Hiding in the Inflation Reduction Act are several energy measures that are likely to please the energy sector, while simultaneously irking environmentalists, who called it a “climate suicide pact.”
Those energy measures are likely what underpins Sen. Joe Manchin’s support for what is really a reformulated and very slimmed down version of Build Back Better.
In fact, Manchin, in a CNN appearance talking about the bill, told reporters he never walked away from Build Back Better, and that it has simply been reorganized.
“We got the bill down to where there’s nothing inflammatory,” he said.
Among the provisions that have environmentalists crying fowl is one that would require the Department of the Interior to offer at least 2 million acres of public lands and 60 million acres of onshore waters for oil and gas leasing each year for a decade as a prerequisite for new solar or wind energy projects.
A 2021 Gulf lease sale would also be reinstated as well, even though in January a judge overturned an 80 million-acre sale there, after concluding the Department of the Interior didn’t adequately analyze the impact of greenhouse gas emissions on the environment.
Aside from these measures, the bill also contains provisions that will sweeten tax credits for carbon sequestration. This could have a direct benefit on projects in North Dakota and Montana.
Among these provisions, carbon capture projects that begin before Jan. 1, 2033 will qualify for the federal 45Q tax credit. Developers will also be able to access the full value of the tax credit in the first five years of the project, as long as the carbon capture equipment has been placed in service.
The value of the carbon tax credit would also rise from $50 per metric ton for carbon not utilized to $85 per ton. For applications like enhanced oil recover, the credit would rise from $35 per metric ton to $60.
Direct air capture for utilized carbon would rise from $35 per metric ton to $130 and direct air capture for carbon not utilized would rise from $50 per metric ton to $180.
Annual carbon capture requirements for eligibility are also eased under the bill, setting them at 1,000 metric tons for direct air capture, 18,750 metric tons for an electrical power plants with a capture capacity of at least 75 percent of the total carbon emissions, and 12,500 for all other facilities.
Hydrogen also gets a boost. The bill creates a new, 10-year Production Tax Credit of up to $3 per kilogram of qualified clean hydrogen produced after 2022, subject to the same wage and apprentice requirements for the Investment Tax Credit and the Production Tax Credit.
To get the full $3 per kilogram, the hydrogen production must result in a lifecycle greenhouse gas emissions rate of less than .45 kilograms of carbon dioxide equivalent per kilogram of hydrogen.
Clean hydrogen that produced up to 4 kilograms of carbon dioxide equivalent is still eligible for partial credit. That would include blue hydrogen produced from natural gas whose emissions are captured and stored underground, such as the blue hydrogen project that has been proposed for the Synfuels plant near Beulah.
One wrinkle in that is that the credit won’t be allowed for a facility that claims a 45Q tax credit for that tax year.
Clean hydrogen generated from renewable sources, meanwhile, will be traded as if it is sold to an unrelated party, regardless of destination. Developers who are using surplus wind power to produce green hydrogen could then still claim the Production Tax credits. Under current law, that’s not allowed.
For the sustainable aviation fuel plants, two of which have proposed locating in Trenton, there’s a new fuel credit for facilities that reduce lifecycle greenhouse gas emissions by 50 percent. The credit is equal to $1.25 per gallon plus an addition penny per percentage point above 50 up to a maximum credit of $1.75 per gallon. The credit will only apply to sales or use of such fuels before the end of 2024.
An existing credit for biodiesel, renewable diesel and alternative fuels, meanwhile, will be extended through the end of 2024. And a tax credit for second generation biofuel mixtures is also extended through 2024. It had previously expired at the end of 2021.
The proposal includes a direct pay or transferability option that could be used by electric cooperatives and other entities. That’s usually only available to tax-exempt entities like state and local government for tribal governments.
Carbon sequestration credits and clean hydrogen production tax credits would qualify for the first five years, starting with when the property begins operations up to 2032. Certain advanced production tax credits would also qualify for five consecutive years up to 2032.
Taxpayers not eligible for direct pay will also be permitted to exchange these tax credits with unrelated parties for cash, and the proceeds of the sale will be exempt from taxes.
How it looks for the bills chances
This particular bill uses the budget reconciliation process, which means it can pass the Senate with a simple majority.
Senate Democrats hope to pass the bill before the August recess, after which the House would return from its recess, with the bill awaiting its consideration, and, presumably, passage, given that the House has a greater Democrat majority.
The Senate passage, however, is not necessarily a given. Not only do Democrats need to unite around a bill that environmentalists are panning, but some of their key votes are out due to illness or COVID-19 infection. The window for getting all Democrats physically in the same chamber to pass the bill is thus fairly tight.
On the political front, Senate Democrats are touting renewable energy credits, deficit reduction, lower ACA health care premiums, and allowing Medicare at long last to negotiate drug prices. The bill will reduce carbon emissions 40 percent by 2030, according to a one-pager released by Democrats.
Republicans, meanwhile, have so far been mostly muted on this specific bill in the MonDak, although they did release media statements that generally chastise the Biden administration for ineffective strategies when it comes to rising energy costs and inflation.
North Dakota GOP Chairman Perrie Schafer, meanwhile, said the bill should be called the “Bidenflation” bill instead.
“Americans were not fooled by the White House’s recent attempts to change the definition of ‘recession,’ and they certainly will not buy the Biden Administration’s desperate attempt to revive their Build Back Broke spending plan. Plainly stated, this is a terrible bill both for our country and for North Dakota,” he said.
Economists, meanwhile, appeared to be divided on the topic of whether this bill will help. Penn Wharton Budget Model, for example, estimated the bill will increase inflation until 2024, before finally putting it back.
But Moody’s analysis said the plan “will nudge the economy and inflation in the right direction,” while the Committee for a Responsible Federal Budget called the deficit reduction provisions a “welcome improvement” given the 40-year high for inflation.
Five former treasury secretaries on Wednesday signed a statement backing the bill and pushed back on a Republican claim that the bill will raise taxes on Americans who make less than $400,000 per year.
“Taxes due or paid will not increase for any family making less than $400,000/year,” the letter reads. “And the extra taxes levied on corporations do not reflect increases in the corporate tax rate, but rather the reclaiming of revenue lost to tax avoidance and provisions benefitting the most affluent.
“This legislation will help increase American competitiveness, address our climate crisis, lower costs for families, and fight inflation — and should be passed immediately by Congress,” the letter continued.
Signatures on the letter include Hank Paulson, who served in both the Bush and Clinton administrations, Tim Geithner who under the Obama administration, and Larry Summers who served under Clinton, and Jacob Lew who served under Obama.