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Three Takeaways: Tensions in the Renewable Energy and Environmental Markets

McDermott recently hosted Jonathan Burnston, Managing Partner of the energy sector financial services firm Karbone, for a discussion of recent developments affecting environmental, social and governance (ESG) investing, renewable energy and carbon offsets. Three takeaways from this week’s webinar below: 1. Interest in ESG investing is unlikely to fade. ESG indices have performed relatively well in the COVID-19 environment and the concerns that motivate ESG investing are not going away. 2. ESG investing is different from reducing emissions or pursuing carbon neutrality. Positive returns from ESG investments do not themselves reduce emissions or mitigate the impacts of climate change. 3. Corporate interest in becoming “carbon neutral” is also likely to continue. Due to recent economic disruptions, there may be some delays in achieving some previously announced commitments. However, the pressures and concerns that have motivated the interest in carbon neutrality...

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IRS Issues Guidance on Tax Treatment of Energy Savings Performance Contracts

On January 19, 2017, the Internal Revenue Service (IRS) issued Rev. Proc. 2017-19, 2016-6 I.R.B. (the Rev. Proc.), providing a safe harbor under which it will not challenge the tax treatment of an Energy Savings Performance Contract Energy Savings Agreement (ESPC ESA) as a service contract under Section 7701(e)(3). While the application of the guidance is limited to the ESPC ESA context, the Rev. Proc. nonetheless provides potential insight into the IRS’s views of other power purchase agreements for the purchase of renewable energy generally. Read the full article.

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Final Regulations Define ‘Real Property’ for REITs: Considerations for Renewable Energy and Transmission Assets

On August 31, 2016, the Internal Revenue Service (IRS) and US Department of the Treasury issued final regulations (Final Regulations) under section 856 of the Internal Revenue Code to clarify the definition of “real property” for purposes of sections 856 through 859 relating to real estate investment trusts (REITs). The Final Regulations largely follow proposed regulations issued in 2014 (Proposed Regulations) by providing a safe harbor list of assets and establishing facts and circumstances tests to analyze other assets. Read the full article.

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The Third Piece of EPA’s Clean Power Plan: GHG Emission Limits for Modified and Reconstructed Power Plants

The U.S. Environmental Protection Agency’s proposed greenhouse gas (GHG) regulations for “new” and “existing” power plants have received substantial media attention, but regulated parties should also be aware of the third piece of EPA’s self-styled “Clean Power Plan”:  Proposed carbon dioxide (CO2) emission limits for “modified” and “reconstructed” electricity generating units (EGUs). EPA proposed CO2 limits for “modified” and “reconstructed” EGUs on June 2, 2014, the same day it issued its proposed regulations for existing power plants, but it did not release its proposed regulatory text for those limits until several days later.  The proposed regulatory text is now available on EPA’s website, and power plant owners and operators should scrutinize it carefully – it amends the proposed regulatory text that EPA released in January 2014 in connection with its proposed limits for “new” power plants. As defined in EPA’s regulations, “modified” units are existing...

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