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Why energy companies should watch the developments under the Inflation Reduction Act

Signed into law on August 16, 2022, the Inflation Reduction Act (IRA) advances several policies of the Biden administration that are likely to have a substantial effect on the energy industry in the United States.

The IRA seeks to accomplish its policy goals through a variety of methods, including incentives, taxes, and increasing access to leasing on federal lands for oil and gas development.  Some of these funds will be used to fund permitting processes at various agencies, while other funds will be directed to programs that could increase regulatory scrutiny, like funding for fenceline monitoring.  As an additional tool, the White House also released state-specific fact sheets on how the IRA could work in a specific state, recognizing that the policies advanced by the legislation will affect states differently. For example, in Pennsylvania, a focus on developing rural opportunities through rural electric cooperatives is one area the IRA can assist, whereas in California, a key focus is protecting infrastructure from extreme weather.

Energy companies seeking some direction now should consider the following non-exhaustive list of provisions under the IRA that could affect their businesses:

  • Clean energy
    • extensions and expansions of certain tax credits relating to clean and renewable energy technology, carbon sequestration, energy storage, electric vehicles, and other areas
    • grant, loan, and rebate programs seeking to incentivize emission reductions in areas like the manufacturing industry and home efficiency
    • funding for tribal communities relating to climate resilience and adaptation programs and ecosystem management
    • requirement for critical minerals necessary for development of batteries to be increasingly sourced from recycling in the United States or from free trade agreement partner countries
  • Oil and gas
    • fees associated with certain releases of methane exceeding certain waste thresholds
    • reinstated Hazardous Substances Superfund Financing Rate on crude oil and imported petroleum products
    • funding for permitting processes in certain agencies and allowing oil and gas drilling in federal lands and offshore waters that are approved for renewable energy development
  • Climate
    • goal of reducing carbon emissions by approximately 40 percent by 2030
    • investment of $369 billion in climate-related programs
  • Environmental justice
    • funding for local community projects in environmental justice areas, including fenceline monitoring
    • promoting emissions reductions at ports and from diesel emissions
    • incentivizing solar development and addressing energy and water efficiency and climate resilience of affordable housing programs

Tags

esg, environment, regulation, clean energy, carbon footprint

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