President Joe Biden signed the US Inflation Reduction Act on Aug. 16, clearing the way for $370 billion in energy security and climate change spending over the next decade, with the intention of spurring innovation in clean energy and transportation manufacturing and driving down greenhouse gas emissions
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"This bill is the biggest step forward on climate ever, ever, and it's going to allow us to boldly take additional steps toward meeting all of my climate goals, the ones we set out when we ran," Biden said at a White House signing event. He emphasized that the bill was approved with votes from Democrats alone, without any backing from Republicans in Congress.
The measure, included in a budget reconciliation bill, had appeared out of reach for months before a deal between Senator Joe Manchin, Democrat-West Virginia, and Senate Majority Leader Chuck Schumer, Democrat-New York, was unveiled in late July.
The legislation includes $60 billion to support domestic manufacturing for clean energy technologies, establishes new tax credits for nuclear, hydrogen and energy storage facilities, and contains electricity transmission provisions.
Renewable energy trade groups have praised the bill's funding to help deploy clean energy sources, support new jobs in the sector and put the US on track to reducing economy-wide emissions by 40% by 2030.
Permitting battle ahead
At the same time, environmental groups have signaled a battle lies ahead on the upcoming legislation to speed energy permitting for energy infrastructure, including some fossil fuel assets, that was promised by Democratic leaders to gain support needed from Manchin to pass the landmark climate package.
Oil and natural gas industry groups have faulted the IRA legislation as deleterious to efforts to rein in high energy and fuel prices, despite acknowledging some positive elements for companies they represent -- including provisions to ensure more oil and gas lease sales and expand carbon capture tax credits.
In particular, they have objected to the bill's new 15% corporate minimum tax; the expansion of Superfund excise taxes to crude oil and petroleum products to the tune of $11.7 billion over 10 years; a methane fee; and increased fees tied to federal oil and gas leasing.
As part of a suite of methane emissions reduction measures, the legislation includes a new fee on methane emissions from oil and gas operations, with exceptions for facilities that comply with upcoming US Environmental Protection Agency methane rules or that face unreasonable delays in permitting of gathering and transmission infrastructure.
Examining various new costs for the oil and gas sector in the bill, analysts with S&P Global Platts Analytics have called the impact on well breakevens relatively small, less than $3/b, considering that currentbreakevens are around $42/b while WTI crude oil has been mostly above $90/b. Operations in federal acreage onshore would primarily be affected, they said. While the bill reinstates cancelled lease sales, a positive for oil supply, they cautioned that the regulatory outlook for leasing beyond 2023 remains uncertain.
"The broader impact from a minimum corporate tax remains unclear, with varying impacts on different operators," the analysts said in a recent brief report.
Matthew Dobbins, partner at the US law firm Vinson & Elkins, said in an interview Aug. 12 that while the methane fee adds another cost to the industry, "to the extent that you see real methane reductions, you might also see the financial industry being a little bit more receptive to oil and gas investments."
The hydrogen production tax credit in the bill combined with direct investments from 2021's Bipartisan Infrastructure Law and expanded use of the Department of Energy's Loan Programs Office is expected to stimulate immense investment in clean hydrogen production through the rest of the decade, according to Brian Murphy, a senior analyst with Platts Analytics.
Overall, the production tax credit is a strong incentive that makes the cheapest clean hydrogen production, from renewables-powered electrolysis, immediately cost-competitive with traditional steam methane reforming, he said.
On the power side, Fitch Ratings said Aug. 16 that the introduction of direct pay tax credits throughout the bill should spur greater direct investment in clean energy projects across the public power sector.
"The ability to monetize production tax credits pursuant to the IRA will improve the economics of direct ownership and could help reverse a trend of declining investment in the sector," it said.