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The Climate Solutions Now Act of 2022

The Climate Solutions Now Act (SB528) is arguably the most ambitious climate change law adopted by any state in the country. The Act calls for Maryland to reduce greenhouse gases (GHG) by 60% (compared to a 2006 baseline) by 2031 and for the Maryland economy to reach net-zero emissions by 2045.

By comparison, only about half of the states (24 plus Washington, D.C.) have adopted formal targets for greenhouse gas reductions, and only 15 states have enacted the targets into legislation. Although it can be difficult to compare targets because different states use different baseline years, none have required a 60% reduction by a date as ambitious as 2031.

The 60% reduction has not been modeled or studied. The Maryland Climate Change Commission (Commission) conducted an extensive review of the science, including the influential conclusions of the United Nations Intergovernmental Panel on Climate Change (IPCC). The Commission recommended that the previous 40% target by 2030 be adjusted to at least 50% to match the science and concluded that although a 50% target was ambitious, there were possible pathways to the goal if extremely extensive changes were made in state and federal policies. Changes that would clearly impact all citizens on a daily basis.

No analysis exists as to how a 60% reduction could be achieved, but the Commission is now charged with developing proposals that allow the state to reach that target in nine short years. Since any proposals are likely to provide a cumulative, rather than immediate, impact on emissions, the changes will need to be implemented well before that deadline.

The net-zero target for 2045 is, of course, even more ambitious than the 2031 goal. There clearly are not nearly enough carbon-sinks (methods of sequestering GHG) to offset current or projected emissions. Getting to net-zero (sometimes called carbon-neutral) will require drastic changes in everyday life. Vehicles, homes, offices, farms and power plants will be impacted. It is also likely to require new technology, which is not yet even on the drawing boards.

Nevertheless, the Maryland Department of the Environment is required to submit a draft plan for achieving the 2031 goal by June 30, 2023, and adopt a final plan by December 31, 2023. A final plan for meeting the net-zero goal must be adopted by December 31, 2030.

The Act places some restrictions on what can be in the plan. For example, carbon capture and distribution and transmission improvements can be used only if the measures have been “scientifically proven to achieve verifiable carbon reductions". The Act preserved existing requirements that the plan could not increase costs for manufacturers, must be cost-effective and have a net positive impact on the economy, but also added a requirement that these evaluations had to be compared to a “no-action scenario”. Finally, the Act also mandates more than two dozen reports on aspects of the transition by a variety of agencies.

To begin the process of reaching those ambitious targets, the Act includes extensive provisions dealing with environmental justice, worker transition, state procurement, nuclear power, biofuels, schools and school buses, and other subjects. However, most of the controversy focused on the provisions that require a transition from fossil fuels (gas, propane and oil) to 100% electricity for heating and water heating in new and, eventually, existing buildings.

New Buildings

The Act enacts a state policy to move to “broader electrification of both existing buildings and new construction” with recommendations from the Building Codes Administration and the Public Service Commission (PSC). The Building Code Administration’s initial recommendations and report must be submitted to the PSC and the General Assembly by January 1, 2023, with a final report by December 1, 2023. The PSC is required to report to the General Assembly by September 30, 2023.

The two agencies must develop recommendations for a building code that would require most new buildings to rely solely on electricity for internal use. The recommendations will include a review of building technologies and the readiness of the electric grid for the transition.

This provision does not have any limitations on the size of the building to be covered but the standards to be developed are to have “appropriate exemptions for particular industries … local conditions, and sectors deemed critical infrastructure…” The new building codes would be based on the “fastest and most cost-efficient methods”, “assess the availability of technology”, and include “recommendations regarding cost-effectiveness measures”.

Putting all of this together, we should expect building codes that will require most (but not all) new construction to be built without reliance on fossil fuels. The effective date will be no sooner than 2024 but, depending on the studies by the Building Code Administration and the PSC, may be later and may vary by building type or location.

Existing Buildings

The Act enacts a new reporting requirement — and potential fees — on “covered buildings”. A covered building is a commercial or multifamily residential building with a gross floor area of 35,000 square feet (not including a parking garage). Excluded from the category are historic buildings, schools, manufacturing buildings, agricultural buildings and commercial kitchens.

Owners of covered buildings must report their “direct greenhouse gas emissions” to the Department of the Environment beginning in 2025. Direct emissions are those produced on-site and therefore would not include emissions from off-site generation of power. So, for example, a building that relies upon natural gas boilers would need to report the emissions. If the same building relied upon electricity generated at a distant natural gas power plant, the report would not include the emissions from that plant.

The Department of the Environment is required to develop “energy performance standards” for covered buildings that will achieve a 20% reduction in direct emissions (as compared to 2025 levels for average buildings of similar construction) by January 1, 2030, and net-zero emissions by January 1, 2040. In developing the standards, the Department is required to consider building age, regional differences, unique needs of building or occupancy types, and the needs of landlords who do not have control over energy systems used by tenants. The General Assembly also provided that the net-zero requirement would automatically expire in 2029 unless the legislature took action to reaffirm the mandate.

The Department was further instructed to “provide maximum flexibility to the owners of covered buildings to comply with building energy performance standards”.

Any building which fails to achieve the performance standards will be required to pay a fee based on the extent to which the building’s direct emissions exceed the standard. The fee will be at least equal to the “social cost of carbon” set by the Environmental Protection Agency (EPA). Currently that is $51 a ton but the federal government proposes to increase it to as much as $120 a ton. The number has, historically, been volatile as different administrations set what is, basically, a subjective assessment of the damage caused by greenhouse gas emissions.

Putting this together, it seems likely that some buildings may be able to meet the 2030 standard by producing at least 20% less greenhouse gases than an average building of that type was in 2025. However, it will be difficult for any building that relies on the use of on-site fossil fuels to avoid the fees starting in 2040.

Finally, the Act establishes a Building Energy Transition Implementation Task Force to make recommendations for “targeting incentives to electrification projects that would not otherwise result in strong returns on investment for building owners; and develop a plan for funding the retrofit of covered buildings”. The plan may include commercial tax credits and subsidy payments. The Task Force was amended to include one representative of the multifamily housing industry and a representative of a statewide commercial or industrial building association (among others). Unless financial incentives are enacted, many owners may find the payment of a fee to be preferable to performing the upgrades needed to reach compliance.

These provisions can be summed up as requiring reporting of emissions starting in 2025 and a modest fee beginning in 2030 for buildings that fail to reduce direct emissions by 20% compared to average buildings of that type. Owners should expect a much larger fee beginning in 2040 for buildings that continue to rely on the combustion of fossil fuels on-site. The state may provide financial help for the transition depending on the Task Force conclusions.

Schools

The Act includes several provisions to encourage the development of “net-zero” schools, which would not add additional carbon to the atmosphere. Counties that build net-zero schools would receive an additional 5% increase in the state contribution to the project.

New school buses purchased by counties must be zero-emission vehicles (ZEVs) unless the county can demonstrate that there were no federal, state or private funding sufficient to cover the incremental cost of the zero-emission buses. To support that effort, the Act permits utilities to create electric school bus pilot programs providing at least 25 electric school buses financed with total rebates of up to $50 million. The school buses would provide battery storage benefits when not in use.

Environmental Justice

Threaded throughout the Act are provisions designed to reduce impacts on “underserved” or “overburdened” communities. For the first time, definitions are provided for those terms. An underserved community is a community with high poverty, high nonwhite population or low English proficiency. An overburdened community is a census tract with high levels of air pollution, traffic, lead paint, superfund sites, animal feeding operations, etc. Also included are areas lacking broadband coverage or experiencing higher levels of certain health conditions. The Act requires the Commission on Environmental Justice to establish goals for the percentage of state funding that will be used for these communities and to develop strategies for reducing GHG and “co-pollutant” emissions in those communities.

The Maryland Commission on Climate Change

The Commission was directed to make several additional reports and the Act added four new workgroups to the Commission complete with an extensive list of representatives to be appointed. The Commission already had four workgroups. A Mitigation Working Group was charged with developing greenhouse gas reduction recommendations. An Adaptation and Response Working Group was charged with developing recommendations for dealing with the impacts of climate change. A Scientific and Technical and Education working group as well as a Communication and Outreach working group supported the others with scientific advice and community relations.

The Act added (1) Just Transition Employment and Retraining, (2) Energy Industry Revitalization, (3) Energy Resilience and Efficiency, and (4) Solar Photovoltaic Systems Recovery, Reuse and Recycling Working Groups. Each of the four new working groups are required to have members of the Senate and House, cabinet level officers (or their designees) as well as numerous representatives of industry and environmental groups. Combined, the new working groups added 66 appointed positions to the 85 current positions on the pre-existing groups. The missions of the groups appear to overlap significantly so coordination will be difficult.

The largest of the new working groups, the Just Transition group, focuses on transitioning workers in fossil fuel industries to employment opportunities in a clean energy economy. Most of the members are from labor organizations or impacted industries. The Energy Industry Revitalization group will focus on the possible impacts to small businesses and potential facility closures as the result of climate change policies. The Energy Resilience group is primarily composed of representatives of electric energy companies and will focus on energy infrastructure improvements, transmission efficiency and battery backups. The last of the four new groups, the Photovoltaic Systems group, will focus on options for recycling or reusing solar panels.

Chesapeake Conservation Corps

The Act establishes a program designed to “mobilize, educate and train youth and young adults” on efforts to fight or mitigate climate change impacts and assist underserved communities. The program expands the mission of the existing Chesapeake Conservation Corps. The Corps will now undertake many climate mitigation projects (tree canopies, bike trails, solar systems on libraries and schools, etc.). Membership in the Corps is designed to be a six-month term for young people between the ages of 18 and 26 who will be paid $15 an hour for their work.

State Procurement

Starting on January 1, 2030, at least 75% of all electricity supply purchased by Maryland for state facilities must come from no- or low-carbon energy sources.

The Act requires the state to increase the purchase of zero-emission vehicles (ZEVs) for the state fleet. From 2023 to 2025, a quarter of the purchases of passenger cars must be ZEVs and the percent climbs to 100% by 2028. Similar targets are set for light-duty vehicles with slightly later deadlines.

Nuclear and Biofuels

Amendments added to the Act included numerous provisions that are supportive of the continued operation of the Calvert Cliffs nuclear power plant and the development of biofuel alternatives. For example, the greenhouse gas reduction plan is directed to include recommendations to ensure the continued operation of “existing zero carbon emission electric generators through current operating licenses” — a definition that certainly fits Calvert Cliffs. The Energy Resilience Working Group includes three representatives of the nuclear energy industry. The state procurement section mandates the purchase of low- or zero-carbon electric supply — striking the word “renewable” from the definition. Similarly, the new energy performance standards must include special provisions for biofuels and the new building codes must consider the use of low-carbon biofuels, such as biodiesel.

Funding

The Act dedicates funding to several climate-friendly programs. For example, $500,000 is devoted to the Healthy Soils Program which seeks to alter farming practices to create additional carbon-sinks. Five million dollars are set aside in each of fiscal 2024, 2025 and 2026 for a Climate Catalytic Capital Fund for greenhouse gas reduction programs. Forty percent is reserved for low- to moderate-income communities. One and a half million dollars per year are devoted to the Chesapeake Conservation Corps (supplemented by as much as another quarter million from the Chesapeake Bay Trust). Some existing subsidies were also refocused. For example, some utility programs, which had focused on lowering bills for low-income individuals, will now focus on lowering bills by switching to all electric heating rather than more efficient fossil fuel systems.

Miscellaneous

The Act includes numerous other provisions, which, together, will have wide-ranging impacts. For example, the Act requires that every state agency must evaluate impacts on climate change and disadvantaged communities in all long-term planning and in drafting all new regulations.

Projects undertaken by public utility companies using federal infrastructure funds are required to use contractors and subcontractors who pay prevailing wages and offer health care and retirement benefits as well as attempt to set aside a quarter of the jobs for minorities and veterans.

The Act requires utilities to increase investments in programs designed to increase energy conservation, achieving up to 2.5% annual decline in electricity sales by 2027.

The Public Service Commission (PSC) is required to submit an annual report on the measures undertaken to reduce greenhouse gas emissions, including additional capacity to accommodate anticipated increased loads. The PSC must issue new regulations by July 1, 2025, to implement new system planning and improvements to meet these goals.

The Act creates a Climate Transition and Clean Energy Hub to be clearinghouse for efforts to reduce greenhouse gas emissions.

The Act exempts from personal property tax many small community solar projects that serve low- or moderate-income customers if the application for the exemption is filed by December 31, 2024.

Final Thoughts

The Act sets very ambitious goals for reducing greenhouse gases. The measures directly mandated in the Act will only provide a modest down payment toward meeting those goals. Pursuit of the 2031 and 2045 targets will require additional legislation and regulation. The new laws and regulations likely to be proposed in coming years will not be minor nor allow easy compliance. There are no low-hanging fruits on the tree of greenhouse gas reduction.

Residential, commercial and industrial fuel use, (which would include the items addressed by the Act as well as other sources) were only responsible for about 18% of Maryland greenhouse gas emissions. Transportation, which had very few mandates in the Act, is responsible for about 40%. (The Maryland Commission on Climate Change plans to spend significant time on transportation as part of this year’s agenda.) Even within the sectors addressed by the Act, there are significant exemptions or limitations for certain types of buildings, certain schools or school buses, state procurements, etc. It is difficult to see how the state can reach the net-zero target if those exemptions and limitations are continued through 2045.

The Act, for all its impact, is simply the beginning of a new regulatory paradigm.

For more information, contact Michael C. Powell.

 

 

Michael C. Powell
401-576-4175 • mpowell@gfrlaw.com