EnergyFederalIssuesRenewable Tax Credits, ‘Environmental Justice’ Grants Included in $369 Billion ‘Inflation Reduction Act’

The replacement language is expected to be voted on this week.
August 2, 2022
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Extension of renewable energy tax credits, “environmental justice” block grants, and electricity rebates populate the energy section of the U.S. Senate’s “Build Back Better” redux.

The original $2.2 trillion bill faltered when Sen. Joe Manchin (D-WV) refused to lend his support, leaving it without the votes to pass by a simple majority. But last week, Manchin announced a deal had been struck on a new blueprint for the bill, which includes $370 billion under the “energy and climate” umbrella.

Senate Majority Leader Chuck Schumer (D-NY) expects it to be voted on this week, after which it’d need to be reconciled by the two chambers in conference committee. The bill is part of the budget reconciliation process, and its language would be substituted for what the House passed last November.

The broader sticking point of the previous version for Manchin was its heavy-handed energy section, specifically benefiting renewable energy companies at the substantial expense of coal — a massive industry for Manchin’s home state. Despite the administration’s commitment to advantaging “cleaner” energy sources, a position at odds with the coal industry writ large, Manchin backed off on his opposition and threw his support behind this newest version.

The Biden administration’s goal for this section is to reduce the nation’s emissions by 40 percent relative to 2005 levels — spurred largely by natural gas power supplanting coal, the U.S. is already 20 percent below those 2005 levels — and reaching net-zero emissions status by 2050.

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To achieve their goal that is already halfway to completion before any bill has passed, Biden and the Democratic Congress aim to “decarbonize the economy” through a medley of subsidies in the form of tax credits or grants, incentivizing strategies deemed “cleaner” by the administration and its allies.

Among the items with especially prevalent implications for Texas is the $30 billion 10-year renewal of the Production Tax Credit — a federal subsidy that pays utility wind and solar generators between $18 and $24 for every megawatt-hour generated.

In 2019, wholesale electricity generated by wind averaged about $26. With no fuel cost, the tax credit allows wind generators to produce electricity at near-$0 or negative prices. Opponents of renewable energy reliance object to the tax credit’s “distortion” of the Texas electricity market, crowding out the development of thermal generation.

And given the influx of new renewable generation in Texas, the state’s power grid is becoming increasingly reliant on intermittent sources of energy. That’s problematic due to wind’s tendency to drop at times of peak demand.

The bill also establishes an advanced nuclear production tax credit, worth $30 per megawatt-hour produced.

The $30 billion comes in addition to a $10 billion extension of the Investment Tax Credit that subsidizes the capital expenditures of renewable energy generators.

An additional sum of money is available to renewable generators that supply electricity for “low-income and minority communities” under the bill’s “environmental justice” program.

An even higher $60 billion will go to companies involved in manufacturing renewable energy infrastructure.

Another chunk of money will be put toward electric vehicle tax credits, providing a $7,500 tax credit for those purchasing a new electric vehicle and $4,000 for used purchases. The Texas Department of Transportation estimates that 1 million electric vehicles will be on the road by 2028.

The proposed legislation also appropriates $1.5 billion to oil and gas companies that reduce their methane emissions and sets a fee to be levied at companies for those that do not meet the administration’s reduction standards.

Last year, the Environmental Protection Agency set into motion a methane emissions rule penalizing operators.

Oil and gas companies have already taken steps to reduce their methane output, with flaring intensity — a metric showing the amount of methane flared per barrel of oil produced — decreasing by 64 percent from 2011 to 2018. In Texas, they’ve also tried to get ahead of the public relations force by creating the Texas Methane & Flaring Coalition. According to the coalition, flaring intensity decreased 67 percent just from June 2019 to June 2020.

Part of that statistic is that oil and gas production dropped substantially due to the pandemic grounding travel, but even before then, marked reductions had already been in motion.

One of the concessions Biden gave to Manchin is reopening drilling leases on federal land, which he halted on his first day of office but has since been held up in court, specifically in the Gulf of Mexico and Alaska.

Pertinent to drilling in the Gulf, a provision exists in the bill prohibiting the approval of offshore wind generation unless paired with a recent drilling lease. That provision lasts 10 years.

Another $27 billion will go toward subsidizing development of emission-reduction technologies like carbon capture, a process by which emitted carbon dioxide is recaptured and repurposed.

Given Texas’ prolific energy industry — its dominant oil and gas industry as much as its burgeoning renewable footprint — the federal bill full of subsidies and rules would greatly affect the direction of the state’s power sector.

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Brad Johnson

Brad Johnson is an Ohio native who graduated from the University of Cincinnati in 2017. He is an avid sports fan who most enjoys watching his favorite teams continue their title drought throughout his cognizant lifetime. In his free time, you may find Brad quoting Monty Python productions and trying to calculate the airspeed velocity of an unladen swallow.