IRA’s Climate Focus More than Just Renewable Energy

The Inflation Reduction Act (IRA), which passed the House and Senate along party lines, was signed into law by President Biden on Aug. 16. While it covers more than just climate and energy, it’s touted as the federal government’s best effort yet to reduce greenhouse gas (GHG) emissions and curb climate change. The IRA authorizes $370 billion to be spent over the next 10 years on initiatives that will promote clean energy technologies and help create a grid that can deliver this new clean energy. Some people might be surprised to learn, however, that the energy legislation includes more than just green initiatives and incentives aimed at energy efficiency, electric vehicles (EVs), home and business electrification, and tax credits for renewable energy developers. It also includes initiatives that benefit hydrogen, nuclear energy, and even fossil fuels. Below is a summary of some of the less publicized focus areas of the IRA.

Hydrogen

The IRA subsidizes low-carbon hydrogen through tax credits to hydrogen producers based on how much carbon is emitted during the production process. At the lowest emission rate—0.45 kilograms of carbon dioxide emitted per kilogram of hydrogen produced—producers are eligible for a credit of up to $3 per kilogram of hydrogen. It’s important to note that the provision doesn’t specify the technology that must be used in the electrolysis process, meaning the electricity does not have to be generated from zero carbon renewable energy.

In addition, the IRA includes $8 billion to establish up to eight regional “hydrogen hubs” in the country. These would be facilities where low-carbon hydrogen would be produced, stored, used, and transported to other locations.

Nuclear

Many people believe that the U.S. cannot decarbonize its electricity generation without a sizeable contribution from nuclear energy and it appears some lawmakers agree. The IRA includes provisions that support new, as well as existing nuclear energy, including $150 million through 2027 to be used by the Department of Energy’s (DOE’s) National Laboratories for nuclear research.

In addition, some hydrogen tax credits in the bill will benefit nuclear energy, which has been touted as a perfect electricity source for the hydrogen production process. The IRA also contains other technology-neutral credits focused on the production of clean electricity. This includes tax credits for future new nuclear power projects, as well as for some existing nuclear facilities.

Oil and Gas

To the disappointment of many renewable energy advocates, the IRA provides some support to the oil and gas industry, which includes streamlined project permitting and quicker access to federal land leases for both onshore and offshore projects.

In addition, the legislation provides financial incentives for carbon capture, a technology the oil and gas companies have already begun to use. Tyson Slocum, Director of Public Citizen’s Energy and Climate Program said in late August that oil and gas companies are using carbon capture to justify their plans to build new, “dangerous” gas export terminals. He went on to say that these terminals will be legally permitted to emit millions of tons of CO2 and methane.

I’m not surprised that renewable energy advocates could see these export terminals as promotion of dirty fuel, I see them differently, however. They will help reduce greenhouse gasses around the world by allowing the export of U.S. natural gas to countries that currently rely on dirtier fuel oils and coal to generate electricity. In addition, including carbon capture incentives tells me that some lawmakers understand the transition to 100% renewable energy will take time and natural gas will be a “bridge” fuel for decades.

On the flip side, the IRA contains some provisions that will negatively impact some the oil and gas companies. It includes a 15% minimum tax on oil and gas companies claiming more than $1 billion in income on their adjusted financial statements. In addition, it doubles rental fees on leases and increases royalty rates by 4.17%. And while it allows for methane emissions, the legislation puts a price on that methane for both offshore and onshore producers, natural gas processing, transmission and compression, underground gas storage, LNG facilities, gas gathering, and boosting stations. The initial charge will be $900 per metric ton of methane and will increase to $1,500 within two years.

Transmission

According to a press release issued by WATT Coalition, an industry organization that promotes grid-enhancing technologies (GETs), the legislation requires the Secretary of Energy to plan, model, and analyze transmission of interregional electricity, as well as electricity generated by offshore wind, which will include GET. Ted Bloch-Rubin, the WATT Coalition’s Chairman, said “GETs can double capacity for renewable energy on the existing grid. With the support for wind and solar deployment in this bill, we’ll need all the delivery capacity we can get,” he added.

GHG Reduction Fund

The legislation establishes a $27 billion GHG Reduction Fund that provides states, municipalities, and tribal governments with funds to create loans, grants or other types of financial assistance to members of low-income or disadvantages communities. It will allow these entities to take advantage of zero-emission technologies like EVs or rooftop solar PV and storage.

Electric Cooperatives

Some $9.7 billion is allocated to the Department of Agriculture for rural electric co-ops to use on long-term resiliency, reliability, and affordability projects. Money will be provided through loans, grants or other types of financial assistance. The goal is to lower carbon emissions through the purchase of various eligible projects, including renewables, energy storage, carbon capture and sequestration, hydrogen and small modular reactors. Co-ops could get a grant for up to 25% of each project’s cost. The grants will be capped at $970 million per co-op.