The attached policy study was co-authored by Tom Russo, an associate fellow of the R Street Institute and president of Russo on Energy LLC.

Whether the United States can retain and expand domestic hydropower will depend significantly on the extent to which it is able to enact regulatory reform. Despite common arguments to the contrary, hydropower is far from “tapped out,” as evidenced by a recent U.S. Energy Department (DOE) study that found the potential for hydropower to grow nearly 50 percent beyond its current capacity. Reforms to permitting and regulatory processes—the most commonly cited challenges associated with hydropower development—may unleash much of this potential.

The amount of red tape necessary to obtain permits to construct or relicense a hydropower project reflects a bureaucratic legacy accumulated through state and federal implementation of expansive federal environmental statutes. In most cases, the Federal Energy Regulatory Commission (FERC) plays an administrative role, while state water-quality agencies have de facto power over permitting approvals, denials and delays of hydropower licensure. The current regulatory regime primarily relies on a one-size-fits-all process that overscrutinizes low-impact projects and requires inefficient reviews for most others, even those where stakeholders have resolved disputes. However, hydropower deserves no more regulatory scrutiny than the commensurate maximum potential environmental impact (e.g., water quality, ecosystem effects).

Lengthy and ambiguous permitting processes at the federal and state levels create excessive artificial barriers to entry that render many hydropower projects difficult to finance. Considering the low-air- emissions profile of hydropower, excessive environmental regulation counterintuitively may increase air pollution (hydropower expansion generally displaces at least some fossil-fuel generation). Accordingly, policymakers should focus on the mitigation of artificial costs created by regulatory processes (both direct and indirect, e.g., licensure uncertainty and delays that increase financing costs) rather than artificially reducing natural barriers to investment (e.g., subsidies to counteract high capital costs). This can be accomplished while mitigating environmental concerns in a cost-effective manner.

While some recent legislative and executive actions have reduced certain regulatory burdens, additional reductions could greatly mitigate artificial barriers to hydropower development. Possible reforms could take the form of major statutory overhauls, targeted statutory reforms and implementation improvements by executive branch agencies. Accordingly, this paper focuses on certain incremental reforms that are well within reach of Congress and the Trump administration.

Specifically, Congress and the administration should prioritize the reduction of uncertainties and delays in hydropower licensure, which largely stem from duplicative processes, poor dispute resolution and lack of schedule discipline, especially from agencies that attempt to implement the Endangered Species Act (ESA) and that delegate water-quality permitting under Section 401 of the Clean Water Act (CWA). Thoughtful improvements in federal implementation may substantially increase licensing predictability and reduce regulatory timeframes without compromises to environmental quality. To this end, suggested executive priorities for the Trump administration include:

Implement the 2011 FERC-Army Corps of Engineers memorandum of understanding by providing training and ongoing advice to targeted Corps districts. FERC should launch a public inquiry to gain feedback and seek improvements (e.g., schedule discipline) in its alternative licensing process (ALP), which has fallen short of its significant potential to achieve stakeholder consensus around contentious projects. Revise FERC’s hydropower performance goal of 24 months to issue an order. A shorter (e.g., one-year) performance goal is more appropriate for low-impact projects and those that successfully complete an ALP process. Expand that use of conditional licensing to all hydropower projects, recognizing the advantages of FERC’s conditional certificates currently used in the natural gas program. This would encourage expedited interagency review, but may require statutory amendments to the Federal Power Act. Improve FERC’s relicensing terms (e.g., increase terms to 50 years). Namely, FERC should build upon the agency’s recently issued notice of inquiry to obtain public input on license terms. Improve stakeholders’ access to information and understanding of regulatory processes (e.g., to build on DOE’s 2014 toolkit) and to encourage dispute-resolution mechanisms in lieu of extended litigation. Use the DOE to facilitate discussions among agencies for regulatory implementation reforms.

While such changes in FERC regulations and policies may reduce the cost of licensing, they are not an adequate substitute for legislative reform. Accordingly, the following congressional and executive priorities must also be undertaken:

Consider making FERC the sole federal decisionmaking authority—to include schedule enforcement and for licensing conditions and processes. Introduce regulatory transparency requirements and adjust agency funding terms or performance requirements to expedite reviews, especially by linking performance with delegated state authority under Section 401 of the CWA. Federal performance targets should prioritize ESA and National Environmental Policy Act (NEPA) study development and FERC performance metrics, including by facilitating dispute resolution. Study privatization of federally owned dams and alternative project finance mechanisms for maintenance and upgrades. Exclude de minimis projects (e.g., conduits and certain small conventional hydropower) from licensing and exemption requirements altogether and “rightsize” the default regulatory treatment of projects with low incremental impact (e.g., build on pilot programs for small projects). Eliminate redundant interagency processes by requiring agencies to cooperate with one another and to use a single NEPA analysis for federally owned projects and single water-quality analysis for nonfederal FERC projects.

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