On August 7, 2022 the Senate passed the Inflation Reduction Act – a sweeping piece of budget reconciliation legislation that touches on everything from energy and climate to Medicaid prescription prices. Germane to the energy and climate sector, the Act includes $369 billion for spending on “energy security and climate change” over the next ten years and an additional $250 billion in additional authority for the Department of Energy’s Loan Programs Office. The energy and climate components of the bill are aimed at reducing the country’s carbon emissions 40 percent by 2030. It is important to note that this legislation is still in draft form and therefore these provisions (and their associated funding amounts) are subject to change.
In this post, we focus on the offshore wind, transmission, permitting, and national green bank provisions.
On the positive side, the Act lifts the Trump-era moratorium on offshore wind energy lease area (“WEA”) sales in the Southeastern United Sates and Gulf of Mexico – a move many hope will lead to a significant uptick in installed offshore wind megawatts. It also provides $100 million for offshore wind planning, transmission, and development. Such funds can be used for a host of activities, including convening stakeholders to address interregional transmission of offshore wind electricity and planning a national transmission network for the conveyance of offshore wind energy. The Act also provides funding for additional staffing and training of employees at the Bureau of Ocean Energy Management and National Oceanic and Atmospheric Association.
The Act is receiving criticism from environmentalists as it ties the ability of the Department of the Interior to issue offshore WEA leases to its offshore oil and gas auctions. In order to issue a WEA lease, an offshore oil and gas lease auction must have been held within the last year AND the amount of land offered in the oil and gas lease auction must have been at least 60 million acres.
Transmission and Permitting Reform
Noticeably absent is a tax credit for qualifying electric transmission line property, which had been included in earlier drafts of the Act. The Act does include $760 million for grants that facilitate siting interstate electric transmission lines. The money can be used to, among other things, study the impacts of the project, analyze up to three alternative routes, and facilitate settlement negotiations with the permitting authority and project opponents. Importantly, this money can be used for either interstate terrestrial transmission lines operating at 275 kV or higher or offshore transmission lines operating at 200 kV or higher.
As part of a reported side deal to the Act, Schumer, Manchin, and others have agreed to certain permitting reforms (to be released in a separate bill this fall) for energy projects aimed at streamlining the siting process and reducing the ability of opponents to bog projects down with challenges. Among these are provisions that would allow the president to identify 25 “priority” energy infrastructure projects on federal lands that would receive expedited permitting. The bill would also set two-year timelines for permitting “major” projects and one year for lesser impact projects. Notably, the proposal includes mandates that will facilitate the completion of the Mountain Valley Pipeline – a major natural gas pipeline in Manchin’s own West Virginia that has been tied up in court battles for years. The side deal also purportedly requires reforms to the Clean Water Act to require states to issue Section 401 decisions within one year of application and to promulgate rules that more clearly set forth the requirements for water quality certification.
Federal Green Bank
The Act includes $27 billion for a National Climate Bank that would act to spur investment in clean technologies. $8 billion is earmarked specifically for investment in disadvantaged communities. The National Climate Bank, which is described further in a companion piece of legislation, would focus on investments in nine key areas: (i) renewable energy; (ii) energy storage; (iii) clean transportation; (iv) transmission (for clean energy); (v) climate resiliency measures; (vi) energy and water efficiency; (vii) reforestation of degraded land; (viii) agricultural projects; and (vii) electrification and decarbonization of industrial processes. If approved, a National Climate Bank could spur large private investment in clean technologies nationwide. We know from the success of individual state Green Banks, such as New York and Connecticut, that they work to drive private investment in the clean energy sector. Since it was established in 2013, New York’s Green Bank has mobilized $4.5 billion in capital. Between 2011 and 2020, the Connecticut Green Bank has brought over $1.94 billion in investment to the state.
There are still several legislative hoops to jump through before the benefits of the Act can be realized. The House is expected to vote on the Act this week, at which point it will need to be signed into law by President Biden. The side deal legislation for the National Climate Bank specifies that the Bank must be established within one year of the date that the law is enacted (anticipated this fall), however the Act itself does not provide guidance on when we may see the other provisions discussed here take shape.
Read more about how the Inflation Reduction Act aims to propel EV and clean fuel vehicle adoption.