Renewable Energy, Electrification Big Winners in Inflation Reduction Act

The U.S. House on Aug. 12 passed a bill with major implications for the power generation industry, joining the U.S. Senate in supporting the Inflation Reduction Act (IRA). The bill, which now heads to President Joe Biden for his signature, includes major provisions to combat climate change, including support for a variety of clean energy initiatives. It also offers benefits for the fossil fuel sector.

The bill passed by a 220-207 vote along party lines, with Democrats in the majority. The U.S. Senate, also along party lines, passed the bill 51-50 on Aug. 7, with Vice President Kamala Harris casting the deciding vote. The legislation has been touted for enacting a series of energy and climate change provisions, and earmarking about $400 billion for clean energy and healthcare measures. The IRA empowers Medicare to negotiate drug prices, extends funding for the Obama-era Affordable Care Act by another three years, and could raise about $700 billion through corporate tax increases and savings on prescription drugs.

Senate Majority Leader Chuck Schumer (D-N.Y.), said, “the Inflation Reduction Act will endure as one of the defining legislative feats of the 21st century.” House Minority Kevin McCarthy (R-Calif.), leading his party’s opposition to the bill, said it is a “half a trillion spending spree that would raise taxes during a recession.”

The bill represents a compromise and includes provisions that support fossil fuel development, including requiring lease sales for offshore drilling for crude oil and natural gas. It also provides tax incentives that would benefit  coal- and natural gas-fired power plants, as some lawmakers said thermal power generation continues to be needed to provide an adequate and reliable supply of electricity.

The legislation also recognizes, though, that reductions in carbon emissions are critical for the bill to have an impact on climate change. An analysis from the Rhodium Group, an independent researcher, said, “Looking across sectors, the biggest emission reductions by far occur in the electric power sector, followed by carbon removal [due to forest and soil practices, direct air capture and other actions], industry [including emissions from fossil fuel production], and transportation.”

The bill also “encourages the use of nuclear energy to be a critical player in reaching a just and affordable energy transition,” said Maria Korsnick, CEO and president of the Nuclear Energy Institute, last month. The bill proposes a nuclear power production tax credit and $700 million in funding to support development and availability of high-assay low-enriched uranium (HALEU) fuel.

Reaction to the Bill

Jim Matheson, CEO of the National Rural Electric Cooperative Association (NRECA), in a statement said the group applauded the inclusion of major electric cooperative policy priorities in the IRA. “Electric cooperatives are leading the charge to reliably meet America’s future energy needs amid an energy transition that increasingly depends on electricity to power the U.S. economy,” said Matheson. “As co-ops continue to innovate, access to tax incentives and funding for investments in new energy technologies are crucial new tools that will help reduce costs and keep electricity affordable for consumers.”

The American Energy Alliance, a group that lobbies for the fossil fuel industry and has been outspoken in opposition to the IRA, in a Twitter message Friday said, “The energy taxes included in the #inflation package are especially foolish at a time when even the Biden White House, which has vowed to end oil and gas use, is begging for more domestic production in the face of high energy prices.”

The bill also sets a 15% corporate minimum tax, designed to impact “highly profitable” companies, or those that report to shareholders an annual average of $1 billion in annual profit over three years. The Joint Committee on Taxation, a nonpartisan congressional body that analyzes tax bills, said the minimum tax proposal would raise $220 billion over 10 years.

The money raised from the tax would help pay for the bill’s investments for healthcare and climate initiatives.

Meanwhile, some others in the fossil fuel sector, including the Carbon Capture Coalition, have called the bill “the most robust investment in climate and energy policy in the nation’s history.”

“Today’s final passage of the Inflation Reduction Act of 2022 marks a historic step forward in fostering the economy-wide deployment of carbon management technologies to achieve midcentury emissions reduction targets, while safeguarding high-wage jobs that sustain families and communities and ensuring the long-term viability of key domestic industries,” said Madelyn Morrison, the coalition’s external affairs manager, in an email to POWER. “When coupled with the groundbreaking investments made in the November 2021 enactment of the Bipartisan Infrastructure Law, these provisions represent the most expansive and far-reaching federal policy support to scale carbon management technologies in the world.”

Support for Renewables

Renewable energy proponents were quick to applaud the bill’s passage. “The most transformational clean energy package in history is now one step closer to becoming law,” said Abigail Ross Hopper, president and CEO of the Solar Energy Industries Association. “Today’s House passage shows that America is prepared to lead the world in the fight against climate change by investing in our communities and workers. The Inflation Reduction Act will drive historic investments in clean energy deployment and manufacturing which will help create millions of new, well-paying careers.

Said Hopper, “In the face of a global energy crisis and rising inflation, the measures in this bill will strengthen America’s energy security by boosting production here at home, all while lowering prices for families through investment in historic levels of low-cost, reliable clean energy. This is a momentous day for every American. Despite the party-line vote, the policies contained in this legislation are incredibly popular and will be an economic boon for communities across the country. In anticipation of President Biden’s signature, the 255,000 Americans working in the solar and storage industry are ready to get to work.”

“This bill will leverage tax incentives to push renewables, geothermal, battery storage, and the clean energy sector as a whole to the next level,” said Allen Gleckner, executive lead of policy and programs at Fresh Energy, a Minnesota-based group that supports a zero-carbon power grid. “This is exactly the kind of investment we need to continue modernizing energy generation and transmission and build the grid of the future here in Minnesota and across the country.”

“The extensions and expansions of the tax credits available for qualified renewable energy projects is a welcome development for developers and investors and likely will result in increased investment in solar, wind and other types of qualified projects,” Kevin Pearson, an energy partner at Stoel Rives, told POWER. “A number of aspects of the bill still need to be clarified over the coming months and years, but the transferability of tax credits also could significantly impact the scope of potential tax credit investors and could lead to expanded investment in these projects.”

Billions for Energy Efficiency

The bill earmarks $9 billion in consumer home energy rebate programs to electrify home appliances, and for energy efficient retrofits. It provides for 10 years of consumer tax credits to make heat pumps, rooftop solar, electric HVAC, and water heaters more affordable, so homeowners can make their residences more energy efficient. The bill also includes a $10 billion investment tax credit to build clean technology manufacturing facilities, including factories to wind turbines, solar panels, and electric vehicles (EVs).

There also is a $7,500 tax credit for buyers of new TVs, and a $4,000 tax credit for those who buy a used EV. The bill sets aside $3 billion for the U.S. Postal Service to have a fleet of electric trucks; $1 billion for electric heavy duty vehicles, such as school buses and garbage trucks; and $3 billion for zero-emission technology at U.S. seaports.

The bill supports a methane emissions reduction program, along with reinstating a “polluter pays” tax to increase funding to clean up Superfund toxic waste sites. It also sets aside $50 million to inventory and protect old-growth forests on National Forest Service lands; those trees absorb global-warming carbon emissions.

“Nature and human ingenuity have made it increasingly possible for us to power our homes, cars and businesses with clean, renewable sources such as the sun and wind. And as the climate warms, making this transition is of the utmost urgency,” said Lisa Frank, executive director of Environment America’s legislative office in Washington, D.C. “The renewable energy and electric vehicle tax incentives in the Inflation Reduction Act are a real game-changer that will make it cheaper and easier for individuals, businesses, school districts and more to ‘go solar,’ swap out old, polluting vehicles and save energy. Climate change affects every one of us. Now, this bill helps us all to be part of the solution. It’s also a compromise and does far too much for fossil fuels, but it’s a big step forward.”

Matt Casale, environment campaigns director for U.S. Public Interest Research Group (PIRG), in a statement said, “This is a big deal. Congress just passed an historic investment in a clean and healthy future for Americans. Climate change is the challenge of our times and what we do to address it today will have lasting effects on generations to come. Not everything in the bill is perfect, and there remains work to do, but the clean energy tax credits in particular will inject a jolt of [renewable] energy into state and local efforts to reduce emissions and clean the air. They will help make it affordable for Americans of all stripes to switch to electric vehicles, put solar panels on their roofs and purchase cleaner, healthier electric appliances that don’t pump pollution in our homes and air. We thank President Biden for his climate leadership and each member of Congress who voted yes for this historic legislation to address climate change.”

Carbon Capture Measures

The Carbon Capture Coalition said all the measures the group supports were included in the final version of the IRA. The coalition worked with lawmakers to enhance 45Q, a tax credit for carbon sequestration. Amount the measures included in the bill are “direct pay” options; under the IRA, for-profit project developers will, for the first time, have the option to access direct pay for the full value of the tax credit, for the first five years after the carbon capture equipment has been placed in service. The remaining seven years of the credit must be financed through alternative means. The enhancements are even more expansive for tax-exempt organizations—for example, nonprofit projects, cooperatives, and municipal utilities. Those groups will have the option to access direct pay for the entire lifetime of the credit (12 years).

The bill also includes a multiyear extension of the Commence Construction Window; the commence construction deadline for carbon capture, direct air capture, or carbon utilization projects will extend seven years to December 31, 2033. There also will be increased credit values for industrial and power generation projects, as the value of 45Q will increase to $85/ton for storage in secure geologic formations from industrial and power generation carbon capture, and $60/ton for either carbon utilization or secure storage in oil and gas fields.

The credit value for direct air capture projects will increase to $180/ton for storage in secure geologic formations from direct air capture and $130/ ton for carbon utilization or secure storage in oil and gas fields. The carbon threshold for credit-eligible carbon capture facilities also will see a major decrease, which should lead to an increase in 45Q-eligible projects.

Some of the bill’s opposition has come from those who say its additional funding for the Internal Revenue Service—in part to support enforcement of the nation’s tax laws—instead will lead to more audits. Supporters of the bill have said better enforcement will target tax evaders, help with the processing of refunds, and improve IRS customer service.

Though congressional Republicans have been unanimous in their opposition to the bill, some noted it does preserve most of the tax cuts enacted in 2017 during the Trump administration. Rep. Kevin Brady (R-Texas), an author of the 2017 tax legislation, in a statement said those cuts are “largely protected” in the new bill.

—Darrell Proctor is a senior associate editor for POWER (@POWERmagazine).