November 2022 Vol. 77 No. 11
Features
Harmful Inflation Reduction Act Enacted, Includes Some Opportunities for Pipeline Construction
Editor's Note: Eben Wyman is a veteran advocate for key underground utility and pipeline associations. He can be contacted at eben@wymanassociates.net.
(UC) — In late 2021, President Biden’s controversial “Build Back Better” (BBB) legislation was blocked in the Senate, thanks to a couple of moderate senators with the courage to buck their party by opposing overreaching climate proposals at the front of the Democratic Party’s agenda.
However, many of the harmful provisions from BBB were back on the consideration table as soon as the second session of the 117th Congress commenced. In fact, The Inflation Reduction Act (IRA), which was enacted over the summer, is nothing more than a slimmed-down version of BBB. It will spend historic amounts of federal dollars related to combating climate change and prescription drugs costs and, of course, raise taxes on corporations.
In addition to the creation of a 15-percent corporate minimum tax rate, provisions for prescription drug reform and enforcement of federal tax law overseen by the Internal Revenue Service, the legislation includes numerous investments in climate protection. Among them are tax credits for households to offset energy costs, investments in clean energy production and tax credits aimed at reducing carbon emissions.
Package of potentially harmful policies
The very name of the bill (Inflation Reduction Act) is considered an oxymoron by most in the energy industry. It’s believed the tax hikes and overreaching climate policies will only exacerbate existing challenges presented by stubborn inflation and problems facing the energy industry supply chain.
The current regulatory war on American energy led by the Biden White House has already contributed to increasing inflation, with Americans paying the price at the gas pump and on their electric bills. Gas prices have skyrocketed since President Biden took office, even after falling from record highs in June of this year. To make matters worse, IRA will increase royalties for both offshore and onshore drilling activities in the name of curbing climate change.
IRA also imposes billions of dollars in additional taxes on crude oil, implementing new taxes that would hike consumers’ natural gas bills, double taxes on coal, and subject energy companies to some of the highest taxes of any business sector in the nation. Unfortunately, these costs will inevitably be passed along to consumers in the form of higher gas prices and higher utility bills.
The bill passed with all 50 Democratic votes in the Senate on Aug. 7, including securing two key Democratic votes from Sens. Joe Manchin (D-W.Va.) and Kyrsten Sinema (D-Ariz.). Meanwhile, virtually the entire construction industry, as well as most of the American business community, strongly opposed the legislation. In fact, initial evaluations from industry show that it will likely have little or no impact on inflation.
Further, according to the Congressional Budget Office (CBO), the federal agency that provides budget and economic information to Congress, the bill will barely make a dent on inflation in the near term – and even threatens to increase it. Specifically, CBO estimates it will have a “negligible effect on inflation” in 2022 and, in 2023, will change inflation between 0.1 percentage point lower and 0.1 percentage point higher than it is currently.
Obviously, Republicans pushed back immediately after the IRA was introduced.
“Democrats are doubling down on a reckless tax and spending spree that has led to the out-of-control inflation, high gas and energy prices, and climbing health care costs that we see today,” said Rep. Cathy McMorris Rodgers (R-Wash.), Ranking Republican on the House Energy and Commerce Committee, in a statement.
“Families are already stretching their budgets to afford groceries, keep the lights on, and fill up their gas tanks, all while struggling to find essential goods like baby formula. This $700 billion socialist agenda will only bring more pain to hardworking people by raising taxes and costs across every income level – all so Democrats and President Biden can fund their agenda and seek more federal command and control in people’s lives.”
Good news for carbon capture
Allegedly intended to supercharge the nation’s transition toward renewable energy sources, IRA provides considerable opportunities for clean hydrogen. It includes provisions aimed at incentivizing clean energy production and established a clean hydrogen production tax credit of up to $3 per kilogram.
One of the most impactful provisions for clean hydrogen development consists of advanced manufacturing production tax credits for certain clean energy components. Referred to as 45X credits, they include $30 billion of funding and are expected to incentivize domestic production of clean energy.
The IRA presents what many consider a mixed bag for blue hydrogen, which is produced from natural gas but with emissions decreased via carbon capture and storage. On one hand, it provides generous incentives for carbon capture and carbon removal; the IRA’s 45Q provision substantially increases tax credit values for the carbon capture utilization and storage (CCUS) industry.
While the IRA tax credit reforms and federal funds are a significant change for the economics of CCUS projects in the US, some developers are engaging agencies to leverage IRA tax credits and federal funds for carbon capture and sequestration projects.
The IRA’s goal of quickly advancing CCUS will carry extensive reviews of environmental and legal issues, including how to permit carbon dioxide (C02) sequestration wells, obtain pore space rights and construct CO2 pipelines. Some developers looking to leverage IRA momentum for CCUS are taking a strategic approach to project approvals by proactively engaging agencies with oversight responsibilities.
There are currently fewer than 5,000 miles of C02 pipelines, which are limited in scope, moving CO2 from discrete natural or industrial sources to energy production efforts. A viable CO2 pipeline network will be crucial to support large-scale adoption of CCUS. However, the IRA is silent on the issue, mostly because of the volatility associated with the word “pipeline.”
Many project developers are exploring how to deploy existing systems for CCUS purposes; others are considering conversions of other types of existing pipelines to transport CO2. Developing a safe, effective CO2 pipeline network for CCUS requires regulatory certainty, but there are concerns surrounding siting of new infrastructure and whether/how federal or state agencies will be deputized to oversee it. Currently, the states are responsible for siting decisions.
Although the federal government currently regulates CO2 pipeline safety, more robust regulations will likely be proposed as more pipeline miles are dedicated to transport CCUS and other clean energy sources. In addition, enduring challenges associated with permitting “any and all energy projects” already hamper the transporting of C02 and hydrogen.
Energy project permitting reform threatens shutdown
Efforts to reform the permitting process for energy projects is not new, although the fact that Democrats are now calling for it certainly reflects a change of heart on the issue. For years, environmental groups and their Democratic allies in Congress have used existing provisions in the Clean Water Act, and other federal and state statutes, to obstruct and even terminate several critical projects.
After passage of the IRA, Sen. Manchin introduced the Energy Independence and Security Act of 2022, in September, encouraging its inclusion in the continuing resolution (CR) that would keep the government running (and funded) after the end of FY 2022 (Sept. 30, 2022).
Manchin’s bill addresses many issues related to permit reform and includes language that would:
- Designate and prioritize projects of strategic national importance, including projects involving fossil fuels, hydrogen, carbon capture, use and storage, nuclear, electric transmission and renewable energy.
- Set maximum timelines for permitting reviews – two-year National Environmental Policy Act (NEPA) reviews; one year for lower-impact projects.
- Require a single interagency environmental review document and concurrent agency review processes.
- Designate a lead agency to coordinate interagency review.
- Improve Section 401 of the Clean Water Act by incorporating enhancements from both the Trump and Biden administrations, including:
° Clarify that the basis of review is water quality impacts from the permitted activity, based on federal, state, and tribal standards, not in pursuit of achieving political goals.
° Require certification applications to include available information on potential water quality impacts.
° Prohibit state or tribal agencies from requesting project applicants withdraw applications to stop/pause/restart the certification clock.
° Require states and tribes to publish clear requirements for water quality certification requests, or else default to federal requirements.
- Address excessive litigation delays by setting statutes of limitations for court challenges.
- Require that if a federal court remands or vacates a permit for energy infrastructure, the court must set and enforce a reasonable schedule and deadline, not to exceed 180 days, for the agency to address these concerns.
- Clarify FERC jurisdiction regarding the regulation of interstate hydrogen pipeline, storage, import, and export facilities.
- Cover several provisions related to electric transmission projects.
It quickly became clear that environmental groups were lined up against the permitting bill, as well as the majority of Republicans who do not want to support energy legislation under the current Democratic leadership. After all, midterm elections are around the corner.
Many Democrats said that while they would likely support the CR without the permitting provisions, it would be difficult to support it if permit reform language was included.
Instead, most Democrats said they are looking for separate votes on the CR and permitting legislation to allow those who oppose the permitting provisions to vote against it, without also voting to shut down the government.
In the end, Manchin realized the language was too controversial to remain in a government funding bill, and asked Senate Majority Leader Chuck Schumer (D-N.Y.) to remove the permit language from the CR. According to Schumer, he, Manchin and other senators “will continue to have conversations about the best way to ensure responsible permitting reform is passed before the end of the year.”
At press time, Congress was expected to move ahead with a bill to fund the government through mid-December, as Manchin’s move cleared the way for dozens of Republicans and some Democrats to vote on final passage for the CR just before the deadline. The decision temporarily suspends Manchin’s efforts to convince his colleagues to support energy permit reforms he believes are key to U.S. energy independence and the nation’s transition to renewable sources.
Therefore, while the industry is making incremental progress, the important issue of permit reform remains, and the pipeline construction industry stays fully engaged in the debate.
WYMAN ASSOCIATES offers strategic consulting with its clients and direct advocacy before the United States Congress and executive branch agencies. Working with several allies in Washington and around the country, provides clients a constant voice in the national debate.
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