Deep in the Democrats’ Climate Bill, Analysts See More Wins for Clean Energy Than Gifts for Fossil Fuel Business

Although Senate leaders have included plenty of favors for the fossil fuel industry in the big climate package they hope to advance this week, most analysts have concluded these concessions amount to consolation prizes in a deal where clean energy is the clear winner.

At least three separate analyses by think tanks and academic institutions agree that the Inflation Reduction Act of 2022 would cut U.S. greenhouse gas emissions some 40 percent by 2030—within striking distance of President Joe Biden’s pledge to cut emissions in half.

More evidence of the legislation’s potential to ignite a clean energy transition can be seen in the reaction it has spurred among the most ardent keepers of the fossil fuel status quo. Americans for Prosperity, an advocacy group funded by the petrochemical billionaire Koch family, has launched a campaign blitz to stop the bill. Its online ads in particular are targeting Sen. Kyrsten Sinema, the Arizona Democrat who has not yet taken a position and whose support will be critical to getting it across the finish line.

Senate Democrats are still waiting for an analysis by the Congressional Budget Office and the Senate Parliamentarian before moving forward with the bill. They will need the votes of all 50 of their members, plus Vice President Kamala Harris, to get the legislation passed. After that, the House must agree to the same package or work out any differences with the Senate—all in the weeks leading up to midterm elections when Democrats will be fighting to maintain their majority in Congress.

In order to win the support of their most outspoken holdout on climate action, Sen. Joe Manchin of West Virginia, Senate leaders agreed to a number of compromises to bolster the fossil fuel industry—most notably, guarantees that the federal government will offer tens of millions of acres offshore for oil and gas drilling over the next decade as a prerequisite to the expansion of offshore wind energy development. That has raised concerns among environmental justice advocates, some of whom are opposing the deal even though it would provide a record $60 billion in grants to assist communities that are overburdened with pollution (Democrats’ original Build Back Better proposal would have allocated $160 billion to those communities, they note).

If passed and implemented, the legislation has the potential to slash pollution and provide new job opportunities in overburdened communities even without grants at the level that Democrats originally hoped, analysts said. The bill would catalyze the transition to electric vehicles, penalize companies that release or flare methane and would mark the first significant increase in 100 years in royalty rates for oil and gas development on federal land. The legislation also would include a large suite of measures to assist communities that historically have relied on coal, oil and natural gas, from black lung benefits to jobs training.

Here is a rundown of some of the biggest clean energy and just transition benefits that analysts have identified in the legislation:

A Climate-Friendly Industrial Policy 

For every ton of emissions from new oil and gas production in the Inflation Reduction Act, there are 24 tons of emissions that will be avoided because of other provisions, according to an analysis by the nonpartisan think tank Energy Innovation.

“The numbers really are very, very clear here,” said Anand Gopal, executive director of strategy and policy for Energy Innovation. “This is a very good deal for the climate.” 

Overall, Gopal and his team concluded the measure would help to cut greenhouse gas emissions by 37 to 41 percent by 2030 compared to 2005 levels. That falls short of the U.S. commitment under the Paris Agreement to cut emissions by 50 to 52 percent by 2030. However, Gopal said, it is close enough to the target that the country could make up the difference with executive actions and changes to state law.

Along with reductions in greenhouse gas emissions, Gopal’s team projected that particulate matter pollution in the United States would fall—potentially preventing 3,700 to 3,900 deaths annually by 2030, in addition to 99,000 to 100,000 avoided asthma attacks, and 405,000 to 417,000 avoided lost workdays. 

The benefits are deep, with provisions that will boost the economy while also cutting emissions.

“It’s a large industrial policy bill with incredible amounts of incentives for onshoring of clean energy and clean technology, manufacturing,” Gopal said. “It’s a pretty big job adder, with possibly up to 1.5 million new jobs by 2030, a lot of that concentrated in manufacturing, construction and service.”

Throughout the legislation, there are provisions that require companies that access the clean energy and other tax credits to pay prevailing wages, provide apprenticeship training programs, and use materials manufactured domestically. There are incentives for developing clean energy projects in communities that historically have relied on coal, oil or natural gas—a “big step toward providing good jobs to these distressed communities,” said Cecil Roberts, president of the United Mine Workers of America, which has endorsed the legislation.

The bill would also give an unexpected long-term boost to sick coal miners and their families who, in recent years, have all-but begged Manchin and Sen. Mitch McConnell, R-Kentucky and the Senate Republican leader, to provide long-term security for the federal Black Lung Disability Trust Fund, which has some 25,000 beneficiaries and is at least $5 billion in debt to the federal treasury.

The bill includes a permanent extension of the excise tax that supports the trust fund, a move that goes well beyond the 10-year extension that advocates, some of whom toted the oxygen tanks they need to stay alive, pressed lawmakers for during trips to Washington, D.C., or at demonstrations in West Virginia.

Revving up Electric Vehicles 

At a time when electric vehicle market share in the United States is small but rapidly rising, the legislation would give the technology an unprecedented boost with long-term tax credits steered toward middle-class and lower-income consumers.

The bill includes a tax credit of up to $7,500 for buying a new electric vehicle, and a credit of up to $4,000 for buying a used electric vehicle. The credits are subject to income limitations. For example, the incentive for a new vehicle is limited to people with incomes of up to $150,000 and households with incomes of up to $300,000.

“This is going to be absolutely critical to make sure we’re on the path to reach Biden’s goal of 50 percent EVs by 2030,” said Stephanie Searle, director of the U.S. fuels program at the International Council on Clean Transportation.

She said the $4,000 credit for used EVs is a vital part of the package because it opens up the incentives to a large pool of buyers who can’t afford a new vehicle.

The new credits would replace an existing $7,500 credit for new EVs, with no income limit. The big problem with that credit, in the eyes of the auto industry, is that it has a cap of 200,000 vehicles per manufacturer, a cap that General Motors, Tesla and Toyota have already reached.

The income requirements mean that automakers have good reason to focus on selling models on the low and middle end of the price spectrum, said Michelle Krebs, executive auto analyst for Cox Automotive.

“Everyone understands that if you’re truly going to proliferate EVs then you’ve got to have ones that are affordable to your audience, so that’s why we’re seeing GM and Honda and a lot of others talking about (selling EVs for) $30,000,” she said.

To get the full credit, the batteries in the vehicles will need to meet benchmarks for having minerals, like lithium, that were mined and refined in the United States or in a country with which the United States has a trade agreement—a list that does not include China, the leading source of some battery minerals.

The initial requirement in 2024 would be that 40 percent of a battery’s minerals come from the United States or a trade agreement partner, a share that would rise over the years to include nearly all of the battery’s minerals.

This part of the bill is likely a compromise between two different viewpoints among Senate Democrats, said Ian Lange, director of the Mineral and Energy Economics program at the Colorado School of Mines.

“The Democratic party itself is kind of split on these issues, where there definitely is interest in EVs and solar panels and wind turbines and things like that, but the idea of domestic mining and refining, there are some parts of the Democratic Party that are against it,” he said.

Manchin has said that he has a commitment from his party leadership to also support legislation to make it easier to obtain permits for activities related to the energy economy, which could include permits for mining and refining minerals.

Lange said this companion legislation has major ramifications for how the mineral requirements in the EV incentives will work, including how much mining and refining is likely to take place in the United States. Some environmental advocates have warned that an increase in mining for lithium and other minerals is a threat to ecosystems. Also, companies may not have enough time to ramp up mining and refining capacity to meet demand.

Automakers are asking for changes to the bill because they have concerns about meeting minerals requirements, but Manchin has said he’s standing by the provision. 

The requirements underscore how the bill is trying to expand U.S. industry and reduce dependence on countries that are not U.S. allies.

Cutting Methane With Carrots and Sticks

One of the least discussed, but potentially most significant, climate aspects of the proposed Inflation Reduction Act is a fee it would place on methane emissions from oil and gas operations. The bill would charge companies for methane that they leak or vent into the atmosphere, with the fee starting at $900 per ton in 2024 and increasing to $1500 per ton by 2026.

Climate scientists and policy experts widely view the rapid curbing of methane emissions as one of the least expensive and fastest ways to tackle climate change. Methane is 81 times more potent as a greenhouse gas than carbon dioxide over the near term and, unlike CO2, methane only stays in the atmosphere for a short time. 

The U.S. oil and gas industry emits 16 million metric tons of methane annually, with the same near-term climate impact as 350 coal-fired power plants, according to a 2019 assessment by the Environmental Defense Fund. Significantly reducing methane emissions going forward would quickly reduce the concentration of the gas in the atmosphere and, as a result, its climate impact.

The bill would also provide hundreds of millions of dollars to oil and gas companies to help them reduce their methane emissions. This carrot and stick approach would dovetail with pending methane regulations for the oil and gas industry, a final version of which the Environmental Protection Agency is expected to publish early next year.

“It will provide an important incentive to curb methane emissions and to comply with EPA’s forthcoming rules,” David Doniger of the Natural Resources Defense Council said of the bill.

Arvind Ravikumar, who heads the Sustainable Energy Transitions Lab at the University of Texas at Austin, said the fee, which would start at roughly twice the market price of natural gas, would spur companies to do all they can to quickly reduce emissions.

The fee would only apply to companies that are not in compliance with EPA regulations, including the comprehensive methane regulations that the agency seeks to finalize early next year.

While the new regulations should soon be finalized by the EPA, the implementation of these rules could be delayed by states who oppose the rules and may seek to challenge them in court.

David Lyon, a senior scientist with the Environmental Defense Fund, said the methane fee in the current bill could result in oil and gas companies pressuring states to quickly implement EPA’s methane regulations so that companies can comply with the rules and avoid the costly methane fee.

Meanwhile, even though the legislation would require continued oil and gas development on federal land and offshore for the next decade, it would make it far more expensive for the industry. The legislation would raise royalty rates across the board, including raising the minimum bids for onshore oil leasing to $10 per acre, up from $2 per acre.

“This bill includes the first meaningful reforms to the oil and gas leasing system in a hundred years,” said Jennifer Rokala, executive director of the Center for Western Priorities. “If it becomes law, it will represent a turning point in America’s energy and climate policy.”

Rokala criticized the mandatory oil and gas lease sales provisions of the legislation, but said it was the kind of compromise that is inevitable in the process. “In all, we cannot let the bad overshadow the good this bill will ultimately provide for our children and grandchildren,” she said.

The legislation also would reinstate a long-lapsed 16.4 cents-per-barrel tax on crude oil imports and taxes on imported petroleum products to help fund the clean-up of hazardous waste sites.

Making Farms Part of the Climate Solution

The bill requires the Department of Agriculture to spend $40 billion on a range of programs, including nearly $21 billion on popular, often over-subscribed conservation programs intended to improve soil health and capture carbon.

The legislation “gives badly underfunded conservation programs a boost, including two of the most important—the Environmental Quality Incentives Program and the Conservation Stewardship Program,” said Ben Lilliston, director of rural strategies and climate change at the Institute for Agriculture and Trade Policy. “Both of these programs are enormously popular and both routinely close out farmers trying to access them.”

The department approves fewer than half of the applicants for these programs, which are designed to help farmers become more resilient to weather extremes by funding the planting of perennial grasses and cover crops to boost soil carbon and reduce erosion, or erecting fences to control overgrazing. “From a climate perspective, expanding these programs is essential, as is improving them, Lilliston added.

Under the current EQIP program, states have to use half their funding toward livestock facilities and much of that ends up going to polluting industrial operations, critics say. The new bill does not include that requirement.

It would also direct $15 billion on rural development, including $10 billion for rural electric cooperatives to transition to green energy and nearly $2 billion on the Rural Energy for America Program (REAP), which helps farmers build renewable energy projects.

Lilliston said the latter would provide a “major boost” for solar energy on farms, but cautioned that it, like the EQIP program, could help larger, more polluting farms.

“Those types of projects only work for the largest dairy or hog operations and create perverse incentives to produce more manure, thereby further driving consolidation in the industry,” Lilliston said.

The bill directs $300 million to the department’s Natural Resource Conservation Service to measure and verify carbon sequestration and greenhouse gas emissions reductions—key to any kind of robust carbon market that trades in soil carbon credits.

The bill would also direct the Agriculture Department to distribute $5 billion in grants for forest conservation, including $1.8 billion to remove fire-prone trees from “wildland-urban interfaces,” where urban and suburban areas butt up against rural lands. 

Overall, environmental and progressive farm groups applauded the bill, with caveats.

“This is less than the $23 billion investment we advocated for in last year’s House-passed legislation,” wrote Karen Perry Stillerman, a deputy director at the Union of Concerned Scientists, in an analysis published Tuesday. “But $20 billion is still a big investment, the largest since the Dust Bowl of the 1930s. It’s $20 billion more than we had two weeks ago. And it’s climate-focused at a time when climate impacts on the nation’s farms and communities—from drought in California and its Central Valley to the horrific flooding in Kentucky—are becoming dire.”

Climate Action Starts at Home

This bill has $9 billion worth of home-energy rebate programs and 10 years of tax credits to help consumers afford energy-efficient appliances, heat pumps and rooftop solar, among others.

The bill has a provision dealing with building codes, with $1 billion in additional aid for cities and states that want to implement codes that would reduce energy waste.

“It is the most important energy efficiency investment in history, but it also is a small part of the bill,” said Lowell Ungar, director of federal policy for the American Council for an Energy-Efficient Economy, a nonprofit research organization.