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US Congress takes big step on climate with House passage of Build Back Better bill

Highlights

Bill contains tax incentives for renewables, EVs

Oil trade groups condemn legislation

The US House of Representatives narrowly passed a nearly $2 trillion budget reconciliation bill that, if enacted, would offer a big hand to the country's efforts to slash climate-warming greenhouse gas emissions, particularly from the energy sector.

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On Nov. 19, the House voted 220-213 to pass the Build Back Better Act.

Along with social spending programs, the bill includes massive climate and clean energy investments. One of the most significant climate provisions would place a fee on methane emissions from oil and natural gas producers. The fee, which starts at $900 per metric ton in 2023 and eventually rises to $1,500/ton, could avoid roughly 172 million tons of CO2 equivalent emissions by 2050, according to one analysis.

The Build Back Better Act would also expand and extend key tax incentives for renewable resources and electric vehicles and create new investment tax credits for energy storage and high-voltage transmission lines. In addition, existing nuclear plants would be eligible for a federal production tax credit that ends after 2027, two years earlier than in a previous draft of the bill released Oct. 28.

Other provisions

The latest iteration of the bill's hydrogen production tax credit also watered down the benefit to producers of blue hydrogen, which is made from natural gas and utilizes carbon capture technology to mitigate process emissions. Under the previous version, facilities that generated 0.45-1.5kg of CO2-equivalent greenhouse gas emissions per kilogram of hydrogen produced could claim 50% of the credit. In the new version, this tier would only qualify for 33.4% of the credit.

Outside of tax-related measures, the bill provides $29 billion to help deploy low- and zero-emission technologies under a proposed greenhouse gas reduction fund. Much of that investment would go to nonprofit financing institutions that leverage private-sector money for projects that reduce or avoid emissions. In keeping with a major Biden administration priority, 40% of the investments must benefit low-income and disadvantaged communities.

The bill would also provide $9.7 billion in grants and loans for electric cooperatives to purchase and deploy clean energy or make efficiency improvements. That funding could also be used for debt relief and other costs associated with retiring fossil fuel-based generation. Separately, the legislation would provide $2.88 billion in loans for clean energy projects under the Rural Electrification Act of 1936.

Along with supporting emissions cuts from the power sector, the House bill invests heavily in vehicle electrification. In addition to providing tax credits for electric vehicle purchases, the bill sets aside funding and grant money for electric vehicle manufacturing and the installation of public EV charging equipment.

But the legislation excluded an earlier proposal from Democrats to create a national clean electricity performance program that would incentivize utilities to expand their share of emissions-free power.

Next steps

The Build Back Better Act now heads to the Senate, where Democratic leaders hope to move the package quickly but face uncertain support from party moderate Senator Joe Manchin, Democrat-West Virginia.

Manchin said on Nov. 1 that, based on the provisions of the framework he had seen, the proposal appeared to include "budget games that make the real cost of the so-called $1.75 trillion bill estimated to be almost twice that amount if the full time is run out."

President Joe Biden praised the House for advancing the legislation just days after he signed the bipartisan infrastructure bill into law. If the Build Back Better Act passes the Senate, the two bills would mark the "most significant investment in our fight against the climate crisis ever by creating jobs that build a clean energy future for our children and grandchildren," Biden said in a Nov. 19 statement.

While the House vote drew praise from the environmental community, some oil and gas trade groups condemned the bill, with the American Petroleum Institute claiming it would only "exacerbate the challenges facing Americans."

"This bill taxes American energy, restricts access to our own resources and advances the same type of 'import-more-oil' strategy that this administration has been promoting as a solution," API CEO Mike Sommers said. "We urge the Senate to reject these misguided policies and focus on climate solutions that both reduce emissions and ensure Americans have access to the affordable and reliable energy this sector delivers every day."