Once-in-a-generation funding opportunity for decarbonization projectsGlobal Government Contracting: Insight Series
The US Department of Energy, Office of Clean Energy Demonstrations (DOE), recently announced a USD6.3 billion funding opportunity, known as the Industrial Demonstrations Program, that will provide funding to first- or early-of-a-kind commercial decarbonization technologies that reduce greenhouse gas (GHG) emissions in energy-intensive industrial subsectors. The program has been lauded by the Biden Administration as the largest investment in industrial decarbonization in American history, providing industry with a once-in-a-generation advantage in the emerging clean-energy economy and sending a demand signal to the marketplace for lower-emission products.
This article provides an overview of the program and how it fits into the Biden Administration’s broader whole-of-government climate-change agenda. We also highlight specialized federal funding requirements that typically do not apply to commercial contracts.
About the Industrial Demonstrations Program
The program seeks to fund decarbonization projects in high-carbon-emitting and hard-to-abate industries, such as the iron, steel, aluminum, cement, concrete, glass, pulp, and paper industries. According to DOE, deploying decarbonization technologies in those industries will provide the greatest impact for reducing GHG emissions.
The Funding Opportunity Announcement (FOA) for the program outlines three topic areas that DOE is specifically interested in funding. First, DOE is looking to fund two to five near-net-zero facility build projects (ie, full facility builds resulting in significant emissions reductions). Second, DOE anticipates funding ten to thirty projects that address large-scale overhauls for existing facilities, common technologies across multiple facilities, or new builds with accelerated strategies. Third, DOE anticipates funding ten to thirty projects involving upgrades, retrofits, and operational improvements that target decarbonization within an operation or process line at existing facilities.
DOE has explained that projects submitted as part of the program should be commercial-scale or commercially relevant with a path from demonstration to deployment, including operation after completion, with a goal of enabling non-federally funded follow-on investments. The FOA further provides that each applicant must address how its project will contribute to acceleration of the industrial sector toward a net-zero GHG emissions by 2050.
Concept papers for decarbonization projects are currently due on 21 April 2023. In total, DOE anticipates awarding 22 to 65 grants, ranging from USD35 million to USD500 million, with recipients required to match at least 50 percent of the total project costs. DOE will give priority to projects with the greatest GHG emission reduction potential; readiness and ability of the applicant to act quickly; market viability; community benefits; and statutory considerations (eg, diversity, equity, inclusion, and accessibility). Importantly, for-profit entities are eligible to be awarded grants, and the DOE has expressly stated that it anticipates awarding grants to teams led by for-profit entities.
Key federal requirements for grantees
Although the program represents a significant opportunity for companies developing decarbonization technologies, awardees will be subject to a number of requirements that typically do not apply to commercial contracts. For instance, for-profit grantees will be required to comply with the cost principles in subpart 31.2 of the Federal Acquisition Regulation (FAR). Those cost principles generally require that, for expenses to be eligible for reimbursement (ie, allowable), they must be necessary for the purpose of the grant project, consistent with the grant’s terms and conditions, reasonable, allocable, and incurred during the applicable period of performance. Specialized cost-accounting systems and controls are frequently required to meet these requirements.
In addition, any subcontracts that a grantee issues must comply with the procurement standards set forth in the Uniform Guidance for federal grants. These standards generally require grantees to conduct “full and open” competitions for subcontracts and to demonstrate that certain procurement procedures were followed. For example, grantees should be prepared to demonstrate that an independent cost estimate for the requirement was performed, a solicitation for the requirement was widely publicized, all offers were fairly considered, and the awardee was selected in accordance with the evaluation criteria stated in the subcontract solicitation.1 Subcontracts also are required to include certain clauses, terms, and conditions, as set forth in the Uniform Guidance. Additionally, the Uniform Guidance sets forth requirements relating to grantee’s oversight of subcontractors.
Grantees also must be aware of the evolving requirements for including American-made products in federally funded, infrastructure-related projects, which were established under the Build America, Buy America Act (BABAA). BABAA requires that all iron, steel, manufactured products, and construction materials incorporated into infrastructure-related projects using federal financial assistance must be produced in the United States. As explained in the FOA, “[a]pplicants are strongly encouraged to assess whether their project may have to apply this requirement, both to make an early determination as to the need of a waiver, as well as to determine what impact, if any, this requirement may have on the proposed project’s budget.”
The program is part of the Biden Administration’s broader climate-change goals, including its goals of reducing GHG emissions 50-52 percent below 2005 levels by 2030 and having a net-zero economy by 2050. In recent months, we have seen the federal government focus ever more tightly on its climate-change goals, in areas such as clean energy, transportation decarbonization, and proposed climate-related disclosure requirements for federal contractors, and we anticipate that this trend will continue in the future. In fact, on the same day that the program was opened, the Biden Administration announced it was launching the Federal-State Buy Clean Partnership with 12 states, under which the states will support the procurement of lower-carbon infrastructure materials in state-funded projects in an effort to further send a demand signal to the marketplace.
We are closely monitoring developments relating to the program. If you have any questions or are interested in learning more, please contact the authors.
1Certain requirements, such as performing an independent cost estimate and widely publicizing a solicitation, are relaxed or are otherwise inapplicable for procurements that do not exceed USD250,000. Further relaxation is recognized for procurements not exceeding USD10,000.
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