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US House unveils new reconciliation bill loaded with climate, clean energy money

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US House unveils new reconciliation bill loaded with climate, clean energy money

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U.S. President Joe Biden walks alongside House Speaker Nancy Pelosi, D-Calif. Biden and Democrats are working to pass a massive reconciliation package and infrastructure bill.
Source: Samuel Corum/Getty Images News via Getty Images

Democrats in the U.S. House of Representatives released text of new legislation Oct. 28 to carry out President Joe Biden's Build Back Better agenda.

The nearly 1,700-page bill was stuffed with major climate and clean energy provisions. But it excluded some key measures that Democrats had previously advocated to curb greenhouse gas emissions, including a proposed clean electricity performance program that would issue incentives and penalties aimed to decarbonize the power sector.

House Speaker Nancy Pelosi, D-Calif., said the text of the framework provided on Oct. 28 is up for lawmakers' review, noting that changes can be made. The House Committee on Rules held an Oct. 28 hearing to discuss the initiative.

Pelosi told reporters that Congress was "on a path to get this done" and will see what consensus emerges. The bill will need to pass the U.S. Senate and comply with the Byrd rule, which requires provisions advancing through the budget reconciliation process to have a budget impact.

"We hope to do that soon," the speaker said.

Tax credits a key focus

Ahead of the bill's release, Biden unveiled a new legislative framework for his Build Back Better plan that outlined $320 billion over 10 years for clean energy tax incentives. One major focus of the legislative text was on providing new and extended tax credits for clean energy technologies.

Along with multiyear extensions to existing clean energy tax credits, the legislation provides incentives for the manufacturing of clean energy components. For instance, it would provide tax credits for U.S.-made thin-film and crystalline silicon solar cells, solar wafers, solar modules, and polysilicon, which is a key ingredient in most solar panels.

Credits are also available for U.S.-made blades, towers, and nacelles for wind turbines and foundations for offshore wind turbines. The tax credits would phase out during the final three years of the decade.

The new bill changes the formula for qualifying for a hydrogen production tax credit. Under the previous formula, facilities that achieved a greater lifecycle greenhouse gas emissions reduction compared to standard hydrogen production qualified for a higher credit. In the new version, qualification and thresholds are based on the amount of CO2 equivalent emissions generated per kilogram of hydrogen produced.

The bill retains rebates for the purchase and installation of electric appliances for buildings, as well as for retrofits to achieve energy savings, though appropriations for both programs are lower in the current version.

But in a potential blow to clean energy developers, the legislation includes a corporate minimum tax of 15% on profits for companies reporting more than $1 billion in annual net income. Utilities and clean energy groups fear such a tax could diminish the use of accelerated depreciation, which allows project developers to claim higher deductions in the earlier years of a project's operations.

In addition to tax incentives, the legislation includes a greenhouse gas reduction fund to cut emissions in low-income and disadvantaged communities. The program would make $7 billion available for competitive grants to states, cities and tribal governments to help deploy zero-emission technologies, including rooftop solar, in low-income and disadvantaged communities. The program also sets aside $2 billion in grants for the purchase, installation or operation of publicly available charging equipment for fuel light-duty, zero-emission vehicles.

Transmission

Under the bill, qualifying electric transmission facilities would be eligible for a baseline investment tax credit of 6% on the cost basis of the project, with a potential bonus rate of 30% for projects that meet certain domestic sourcing and labor standards. The investment tax credit is seen by industry stakeholders as crucial to advancing grid build-out at the pace and scale needed to avoid the worst effects of climate change.

The bill also includes investments aimed at spurring more high-voltage interregional and offshore transmission lines needed to accommodate a surge in renewable energy generation. It would authorize $1.5 billion in U.S. Department of Energy grants for new transmission lines and interties capable of supporting a more resilient grid and integrating more clean energy. Those lines would need to be rated at 275-kV or higher and have at least 1,000 MW of transfer capacity, among other requirements.

DOE would also be authorized to disburse up to $800 million in grants to communities affected by transmission construction projects. To be eligible, siting authorities would need to commit to reaching a final decision on a project within two years from the grant's receipt.

In addition, the bill would provide $50 million to support states seeking to join regional transmission organizations, which are overseen by the Federal Energy Regulatory Commission. The legislation would further authorize $125 million for DOE and $75 million for FERC to conduct more efficient and timely reviews for proposed energy projects.

House bill keeps, eases proposed methane fee

The legislation would place a fee on methane emissions that the oil and gas industry has strongly opposed, but several revisions appear aimed at making industry compliance easier compared to previous versions of the bill.

The latest version would still significantly expand the number of companies required to report emissions data to federal regulators and potentially subject them to millions of dollars in annual fines starting for emissions reported in 2023. But the methane fee that would be imposed on eligible oil and gas companies would start at a lower amount in the first year and ratchet up through 2025. The bill would also provide an additional $775 million in incentives that could be tapped by operators for investments in monitoring and mitigation.

The plan would still require about 8,000 large emissions sources to report their annual emissions and require the U.S. Environmental Protection Agency to lower from 25,000 tonnes of CO2 equivalent per year to 10,000 tonnes of CO2 equivalent per year the emissions threshold for companies to report.

The revised bill retained the standards for methane emissions intensity that oil and gas companies would need to hit to avoid penalties. But unlike previous versions, it would hold operators of underground storage facilities to the same emissions intensity standard as pipeline companies and would give oil and gas producers some breathing room in cases of infrastructure permitting delays.

For oil and gas producers, the methane intensity threshold still would be 0.2%, but producers would be exempted from the fee for "emissions caused by unreasonable delay in environmental permitting of gathering infrastructure."

For operators of onshore natural gas pipelines, onshore gas transmission compressors, and underground storage facilities, that threshold would be 0.11%. For other gas infrastructure that the bill would apply to, such as LNG terminals, LNG storage facilities, natural gas processing facilities, and onshore oil and gas gathering and boosting infrastructure, the intensity target would be 0.05%.

The fee imposed for excess emissions would still eventually be $1,500 per tonne of methane. But the fee would start at a lower amount of $900/tonne for 2023 and rise to $1,200/tonne in 2024 before increasing to the full amount.

Fossil fuel royalties

The legislation would increase royalties for new onshore oil, gas and coal leases to 18.75%, from the current 12.5%. Minimum bids for oil and gas leasing would rise to $10/acre, from $2/acre. New offshore oil and gas leases in shallow waters would see royalties increase to 14%, from 12.5%. Current 18.75% royalties for deepwater Gulf of Mexico leases would remain in place.

The bill would ban new oil and gas leases in federal waters off the entire Pacific and Atlantic coasts, as well as the eastern Gulf of Mexico. It would also require oil and gas leaseholders to show proof of an adequate bond to restore any lands or water damaged after the end of oil and gas operators.

Looking ahead

Following the bill's introduction, Pelosi reiterated the need for the House to pass a separate bipartisan infrastructure bill by Oct. 31 to prevent the highway trust fund from expiring. Progressive House members have demanded that the lower chamber vote on both the infrastructure and Build Back Better legislation at the same time.

"We need certainty," Pelosi said. "Let's do it in a timely fashion. Let's not just keep having postponements and leaving any doubt as to when this will happen."

Overall, Democrats "have an agreement" on most of the bill's provisions, the speaker said, adding that there are still measures she would like to see included.