Category: Congress

A Summary of Inflation Reduction Act’s Main Energy Tax Proposals

On August 7, the Senate passed the Inflation Reduction Act of 2022 (the “IRA”). The IRA contains a significant number of climate and energy tax proposals, many of which were previously proposed in substantially similar form by the House of Representatives in November 2021 (in the “Build Back Better Act”).

Extension and expansion of production tax credit

Section 45 of the Internal Revenue Code provides a tax credit for renewable electricity production. To be eligible for the credit, a taxpayer must (i) produce electricity from renewable energy resources at certain facilities during a ten-year period beginning on the date the facility was placed in service and (ii) sell that renewable electricity to an unrelated person.[1] Under current law, the credit is not available for renewable electricity produced at facilities whose construction began after December 31, 2021.

The IRA would extend the credit for renewable electricity produced at facilities whose construction begins before January 1, 2025. The credit for electricity produced by solar power –which expired in 2016—would be reinstated, as extended by the IRA.

The IRA would also increase the credit from 1.5 to 3 cents per kilowatt hour of electricity produced.

A taxpayer would be entitled to increase its production tax credit by 500% if (i) its facility’s maximum net output is less than 1 megawatt, (ii) it meets the IRA’s prevailing wage and apprenticeship requirements,[2] and (iii) the construction of its facility begins within fifty-nine days after the Secretary publishes guidance on these requirements.

In addition, the IRA would add a 10% bonus credit for a taxpayer (i) that certifies that any steel, iron, or manufactured product that is a component of its facility was produced in the United States (the “domestic content bonus credit”) or (ii) whose facility is in an energy community (the “energy community bonus credit”).[3]

Extension, expansion, and reduction of investment tax credit

Section 48(a) provides an investment tax credit for the installation of renewable energy property. The amount of the credit is equal to a certain percentage (described below) of the property’s tax basis. Under current law, the credit is limited to property whose construction began before January 1, 2024.

The IRA would extend the credit to property whose construction begins before January 1, 2025. This period would be extended to January 1, 2035 for geothermal property projects. The IRA would also allow the investment tax credit for energy storage technology, qualified biogas property, and microgrid controllers.

The IRA would reduce the base credit from 30% to 6% for qualified fuel cell property; energy property whose construction begins before January 1, 2025; qualified small wind energy property; waste energy recovery property; energy storage technology; qualified biogas property; microgrid controllers; and qualified facilities that a taxpayer elects to treat as energy property. For all other types of energy property, the base credit would be reduced from 10% to 2%.

A taxpayer would be entitled to increase this base credit by 500% (for a total investment tax credit of 30%) if (i) its facility’s maximum net output is less than 1 megawatt of electrical or thermal energy, (ii) it meets the prevailing wage and apprenticeship requirements, and (iii) its facility begins construction within fifty-nine days after the Secretary publishes guidance on these requirements.

In addition, a taxpayer would be entitled to a 10% domestic content bonus credit and 10% energy community bonus credit (subject to the same requirements as for bonus credits under section 45). The IRA would also add a (i) 10% bonus credit for projects undertaken in a facility with a maximum net output of 5 megawatts and is located in low-income communities or on Indian land, and (ii) 20% bonus credit if the facility is part of a qualified low-income building project or qualified low-income benefit project.

Section 45Q (Carbon Oxide Sequestration Credit)

Section 45Q provides a tax credit for each metric ton of qualified carbon oxide (“QCO”) captured using carbon capture equipment and either disposed of in secure geological storage or used as a tertiary injection in certain oil or natural gas recovery projects.  While eligibility for the section 45Q credit under current law requires that projects begin construction before January 1, 2026, the IRA would extend credit eligibility to those carbon sequestration projects that commence construction before January 1, 2033.

The IRA would increase the amount of tax credits for projects that meet certain wage and apprenticeship requirements. Specifically, the IRA would increase the amount of section 45Q credits for industrial facilities and power plants to $85/metric ton for QCO stored in geologic formations, $60/metric ton for the use of captured carbon emissions, and $60/metric ton for QCO stored in oil and gas fields.  With respect to direct air capture projects, the IRA would increase the credit to $180/metric ton for projects that store captured QCO in secure geologic formations, $130/metric ton for carbon utilization, and $130/metric ton for QCO stored in oil and gas fields.  The proposed changes in the amount of the credit would apply to facilities or equipment placed in service after December 31, 2022.

The IRA also would decrease the minimum annual QCO capture requirements for credit eligibility to 1,000 metric tons (from 100,000 metric tons) for direct air capture facilities, 18,750 metric tons (from 500,000 metric tons) of QCO for an electricity generating facility that has a minimum design capture capacity of 75% of “baseline carbon oxide” and 12,500 metric tons (from 100,000 metric tons) for all other facilities.  These changes to the minimum capture requirements would apply to facilities or equipment that begin construction after the date of enactment.

Introduction of zero-emission nuclear power production credit

The IRA would introduce, as new section 45U, a credit for zero-emission nuclear power production.

The credit for a taxable year would be the amount by which 3 cents multiplied by the kilowatt hours of electricity produced by a taxpayer at a qualified nuclear power facility and sold by the taxpayer to an unrelated person during the taxable year exceeds the “reduction amount” for that taxable year.[4]

In addition, a taxpayer would be entitled to increase this base credit by 500% if it meets the prevailing wage requirements.

New section 45U would not apply to taxable years beginning after December 31, 2032.

Biodiesel, Alternative Fuels, and Aviation Fuel Credit

The IRA would extend the existing tax credit for biodiesel and renewable diesel at $1.00/gallon and the existing tax credit for alternative fuels at $.50/gallon through the end of 2024.  Additionally, the IRA would create a new tax credit for sustainable aviation fuel of between $1.25/gallon and $1.75/gallon.  Eligibility for the aviation fuel credit would depend on whether the aviation fuel reduces lifecycle greenhouse gas emissions by at least 50%, which corresponds to a $1.25/gallon credit (with an additional $0.01/gallon for each percentage point above the 50% reduction, resulting in a maximum possible credit of $1.75/gallon). This credit would apply to sales or uses of qualified aviation fuel before the end of 2024.

Introduction of clean hydrogen credit

The IRA would introduce, as new section 45V, a clean hydrogen production tax credit. To be eligible, a taxpayer must produce the clean hydrogen after December 31, 2022 in facilities whose construction begins before January 1, 2033.

The credit for the taxable year would be equal to the kilograms of qualified clean hydrogen produced by the taxpayer during the taxable year at a qualified clean hydrogen production facility during the ten-year period beginning on the date the facility was originally placed in service, multiplied by the “applicable amount” with respect to such hydrogen.[5]

The “applicable amount” is equal to the “applicable percentage” of $0.60. The “applicable percentage” is equal to:

  • 20% for qualified clean hydrogen produced through a process that results in a lifecycle greenhouse gas emissions rate between 2.5 and 4 kilograms of CO₂e per kilogram of hydrogen;

  • 25% for qualified clean hydrogen produced through a process that results in a lifecycle greenhouse gas emissions rate between 1.5 and 2.5 kilograms of CO₂e per kilogram of hydrogen;

  • 4% for qualified clean hydrogen produced through a process that results in a lifecycle greenhouse gas emissions rate between 0.45 and 1.5 kilograms of CO₂e per kilogram of hydrogen; and

  • 100% for qualified clean hydrogen produced through a process that results in a lifecycle greenhouse gas emissions rate of less than 0.45 kilograms of CO₂e per kilogram of hydrogen.

A taxpayer would be entitled to increase this base credit by 500% if (i) it meets the prevailing wage and apprenticeship requirements or (ii) it meets the prevailing wage requirements, and its facility begins construction within fifty-nine days after the Secretary publishes guidance on the prevailing wage and apprenticeship requirements.

FOOTNOTES

[1] All references to section are to the Internal Revenue Code.

[2] The IRA would require new prevailing wage and apprenticeship requirements to be satisfied in order for a taxpayer to be eligible for increased credits. To satisfy the prevailing wage requirements, a taxpayer would be required to ensure that any laborers and mechanics employed by contractors or subcontractors to construct, alter or repair the taxpayer’s facility are paid at least prevailing local wages with respect to those activities. To satisfy the apprenticeship requirements, “qualified apprentices” would be required to construct a certain percentage of the taxpayer’s facilities (10% for facilities whose construction begins before January 1, 2023 and 15% for facilities whose construction begins on January 1, 2024 or after). A “qualified apprentice” is a person employed by a contractor or subcontractor to work on a taxpayer’s facilities and is participating in a registered apprenticeship program.

[3] An “energy community” is a brownfield site; an area which has (or had at any time after December 31, 1999) significant employment related to the extraction, processing, transport, or storage of coal, oil, or natural gas; and a census tract in which a coal mine closed or was retired after December 31, 1999 (or an adjoining census tract).

[4] A “qualified nuclear power facility” is any nuclear facility that is owned by the taxpayer, that uses nuclear energy to produce electricity, that is not an “advanced nuclear power facility” as described in section 45J(d)(1),  and is placed in service before the date that new section 45U is enacted.

“Reduction amount” is, for any taxable year, the amount equal to (x) the lesser of (i) the product of 3 cents multiplied by the kilowatt hours of electricity produced by a taxpayer at a qualified nuclear power facility and sold by the taxpayer to an unrelated person during the taxable year and (ii) the amount equal to 80% of the excess of the gross receipts from any electricity produced by the facility (excluding an advanced nuclear power facility) and sold to an unrelated person during the taxable year; (y) over the amount equal to the product of 2.5 cents multiplied by the kilowatt hours of electricity produced by the taxpayer at a qualified nuclear power facility and sold by the taxpayer to an unrelated person during the taxable year.

[5] “Qualified clean hydrogen” is hydrogen that is produced (i) through a process that results in a lifecycle greenhouse gas emissions rate of no more than 4 kilograms of CO₂e per kilogram of hydrogen, (ii) in the United States, (iii) in the ordinary course of the taxpayer’s trade or business, (iv) for sale or use, and (v) whose production and sale or use is verified by an unrelated party. The IRA does not explain what “verified by an unrelated party” means.

Article By David S Miller, Amanda H Nussbaum, Martin T Hamilton, J. Tyler Moser, and Rita N. Halabi of Proskauer Rose LLP

For more tax law legal news, click here to visit the National Law Review.

© 2022 Proskauer Rose LLP.

Even in the 9th Circuit, merely conveying contaminated groundwater isn’t “transportation” of a “solid waste”

Just before the July 4th holiday, two Judges on a Ninth Circuit panel reversed their earlier conclusion that conveying contaminated groundwater can give rise to RCRA liability for the “transportation” of a “solid waste”.  The panel now agrees that the City of Vacaville’s mere conveyance of drinking water contaminated by someone else is not something Congress intended to criminalize (or make subject to civil penalties) in RCRA.

The two Judges reiterated their view that the contaminated groundwater does fall within RCRA’s definition of “solid waste”.

This case first caught my attention in January after the panel’s first bite at this apple. (See https://insights.mintz.com/post/102hg8l/overturning-the-9th-circuit-vaca…).

I guess it is progress that the panel has corrected one of its two mistakes.  But to suggest that conveying groundwater containing parts per billion of anything is the transportation of a solid waste is completely unfaithful to the language of RCRA as the panel has now recognized with respect to the definition of “transportation” but not the definition of “solid waste”.

It bears repeating that the water the City is providing to the residents of Vacaville reportedly meets all applicable federal and state standards, including those established under the Federal Safe Drinking Water Act, and the State of California has stringent standards of its own.  It is those laws, and not the federal law having to do with the transportation and disposal of solid waste, that should apply.

As I wrote in January, if we think those laws, or any of our other federal and state environmental laws, need improving, we should lobby our elected officials to improve them.  But stoking the fears of an already cynical citizenry that our federal, state and local governments aren’t doing their job isn’t worth whatever citizen suit plaintiffs might stand to gain from misusing the laws that we do have.

“RCRA’s context makes clear that mere conveyance of hazardous waste cannot constitute ‘transportation’ under the endangerment provision,” writes Judge Patrick J. Bumatay in the new ruling, joined by District Judge Douglas L. Rayes, sitting on the 9th Circuit by designation.

Article By Jeffrey R. Porter of Mintz

For more environmental legal news, click here to visit the National Law Review.

©1994-2022 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.

Uyghur Forced Labor Prevention Act Takes Effect: What Importers Need to Know

The Uyghur Forced Labor Prevention Act (UFLPA) is in effect as of June 21, 2022. Congress passed the Act in December 2021 to increase enforcement of longstanding U.S. policy prohibiting the importation of goods, or components thereof, made with forced labor and to create a “rebuttable presumption” that merchandise from the Xinjiang Uyghur Autonomous Region (XUAR) or by an entity on the UFLPA Entity List is made with forced labor and thereby prohibited from entry into the United States. The rebuttable presumption applies to downstream products that incorporate inputs from XUAR, regardless of where the finished products are manufactured, including goods from outside XUAR in the People’s Republic of China (PRC), or in third countries. There is no de minimis provision in the law – any prohibited content, no matter how small, will make a product subject to the rebuttable presumption made by the law. If an importer can demonstrate by “clear and convincing” evidence that the goods were not produced wholly or in part by forced labor, U.S. Customs and Border Protection (CBP) will grant an “exception” to the presumption. The UFLPA provides for increased detentions and seizures of merchandise and potential civil and criminal penalties. See prior GT Alerts on the UFLPA.

Pursuant to the UFLPA, a multi-agency task force chaired by the Department of Homeland Security was mandated to develop a strategy for the Act’s implementation. On June 17, in anticipation of the June 21 effective date, DHS released the “Strategy to Prevent the Importation of Goods Mined, Produced, or Manufactured with Forced Labor in the People’s Republic of China” (Enforcement Strategy), which includes:

  • An assessment of risk of importing goods mined, produced, or manufactured, wholly or in part, in the PRC; according to the strategy, complex supply chains that touch XUAR are “highly susceptible to contamination by goods made using forced labor.”
  • A list of entities affiliated with forced labor; therefore, their products are subject to the presumption that their goods are prohibited from entry. The Entity list will be updated multiple times per year and will be publicly available.
  • A list of high priority sectors and products including apparel and textiles, cotton and cotton products, polysilicon, and tomato products. Other products listed include footwear, nails, electronics, and toys.
  • Guidance to importers advising that companies need heightened due diligence to ensure compliance with UFLPA and to identify potential supply chain exposure to Xinjiang. Supply chain tracing is the general method to demonstrate that goods are free of inputs from Xinjiang, but CBP expects that barriers to supply chain tracing may make it difficult for importers to be compliant and has stated that third-party audits alone are insufficient to demonstrate due diligence.

Should CBP detain goods on suspicion of being made wholly or in part with forced labor, the importer has options. It can re-export the goods (up until CBP seizes them); it can abandon the goods; it can seek an “exception” for the goods, to get them released from CBP custody; it can also provide information to CBP demonstrating that the goods are not subject in any way to the Act. The evidence and documentation needed for the latter two must be “clear and convincing.”

It should be noted that in order to obtain an “exception” for goods that have been detained, an importer must meet all three of the following requirements:

  • Provide clear and convincing evidence that the detained goods were not made in whole or in part with forced labor, or were sourced from entities on the Entity List.
  • Fully and substantively respond to any questions from CBP.
  • Show that it has complied with all of the requirements set out in the Enforcement Strategy and CBP’s Operational Guidance (i.e., due diligence, supply chain tracing and management, etc.).

The Enforcement Strategy document provides importers with guidance in the following three areas:

  • Due diligence, effective supply chain tracing, and supply chain management measures to ensure that no goods violating the Act enter the importer’s supply chain.
  • The type, nature, and extent of evidence that demonstrates that goods originating in China were not mined (or grown), produced, or manufactured wholly or in part in Xinjiang.
  • The type, nature, and extent of evidence that demonstrates goods originating in China, including goods detained under Section 307 of the Tariff Act, were not mined (or grown), produced, or manufactured wholly or in part with forced labor.

CBP has made it clear that should there be a detention, participants in the Customs and Trade Partnership Against Terrorism program (C-TPAT) will be prioritized for review of submissions to rebut the presumption that the merchandise was made with forced labor.

Importers may wish to plan for contingencies should CBP detain imported merchandise, map complex supply chains and review purchase agreements and supplier codes of conduct.

Article By Laura Siegel Rabinowitz and Donald S. Stein of Greenberg Traurig, LLP

For more legislative legal news, click here to visit the National Law Review.

©2022 Greenberg Traurig, LLP. All rights reserved.

Auto Industry Picks up Capitol Hill Advocacy on Reports of Resurgence of Biden’s Build Back Better (BBB) Proposal

Last week, General Motors Chair and CEO Marry Barra, Toyota Motor North America President and CEO Ted Ogawa, Ford Motor Company CEO James Farley, and Stellantis CEO Carlos Taveres sent a letter to Senate Democratic Leader Chuck Schumer, Senate Republican Leader Mitch McConnell, House Speaker Nancy Pelosi, and House Minority Leader Kevin McCarthy revamping the industry’s advocacy for the inclusion of certain production tax credits ahead of a possible budget reconciliation package.

This letter comes on the heels of recent reports on Capitol Hill that the lynchpin to the Senate passing a budget reconciliation package, Senator Joe Manchin (D-WV), has had multiple in person conversations with Senate Democrat Leader Chuck Schumer regarding a legislative path forward on the proposal.

The letter specifically advocated for the inclusion in any final BBB proposal of House-passed legislation, authored by Congressman Dan Kildee (D-MI-05) and Senator Debbie Stabenow (D-MI) which would extend and build on current tax credits for EVs. Specifically, the provision would make consumers eligible for a $7,500 credit for eligible EV purchases for the first five years and an additional $4,500 credit if the EV is manufactured by a unionized facility, and an additional $500 credit if the EV uses an American made battery. In addition, the proposal would amend the current credit authority to make the credits refundable and transferrable at the time of purchase rather than consumers having to claim the credit on their tax return. Finally, the proposal would bar consumers making over $400,000 from eligibility and creates EV price limits to preclude luxury EVs from eligibility.

While this provision enjoys broad Democrat support in the Senate, Senator Manchin, foreign automakers and Tesla have publicly criticized the $4,500 bonus for union made vehicles.

Additional Electric Vehicle Infrastructure funding that could be included in the bill include:

  • Electric Vehicle Supply Equipment Rebate Program –$2 billion for eligible entities for covered expenses associated with EV supplies including grounding conductors, attachment plugs and other fittings, electrical equipment, batteries, among other things;
  • Electric Vehicle Charging Equity Program – $1 billion to provide technical assistance, education and outreach, or grants for projects that increase deployment and accessibility of EV supply equipment in underserved or disadvantaged communities;
  • General Services Administration Clean Vehicle Fleet program – $5 billion for GSA for the procurement of EVs and related infrastructure for the Federal Fleet (excluding USPS and DOD vehicles);
  • United States Postal Service Clean Vehicle Fleet and Facility Maintenance – $3 billion for the USPS to purchase electric delivery vehicles and $4 billion for the purchase of related infrastructure; and
  • District of Columbia Clean Vehicle Fleet – $10 million for the District of Columbia for the procurement of EVs and related infrastructure.

While it is unclear what would be in a final BBB deal or if it would have the votes to pass the House and the Senate, industry representatives are descending on Capitol Hill to push for critical funding and tax provisions that could have significant benefits to their respective industries, especially those provisions that could lower costs for producers and consumers in the current economic climate.

Article By William Ball of Foley & Lardner LLP

For more utilities and transportation legal news, click here to visit the National Law Review.

© 2022 Foley & Lardner LLP

The Intersection of the Bipartisan Infrastructure Law and Davis-Bacon Act Requirements for Federal Contractors and Subcontractors

On November 15, 2021, President Joe Biden signed the $1.2 trillion Infrastructure Investment and Jobs Act into law, which is popularly known as the Bipartisan Infrastructure Law (“BIL”).

The BIL is estimated to create an additional 800,000 jobs.  The United States Department of Labor (“DOL”) contends that such new jobs will “expand the middle class, revitalize our nation’s transportation, communications and utility systems and build a more resilient, reliable, and environmentally sound future.”  The White House asserts that the BIL will provide protection to “critical labor standards on construction projects,” as a substantial portion of the construction projects included in the BIL will be subject to requirements of the Davis-Bacon Act (“DBA” or the “Act”).

While the BIL provides new revenue sources and opportunities for construction projects, federal contractors and subcontractors should ensure that their businesses comply with the DBA’s prevailing wage rates and labor standards requirements.

Scope and Coverage of DBA

In its simplest form, the DBA, enacted in 1931, requires federal contractors and subcontractors to pay prevailing wage rates and fringe benefits to certain construction workers employed on certain federal contracts.  The DOL’s Wage and Hour Division (“WHD”) administers and enforces the Act’s requirements on federally funded and assisted construction projects.  The DBA applies to contracts:

  1. Which the Federal Government or the District of Columbia is a party;

  2. For the construction, alteration, or repair, such as painting and decorating, of public buildings and public works to which the Federal Government or the District of Columbia is a party;

  3. Involving the employment of mechanics, laborers, and other workers that engage in manual or physical labor (except for individuals performing administrative, clerical, professional, or management work such as superintendents, project managers, engineers, or office staff); and

  4. Which are in excess of $2,000.

With respect to the DBA applying to federal contracts above $2,000, this value threshold only applies to the initial federal contract.  If the threshold is met, however, then the DBA applies to any lower-tier subcontracts even if the value of the subcontract is less than $2,000.

Requirements for Contractors and Subcontractors

There are various requirements for federal contractors and subcontractors under the DBA, which the United States Supreme Court has described as “a minimum wage law designed for the benefit of construction workers.”  The Act was designed to protect construction workers’ wage standards from federal contractors who may base their contract bids on wage rates that are lower than the local wage level.  Under the DBA, federal contractors and subcontractors are required, among other things, to do the following:

  1. Pay covered workers who work on the work site the prevailing wage rates and fringe benefits that are listed in the applicable wage determinations, which are provided by the WHD (the prevailing wage rate consists of both the basic hourly rate of pay and any fringe benefits to bona fide third-party plans, which may include medical insurance; life and disability insurance; pensions on retirement or death; compensation for injuries or illness resulting from occupational activity; or other bona fide fringe benefits – bona fide fringe benefits, however, do not include payments made by employer contractors or subcontractors that are required by other federal, state, or local laws such as required contributions to unemployment insurance);

  2. Maintain accurate payroll records for employees that must be submitted to the contracting agency on a weekly basis (within seven days following the regular pay date for the particular workweek), which must include the following for covered employees: (i) name; (ii) classification; (iii) daily and weekly hours worked; and (iv) deductions made and actual wages paid (there are additional recordkeeping requirements for federal contractors who employ apprentices or trainees under approved DOL programs);

    • Federal contractors and subcontractors are also required to preserve the payroll records for three years following the completion of the covered work, provide accessibility to the records upon request by the DOL or its representatives, and allow the DOL or its representatives to interview employees during work hours.

    • Federal contractors and subcontractors can use the WHD’s Form WH-347 to satisfy the weekly reporting requirements.

  3. With respect to prime or general contractors, they must ensure that specific contract clauses and the applicable wage determinations are inserted into any lower-tier subcontracts (the contract clauses cover the following: (i) construction wage rate requirements; (ii) withholding of funds; (iii) payrolls and basic records; (iv) apprentices and trainees; (v) compliance with requirements under the Copeland Act; (vi) requirements for subcontracts; (vii) contract termination – debarment; (viii) compliance with construction wage rate requirements and related regulations; (ix) disputes concerning labor standards; and (x) certification of eligibility); and

  4. Post a notice of the prevailing wages as to every classification of worker and an “Employee Rights under the DBA” poster in a prominent location that is easily accessible to the covered workers at the work site.

Practical Consideration in Compliance with DBA

Federal contractors and subcontractors should ensure that covered workers are properly classified for the work such individuals perform and paid in accordance with the prevailing wage rate for their classification.

Employers will often face recordkeeping challenges when they have nonexempt employees who perform covered (manual) work and non-covered (administrative) work in the same workweek.

In such instances, the employer must determine whether the employee is salaried or paid hourly.  If the employee is salaried, the employer must determine whether the employee’s salary is greater than or equal to the prevailing wage rate for the employee’s classification.  If not, the employer contractor is required to increase the employee’s pay for the week the covered work is performed.

Likewise, if the employee is paid hourly, then the employer must ensure the employee’s hourly rate is greater than or equal to the prevailing wage rate for the employee’s classification.

Federal contractors and subcontractors could face various consequences due to their failure to comply with the DBA, ranging from termination of the federal contract and debarment to a contracting agency withholding money due to the contractor to cover back wages due to employees as well as criminal prosecution.  Accordingly, federal contractors and subcontractors should consult with legal counsel to ensure they comply with the various DBA requirements for any covered contracts.

Article By Xavier D. Lightfoot and Devon D. Williams of Ward and Smith, P.A.

For more government contracts legal news, click here to visit the National Law Review.

© 2022 Ward and Smith, P.A.. All Rights Reserved.

Heated Debate Surrounds Proposed Federal Privacy Legislation

As we previously reported on the CPW blog, the leadership of the House Energy and Commerce Committee and the Ranking Member of the Senate Commerce Committee released a discussion draft of proposed federal privacy legislation, the American Data Privacy and Protection Act (“ADPPA”), on June 3, 2022. Signaling potential differences amongst key members of the Senate Committee on Commerce, Science, and Transportation, Chair Maria Cantwell (D-WA) withheld her support. Staking out her own position, Cantwell is reportedly floating an updated version of the Consumer Online Privacy Rights Act (“COPRA”), originally proposed in 2019.

Early Stakeholder Disagreement

As soon as a discussion draft of the ADPPA was published, privacy rights organizations, civil liberty groups, and businesses entered the fray, drawing up sides for and against the bill. The ACLU came out as an early critic of the legislation. In an open letter to Congress sent June 10, the group urged caution, arguing that both the ADPPA and COPRA contain “very problematic provisions.” According to the group, more time is required to develop truly meaningful privacy legislation, as evidenced by “ACLU state affiliates who have been unable to stop harmful or effectively useless state privacy bills from being pushed quickly to enactment with enormous lobbying and advertising support of sectors of the technology industry that resist changing a business model that depends on consumers not having protections against privacy invasions and discrimination.” To avoid this fate, the ACLU urges Congress to “bolster enforcement provisions, including providing a strong private right of action, and allow the states to continue to respond to new technologies and new privacy challenges with state privacy laws.”

On June 13, a trio of trade groups representing some of the largest tech companies sent their open letter to Congress, supporting passage of a federal privacy law, but ultimately opposing the ADPPA. Contrary to the position taken by the ACLU, the industry groups worry that the bill’s inclusion of a private right of action with the potential to recover attorneys’ fees will lead to litigation abuse. The groups took issue with other provisions as well, such as the legislation’s restrictions on the use of data derived from publicly-available sources and the “duty of loyalty” to individuals whose covered data is processed.

Industry groups and consumer protection organizations had the opportunity to voice their opinions regarding the ADPPA in a public hearing on June 14. Video of the proceedings and prepared testimony of the witnesses are available here. Two common themes arose in the witnesses’ testimony: (1) general support for federal privacy legislation; and (2) opposition to discrete aspects of the bill. As has been the case for the better part of a decade in which Congress has sought to draft a federal privacy bill, two fundamental issues continue to drive the debate and must be resolved in order for the legislation to become law: the private right of action to enforce the law and preemption of state laws or portions of them. . While civil rights and privacy advocacy groups maintain that the private right of action does not go far enough and that federal privacy legislation should not preempt state law, industry groups argue that a private right of action should not be permitted and that state privacy laws should be broadly preempted.

The Path Forward

The Subcommittee on Consumer Protection and Commerce of the House Energy and Commerce Committee is expected to mark up the draft bill the week of June 20. We expect the subcommittee to approve the draft bill with little or no changes. The full Energy and Commerce Committee should complete work on the bill before the August recess. Given the broad bipartisan support for the legislation in the House, we anticipate that the legislation, with minor tweaks, is likely to be approved by the House, setting up a showdown with the Senate after a decade of debate.

With the legislative session rapidly drawing to a close, the prospects for the ADPPA’s passage remain unclear. Intense disagreement remains amongst key constituency groups regarding important aspects of the proposed legislation. Yet, in spite of the differences, a review of the public comments to date regarding the ADPPA reveal one nearly unanimous opinion: the United States needs federal privacy legislation. In light of the fact that most interested parties agree that the U.S. would benefit from federal privacy legislation, Congress has more incentive than ever to reach compromise regarding one of the proposed privacy bills.

Article By Shea Leitch, Jeffrey L. Turner, Kristin L. Bryan, and Kyle R. Fath of Squire Patton Boggs (US) LLP

For more data privacy and cybersecurity legal news, click here to visit the National Law Review.

© Copyright 2022 Squire Patton Boggs (US) LLP

Uyghur Forced Labor Prevention Act Is Coming… Are You Ready? CBP Issues Hints at the Wave of Enforcement To Come

US Customs and Border Protection (CBP) has issued some guidance relating to its enforcement of the Uyghur Forced Labor Prevention Act (UFLPA) prior to June 21, 2022, the effective date of the rebuttable presumption.

What to Know

  • US Customs and Border Protection (CBP) has issued some guidance relating to its enforcement of the Uyghur Forced Labor Prevention Act (UFLPA) prior to June 21, 2022, the effective date of the rebuttable presumption.
  • The new guidance imposes tighter timelines and a higher burden of evidence on importers to rebut the presumption that merchandise was produced with forced labor. If CBP does not make a decision within specific timeframes, goods will automatically be deemed excluded.
  • CBP is expected to issue additional technical guidance at the end of May or early June. The Department of Homeland Security (DHS) is also expected to issue guidance closer to June 21, 2022.
  • CBP is scheduled to host informational webinars detailing their UFLPA guidance in the coming weeks.

What’s New: Tighter Timelines  

While US importers were eagerly anticipating the issuance of technical guidance regarding implementation of the UFLPA from CBP last week, which is now expected this week, CBP did post a new guidance document summarizing the UFLPA and forced labor Withhold Release Orders (WRO) enforcement mechanisms. Specifically, CBP’s authority to detain merchandise under the UFLPA will be pursuant to 19 CFR § 151.16, which provides for a much different timeline for the detention of merchandise than the WRO process. Under this process, if Customs does not make a timely decision regarding admissibility, goods are automatically excluded.

UFLPA Timeline Enforcement under 19 CFR § 151.16

Number of Days

Actions
5 Days from Presentation for Examination

CBP must decide whether to release or detail merchandise

  • If the merchandise is not released, it is detained
5 Days after Decision to Release or Detain

CBP will issue a notice to importer advising them of:

  • The initiation of detention
  • Date merchandise examined
  • Reason for detention
  • Anticipated length of detention
  • Nature of tests and inquiries to be conducted
  • Information to accelerate disposition
  Upon written request, CBP must provide importer with testing procedures, methodologies used, and testing results
Within 30 Days of Examination

CBP will make a final determination as to the admissibility of merchandise

  • If CBP does not make a determination within the 30-day period, the merchandise will be deemed excluded
  • This means any submission to rebut the presumption should be made before this 30 day period
Within 180 Days of CBP Determination/Exclusion Importers may protest CBP’s final determination
Within 30 Days After Protest Submitted The protest is deemed denied if CBP does not grant or deny the protest within 30 days
Within 180 Days after the Date the Protest is Denied

The importer may commence a court action contesting the denied protest (28 U.S.C. § 1581(a))

  • In a court action, CBP must establish by a preponderance of the evidence that an admissibility decision has been reached for good cause
  • Customs can decide to grant the protest after the deemed denial but before a court case is filed

This is a much shorter timeline than the WRO process. Importantly, a company contesting CBP’s detention of merchandise pursuant to the UFLPA would be required to submit documentation to rebut the presumption within the 30-day period that CBP is assessing admissibility, whereas the WRO process permits 90 days. Like the WRO process, the importer may also file a protest 180 days after CBP makes its final determination regarding the exclusion.

CBP Listening Session: A Higher Burden of Evidence 

On Tuesday, May 24, 2022, CBP provided information regarding the publication of guidance and enforcement of the UFLPA:

  • CBP Publication of Guidance. CBP’s guidance regarding its enforcement of the rebuttable presumption and the UFLPA is scheduled to be published the week of May 30.
  • DHS Publication of Guidance. DHS guidance will be published on or about June 21, 2022, which will include information relating to supply chain due diligence, importer guidance, and the entity lists.
  • Clear and Convincing Evidence Required to Rebut the Presumption that Merchandise was Produced with Forced Labor. It was confirmed that the UFLPA will have a much higher burden of evidence required to rebut the presumption that merchandise was produced with forced labor than that of a WRO. Any exception to the rebuttable presumption must be reported to Congress, and thus the level of evidence that will be required to overcome the rebuttable presumption is very high. As a practical matter, it appears that very few detained entries will be released. Importers are advised to start conducting due diligence on supply chains in order to ensure that they will be able to obtain documentation should merchandise be detained once the rebuttable presumption goes into effect. Importantly, products that are subject to an existing WRO from Xinjiang will now be enforced under the UFLPA process instead of the WRO process.
  • Evidence Required if Merchandise is Detained. The forthcoming guidance will set forth information regarding how an importer may meet the exception to the rebuttable presumption and to demonstrate that merchandise was not produced with forced labor, by meeting the following three criteria:
    • Demonstrate compliance with the Forced Labor Enforcement Task Force/DHS strategy;
    • Demonstrate compliance with CBP’s guidance and any inquiries that CBP raises; and
    • Provide clear and convincing evidence that the supply chain in question is free of forced labor.
  • Binding Rulings. Importers may apply for a binding ruling to confirm or request an exception to the rebuttable presumption under the UFLPA. Although CBP is still finalizing the process for importers to apply for a binding ruling, importers would be required to prove by clear and convincing evidence that merchandise is not produced with forced labor. If the ruling is granted, it applies to future shipments for the specific supply chain in question.
  • Known Importer Letters and Detention Notices. Going forward, CBP will not issue Known Importer letters, and CBP will notify importers that merchandise is subject to the UFLPA through the issuance of detention notices.
  • Detention of Merchandise. If goods are detained by CBP because they are suspected of having a nexus to Xinjiang Uyghur Autonomous Region (XUAR) of the People’s Republic of China (PRC), importers may either provide clear and convincing evidence that merchandise was not produced with forced labor or export the products. If detained products that fall under the UFLPA are comingled with other products that are not subject to the UFLPA, importers may request the segregation of the merchandise that is not subject to the UFLPA.
  • Chain of CBP Review for Importer Submissions Relating to Detained Merchandise. Chain of CBP review for the request of an exception to the rebuttable presumption has not been finalized yet. However, importers will be required to submit evidence that rebuts the presumption that merchandise was produced with forced labor to the applicable CBP Port Director. For the moment, the CBP Commissioner is the final individual who can ultimately make an exception to the rebuttable presumption, but CBP is deciding if it will delegate this responsibility to any additional persons.

Upcoming CBP Informational Webinars

CBP will be holding three webinar sessions, all covering the same material, to discuss and review its guidance relating to the UFLPA. The dates of the webinars and the registration links are listed below.

Article By Angela M. Santos, Christine E. Hintze, and Jodi Tai of ArentFox Schiff LLP

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© 2022 ArentFox Schiff LLP

DOJ Limits Application of Computer Fraud and Abuse Act, Providing Clarity for Ethical Hackers and Employees Paying Bills at Work Alike

On May 19, 2022, the Department of Justice announced it would not charge good-faith hackers who expose weaknesses in computer systems with violating the Computer Fraud and Abuse Act (CFAA or Act), 18 U.S.C. § 1030. Congress enacted the CFAA in 1986 to promote computer privacy and cybersecurity and amended the Act several times, most recently in 2008. However, the evolving cybersecurity landscape has left courts and commentators troubled by potential applications of the CFAA to circumstances unrelated to the CFAA’s original purpose, including prosecution of so-called “white hat” hackers. The new charging policy, which became effective immediately, seeks to advance the CFAA’s original purpose by clarifying when and how federal prosecutors are authorized to bring charges under the Act.

DOJ to Decline Prosecution of Good-Faith Security Research

The new policy exempts activity of white-hat hackers and states that “the government should decline prosecution if available evidence shows the defendant’s conduct consisted of, and the defendant intended, good-faith security research.” The policy defines “good-faith security research” as “accessing a computer solely for purposes of good-faith testing, investigation, and/or correction of a security flaw or vulnerability, where such activity is carried out in a manner designed to avoid any harm to individuals or the public, and where the information derived from the activity is used primarily to promote the security or safety of the class of devices, machines, or online services to which the accessed computer belongs, or those who use such devices, machines, or online services.”

In practice, this policy appears to provide, for example, protection from federal charges for the type of ethical hacking a St. Louis Post-Dispatch reporter performed in 2021. The reporter uncovered security flaws in a Missouri state website that exposed the Social Security numbers of over 100,000 teachers and other school employees. The Missouri governor’s office initiated an investigation into the reporter’s conduct for unauthorized computer access. While the DOJ’s policy would not affect prosecutions under state law, it would preclude federal prosecution for the conduct if determined to be good-faith security research.

The new policy also promises protection from prosecution for certain arguably common but contractually prohibited online conduct, including “[e]mbellishing an online dating profile contrary to the terms of service of the dating website; creating fictional accounts on hiring, housing, or rental websites; using a pseudonym on a social networking site that prohibits them; checking sports scores at work; paying bills at work; or violating an access restriction contained in a term of service.” Such activities resemble the facts of Van Buren v. United States, No. 19-783, which the Supreme Court decided in June 2021. In Van Buren, the 6-3 majority rejected the government’s broad interpretation of the CFAA’s prohibition on “unauthorized access” and held that a police officer who looked up license plate information on a law-enforcement database for personal use—in violation of his employer’s policy but without circumventing any access controls—did not violate the CFAA. The DOJ did not cite Van Buren as the basis for the new policy. Nor did the DOJ identify any another impetus for the change.

To Achieve More Consistent Application of Policy, All Federal Prosecutors Must Consult with Main Justice Before Bringing CFAA Charges

In addition to exempting good-faith security research from prosecution, the new policy specifies the steps for charging violations of the CFAA. To help distinguish between actual good-faith security research and pretextual claims of such research that mask a hacker’s malintent, federal prosecutors must consult with the Computer Crime and Intellectual Property Section (CCIPS) before bringing any charges. If CCIPS recommends declining charges, prosecutors must inform the Office of the Deputy Attorney General (DAG) and may need to obtain approval from the DAG before initiating charges.

Article By Kyle R. Freeny, Linda Ricci, Jena M. Valdetero, and Brittany M. Fisher of Greenberg Traurig, LLP

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©2022 Greenberg Traurig, LLP. All rights reserved.

House Bill To Give FDA More Funding to Address Formula Shortage

  • On May 17, House Appropriations Committee Chair Rosa DeLauro (D-CT) introduced H.R. 7790, a supplemental appropriations bill to provide $28 million in emergency funding to address the shortage of infant formula in the US for the fiscal year ending September 30, 2022. The bill is intended to provide the FDA with needed resources to address the shortage, prevent fraudulent products from being sold, acquire better data on the infant formula marketplace, and to help prevent a future recurrence.

  • Representative DeLauro stated that FDA does not currently have an adequate inspection force to inspect more plants if it approves additional applications to sell formula in the US. Thus, the supplemental appropriations are intended for “salaries and expenses.”

  • Relatedly, the House Appropriations Committee will hold two hearings this week to examine the recent recall of infant formula, the FDA’s handling of the recall, and the nationwide infant formula shortage.

Article By Food and Drug Law Practice Group at Keller and Heckman LLP

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© 2022 Keller and Heckman LLP

ARPA-E: Biden’s Proposed FY 2023 Budget Boosts Investment in Clean Energy Technologies

On March 28, 2022, the Biden-Harris Administration sent the President’s Budget for Fiscal Year (FY) 2023 to the United States Congress (“Congress”). The President’s proposed $5.8 trillion budget for FY 2023 allocates billions of dollars toward combating climate change and boosting clean energy development. Biden’s budget requests $48.2 billion for the Department of Energy (“DOE”), with $700 million of those funds allocated to the DOE’s Advanced Research Projects Agency-Energy program (“ARPA-E”).[1] With these increased funds, the Biden administration plans for ARPA-E to expand its scope beyond energy technology–focused projects to include climate adaptation and resilience innovations.[2]

What Is ARPA-E?

ARPA-E is a United States federal government agency under the purview of the Department of Energy that funds and promotes the research and development of advanced energy technologies. ARPA-E was recommended to Congress in the 2005 National Academies report Rising Above the Gathering Storm: Energizing and Employing America for a Bright Economic Future, which published recommendations for federal government actions to maintain and expand U.S. competitiveness.[3] In 2007, ARPA-E was officially created after Congress implemented a number of the report’s recommendations by enacting the America COMPETES Act.[4] The 2007 Act was superseded by the America COMPETES Reauthorization Act of 2010, which incorporated much of the original language of the 2007 Act but made some modifications to ARPA-E structure.[5] In 2009, ARPA-E officially commenced operations after receiving its first appropriated funds through the American Recovery and Reinvestment Act of 2009 —$400 million to fund the establishment of ARPA-E.[6]

ARPA-E’s mission is statutorily defined as overcoming “the long-term and high-risk technology barriers in the development of energy technologies.”[7] This involves the development of energy technologies that will achieve various goals, including the reduction of fossil fuel imports, the reduction of energy-related emissions, improvements in energy efficiency, and increased resilience and security of energy infrastructure.[8] The statute directs ARPA-E to pursue these objectives through particular means:

  1. Identifying and promoting revolutionary advances in fundamental and applied sciences;
  2. Translating scientific discoveries and cutting-edge inventions into technological innovations; and
  3. Accelerating transformational technological advances in areas industry is unlikely to undertake because of technical and financial uncertainty.[9]

The Impact of ARPA-E

Since 2009, ARPA-E has provided approximately $3 billion in R&D funding for over 1,294 potentially transformational energy technology projects.[10] Publishing annual reports to analyze and catalog its influence, the agency tracks commercial impact with key early indicators, including private-sector follow-on funding, new company formation, partnership with other government agencies, publications, inventions, and patents.[11]

Many ARPA-E project teams have continued to advance their technologies: 129 new companies have been formed, 285 licenses have been issued, 268 teams have partnered with another government agency, and 185 teams have together raised over $9.87 billion in private-sector follow-on funding.[12] In addition, ARPA-E projects fostered technological innovation and advanced scientific knowledge, as evidenced by the 5,497 peer-reviewed journal articles and 829 patents issued by the U.S. Patent and Trademark Office that sprung from the ARPA-E program.[13] ARPA-E recently announced that it is starting to count exits through public listings, mergers, and acquisitions. As of January 2022, ARPA-E has 20 exits with a total reported value of $21.6 billion.[14]

How Does Biden’s FY 2023 Budget Affect ARPA-E?

Biden has requested a 56% increase for ARPA-E, to $700 million.[15] The budget also proposes expansions of ARPA-E’s purview to more fully address innovation gaps around adaptation, mitigation, and resilience to the impacts of climate change.[16] This investment in research and development of high-potential and high-impact technologies aims to help remove technological barriers to advance energy and environmental missions.[17]

The request provides that ARPA-E shall also expand its scope “to invest in climate-related innovations necessary to achieve net zero climate-inducing emissions by 2050.”[18] Given the increasing bipartisan support for alternative energy funding and ARPA-E’s continuing and rising commercial impact, it is likely that ARPA-E’s funding and support of the research and development of early-stage energy technologies will continue to pave the way for the commercialization of advanced energy technologies.

Endnotes

  1. https://www.law360.com/articles/1478133/biden-budget-provides-billions-for-clean-energy
  2. https://www.energy.gov/articles/statement-energy-secretary-granholm-president-bidens-doe-fiscal-year-2023-budget
  3. https://doi.org/10.17226/24778
  4. Id. at 22
  5. Id.
  6. Id.
  7. 42 U.S.C. § 16538(b)
  8. 42 U.S.C. § 16538(c)(1)(A)
  9. 42 U.S.C. § 16538(c)(2)
  10. https://arpa-e.energy.gov/about/our-impact
  11. Id.
  12. Id.
  13. Id.
  14. Id.
  15. https://www.science.org/content/article/biden-s-2023-budget-request-science-aims-high-again
  16. https://www.whitehouse.gov/wp-content/uploads/2022/03/budget_fy2023.pdf
  17. Id.
  18. https://www.science.org/content/article/biden-s-2023-budget-request-science-aims-high-again

Article By Kaoru C. Suzuki of Mintz

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