Legal & Regulatory

Energy Security, Climate Change Initiatives Endure with Surprise U.S. Senate Deal

The inclusion of an estimated $369 billion in energy security and climate change investments in a July 27–unveiled U.S. Senate budget reconciliation proposal has prompted optimism from a range of energy sectors.

Less than two weeks after negotiations on clean energy and climate provisions within the reconciliation package hit an impasse and suggested their demise, Senate Majority Leader Chuck Schumer (D-New York) and Sen. Joe Manchin (D-West Virginia) announced they had reached an agreement to include a portion of them in a larger package geared to address record inflation.

The measures stemming from the abrupt deal are included in the 725-page Inflation Reduction Act of 2022. They represent the “single biggest climate investment in U.S. history, by far,” but also target lower consumer energy costs, an increase in American energy security, and reduce carbon emissions by roughly 40% by 2030, a summary of the proposal suggests.

Manchin on Board with Bill That ‘Does Not Arbitrarily Shut Off Our Abundant Fossil Fuels’

Manchin, a key centrist and a crucial swing vote in the divided Senate, in a statement on Wednesday underscored the proposal’s inclusion of fossil fuel energy along with other resources, including hydrogen, nuclear, renewable, and energy storage.

“I support a plan that will advance a realistic energy and climate policy that lowers prices today and strategically invests in the long game. As the super power of the world, it is vital we not undermine our super power status by removing dependable and affordable fossil fuel energy before new technologies are ready to reliably carry the load,” he said.

“This legislation ensures that the market will take the lead, rather than aspirational political agendas or unrealistic goals, in the energy transition that has been ongoing in our country,” Manchin added.

While the plan falls short of President Biden’s ambitious package proposed last year, the White House in a statement on Wednesday also offered support for the agreement.

Opposition from Republicans began to emerge on late Wednesday following release of the legislation’s text. However, reports suggest votes on the legislation could come as early as next week. 

Which Energy and Climate Change Investments Are Included in the Inflation Reduction Act of 2022?

The sprawling bill is essentially split into two objectives. It proposes to raise $739 billion in total revenue by establishing a 15% corporate minimum tax, instituting prescription drug pricing reforms and more stringent tax enforcement, and addressing a carried interest loophole. But it also proposes $433 billion in investments. While $64 billion in investment is dedicated to healthcare extensions under the Affordable Care Act, the overwhelming bulk of investment—$369 billion—is dedicated to energy security and climate change measures.

The Inflation Reduction Act has five key energy and climate change goals: Increasing domestic energy security, decarbonizing all sectors of the economy, lowering consumer energy costs, focusing investments into disadvantaged communities, and supporting resilient rural communities. Following are some measures that directly affect the nation’s power landscape.

Under Subtitle D—Energy Security, the bill proposes to amend the Internal Revenue Code by:

  • Extending and modifying credits for certain renewable resources through Jan. 1, 2025.
  • Increasing energy credits for solar and wind facilities placed in service in connection with low-income communities.
  • Amending Section 45Q to include construction of carbon capture facilities that begin construction before January 2033. For power generating facilities, credit extensions will apply to facilities that capture “not less than 18,750 metric tons of qualified carbon oxide during the taxable year” and have a capture design capacity of at least 75% of its baseline carbon oxide production. Additionally, according to the Carbon Capture Coalition, project developers will have the option to access direct pay for the full value of the tax credit for the first five years of a project, once the carbon capture equipment has been placed in service with the option for direct pay fully phasing out for the remaining seven years of the credit. The organization also notes that the bill also includes increased credit values for direct air capture technologies at $180 per metric ton for those projects seeking to securely store captured CO2 in secure geologic formations, $130 per ton for carbon utilization, and $130 per metric ton for CO2 stored in oil and gas fields.
  • Adding a new section for a “zero-emission nuclear power production credit” equal to “0.3 cents multiplied by kWe,” with increased credits for facilities that meet specific wage requirements. The credit, however, does not apply to advanced nuclear power facilities. The effective date begins in December 2023 and ends in December 2032. Separately, the bill appropriates $700 million to the Energy Secretary to support the availability of high-assay low-enriched uranium (HALEU) for civilian domestic research, development, demonstration, and commercial use.
  • Extending incentives for biodiesel, renewable diesel, and alternative fuels.
  • The bill establishes a credit for production of “clean” hydrogen—which must be “produced through a process that results in a lifecycle greenhouse gas emissions rate of not greater than 4 kilograms of CO2e per kilogram of hydrogen.” Facilities must begin construction before January 2033.
  • Extending the Section 48C advanced energy project credit, which provided investment tax credits (ITCs) for projects that equip or expand manufacturing facilities that produce specified renewable energy equipment, including wind, solar, and geothermal property, fuel cells, microgrids, and carbon capture and sequestration property, would be revised and expanded.

In total, the bill proposes to invest $30 billion in production tax credits to accelerate U.S. manufacturing of solar panels, wind turbines, batteries, and critical minerals processing. Additionally, it designates a $10 billion investment tax credit to build clean technology manufacturing facilities, like facilities that make electric vehicles, wind turbines, and solar panels.

Notably, it also designates $500 million from the Defense Production Act for heat pumps and critical minerals processing.  Separately, tax credits for clean sources of electricity and energy storage amount to roughly $30 billion in targeted grant and loan programs for states and electric utilities to accelerate the transition to clean electricity.

Industry Reactions Mostly Optimistic

Several power trade groups issued statements on Wednesday lauding the senators’ compromise, as well as specific measures included in the Inflation Reduction Act.

The American Council on Renewable Energy (ACORE) said it was hopeful that the provisions in the budget reconciliation deal would spur critical investments in renewable power, energy storage, and advanced grid technologies. ACORE President and CEO Gregory Wetstone suggested the bill could have a long-term impact and deliver much-needed certainty to the power sector. “Legislation that finally moves the country beyond years of on-again, off-again renewable tax credits and establishes a long-term, full-value clean energy tax platform will help provide renewable companies with the stability they need to do business,” he said.

American Clean Power (ACP) CEO Heather Zichal highlighted the collective relief felt by the clean power industry, which the ACP represents. “The entire clean energy industry just breathed an enormous sigh of relief. This is an 11th-hour reprieve for climate action and clean energy jobs, and America’s biggest legislative moment for climate and energy policy,” she said. “This deal includes long-term clean energy tax credits that will translate into the rapid deployment of affordable, reliable clean energy, thousands of new domestic jobs, and promote domestic clean energy that bolsters our national security,” she added. “We will do everything we can to get this across the finish line.”

The solar industry, too, signaled optimism. “Without seeing all the details, the news of a deal between Senator Manchin and Leader Schumer is significant and represents a major opportunity to relieve the inflation pinch on families and tackle the climate crisis,” said Abigail Ross Hopper, head of the Solar Energy Industries Association. “With long-term incentives for clean energy deployment and manufacturing, the solar and storage industry is ready to create hundreds of thousands of new jobs and get to work building out the next era of American energy leadership. This is a crucial window of opportunity that we cannot miss, and now Congress must seal the deal and pass this legislation.”

These sentiments were echoed by the Carbon Capture Coalition, a nonpartisan collaboration of more than 90 companies building support for carbon management technologies. Carbon Capture Coalition External Affairs Manager Madelyn Morrison in a statement noted that the package includes all the coalition’s top legislative priorities for the 117th Congress. “The bill also takes a major step forward in expanding project eligibility for industry, electric power, and direct air capture projects by significantly lowering the annual CO2 capture thresholds for the 45Q program. This change will significantly expand access to the incentive for a wider range of carbon management technologies and applications, spurring further innovation and emissions reductions across multiple industries,” she noted. ““This legislation, coupled with the groundbreaking carbon management provisions included in the bipartisan infrastructure law, could deliver an estimated 13-fold increase in deployment of carbon management technologies and between 210 and 250 million metric tons of annual emissions reductions by 2035.”

Electric cooperatives were also supportive of the package. National Rural Electric Cooperative Association (NRECA) CEO Jim Matheson highlighted the bill’s potential to boost innovation. ““As electric co-ops continue to innovate and lead, direct access to energy innovation tax incentives is absolutely critical. This bill creates direct incentives for co-ops to bolster investments in carbon capture, grid modernization, renewables, battery storage and other energy technologies,” he said.

A few think tanks offered some preliminary analysis. The Clean Air Task Force (CATF), a global nonprofit organization that supports the rapid development and deployment of low-carbon energy and other climate-protecting technologies, said the deal was encouraging. “While we’re digging into the details of the text, we can say that this bill would unlock a historic investment in U.S. climate action and clean energy leadership, and that Congress should pass it immediately,” said Conrad Schneider, CATF Advocacy Director. “Our experts confirm that the clean energy tax credit provisions in this bill can bring the U.S. within reach of its target of reducing greenhouse gas emissions 50 percent below 2005 levels by 2030.”

Representing the business front, E2 (Environmental Entrepreneurs), a national, nonpartisan group of business leaders, investors, and professionals from every sector of the economy, also lauded the bill for its economic potential. “It’s significant that the country’s most sweeping climate legislation is also economic legislation. Climate change is battering our economy and hitting us all in the pocketbook, sending up costs for everything from food to electricity to insurance,” said Bob Keefe, executive director of E2.

At least one clean energy technology firm offered some specific analysis. Jason Few, CEO of FuelCell Energy, noted that industry craves certainty, and strong policy direction from the federal government on climate change would help the private sector. “For this reason, legislation passed by Congress and signed by the President would have been the best option for companies like FuelCell Energy to be able to plan for the next several years, to rely on tax credits or programs, and to have reasonable confidence that those programs will continue to be administered and to work for us,” he said. “Hydrogen and clean energy are massive job creators,” he added. “We know a model of public private sector support works- we proved it by supporting wind and solar accelerating cost reductions. We can do the same for hydrogen, carbon capture, and clean base generation platforms. This is happening across the EU and parts of Asia, as an example. And this time we have an opportunity to ensure American jobs are created.”

Sonal Patel is a POWER senior associate editor (@sonalcpatel@POWERmagazine).

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