Energy provisions in the Inflation Reduction Act

Last week, Congress passed the Cut Inflation Act, which is now heading to President Biden’s desk to be signed into law. The bill has been billed as a “climate change bill,” but it also allocates hundreds of billions of dollars over the next decade to several programs designed to reduce inflation.

Let’s talk about the energy provisions of the bill. (You can see the full text of the 730-page bill here).

The combined investments aim to put the United States on a path to an approximately 40% reduction in emissions by 2030. They represent the largest climate investment in U.S. history.

Before reading the bill, I would like to get an idea of ​​the types of energy programs it deals with. For example, much of our energy policy over the past decade has been to step up national biofuel programs. But in this particular bill, the word “ethanol” only appears three times. “Biofuel” appears 11 times.

“Hydrogen”, on the other hand, appears 65 times in the invoice, and “clean vehicle” appears 31 times. “Carbon capture” appears 28 times. “Nuclear” appears 25 times.

This gives a general idea of ​​the types of programs targeted by the bill. Here are some details.

Consumer incentives

The bill directly incentivizes consumers to buy electric and energy-efficient appliances, clean vehicles, rooftop solar systems and to invest in home energy efficiency. These investments include:

  • $9 billion in home energy rebate programs for consumers to electrify appliances and for energy-efficient renovations.
  • 10 years of consumer tax credits to make homes energy efficient and run on clean energy, encouraging heat pumps, rooftop solar, electric HVAC and water heaters.
  • $4,000 consumption tax credit for low/middle income earners for the purchase of clean used vehicles.
  • Up to $7,500 in tax credits to purchase new clean vehicles.
  • $1 billion grant program to make affordable housing more energy efficient.

Investments in American Clean Energy Manufacturing

The bill includes more than $60 billion to maintain clean energy manufacturing in the United States throughout the clean energy and transportation technology supply chain. Provisions include:

  • $30 billion in production tax credits to accelerate U.S. manufacturing of solar panels, wind turbines, batteries, and critical mineral processing.
  • $10 billion investment tax credit to build clean technology manufacturing facilities, such as facilities that manufacture electric vehicles, wind turbines and solar panels.
  • $500 million in the Defense Production Act for heat pumps and critical mineral processing.
  • $2 billion in grants to retool existing auto manufacturing facilities to manufacture clean vehicles.
  • Up to $20 billion in loans to build new clean vehicle manufacturing plants across the country.
  • $2 billion for National Labs to accelerate cutting-edge energy research.

Reduction of carbon emissions

The bill will target investments to reduce emissions in all sectors of the economy, including power generation, transport, industrial manufacturing, buildings and agriculture.

  • Tax credits for clean sources of electricity and energy storage and approximately $30 billion in targeted grant and loan programs for states and electric utilities to accelerate the transition to a clean electricity.
  • Tax credits and subsidies for clean fuels and clean commercial vehicles to reduce emissions from all parts of the transport sector.
  • Grants and tax credits to reduce emissions from industrial manufacturing processes, including nearly $6 billion for new advanced industrial facilities.
  • Deployment program to reduce emissions from the largest industrial emitters such as chemical, steel and cement plants.
  • Over $9 billion for the federal government’s purchase of U.S.-made clean technology to create a stable market for clean products, including $3 billion for the U.S. Postal Service to purchase zero-emission vehicles .
  • $27 billion Clean Energy Technology Accelerator to support the deployment of technologies to reduce emissions, particularly in disadvantaged communities.
  • A methane emissions reduction program to reduce leakage from the production and distribution of natural gas.

Investments in disadvantaged communities

This package includes more than $60 billion in environmental justice priorities to spur investments in disadvantaged communities, including:

  • The $3 billion Environmental and Climate Justice Global Grants invest in community-led projects to address disproportionate harm to the environment and public health related to pollution and climate change.
  • The Neighborhood Access and Equity Grants, funded to the tune of $3 billion, support equity, safety, and affordable access to transportation in neighborhoods.
  • The Port Air Pollution Reduction Grants, funded to the tune of $3 billion, support the purchase and installation of zero-emissions equipment and technologies in ports.
  • $1 billion for clean heavy-duty vehicles, such as school and transit buses and garbage trucks.

Investments in rural communities

The bill also provides for significant investments in the development of clean energy in rural communities, such as:

  • Over $20 billion to support climate-smart agricultural practices.
  • $5 billion in grants to support fire-resistant forests, forest conservation and urban tree planting.
  • Tax credits and grants to support domestic biofuel production and to build the infrastructure needed for sustainable aviation fuel and other biofuels.
  • $2.6 billion in grants to conserve and restore coastal habitats and protect the communities that depend on these habitats.

Fossil Fuel Provisions

Although billed as a landmark climate bill, some climate activists are unhappy with the provisions aimed at the fossil fuel industry. Some of them were meant to sway Sen. Joe Manchin, but the overarching bill was still opposed by Republicans. On the other hand, some of the fossil fuel provisions are punitive, as they attempt to get fossil fuel companies to change certain practices. Some of the fossil fuel provisions include:

  • Federal lands and offshore waters that are used for renewable energy development must also be opened for oil and gas drilling.
  • Incentives to install efficiency improvements and carbon capture solutions.
  • Concessions that could streamline a West Virginia gas pipeline and make it easier to authorize new energy projects.
  • New royalties for natural gas extraction and methane leakage, and Superfund taxes on crude oil and its related products (but also incentives for oil companies that reduce methane leakage).
  • New funds for air pollution monitoring, including for methane.
  • A new tax on share buybacks that aims to encourage companies (not just oil companies) to reinvest money in their businesses.

So even though the fossil fuel provisions were a mixed bag for the oil industry, they find general support from the industry. ExxonMobil
CEO Darren Woods called the bill “a step in the right direction”, in part because “this policy could include regular and predictable lease sales, as well as streamlined regulatory approvals and support for infrastructure such as pipelines”.

Winners and losers

The biggest winners from this legislation should be:

  • Wind and solar companies
  • Utilities transitioning to renewables
  • Electric vehicle companies
  • Companies that mine and process materials like lithium

Within the oil and gas industry, the benefits accrue more to larger companies that can 1). Enable investment in new carbon and methane capture technologies; and 2). Spending billions to develop new offshore leases. Junior oil and gas companies may simply see an increase in their operating costs.

The losers will be those who have relied heavily on share buybacks. But another loser could be the coal industry. Incentives are heavily skewed towards building new renewable energy capacity, which will likely further marginalize coal as an energy source. Natural gas should continue to perform well as a solid energy source, which integrates well with new renewable capacities.

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