An Overview of the Inflation Reduction Act – for 350NYC
This was a background piece for a presentation I gave at the general meeting of 350NYC on August 23. It is posted here primarily for those people who attended the presentation.
It is not a stand alone piece.
Some good sources of analysis
Inflation Reduction Act: Climate Summary (squarespace.com) https://static1.squarespace.com/static/5a5414caf9a61e90a854b98c/t/62ea880a313a641ccb044ff3/1659537418217/Inflation+Reduction+Act_+Climate+Summary.pdf
Good Bad and Ugly
GOOD: The Inflation Reduction Act will make important public investments in renewable energy, decarbonized transportation, domestic manufacturing, and public lands management. The bill also contains some key labor provisions and funding for environmental justice priorities.
BAD: Key provisions from Build Back Better have been dropped, many of which were insufficient to start with. The IRA offers virtually nothing for non-car transportation or securing safe, comfortable, and affordable housing — especially for low- and middleincome tenants and homeowners — and environmental justice funding falls far below the Biden Administration’s Justice40 commitments. Also, recognize the limits of what can be put into a budget reconciliation,
UGLY: The IRA does not end the era of fossil fuels — it continues it, and bolsters it in some key ways. The bill mandates vast swathes of federal lands and waters be sacrificed for the ongoing development of fossil fuels and expands subsidies for dangerous distractions, including hydrogen and carbon capture and sequestration (CCS / CCUS). Recent news of a corresponding side deal with Senator Manchin would also weaken the environmental review process for new energy projects and mandate the completion of the Mountain Valley Pipeline
The legislation, called the Inflation Reduction Act of 2022, is a far cry from the ambitious multi-trillion-dollar domestic policy and tax proposal that President Biden sought and that Democrats in Congress spent more than a year laboring to pass.
Tax credits for zero-carbon power plants
The deal would provide billions of dollars in tax credits over 10 years for companies that build new sources of emissions-free electricity, such as wind turbines, solar panels, battery storage, geothermal plants or advanced nuclear reactors. Previously, Congress had offered short-term credits for wind and solar that often expired after a year or two. The credits in the new bill cover any zero-carbon technology and would last for at least a decade, giving companies more certainty.
Overall analysis of IRA
Sharing Congressional Progressive Caucus Center’s comprehensive analysis of the $369 billion in climate and energy provisions included in the Inflation Reduction Act (IRA).
If passed, this would be the most significant investment in American history in responding to the climate crisis, and we believe that it would put the U.S. on a credible path to achieving a roughly 40% reduction in greenhouse gas emissions by 2030. There are however some problematic provisions to consider — including locking in future oil and gas leasing as a condition of the approval of renewable energy projects on federal lands, and underinvestments in public transportation.
Our analysis examines the overall shape and scope of the bill, but here are a few provisions that we think are particularly noteworthy:
- Clean Energy Tax Incentives: The IRA includes a wide range of tax credits which include prevailing wage requirements and still provide direct pay eligibility for rural electric co-ops, government agencies, and other non-tax entities. However, the refundability of these tax incentives has mostly been eliminated, which will limit their overall effectiveness and accessibility. Without the refundability mechanisms, low- and middle-income households that do not owe enough in federal income taxes cannot receive the full value of the credits.
GOOD: The bill extends crucial clean energy tax credits (the Investment Tax Credit and Production Tax Credit) for the next 10 years. These tax credits have been the major policy driver for renewable energy growth, but have been in constant peril of phase-out, with just-intime extensions that have put the clean energy industry in a constant state of financial uncertainty. The 10-year 30% cost extension in the IRA would bolster confidence for the industry to continue developing and deploying solar and wind. The bill also extends the tax credit to microgrids, batteries, and U.S. manufacturers of the industry’s component parts like solar photovoltaics, wind turbines, and electric vehicles
- EV Tax Credit: The new EV tax credits would lift the current cap of 200,000 vehicles sold per manufacturer, but the enhanced union incentives are gone. The tax credits would be capped to an income level of $150,000 for a single filing taxpayer and $300,000 for joint filers for new vehicles and at $75,000 and $150,000 for used cars. Unfortunately, the legislation is very car-centric and contains few meaningful investments in electric bikes or public transit.
- USPS: The IRA includes $3 billion to electrify the U.S. Postal Service’s (USPS) delivery fleet.
- Defense Production Act: The IRA provides an additional $500 million for the Defense Production Act for heat pumps and critical minerals processing. In June, President Biden invoked the Defense Production Act to accelerate domestic manufacturing in the renewable energy sector. This is a significant victory.
- Environmental Justice:Additional funding for lead service line replacement was removed from the bill, but it still includes $27 billion for the Greenhouse Gas Reduction Fund and $3 billion for environmental justice block grants.
- Royalty Reform: Increases the royalty rate for all new onshore and offshore fossil fuel leases from 12.5% to a minimum of 16.6%. The current onshore royalty rate of 12.5% has not been updated since the Mineral Leasing Act was signed into law by President Woodrow Wilson in 1920 and is dramatically lower than the rates charged by states and private landowners — in some cases by up to 25%. The legislation also eliminates noncompetitive leasing and establishes a minimum bid on federal parcels. These are also significant victories.
- Methane: The IRA establishes a meaningfulprice on excess methane pollution and offers up to $850 million in grants to industry to monitor and reduce methane. The charge for excess methane emissions begins at $900/ton in 2024, increases to $1,200/ton in 2024, and $1,500/ton in 2026.
NY Times – Cracking down on methane
The bill would also impose a fee on excess methane leaking from oil and gas wells, pipelines and other infrastructure. Methane is a particularly powerful greenhouse gas: While it dissipates more quickly than carbon dioxide, it is many times more potent when it comes to heating the atmosphere. Polluters would pay a penalty of $900 per metric ton of methane emissions that exceed federal limits in 2024, increasing to $1,500 per metric ton in 2026.
- Conservation and Agriculture: The legislation also invests nearly $20 billion in conservation programs at USDA, including $8.45 billion for the Environmental Quality Incentives Program (EQIP) and $6.75 billion for the Conservation Stewardship Program (CSP). These programs are included in the Farm Bill, which Congress must reauthorize in 2023. Given this increase in funding, it is essential that these programs are reshaped to eliminate wasteful spending and ensure maximum impact. Currently, it is estimated that less than 20% of EQIP spending goes to climate-smart conservation practices that actually reduce greenhouse gas emissions.
- Carbon Capture: The inclusion of an expanded tax credit for carbon capture, storage, and sequestration was expected. However, to qualify for the credit requires an unexpectedly high capture design capacity of at least 75%, potentially limiting its applicability to the power sector.
- Permitting Reform: side deal The terms of Senator Manchin’s agreement included the passage of comprehensive permitting reform legislation. Senate Majority Leader Chuck Schumer subsequently indicated that lawmakers plan to attach these permitting reforms as a rider to a stopgap bill to keep the government running past September 30, 2022. It remains unclear what the content of these permitting reforms would likely be but they are likely to include changes to the National Environmental Policy Act (NEPA). They could also include changes to the U.S. Army Corps of Engineers Nationwide Permits.
Food and Water Watch – a bargain with the devil
As Food and Water Watch noted, “creating new wind and solar tax credits while giving fossil fuel polluters a green light is the ultimate devil’s bargain.” The Center for Biological Diversity said “the legislation all but ensures that the fossil fuel industry will maintain current oil and gas production levels without any change for the next decade’, and “This is a climate suicide pact.” (Analysis from the Climate and Community Project.)
The bill provides a production credit for nuclear energy and blue hydrogen and extends income and excise tax credits for biodiesel, renewable diesel, and alternative fuels. The legislation would also require oil and gas leasing in the Gulf of Mexico and Alaska, reinstate an illegal 2021 Gulf lease sale, and lock in oil and gas lease sales as a precondition for the approval of federal renewable energy projects.
The bill requires a constantly updated list of 25 projects that will be placed on the fast track, limiting public input and necessary environmental review. At least five of the priority items “shall be projects to produce, process, transport, or store fossil fuel products, or biofuels, including projects to export or import those products.” Two of the priority projects should be devoted to the “capture, transport, or store carbon dioxide.” It allows funding for such projects that increase the extraction of oil. The fossil fuel prioritization continues well past 2030, requiring at least three projects to be fossil fuel oriented while allowing greater discretion to add more to the priority list.
A proposed climate and energy package would require massive oil and gas leasing in the Gulf of Mexico and Alaska, reinstate an illegal 2021 Gulf lease sale and mandate that millions more acres of public lands be offered for leasing before any new solar or wind energy projects could be built on public lands or waters.
The IRA increases the leasing of public land for fossil fuels extraction and production
Instead of phasing out the fossil fuels industry, the IRA set up a quid-pro-quo framework where wind and solar development is tied to increased oil and gas leasing to build out fossil fuel infrastructure.
- Toted as “energy security,” for the next ten years, the IRA prohibits any offshore wind lease sales unless the DOI has held at least one offshore oil and gas lease sale within a year before the wind lease sale. The oil and gas lease sale must be at least 60,000,000 acres (p.644).
- This is of particular concern for BIPOC communities, especially Alaska Native, communities in the Gulf South, coastal communities and communities near federal-owned lands.
The IRA makes misleading EJ promises
The package promises to provide over $60 billion in funding for “environmental justice priorities.” However, the bill offers no criteria for what qualifies as an EJ provision. As a result, there is no clear way to verify the promised amount of investment. Moreover, a provision that has no positive impact can claim to have “EJ priorities.”
Furthermore, the language and scope of some the “EJ provisions” are framed in a way that risks perpetuating injustice to disadvantaged communities, particularly to Tribal Nations and Indigenous Peoples.
- Eligibility guidelines for EJ provisions allow corporationsand large NGOs, detached from on-the-ground realities, to apply for the grants.
- Because receivers of the grants and funds are chosen on a “competitive basis”, NGOs backed by large corporations and polluters can apply with the resources to gain an advantage.
- The provisions do notestablish a minimum or maximum number of grant recipients. This means that NGOs and for-profit companies with a competitive edge can acquire large chunks, or the entirety, of the available funds.
- Projects can be taken over by for-profit interestsof investors even though they go through non-profit organizations.
- Application of “zero-emission” projects with the involvement of the private sectorrisks the proliferation of false solutions like CCS and goes in tandem with the push for ESG reporting in 60111: Greenhouse Gas Corporate Reporting. This gives corporations, not EJ communities, credit for implementing green energyprojects to make “sustainability” claims.
The IRA funds false solutions
The great majority of the dressed up climate provisions are investments into false solutions like CCS, nuclear, hydrogen, biofuels, and carbon trading. This bill continues where the Infrastructure, Investment and Jobs Act left off by propping up the same harmful industries BIPOC and frontline communities have been fighting for decades.
The primary beneficiary of these provisions will be the fossil fuel industry, since they are major players within the development of these unproven technologies. Public money will be increasingly funneled to polluting companies through the expansion of the tax breaks and tax credits.
The IRA financializes carbon
The IRA is se tting up legislative infrastructure to support a carbon market for carbon offsets. Carbon offsets are bought by fossil fuel and other private industries to falsely claim they are “net-zero” or “carbon neutral”. The first step to build a carbon market is to measure the carbon.
Not surprisingly, provisions on agriculture award investments to projects that quantify carbon and continue the work of setting up agriculture carbon offsets called “climate-smart agriculture.” The provisions on forestry aim to increase funding for the “participation of underserved forest landowners in emerging private markets for climate mitigation or forest resilience…” (pg. 536). The “emerging private markets for climate mitigation” are to be used to prop up carbon markets that benefit the fossil fuels industry. This is not environmental justice nor climate mitigation (p.546)
Overview of Side Deal
The draft permitting “reform” bill bearing the watermark of the American Petroleum Institute (API) would significantly weaken protections under the National Environmental Policy Act (NEPA) and make it easier to approve fossil fuel and mining projects (among other projects) without adequate environmental analysis or meaningful public input. The bill also would undermine the ability of impacted communities to enforce legal protections against these fossil fuel and mining projects by changing the rules that govern judicial review of project-approval decisions. The bill also includes provisions that require the President to prioritize oil and gas projects, that constrain time for state review under Section 401 of the Clean Water Act, and that alter FERC’s obligations regarding transmission infrastructure.
The dirty pipeline deal is a dangerous and destructive giveaway to fossil fuel CEOs and we must oppose it. This proposal would make it easier to rubber stamp dangerous, dirty fossil fuel projects, while stifling the voices of the people most harmed by them – especially BIPOC communities that are already facing the compounding threats of pollution and climate change.
This side deal would roll back bedrock protections, like the National Environmental Policy Act, silencing the voice of the public to give fossil fuel companies all the power to build polluting projects wherever and whenever they want.
There’s a reason the draft of this proposal had the American Petroleum Institute’s watermark on it: it puts big oil in the driver’s seat. Our communities and our climate can’t afford to let greedy fossil fuel executives make all the decisions about what happens where we live, work, and play.
Moreover, this dirty pipeline deal would undermine the Biden Administration’s climate commitments by building refineries and pipelines through our neighborhoods, farms, and ecosystems.
Together, we can stop this dangerous dirty deal. Anyone who cares about having a say in the future of their own communities and acting to tackle the climate crisis should oppose this polluter giveaway.
We urge Congress to stop this dirty pipeline deal, fight to protect our voices, and give us a chance at ensuring our communities are put first instead of giving fossil fuel CEOs a fast track to do whatever they want while we pay the price.
Ro Khanna, who chairs the House Oversight Subcommittee on the Environment, and he was quite blunt. He called the side deal a gutting of the National Environmental Policy Act (NEPA) and said “that’s not going to happen. You’re not going to get progressive support for that.” In fact, he promised a September 15 hearing of his subcommittee to explore whether or not the fossil fuel industry actually wrote the language of the deal: an early draft circulating on Capitol Hill literally bore a watermark from the American Petroleum Institute.
He pointed out that Raul Grijalva, chair of the Committee on Natural Resources, had written a letter to Speaker Pelosi saying such a deal was unacceptable. “I’m on that letter, many progressives will get on.” Manchin has said he was promised his deal would be attached to must-pass legislation, presumably the omnibus budget bill. “If that happened, you’d really have a mutiny among my progressive colleagues,” Khanna said.
If the deal—which among other things could explicitly greenlight Appalachia’s Mountain Valley Pipeline boondoggle—did get added to the budget bill, and if Khanna was right that progressives objected, it might still pass if Republicans came on board to back it (that’s how big defense bills get passed each year over progressive objections). But Khanna said it would be “pretty unprecedented” to “come up with an omnibus budget bill that excluded a key caucus. It would split the party before a crucial midterm election,” creating a “media outcry.” It would be “a very divisive move. I’m not saying it’s impossible—we have to guard against it, and that’s why we’re mobilizing now.”