Louisiana Won’t Become a Fossil in the Global Clean Energy Transition

Preface

In 2022, Louisiana secured its position as the first Gulf Coast state to establish a path towards significantly reducing greenhouse gas emissions from the carbon-intensive energy industry. Developed across fifteen months and unanimously approved by the Climate Initiatives Task Force, a diverse, bipartisan group made up of a wide range of stakeholders, including oil and gas industry representatives and environmental justice advocates, the Louisiana Climate Action Plan (the “LA Plan”) outlines the reductions necessary to help Louisiana reach its goal of net-zero greenhouse gas emissions by 2050.

The LA Plan requires Louisiana – the fifth-largest carbon producing state in the United States – to adopt large-scale policies to achieve net zero greenhouse gas (GHG) emissions. The LA Plan identifies more than 28 strategies and 84 specific actions, across the state’s economy to establish a fundamental basis for developing, evaluating, and refining strategies and actions to limit the impacts of climate change.

The success of the LA Plan depends on a co-ordinated approach to three interconnected “policy pillars”: (i) renewable electricity generation; (ii) industrial electrification, and (iii) industrial fuel switching to low-carbon and no-carbon hydrogen, through the implementation of both a clean energy transition and industrial decarbonisation actions.

To initiate Louisiana’s clean energy transition, the LA Plan establishes a two-part strategy: Strategy I: Shift Towards a Clean, Renewable, and Resilient Power Grid, and Strategy II: Increase Access to and Deployment of Distributed Energy Resources. The transformation of Louisiana’s electric grid to clean and renewable energy sources is two-fold, defining “clean” energy generation as generation that results in emission of little to zero greenhouse gases, including nuclear, biowaste, and natural gas with carbon capture, and “renewable” energy generation as naturally replenishing energy sources with zero greenhouse gas emissions such as solar, wind, hydropower, and geothermal.

In short, the LA Plan calls for the simultaneous building of the supply of renewable energy and the replacement of existing power sources with clean energy to power the electrical grid. As detailed below, the implementation of clean and renewable energy in Louisiana is already taking shape in offshore wind, developments with both green and blue hydrogen, and the solar power industry. These developments in efficiency enhancements through advancements in technology are already playing a role in driving Louisiana to its net zero goal.

Offshore wind

A sizable portion of the LA Plan is the prioritisation and application of offshore wind. The LA Plan’s goal is to achieve 5 GW of offshore wind generation by 2035.

The Gulf of Mexico’s shallow, warm waters and proximity to existing offshore oil and gas infrastructure presents many advantages for offshore wind. Studies funded by the Bureau of Ocean Energy Management (BOEM), analysing various alternative energy technologies, found that offshore wind offers a potential of 508 GW – the largest of any technologies analysed, and twice the energy currently consumed in the Gulf states.

Similar studies indicated that a single offshore wind project could support about 4,470 jobs with USD445 million in gross domestic product (GDP) during construction and an ongoing 150 jobs with USD14 million GDP annually from operation and maintenance labour, materials, and services.

Federal offshore wind lease areas are expected to cover 102,000 acres south of Lake Charles and about 100,000 acres near Galveston, Texas.

While bidding on the Gulf’s first federal offshore lease areas has begun, permitting and other processes likely will not allow construction on the first wind farms in the Gulf’s federal waters until 2030.

Although the federal process is starting to pick up speed, the first offshore wind farms will likely take shape in state waters rather than federal waters. Louisiana’s quicker, more streamlined development process has attracted leasing bids for at least five proposed projects in Louisiana waters, which extend about three miles from the coast. According to American Clean Power, projects closer to shore have lower transmission costs and can operate on a scale that suits the testing of new technologies.

Louisiana leasing regulatory summary

Louisiana’s State Mineral and Energy Board (SMEB), in conjunction with the Department of Natural Resources (DNR), is authorised to lease state submerged land for offshore wind energy production.

Louisiana law breaks the state wind leasing process into nine steps:

• registration by applicants with DNR’s Office of Mineral Resources (OMR);
• pre-nomination research (which determines if the lands or water bottoms in question are available for wind lease from the state);
• nomination of state lands and water bottoms for wind lease;
• examination and evaluation of the nomination;
• issuance of an advertisement of the state tract to be offered for a wind lease and a request for bids;
• submission of bids;
• examination and evaluation of bids;
• award of the state wind lease; and
• issuance and execution of the state wind lease contract.

Recently, Louisiana’s legislators made offshore wind farms in Louisiana more economically viable by increasing the maximum acreage for offshore wind leases to 25,000 acres compared to the current 5,000 acre limit for oil and gas leases.

The applicant’s wind lease proposal (“nomination”) must include certain minimum information such as geographic co-ordinates, acreage calculations, and a plat (cadastral map) of the nominated acreage. The plat is required to clearly identify and label certain geographic features and existing property rights in and near the proposed lease area.

The applicant must provide “a summary of the environmental issues including, but not limited to, avian and baseline noise levels, the environmental impact of the placement of wind turbines and other equipment necessary for the exploration, development and production of wind energy, and the steps proposed to minimize the environmental impact, along with any supporting environmental impact documentation”.

The applicant must also provide contact information for all federal, state, parish, and local governmental entities that have jurisdiction over the proposed lease area. OMR may also, in its discretion, require additional information and documentation.

OMR makes a preliminary determination whether “the state wind lease nomination complies with legal, procedural and technical requirements, as well as with any current policies and practices”. If so, the nomination is placed on the agenda for the next regular board meeting of SMEB’s Tract Evaluation Committee.

If the nomination passes OMR’s preliminary evaluation, OMR will transmit the nomination to the State Land Office and to the Louisiana Department of Wildlife and Fisheries, who are to review the proposed location of the state wind lease and certify to SMEB whether or not there are other leases of any kind at the proposed lease location.

Additionally, OMR forwards the nomination packet to DNR to evaluate “whether the lands proposed for lease best support the exploration, development, or production of energy from wind”.

If the applicant passes the examination and evaluation stage, the proposed lease is submitted to a public bid process. Notices are issued in various state and parish journals, and the notices must be published 60–120 days before any lease sale. Anyone who opposes a wind lease on the advertised tract must submit a formal letter of protest to the SMEB at least seven days before the board meets to receive bids.

Any bid packet submitted in response to the advertisement must include, among other things, information about the bidder’s experience in the development and production of wind energy, a summary of the overall project and timeframe, a summary of expected revenue and cash flow, the measures proposed to reduce risk to the state pursuant to industry standards, an environmental summary, and a summary of how the project will further the legislative intent for the leasing programme.

Louisiana law authorises SMEB to accept “the bid it finds is most advantageous to the state”. Louisiana law provides SMEB considerable discretion, and in fact SMEB “does not obligate itself to accept any bid”.

If a bid is accepted, the bidder signs a lease contract with the state. The lease’s primary term is five years. When the five-year primary term ends, the state wind lease cannot be renewed unless the lessee is producing wind-generated electric power. Regardless, ten years after the lease was first issued (or five years after electric power production begins, whichever is sooner), the lessee is required to “release undeveloped acreage” according to procedures set forth in the regulations.

Other lease terms include protections for the state against various legal recourse and a provision permitting the state to “take in kind all or any of the portion due it as royalty”. Recently, the legislature authorised SMEB to “enter into operating agreements whereby the state receives a share of revenues from the production of” wind energy, similar to the operating agreements SMEB has long used for oil, gas, and other minerals.

New law also requires the wind farm operator to provide a decommissioning plan for the end of the facility’s life and to provide “financial security to ensure closure of the site pursuant to the decommissioning plan”. The decommissioning plan “shall include the estimated cost of site closure and remediation that includes removing the wind energy production facility along with any necessary infrastructure facilities and restoring the property to as near as reasonably possible to the condition of the property prior to the commencement of construction of the facility”.

Federal leasing regulation summary

The above laws govern wind leases in Louisiana waters, which extend three nautical miles from its coastline. Beyond three nautical miles and extending out to 200 nautical miles are federal waters governed by BOEM.

The federal offshore leasing process could be the subject of a fully separate article, but for the purposes of this article, is summarised in four broad phases.

First is a planning and analysis phase. Here, BOEM seeks industry interest in wind leasing by publishing a call for information and nominations for a selected offshore area, known as a “call area”. BOEM may proactively initiate consideration of a potential call area, or BOEM’s receipt of applications for a lease could prompt such consideration. Developers and other stakeholders (for example, state governments, natural resource agencies, and other ocean users) may provide comments at the call stage. Based partially on feedback received, BOEM may identify, within the call area, targeted wind energy areas (WEAs) that appear “most suitable” for leasing.

Next is the leasing phase. BOEM determines if there is competitive interest in leases within the WEAs by publishing a request for interest in the Federal Register. If interest exists, BOEM holds a lease auction. If no competitive interest exists, BOEM may negotiate a lease non-competitively after consultation with affected federal, state, and local governments and agencies.

Third, a company that has obtained a lease conducts site assessment activities. BOEM must approve the lessee’s site assessment plan (SAP) through a process that includes environmental review under the National Environmental Policy Act (NEPA).

The final phase is construction and operations. The lessee builds and operates the wind facility after obtaining BOEM’s approval of its construction and operations plan (COP). The COP approval process requires a further round of environmental review and public comment. Obtaining site assessments and all necessary regulatory approvals takes both considerable time (more than five years in some cases) and money. At the end of the lease term, BOEM has decommissioning requirements similar to state requirements.

Green and blue hydrogen

In addition to planned and forthcoming large-scale offshore wind facilities, Louisiana is seeing advancements in alternative energy onshore. Louisiana’s long history of energy production onshore is evolving in scope and breadth as newly announced alternative energy projects pave the way for onshore alternative energy. Although the state’s lands are not particularly well suited for wind development, the state’s high concentration of large manufacturing facilities along the Mississippi and Calcasieu Rivers has proven a siren song for another form of alternative energy: blue and green hydrogen.

Green hydrogen

Green hydrogen, as the name implies, is billed as a pure alternative energy because it relies upon electricity generated by alternative energy sources such as solar or wind. This alternative energy is used to split water molecules into hydrogen and oxygen. The hydrogen is then stored or transported for use. The result of this operation is zero carbon emissions, making this a “pure” alternative energy. For Louisiana, green hydrogen may be on the horizon but requires a critical mass of available alternative energy sources to make it possible. The largest potential source may be energy generated from offshore wind farms, as discussed above. Using existing infrastructure, alternative energy companies can transport wind feedstock directly to hydrogen production facilities located near the large-scale manufacturing plants that will use this energy to reduce their own carbon footprints.

Along with this burgeoning industry comes important legal work for attorneys. Pipeline right of ways, federal and state regulatory frameworks, federal and state tax incentives, drafting of contracts between wind companies, hydrogen companies, and traditional emitters seeking to go green, and even title examination related to mineral and surface ownership and correlative rights will all require the expertise and input of counsel.

As a sign of things to come, Monarch Energy has recently been in the news for its plans to develop a USD426 million green hydrogen plant in Ascension Parish, Louisiana.

Blue hydrogen

Unlike green hydrogen, blue hydrogen does not require a pure alternative energy source. Instead, it relies on a source Louisiana has in abundance: natural gas. Natural gas is combined with steam to produce hydrogen. However, to earn the “blue” distinction, the carbon dioxide that would normally be emitted from the production of “grey hydrogen” must be captured and sequestered underground. Louisiana’s unique geology – with its plethora of high-quality, underground salt domes – presents great opportunities for underground storage and thus for blue hydrogen production. This has led to increased interest in blue hydrogen in the state.

Recently, a USD4.5 billion blue hydrogen facility on the Mississippi River became ground zero in the carbon capture and underground storage debate. Carbon dioxide from the plant will be transported by pipeline to an underground storage facility beneath Louisiana’s Lake Maurepas. Concerned over the unknowns of the safety and long-term effects of underground storage and bolstered by public opposition to the project, the Livingston Parish Council voted to disallow carbon storage under Lake Maurepas. An ensuing federal lawsuit by Air Products, owner of the blue hydrogen plant, resulted in the abrogation of the council’s moratorium on grounds that state law pre-empts parish control over the issue. After several bills targeting carbon capture and underground storage failed to pass in Louisiana’s recent legislative session, the path is mostly clear for blue hydrogen facilities, like the Air Products plant, to move forward.

Because of the immediate availability of natural gas feedstock, blue hydrogen is seeing a stronger start in Louisiana than green hydrogen and is widely viewed as a bridge between traditional fossil fuel energy and “pure” alternative energy sources such as green hydrogen. Many environmental groups remain opposed to carbon capture and underground storage and see blue hydrogen as a temporary solution while alternative energy sources are expanded to allow for green hydrogen to become the norm.

Solar

As a power player in the energy industry for over a century, Louisiana is certainly known for its underground resources. However, the state has started expanding its potential for harnessing a limitless resource in the sky: the sun. Solar projects have taken off across the state. Recently, Entergy Louisiana filed a request with the Louisiana Public Service Commission (LPSC) to approve the purchase, construction, and operation of almost 225 MW of new solar power to be sourced from Iberville Parish in south Louisiana and Ouachita Parish in north Louisiana. Additionally, First Solar, one of the world’s largest solar energy manufacturers, has selected Iberia Parish in south Louisiana as the site for a USD1.1 billion solar module manufacturing facility.

Projects like these indicate that Louisiana’s solar industry is just getting started. As the state has done for decades in oil and gas innovation, Louisiana is poised to lead the future of clean and renewable energy. The University of Louisiana Lafayette operates one of the largest outdoor solar testing facilities in the south-eastern United States and its new solar lab serves as a hub for solar research, technology development, instruction, training, outreach, and workforce development.

As with hydrogen, onshore solar energy production presents significant legal questions and issues. Businesses will require formation or recognition by the State of Louisiana, contracts and servitudes will be required to protect landowners, mineral owners, and operators, federal and state tax rebates and incentives are available, and federal laws such as the Clean Water Act, the National Environmental Policy Act, and even constitutional questions of due process will need resolution. Given Louisiana’s unique civil law framework, local counsel should be consulted on onshore and state water bottom projects.

Conclusion

The percentage of energy from clean and renewable sources is predicted to rise steadily year over year. For this rise to continue, it is essential that commercially sustainable levels are reached. Nations and states must jump geographic, political, and legal hurdles to create the mix of clean energy that works best for them. Louisiana has proven ideal geography (from offshore wind supply, flat, sun-drenched land, and well-defined underground storage capacity) and demonstrable political will to be at the forefront of existing and developing clean alternative energy sources. Having been a powerhouse in producing energy for so long, Louisiana is poised to continue its role as a key developer for energy in the United States into the foreseeable future.