Barriers to Energy Supply Are Everywhere—Let’s Get Serious about Permitting Reform

Just north of Boston in Everett, Massachusetts sits the poster child for irrational energy permitting in the United States. The Everett Marine Terminal is a facility that connects imported liquefied natural gas (LNG)-often from Trinidad, more than 2,200 miles away-to natural gas delivery networks in New England. This is an absurd outcome for at least three reasons:

1. New England demands natural gas, which generated 55 percent of the electricity on the New England power grid in 2023 and heats about half of the homes in Massachusetts,
2. Abundant natural gas resources are being developed nearby. However, states like New York can abuse environmental statutes like the Clean Water Act to block any new pipeline that would move shale gas to New England. The Marcellus shale gas play (the most productive formation in the country) extends through Pennsylvania into New York, which shares a long border with Massachusetts, and
3. Even if no new pipelines were built through New York state from Pennsylvania to Massachusetts, several American LNG export terminals (in Maryland, Georgia, Louisiana, and Texas) could supply New England if not for arcane laws like the Jones Act. As my Cato colleague Colin Grabow explains, the Jones Act "restricts domestic shipping to vessels that are US-flagged, built, owned, and crewed," which effectively bans LNG shipments between US ports.

It would be a dark comedy of errors if the people of New England suffered because of inept energy policies and unnecessary barriers to energy resources even beyond predictably higher prices. As one example, fuel security has been a concern for the New England grid for several years, and many believe it is a matter of time until the region faces blackouts during a prolonged winter storm. James Danly, former commissioner and chairman of the Federal Energy Regulatory Commission (FERC), stated:

Some areas of the country, particularly New England, are suffering the effects of severe natural gas transmission capacity constraints. … Without action being taken to relieve these constraints, an eventual failure of the electric system in some regions appears very likely.

Although New England epitomizes the hobbled state of energy production and delivery in America, it is by no means the only region facing steep barriers to new energy supplies. American energy production from all resources (and in all regions) is impaired by permitting issues.

The recent growth in wind and solar energy has placed those industries among the energy suppliers in the United States that face steep regulatory barriers to new projects, a position the oil and natural gas industries have occupied for years. In other words, now that wind and solar have joined the party, longstanding permitting problems are receiving renewed attention from lawmakers.

The Senate's Draft Permitting Bill

Released in late July, the Energy Permitting Reform Act of 2024 (S. 4753) appears on the surface to be a step toward more production of both hydrocarbon and renewable energy resources. However, the draft legislation fails to address fundamental challenges to all energy resources and unreasonably favors specific resources like onshore renewables and offshore wind. The strongest provisions of the legislation-including an apparent rebuke of the Department of Energy's pause on LNG exports in Section-are watered down by several weak provisions.

Onshore Renewables: Section 207 (Improving Renewable Energy Coordination on Federal Land) requires relevant federal agencies to "establish a target date for the authorization of not less than 50 gigawatts of renewable energy production on federal land by not later than 2030." This provision builds on language in the Energy Act of 2020, which established a goal of 25 gigawatts by 2025. Section 207 also provides for the 50-gigawatt goal to be revised periodically.

Offshore Wind: Section 302 (Offshore Wind Energy) requires the Secretary of the Interior to "establish an initial target date for an offshore wind energy production goal of 30 gigawatts," which dovetails with President Biden's offshore wind goal of 30 gigawatts by 2030. Total installed offshore wind capacity in 2023 was 42 megawatts, just 0.14 percent of the 30 gigawatt (30,000 megawatt) target. In earlier articles, we have detailed the high cost of offshore wind.

Transmission: Sections 401 (Transmission Permitting) and 402 (Transmission Planning) would accelerate the buildout of electric transmission by codifying and expanding several policies included in FERC's Order No. 1920. We critiqued that order earlier this year because it would "socialize the cost of the most aggressive climate and renewable energy goals of some states and corporate customers at the expense of consumers and taxpayers everywhere."

For opponents of FERC's Order No. 1920, the language in sections 401 and 402 should be troubling because one of the key arguments against the order is that it lacks a statutory basis and could be overturned by the courts in a post-Chevron world. The Senate bill also weakens the cost allocation language in Order No. 1920 by further reducing the benefits threshold from "roughly commensurate" with costs (a standard established in case law) to not "trivial in relation to the costs sought to be allocated." (Page 49)

Taken together, the transmission provisions are a step in the wrong direction that would be codified in statute, preempting any potential court victory over FERC Order No. 1920.

Subsidies on Steroids

As the saying goes, "There is no transition without transmission." Under current law, taxpayers will foot the bill for the energy expansion enabled by more transmission. Specifically, subsidies in the Inflation Reduction Act (IRA) are available to various resources that require an expanded transmission grid to interconnect and deliver energy. The potential $3 trillion cost to taxpayers will only be intensified and accelerated by the expansion of transmission for renewables.

Today, the lack of available transmission is a barrier to new-generation technologies eligible for the tax credits in the IRA. For example, generators can only claim the Production Tax Credit (PTC) if they can produce energy and deliver it to the grid (and avoid being curtailed for lack of transmission capacity). Further, PTC eligibility will expand to include even more resources in 2025, so the pressure to expand transmission will only grow in the coming years as these resources rush to harvest subsidies. Expanding the transmission system for the benefit of subsidized resources would hurt taxpayers because it would put the PTC on steroids.

A Free-Market Path Forward

It is an unforced error that we face energy scarcity in a nation that leads the world in natural gas production by a wide margin and has a wealth of renewable energy potential and hydrocarbon reserves. By favoring a resource-neutral set of reforms, policymakers can enact lasting, non-distortionary permitting reforms and unleash American energy. But real reform, as the Competitive Enterprise Institute points out, requires amending underlying environmental statutes, eliminating resource favoritism, and repealing distortionary energy subsidies (don't forget to throw in Jones Act reform for good measure!). The Senate's recent attempt doesn't cut it.

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