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07/28/2022 | News release | Distributed by Public on 07/28/2022 15:04

Democrats ready vote on climate bill: Correction

Corrects hydrogen production credit price in 12th paragraph.

Democrats in the US Senate plan to vote as soon as next week on a massive budget deal that would spend nearly $370bn on energy security and climate change over the next decade, alongside new mandates to hold regular oil and gas lease sales on federal land and waters.

The budget agreement, if enacted, would be by far the largest climate bill to pass in the US. Senate Democrats say their plan to spend hundreds of billions of dollars on clean energy - through tax credits and grants for wind, solar, biofuels, carbon capture, hydrogen, electric vehicles and sustainable aviation fuel - will put the US on track to reduce its greenhouse gas emissions by 40pc by 2030, relative to 2005 levels. That would still be short of President Joe Biden's goal for a 50pc reduction by the same year.

But the bill also aligns with demands from the US senator Joe Manchin (D-West Virginia) for the budget to include a "truly all of the above" energy package that would retain a role for fossil fuels over the next decade. The bill would revive a $192mn oil and gas lease sale in the US Gulf of Mexico that a federal judge scrapped early this year and require at least three other offshore oil and gas lease sales by late 2023. Another provision includes a first-time fee on excess methane emissions from thousands of large oil and gas facilities starting in 2024.

Democrats have set an aggressive schedule for advancing the budget bill, which also includes a new 15pc minimum tax on large corporations, more tax enforcement to pay for the climate spending and $300bn in deficit reduction. Senate majority leader Chuck Schumer (D-New York) wants to hold a floor vote next week, which would require unanimous support from all 50 members who caucus with Democrats.

The final budget deal, negotiated in secret by Schumer and Manchin over the last two weeks, gives Democrats a chance to rescue large parts of their agenda before the midterm elections in November. The last-minute talks hinged in part on a commitment by Democrats to separately vote on energy infrastructure permitting changes by the end of the year.

"It was kept very quiet because I wasn't sure it was ever going to come to fruition," Manchin said. "I wanted to make sure we had a robust energy reform in our permitting process."

Biden on 27 July backed the "historic" legislation as a way to fight climate change, paid for by requiring corporations to pay their "fair share" of taxes. Biden plans to offer remarks on the bill, named the Inflation Reduction Act, today from the White House.

Republicans plan to fiercely oppose the bill, which just days ago was widely expected to be scaled back to focus on prescription drugs and healthcare. Republicans are citing last month's 9.1pc annual inflation rate and two consecutive quarters of declining US GDP to push against major legislation backed by Democrats.

"After Democrats bungled the economy and failed to meet expectations in five of the last six quarters of economic growth, imposing the Schumer-Manchin tax hikes on our economy will only make things worse," US House Ways and Means ranking member Kevin Brady (R-Texas) said.

Energy, climate spending

The core climate spending in the bill consists of tens of billions of dollars of tax credits, grants and loans for renewables, energy efficiency, biofuels, nuclear, carbon capture, clean hydrogen and sustainable aviation fuel.

The bill would extend by two years a $1/USG tax credit for biodiesel and renewable diesel by two years, until 31 December 2024. It would create a $1.25/USG tax credit for sustainable aviation fuel that has at least a 50pc reduction in carbon emissions compared to conventional fuels. Newly built hydrogen facilities placed into service prior to 2033 would qualify for a 10-year production credit of up to $3/kg for low-carbon hydrogen.

The bill would include a three-year extension of production tax credits for wind plants that begin construction before 2025. It would create a first-ever production credit of up to 15ยข/kWh for some existing nuclear power plants.

It includes a seven-year extension of the 45Q tax credit for carbon sequestration, to cover facilities that start construction before 2033, and increase the rate to up to $85/metric tonne (t) from $50/t for geologic storage.

The agreement would bolster tax credits for electric vehicles (EV) by lifting a manufacturer limit on the number of new EV that can qualify for a $7,500 tax credit. It would also create a new $4,000 per vehicle tax credit for used EVs.

Other climate spending in the bill includes $30bn in grants and loans for states and electric utilities to transition to clean energy, $10bn in tax credits to build clean energy manufacturing plants, $6bn in grants and tax credits to cut emissions from industrial plants, and $3bn for the US Postal Service to buy zero-emission vehicles.

The bill would offer $60bn for environmental justice, such as grants to reduce emissions at ports and from heavy-duty vehicles.

Oil, gas support

Manchin sought to use his position negotiating the bill to ensure that fossil fuels are not "arbitrarily eliminated" over the next decade, based on concerns that continued production is needed to keep energy prices affordable and supply oversea allies with energy.

In a win for the oil sector, the bill would reinstate Lease Sale 257, a $192mn offshore oil and gas lease sale that a federal judge threw out earlier this year. It would also require the Biden administration to hold two other oil and gas lease sales in the US Gulf of Mexico and another sale in the Alaska's Cook Inlet that never occurred. The two Gulf of Mexico lease sales would need to be held by the end of 2022 and by 30 September 2023.

The bill is "grounded in reality" and appears to offer a path forward for offshore energy of all types, offshore industry group the National Ocean Industries Association president Erik Milito said.

The US Interior Department would face pressure to retain oil and gas leasing going forward under a separate provision. To approve onshore wind and solar projects on federal land, the bill would require there to be an onshore oil and gas lease sale in the preceding 120 days, along with at least 2mn acres of land leased in the prior year. A similar provision would apply to offshore wind by tying it to holding an offshore oil and gas lease sale during the prior year for at least 60mn acres.

But the budget deal also includes provisions meant to reduce the emissions intensity of oil and gas production across the US, while reducing the amount of speculative oil and gas leasing that critics say ties up large amounts of federal land that is unlikely to ever be developed.

The bill would place a first-time fee on methane emissions for about 2,400 large oil and gas facilities that already report emissions under "Subpart W" greenhouse gas reporting requirements. The fee would start at $900 per metric tonne (t) in 2024 and reach $1,500/t by 2026, for methane emissions above a 0.2pc leakage rate for oil and gas production facilities, 0.11pc for pipelines and 0.05pc for gas processing and LNG plants. The bill would give the US Environmental Protection Agency more than $1.5bn to deliver in grants and loans to help the oil and gas sector monitor and cut down down on methane leaks.

For oil and gas leasing on federal land, the bill would raise royalty rates to a minimum of 16.7pc, up from 12.5pc, and set a first time maximum royalty rate of 18.75pc. During lease sales, it would increase minimum bids on onshore land to $10/acre from $2/acre, raise annual rental payments, and eliminate a program that offered discounted bids for non-competitive lease sales.

And for the first time, the bill would require operators that obtain any new oil and gas leases to pay federal royalties on all natural gas lost to flaring and venting.

By Chris Knight