVID-19 pandemic and ongoing war in Ukraine have exposed vulnerabilities in the supply chain can only degrade our national security and subject the United States to exogenous economic shocks. The idea of leaving our nation’s security in the hands of the Chinese government has motivated House leaders to push H.R. 1 forward and extricate our country from this dangerous situation.
At the moment, our advanced economy requires foreign components in virtually all of our leading industries. This vulnerability creates opportunities that our adversaries can exploit. For instance, disrupting the flow of critical components–such as microchips made with rare earth metals–could hinder the growth and functioning of tech industries that dominate our economy. The Department of Defense, the Department of Interior, and a Congressional task force have all highlighted the vulnerabilities of importing over 30 rare earth elements that are critical to national security. Furthermore, should any nation wish to disrupt the U.S. economy or key industries, it could target those flows of commerce and shipping.
LECA, as drafted by the House Committee on Natural Resources, expedites the permitting process for the mining of valuable minerals on federal lands involving only minor surface disturbances. The language under Section 20304 would include mining as a covered activity under the FAST Act passed by Congress that would help promote faster project delivery. Similarly, any project receiving funds from the Defense Production Act, presumably for defense-related mining projects involving rare earth minerals, would also be covered by the FAST Act. As it relates to federal lands, agencies that manage land would be barred from withdrawing the asset from mining nominations without first completing a mineral assessment and an accompanying study weighing the impact to U.S. economic and national security interests. In perhaps the most restrictive terms placed on the Secretary of Interior in LECA, Section 20402 prohibits DOI from throttling energy or mining activity on federal lands. While the war in Ukraine has put energy in the forefront of national security concerns, mineral resource insecurity creates potential for espionage in the manufacturing of outsourced national security components.
The recently enacted CHIPS and Science Act will receive a boost from H.R. 1’s provisions to source domestic natural resources and use these materials to manufacture necessary industrial components. Title III (Permitting for Mining Needs) covers these resource areas of interest, and includes a provision for labeling uranium as a critical mineral (Sec. 20308), a prerequisite to expand nuclear energy development.
Opportunity for commercial nuclear power plants and other low-carbon power generators
While LECA does not contain the word ‘nuclear,’ the United States’ nuclear industry stands to benefit from several of the proposed reforms. In particular, streamlining the NEPA process will remove some of the excessive regulatory barriers that have stifled investment in new nuclear power plants since the 1970s.
For example, Vogtle 3 and 4 — two reactors that were built at the Vogtle Electric Generating Plant in eastern Georgia — took years to clear all requisite regulatory hurdles. The following timeline illustrates the regulatory morass utilities encounter when they propose to build a nuclear facility.
The Southern Nuclear Operating Company (SNC) applied for an Early Site Permit (ESP) in August 2006 and nearly two years later submitted its combined Construction and Operating License (COL) application. The submission of the COL application triggered the start of the NEPA process for the Vogtle 3 and 4 reactors. The Final Supplemental Environmental Impact Statement for their COL application was not published until March 2011, three years later. Vogtle 3 and 4’s Final Supplemental EIS is a 568 page document. Under the reforms proposed in this bill, EISs cannot exceed 150 pages — or 300 pages in the case of a proposed agency action of extraordinary complexity. The proposed changes would have reduced SNC’s time in the NEPA process by one to three years. While the benefits these reforms would have had on the Vogtle 3 and 4 project may seem modest, they will encourage more projects to begin the relevant approval processes. There are innumerable projects that were abandoned long before they even began the NEPA process out of fear of the endless litigation that would render the project unprofitable.
The story of the Cape Wind Project has served as a deterrent for companies pursuing grand plans to generate low-carbon electricity. The Cape Wind project aimed to produce 454 MW of wind power in Nantucket Sound. From 2001 to 2017, the project owners spent 100 million dollars seeking approvals and fighting litigation. The project was ultimately canceled. Now the Vineyard Wind project, having learned from Cape Wind’s woes, is pursuing a project to build 804 MW of wind power capacity further offshore. This project is also facing costly litigation, despite previous approvals and earlier reforms to try to streamline approvals for offshore wind. The proposed reforms to NEPA under LECA will further reduce project risk for these ambitious energy projects and drive additional investment in low-carbon power. Without making these reforms to permitting, the subsidy funds in the Inflation Reduction Act will end up being spent on lawfare instead of building out energy infrastructure to reduce electricity costs for American businesses and families.
LECA includes provisions that will help to shore-up the uranium supply chain, securing the primary fuel for all commercial nuclear power plants. Section 20308 amends the Energy Act of 2020 and updates the list of critical minerals to include uranium. Once a mineral is added to this list, Section 10001 directs the Secretary of Energy to: conduct ongoing assessments of the supply chains of these critical minerals and energy resources; develop strategies to strengthen the supply chains in the United States; develop substitutes and alternatives; and improve technology that reuses and recycles these critical energy resources. This designation and associated directives in LECA seek to remedy a major U.S. vulnerability: the need to onshore more of the critical aspects of the supply chain for nuclear power plants. During 2021, only seven percent of the uranium loaded into American nuclear reactors came from the United States. Kazakhstan, Canada, and Australia provided 64 percent of all of the United States’ uranium purchases.
These proposed changes will reduce the project risk of building new nuclear power plants in the United States and increase American energy security. While there are still more regulatory reforms to be pursued to remove unnecessary barriers to building new nuclear power plants, these changes move the United States in the right direction towards increasing access to affordable, reliable, and low-carbon nuclear power.
A new era of energy imports and exports
One of the most contentious portions of LECA is bound to be Section 10004, promoting cross-border energy infrastructure. This section streamlines the approval process for the construction, connection, operation, and maintenance of facilities for the transportation of oil or natural gas or the transmission of electricity across international borders of the United States. This section repeals the requirement to secure a presidential permit in order to create one of these facilities. In the future, an entity seeking to build a pipeline between the United States and Canada would need to obtain a certificate of crossing from the Federal Energy Regulatory Commission (FERC).
The structure of FERC, its focus on technical analysis, and the transparency provided into its decisionmaking processes makes it the ideal agency to make these types of decisions. FERC is an independent agency that operates within the Department of Energy. FERC is led by a commission of five members, appointed by the president and confirmed by the Senate, and no more than three of the commissioners can be from the same party. Under the proposed regulatory changes, approvals for projects like the Keystone XL pipeline would no longer be dependent on the whims and political calculations of the president but determined by FERC’s less political and more technical analysis and processes. This change will spur renewed interest in cross-border energy infrastructure that will benefit the United States, Mexico, and Canada. FERC would have 120 days to issue a certificate of crossing after the NEPA process is complete, unless they have a clear reason why the border-crossing facility is not in the public interest of the United States. However, this section has implications well beyond natural gas pipelines.
Section 10004 has the potential to spur new cross-border projects that could decrease greenhouse gas emissions, create jobs for Americans, and increase grid reliability. The streamlined approval process for new cross-border transmission projects could become the catalyst for the delivery of nuclear, wind and solar, and hydroelectric power from Canada or Mexico. Likewise, as the United States scales up investment in these technologies and resolves its energy challenges, these changes could ease the process by which the United States exports low-carbon power to its neighbors, thereby helping those countries lower their costs and emissions. Reducing the existing regulatory barriers can ultimately pave the way for an abundance of low carbon, reliable energy in North America. As R Street’s Rossetti observes:
Delays in completion of clean energy projects due to NEPA requirements can result in increased emissions and environmental harms. By contrast, policies that improve NEPA timelines can have environmental as well as economic benefits.”
Likewise, Section 10007, Unlocking Domestic LNG, will help states like Texas provide the liquified natural gas that America’s allies and citizens need to reduce their carbon emissions and keep the lights on. This section will encourage new investment by streamlining the approval process for LNG import and export terminals. FERC would be the sole federal entity with authority to approve relevant applications and determine whether the export or import of natural gas is in the public interest. This change will be particularly valuable for Texas and Louisiana, both of which have companies seeking approvals to build new export terminals to meet the rising demand for LNG.
Energy permitting reform is bipartisan
While H.R. 1 can be expected to pass the House, albeit narrowly and on a mostly partisan basis, the real negotiations will occur between lawmakers from both bodies, and most importantly between House Republican leaders and the Chairman of the Senate Committee on Energy and Natural Resources, Joe Manchin (D-WV). Manchin, in fact, recently indicated a willingness to work with House Republicans on compromise language in many of these areas, telling attendees at an influential energy conference in Houston that he was open to many of the reforms in the Lower Energy Costs Act, but not all of them, and that H.R. 1 should be divided into smaller parts and not be “a major energy bill that reforms everything again[.]”
Indeed, perhaps the most consequential provisions in LECA relate to permitting, both within and outside of NEPA. The universal desire for rational permitting reform–permitting rules, after all, apply both to fossil fuel and renewable projects–suggests that this portion of H.R. 1 holds the greatest promise for a bipartisan convergence. “Energy permitting — not just as it relates to drilling but as it relates to the grid and electrical distribution,” one Democratic lawmaker told the Politico Playbook, “is absolutely fertile common ground.”
