As US Congress regroups, lawmakers seek to avoid shutdown, reach permitting deal

The US Congress faces a busy fall session, with lawmakers scrambling to avoid a government shutdown that would hinder the implementation of the Biden administration's climate and energy agenda.

With only weeks left until agencies' funding expires, the GOP-majority House of Representatives and Democrat-controlled Senate are still far apart on most appropriations bills. If both chambers cannot agree to a short-term spending measure, a shutdown could start Oct. 1, potentially stalling agency efforts to carry out the energy tax provisions of the Inflation Reduction Act (IRA) and programs created by the bipartisan infrastructure law of 2021.

"If the government shuts down, it's going to impact key climate initiatives" and "put the brakes on a lot of the progress that's being made in implementing the Inflation Reduction Act," said Mona Dajani, global head of renewables, energy and infrastructure at law firm Shearman and Sterling.

The energy industry is also awaiting nominees for the Federal Energy Regulatory Commission and eyeing potential headway on new policies to speed permitting of infrastructure projects.

"I think there are some very serious conversations going on, particularly in the Senate, with respect to what's possible on permitting reform," said Sasha Mackler, executive director of the Bipartisan Policy Center's energy program. "I believe that we will see a push before the end of the year to get some sort of a deal at least outlined and put in play in the Senate."

Possible shutdown looms

With both chambers back in session, Congress is focused on passing additional spending legislation for federal agencies before current funding expires at the end of the 2023 fiscal year that runs through Sept. 30.

To avoid a shutdown, the House and Senate must reconcile their respective appropriations bills, a task that poses formidable challenges. Despite a bipartisan agreement in June to hold 2024 federal nondefense spending levels the same as the prior year, Republicans in the GOP-majority House have proposed steep cuts to some energy and environmental programs. They have also included provisions in spending bills to rescind money for some climate and clean energy programs created by the IRA.

Senate appropriators did not include many of those cuts in their own fiscal year 2024 bills. The gulf in spending priorities between the House and Senate prompted the White House to ask Congress to pass a short-term measure to keep the government open after September.

But some House Republicans, particularly the conservative House Freedom Caucus, pushed back on a supplemental funding request that President Joe Biden made in late August, raising the specter of a funding lapse.

Agencies including the US Treasury Department, US Department of Energy and Environmental Protection Agency are responsible for implementing key programs created by the IRA and the 2021 infrastructure law. Those agencies' work may be limited to emergency activities during a shutdown, delaying progress on other initiatives.

Such regulatory disruptions, alongside the GOP's efforts to roll back IRA programs, could have a "chilling effect" on clean energy investment, said Dajani, who also serves as a partner in Shearman and Sterling's project development and finance practice.

The DOE in particular has a major role in implementing the infrastructure law, which gave the department $62 billion for a range of clean energy and grid initiatives. A potential shutdown would not only affect those priorities but delay the "next phase" of climate and energy policy, according to Mackler.

"When I evaluate everything that's happening on [Capitol] Hill, the budget piece should not be the hard part," Mackler said.

Permitting talks continue

Although a shutdown could tie up Congress, key lawmakers still hope to make progress on lowering permitting barriers for energy projects.

Senate Energy and Natural Resources Committee Chairman Joe Manchin (D-W.Va.) told S&P Global Commodity Insights that lawmakers will meet the week of Sept. 11 on a bipartisan path forward on permitting. Manchin, as well as other Democrats and top Republicans including Senate energy committee ranking member John Barrasso (R-Wyo.), have floated a raft of permitting bills in the Senate.

The upper chamber is working to craft a bipartisan package that could get buy-in from both chambers. That mission has proved tough. Democrats are hesitant to smooth the construction of fossil fuel projects and want more robust policies to build new transmission lines after such provisions were largely excluded from the June budget deal.

Republicans are meanwhile pushing for judicial reforms that could shorten or limit challenges to federal project permits and want to update key environmental laws to remove roadblocks to oil and gas infrastructure.

A potential deal "probably will focus on some sort of combination of wires for pipes and maybe some judicial review in there," Mackler said. "I think that there is some traction there."

But reaching such a deal is "not going to be easy," Mackler added, pointing to the funding fights and other urgent legislation that Congress must pass before the end of the year.

FERC nominations

With the permitting reform outlook unclear, Democratic lawmakers and the Biden administration are turning more to agencies to step up approval of clean energy and transmission projects. But existing and future vacancies at FERC present a challenge.

The commission has yet to fill the open seat left by former Chairman Richard Glick, who left the agency in January. Republican Commissioner James Danly's seat may also be empty soon. Danly's term expired at the end of June, but he can continue to serve until the end of this congressional term unless a replacement is confirmed before then.

During a Sept. 7 interview, Manchin said he was unsure when the White House will announce FERC nominations and whom Biden may select to fill those seats.

"I haven't heard anything," Manchin said. "I know they would like to get as many as they can confirmed, as quickly as possible to get working ... but sometimes it doesn't go as quickly as we want."

Dajani and other Washington sources have heard that Manchin recommended FERC staff member David Rosner as a successor for Glick. Rosner, an energy industry analyst in FERC's Office of Energy Policy and Innovation, has been on loan from FERC to the Senate energy committee.

FERC is currently divided between two Democrats and two Republicans. The even party-line split could stall some major rulemakings that Glick launched to aid transmission development. But the commission recently finalized a revamp of its generator interconnection procedures, an order that clean energy advocates said will help reduce a backlog of new wind, solar and storage projects.

Farm bill

In the weeks ahead, Congress will also work to craft a new farm bill, with the current one expiring at the end of September.

Farm bills typically last five years. But Congress has yet to introduce new legislation, meaning a short-term extension may be needed. The legislation, which is considered a must-pass bill, contains a range of programs related to farming, nutrition, crop insurance, conservation and energy.

"There was some talk of the Senate trying to mark up its [farm] bill in late September, but with the likely government shutdown ... it looks like both the House and Senate committees will wait until later in October," said Eric Washburn, a former Senate Democratic aide on energy and environmental issues.

Although House Republicans have yet to release their version of the 2023 farm bill, Washburn heard they may try to rescind or repurpose some portion of the IRA's funds for US Department of Agriculture climate programs. But doing so will likely incur resistance from the Senate, Washburn added.

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