The climate bill Senate Democrats unveiled last week would keep the U.S. within “striking distance” of its national climate target, strengthen the Biden administration’s negotiating hand with foreign powers and lower energy costs for the public if it becomes law, according to climate analysts and advocates.
A compromise between Majority Leader Charles E. Schumer, D-N.Y., and Sen. Joe Manchin III, D-W.Va., the bill includes about $370 billion in climate and energy elements to be spent over 10 years, a smaller sum than $555 billion in climate spending included in the legislation House Democrats passed in late 2021.
While slimmer, the new bill contains elements most Democrats wanted, including a price on methane emissions, raised royalty rates on oil and gas drilling on federal land and offshore, and tax credits for zero-emissions electricity sources, such as wind and solar.
[Clean energy tax package undergoes substantial shifts]
“I’ve been waiting my entire career for a piece of legislation like this,” Aliya Haq, vice president of U.S. policy and advocacy at Breakthrough Energy, said by phone. “The bill is certainly the biggest piece of climate legislation to come out of Congress ever.”
Noting the Biden administration set a goal to cut emissions 50 to 52 percent by 2030 from 2005 levels, she said the legislation “puts us in striking distance of that goal” and would empower the U.S. in climate talks with China, European nations and other heavy emitters.
Passage is not certain. Sen. Kyrsten Sinema, D-Ariz., who has withheld her support from the previous budget reconciliation packages, which also would have required yes votes from every Senate Democrat, has not endorsed the new legislation.
If Democrats in Congress and the White House can shepherd the bill through both chambers on Capitol Hill they will achieve something administrations have sought for decades but never met: a wide-reaching federal climate law.
“We’ve been basically waiting for this shot for 12 years,” Haq said, referencing the most recent effort in 2009. “I feel cautious hope that we might actually have a shot.”
Goals
John Larsen, a partner at Rhodium Group, an independent policy research firm, told reporters that without the new bill becoming law, and taking into account all active federal and state policies, the U.S. is on track to cut 24 to 35 percent of its emissions by 2030, from 2005 levels.
With the bill enrolled into law, cutting emissions 40 percent “is entirely within the realm of plausible,” Larsen said.
Larsen and other experts said provisions in the bill would lower gasoline and other energy costs, which have spiked in recent months, by providing tax incentives for deploying technology and equipment to wean consumers off fossil fuels, such as electric vehicles, heat pumps, energy-efficient house materials and induction cooking supplies.
Without significant intervention or change, Rhodium doesn’t forecast energy prices changing for the rest of the decade, Larsen said. “Under current policy with no action, we don’t see that story changing substantially until the end of the decade. Meaning energy costs don’t come back to 2021 levels until the end of the 2020s,” he said.
Core to the bill is a series of financial incentives, such as 10 years of tax credits for consumers to make homes more energy efficient; $9 billion for home energy rebate programs for the public, focused on the poor, to “electrify home appliances;” and tax credits for the production of wind and solar power and battery storage technology.
It also includes tax credits to purchase “clean vehicles” that run on electricity and fuel cells powered by hydrogen. The tax breaks could be worth up to $7,500.
This suite of measures would help blunt economic pain for American consumers, said Gernot Wagner, a climate economist at Columbia University. The name for the new bill, the Inflation Reduction Act, “is 100% accurate: Clean energy investments are anti-inflationary,” he said. “The remedy for ‘fossilflation’ is to get off fossil fuels.”
Electric vehicles
Leah Stokes, a political science professor at the University of California, Santa Barbara, and an adviser to the climate group Evergreen Action, told reporters electric vehicles could become the de facto choice for the public if Biden signs this bill into law.
Electric vehicles, or EVs, cost the equivalent of about $1 per gallon to run, she said. “This will really make EVs the default choice for everyday Americans.”
Electric vehicles comprised 5 percent of new car sales during the first quarter of this year. “The proposed tax credit will make electric vehicles more affordable to a mass audience, accelerating the adoption rate at the critical point when EVs are moving from early adopters to the mass market,” said Bruce Usher, a professor at Columbia’s business school.
Erin Duncan, vice president of congressional affairs for the Solar Energy Industries Association, a trade group, said the bill would help U.S. solar companies, which have historically relied on East Asian nations for components and raw materials, expand production domestically.
Dropped from the legislation passed by the House is an investment tax credit for electric transmission projects. That may not make a notable difference in the deployment of low-carbon electricity sources, Larsen said. “There are other assets that can be deployed,” he said, mentioning battery storage in particular.
He also said the so-called 45Q tax credit for carbon capture technology in the bill, named after the section in the federal tax code, could open up chances to cut emissions in hard-to-reach corners of the U.S. economy, such as cement manufacturing, steel production and refining.
Also folded into the text is a price on the emission of methane — a highly potent greenhouse — a concept that has some buy-in from large oil-and-gas companies like Exxon Mobil Corp. and BP.
The methane fee included in the House version drew criticism from Manchin and a handful of House Democrats, including Texas Reps. Henry Cuellar, Filemon Vela and Vicente Gonzalez.
Jonathan Foley, executive director of Project Drawdown, a climate nonprofit, said in an interview the legislation is different from previous attempts in Congress because costs for low-carbon energy solutions have come down in price and it focuses on encouraging the rollout of climate-friendly energy options rather than penalizing polluting industries with a federal tax.
“I really like the approach the bill is taking,” Foley, a climate scientist, said by phone. This tactic that focuses on cost savings for the public rather than taxing pollution is savvier than previous approaches, he said. “It’s about ‘Let’s put money in the pockets of Americans,’” he said. “I think that’s a lot more palatable and a lot smarter.”
The Manchin bill comes with guardrails. It would only allow the Interior Department to issue rights to solar and wind companies to develop projects on federal land over the next 10 years if it had also held lease sales for oil and gas extraction.
Schumer told reporters July 28 that he and Manchin had disagreed on electric vehicle and offshore drilling provisions in the bill. “Sen. Manchin wanted certain things in the bill that the vast majority in our caucus didn’t want. But we had a North Star: 40 percent reduction in carbon,” Schumer said.
Haq and Robin Millican, director of policy and advocacy at Breakthrough Energy, said provisions in this bill could complement elements of the bipartisan infrastructure law.
That law set aside funding for demonstration projects for nascent energy options, such as hydrogen, batteries and direct air capture, which collects and traps carbon already in the atmosphere. With its tax incentives, the new legislation could anchor the advent of these and other new energy technologies that have never been broadly put into use.
“This is really creating a vision for a new economy,” Millican said. “Here are the tax credits to make us get there.”
Lindsey McPherson contributed to this report.
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