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Companies engaged in clean energy solutions will receive a boon from US Build Back Better legislation

18 November 2021 Amena Saiyid

Companies engaged in manufacturing and installing renewables, increasing equipment efficiency, and placing more emissions-free electric vehicles on the roads will benefit from the Build Back Better legislation that the US House of Representatives was poised approved on 19 November.

The vote, 220-213 (one Democrat in opposition) occurred after Republican House Minority Leader Kevin McCarthy delayed a final vote on the evening of 18 November with a speech of more than eight hours that lasted well into the morning. "This is the single-most reckless and irresponsible spending bill in our nation's history," he said of the $1.75-trillion plan.

Now the measure will head to the US Senate, where it is expected to face opposition from Republicans who have made no bones about the measure's high price tag as part of the 2022 FY budget. Observers expect the bill will be tweaked further in the Senate to appease West Virginia's Democratic Senator Joe Manchin, who is not yet persuaded that the measure is needed and whose vote could sink this legislation in a chamber that is equally divided between Republicans and Democrats.

Of the $1.75 trillion, the budget reconciliation measure allocates $555 billion for investments in clean energy and tackling climate change. This includes $320 billion to either extend existing credits, such as the 45Q credit to sequester CO2 and to install wind and solar power, or create new ones for generating nuclear power, producing hydrogen (particularly from renewable sources), installing stand-alone energy storage systems, and new transmission lines.

The clean energy tax credits, combined with funding included in the recently enacted $1.2-trillion infrastructure legislation, will "most significantly help" President Joe Biden meet the goal of halving US GHGs by 2030 and decarbonizing the power sector by 2035, Matt Casale, environment campaign director for US PIRG, who also runs the group's climate programs, told Net-Zero Business Daily.

"We know the tax incentives work. They have worked for the past 10 years, and we know they need to be bigger and longer, and this bill will go along toward achieving emissions reductions at the end of the day," Casale added.

Most significant investment

The bill sets tax credits and incentives for energy efficiency improvements and renewable energy generation, and offers a direct pay option for any earned renewable energy credits, starting in 2022. This option would allow the renewable energy developers to claim the credit in cash instead of claiming it against their taxes.

According to a breakdown of the general categories provided by the White House, $320 billion would support clean energy tax credits; $110 billion would invest in development of clean energy manufacturing and supply chains; $105 billion will be for "resilience" investments, including energy efficiency; and $20 billion will be for federal government procurement of clean energy.

"This is the most significant investment the country has ever seen in renewable energy and decarbonization. There is absolutely no question that it will mean more sustainable deployment of renewables and more investment in domestic manufacturing," Sandra Purohit, federal advocacy director for the nonprofit E2, told Net-Zero Business Daily.

Purohit is not fazed by the so-called caveats that US lawmakers have wrapped around the production tax credits in the legislation.

For instance, both the production tax credits (PTCs), or credits earned for selling a kilowatt-hour (kWh) of renewable energy, and investment tax credits (ITCs) for building a renewable facility, would be given out under a two-tiered system. Companies would receive a base PTC credit rate of 0.5 cents/kWh and then a bonus credit of 2.5 cents/kWh if the producer pays prevailing wages and meets apprenticeship requirements spelled out in the legislation. The producer also would be eligible for an additional 10% credit if it can certify that the iron and steel or any manufactured product was produced in the US.

Likewise, a base ITC credit rate of 6% and a bonus credit rate of 30% based on the same two criteria would be available for developers if they build by the end of 2026. Eligible projects now include solar, storage, geothermal, fuel cell, combined heat and power systems, offshore wind, small wind, microturbine, biogas, and microgrid controllers.

Extends and creates credits

The measure extends the following tax credits:

  • The PTC tax credit for solar energy is revived and extended through 2026, while that for wind is increased to the full applicable rate of 2.5 cents per kWh through the same period.
  • Also extended through 2026 are PTCs for landfill gas, also known as renewable natural gas, municipal solid waste or trash, qualified hydropower, marine renewable facilities and geothermal.
  • The current ITC that was to phase out for projects that started construction after 1 January 2019 would be extended to projects beginning construction before 1 January 2027.

The bill not only gives renewable energy developers the flexibility to use ITC or PTC, but also the certainty that the credits will be in place for at least 10 years, Purohit said.

That's because the bill also has in place what the technology-neutral clean electricity production and investment credits favored by the Senate Finance Committee, which pick up where the existing ITCs and PTCs level off. The goal of these credits is to incentivize developers without favoring any particular energy source to generate electricity that will result in GHG reductions. These credits would apply to projects starting construction after 31 December 2026 and level off after the latter half of 2031. The phase-out would begin once GHG levels are 25% that of the emissions seen in 2021.

According to Purohit, the House lawmakers continued the traditional ITCs and PTCs to enable the IRS to transition to the new credits contemplated by the Senate lawmakers when they drew up their sets of clean energy tax provisions earlier this year.

Technology-neutral credits

While these credits are technology neutral, the lawmakers have ensured they cannot be claimed by companies benefiting from credits for capturing and storing carbon at fossil fuel-powered plants.

The lawmakers have not left traditional fossil fuel power plants on the wayside though. To boost greater use of carbon capture and storage (CCS) technologies, which the US PIRG does not support, the bill increases the tax credit for industrial facilities and power plants to $85 per metric ton for CO2 stored in saline geologic formations, $60 per ton for the beneficial utilization of captured carbon emissions and $60 per ton for CO2 stored geologically in oil and gas fields.

The measure also creates for the first time new tax credits for building zero-emission nuclear facilities and power lines that have the capacity to transmit at least 275 kilovolt of power and at least 500 MW of power. It also creates a new a 10-year credit for producing hydrogen either from renewable sources or natural gas facilities equipped with CCS.

On top of all these credits, the lawmakers are looking to give credit to those projects that expand existing manufacturing facilities with renewable energy equipment, energy storage, and CCS.

"Two of the biggest things to focus on in this measure are the length and the flexibility of these credits along with the refundability. Removing the risk and uncertainty will unleash a tremendous amount of investment and deployment," Purohit said.

Other funding

Aside from the clean energy tax credits and incentives, the bill also authorizes the US Environmental Protection Agency to give out $775 million in grants, rebates and loans for reduce methane emissions from petroleum and natural gas sector.

The bill also requires the EPA administrator to establish a methane fee on industries that produce, transport, and store natural gas beyond thresholds, which the EPA would establish, throughout the US or ship it abroad, according to the nonprofit American Action Forum, a center-right think tank on fiscal policy issues.

The fee, which would range from $900 per mt of methane in 2023 and ramp up to $1,500 mt by 2025, would be based on thresholds the EPA would impose on the industries on top of the methane limits the agency already finalized earlier in November, the forum said.

Pennsylvania Republican Congressman Guy Reschenthaler said the methane fee will make it harder to manufacture petrochemicals and other products, a key issue in his state, where Shell Petrochemical Appalachia's $6-billion ethylene cracker is under construction.

Republican Rep. Andrew Clyde, of Georgia, slammed the Democrats and Biden for advancing a "far left agenda" that includes components of the "Green New Deal," a blueprint for clean energy and climate solutions that was authored by Democratic lawmakers, Rep. Alexandria Ocasio-Cortez (NY) and Senator Edward Markey (MA).

Posted 18 November 2021 by Amena Saiyid, Senior Climate and Energy Research Analyst

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