US House passes debt bill that would curtail Inflation Reduction Act credits

The Republican-majority House of Representatives passed a bill along party lines April 26 that would raise the national debt ceiling in exchange for major GOP priorities, including repealing a range of energy tax credits and climate programs in Democrats' Inflation Reduction Act of 2022. The proposal, which many clean energy advocates have opposed, now heads to the Democrat-controlled Senate, whose leaders said the bill will not succeed in its current form.

The House Republican bill, called the Limit, Save, Grow Act of 2023, would return federal government discretionary spending to FY-22 levels and limit future increases, dealing sharp cuts to agency budgets. The legislation also contained GOP proposals for streamlining permit reviews for oil and gas pipelines, LNG terminals and other energy infrastructure.

At odds with the Democrats' clean energy agenda, the bill would repeal or shorten a wave of IRA clean energy and manufacturing incentives backed by Democrats and US President Joe Biden.

The House bill would cancel a stand-alone energy storage investment tax credit and a production tax credit for existing nuclear plants, as well as technology-neutral clean electricity credits that are slated to take effect in 2025. A clean hydrogen production credit and advanced manufacturing credits for certain renewable energy components also would be eliminated.

According to a summary from House Republicans, the bill would eliminate IRA labor and wage requirements and restore pre-IRA tax code provisions that provided a production tax credit of 1.5 cents/kWh and investment tax credits of up to 30% for some renewable resources. The legislation would, however, shorten these credits' time frames, repealing the IRA's extensions out to 2024 for many clean power incentives.

The bill would also rescind potential bonus credits for projects that meet certain domestic content thresholds and are located in "energy communities" that have lost fossil fuel jobs.

Turning to electric vehicles, a pre-IRA credit of $7,500 for EV purchases would be restored without the IRA's sourcing requirements to encourage domestic production of EV batteries and related minerals, subject to a limit of 200,000 vehicles per manufacturer. But the bill would cancel credits for previously owned EVs and qualified commercial clean vehicles.

Risks for clean energy deployment

Clean energy proponents have blasted the legislation, saying it would threaten future deployment of carbon-free resources and related jobs.

"The IRA tax incentives that would be repealed by the Limit, Save and Grow Act ... have spurred American companies to announce dozens of clean energy generation and manufacturing projects," said Gregory Wetstone, president and CEO of the American Council on Renewable Energy. "Backtracking on these popular programs would harm our economy, weaken American competitiveness in the booming global clean energy marketplace, and undermine our climate goals."

In a recent analysis, the American Clean Power Association estimated that more than $150 billion in renewable energy and battery storage investments have been announced in the US since the IRA's enactment in August 2022. The planned investments include 96 GW of large-scale grid-connected capacity and 46 new manufacturing facilities, the group said.

Tax incentives for renewable resources were not the only climate investments in the IRA that Republicans targeted. The debt ceiling bill would rescind the IRA's methane emissions fee program for oil and gas producers, a $27 billion greenhouse gas reduction fund to encourage clean energy and climate projects for low-income communities, and rebates for home efficiency and electrification projects.

But ahead of the April 26 House vote, Republicans voted as part of a rules committee markup to strike proposed changes to carbon capture, biofuel and biodiesel credits.

The House narrowly passed the Limit, Save, Grow Act by a vote of 217-215.

Low odds of Senate passage

Despite clearing the House, the GOP debt ceiling proposal faces a rocky path going forward. In addition to striking down major parts of the IRA — Democrats' signature climate policy — the legislation would reduce money for a range of other Democratic priorities, including student debt relief and childcare programs.

"Democrats cannot and will not allow the Republican's [bill] to ever become law," Senate Majority Leader Chuck Schumer, Democrat-New York, said April 26. "It is [dead on arrival], plain and simple."

Biden has also vowed to veto the legislation if it were to reach his desk.

"The president has been clear that he will not accept such attempts at hostage-taking," the Office of Management and Budget said in an April 25 statement of administration policy. "House Republicans must take default off the table and address the debt limit without demands and conditions, just as the Congress did three times during the prior administration."

GOP permitting proposals also advance

Along with IRA rollbacks, the House legislation included the Lower Energy Costs Act, a package of GOP bills to streamline energy infrastructure permitting.

The legislation would enforce time limits on project reviews under the National Environmental Policy Act and give deadlines for filing legal challenges against agency permitting decisions. The permitting bill also seeks to expedite reviews of LNG export projects by not requiring the US Energy Department to sign off on those shipments.

Other major parts of the bill would restrict state's use of the Clean Water Act to hold back natural gas pipelines.

Those provisions drew praise from oil and gas industry groups that have said federal permitting requirements and some states' interventions in the permitting process have delayed or thwarted new projects. Leading Senate Democrats have objected to the permitting bill, saying it does not do enough to support construction of transmission lines needed to support greater renewable energy deployment.

S&P Global Commodity Insights reporter Molly Christian produces content for distribution on Capital IQ Pro .