On July 27, Sen. Joe Manchin (D-WV) and Senate Majority Leader Chuck Schumer (D-NY) announced a surprise agreement on a roughly $750 billion tax, energy and health care package including $370 billion in energy security and climate investments. The agreement comes following weeks of negotiations on a budget reconciliation deal that advances President Biden's policy agenda without significantly increasing inflation. The senators reached a compromise and introduced the Inflation Reduction Act (IRA) of 2022. The bill seeks to reduce greenhouse gas emissions by around 40% by 2030. Energy and climate provisions in the new package would represent the largest climate investment in American history. This memo outlines the new energy policy (Section 1) and related energy tax provisions (Section 2) within the bill.

The path forward for the proposed bill is currently unclear. Procedurally, the proposal must be reviewed by the Senate parliamentarian. Additionally, Sen. Kyrsten Sinema (D-AZ), who was heavily engaged in reconciliation discussions late last year, has not yet commented on the proposal. Beyond Sinema, passage of the bill will require the support of every Senate Democrat and almost every Democratic representative. The Senate is scheduled to begin its August recess at the end of this week, so it is unknown when Congress may consider the bill.

The full bill text is linked here.

Section 1: Non-Tax Energy and Climate Provisions

Onshore Oil and Gas

  • Increases the minimum onshore oil royalty rate to 16.66%, up from 12.5%.
  • Requires the administration to offer 2 million acres of federal land onshore for lease annually, or half of all the land nominated for leasing and hold a lease sale within 120 days of issuing any wind or solar rights of way.
  • Increases minimum lease bid and ends provision for non-competitive leasing.
  • Increases annual rental rates for holding a lease.
  • Imposes a new interest fee for leasing of $5 per acre.
  • Increases minimum financial requirements for bonding.

Offshore Oil and Gas

  • Validates offshore oil and gas lease sale 257 and requires three more lease sales to take place by the end of 2023.
  • Requires the administration to conduct an oil and gas sale of at least 60 million acres in order to issue any offshore wind leases the following year.
  • Mandates offshore oil and gas lease sales in the Gulf of Mexico and off the coast of Alaska. Specifically requires offshore lease sales 258, 259 and 261 to be held. Sets offshore royalty rates at no less than 16.66%.

Onshore and Offshore Oil and Gas

  • Creates fees for facilities that emit more than 25,000 metric tons of carbon dioxide annually beginning in 2025 if methane leakage rates exceed a certain threshold. This applies to facilities that support oil and gas production, including transmission, processing, storage or gathering facilities. The bill would allow companies that comply with future federal methane rules to avoid paying the fee as long as the same levels of emissions reduction are reached. The fees would apply as follows:
    • $900 per ton for emissions reported for 2024;
    • $1,200 per ton for emissions reported for 2025; and
    • $1,500 per ton for emissions reported for 2026.
  • $850 million in financial incentives through the Methane Emissions Reduction Program for industry to monitor and reduce methane.
  • Stipulates that royalties will be paid onshore and offshore for all gas produced, including gas that is vented, flared or negligently released. Exceptions are made for releases for health, safety and environment; gas used beneficially within the area of the lease; and gas unavoidably lost.

Offshore Wind

  • Lifts the moratorium on offshore wind in the Southeastern U.S. and Gulf of Mexico.
  • $100 million for offshore wind planning, transmission and development.
  • Provides staffing funding for the Bureau of Ocean Energy Management (BOEM) and the National Oceanic and Atmospheric Administration (NOAA).
  • $20 million for NOAA to expedite permitting and review processes.
  • Allows for leasing in the U.S. territories.
  • Interregional and Offshore Wind Electricity Transmission Planning, Modeling and Analysis

Decarbonization and Emission Reduction

The bill contains a number of provisions that address emissions across all sectors. Some of the new measures include:

  • $27 billion in federal investments through the Greenhouse Gas Reduction Fund to support the deployment of low- and zero-emission technologies. This set aside has been referred to as the "green bank" aimed at deploying clean energy projects.
  • $300 million to carry out a carbon sequestration and greenhouse gas emissions quantification program.
  • $244 million for projects relating to the production, transportation, blending or storage of sustainable aviation fuel.
  • $150 million for carbon sequestration projects through the Office of Fossil Energy and Carbon Management.
  • $1.5 billion for EPA to help oil and gas companies reduce methane emissions through technical assistance to improve greenhouse gas reporting, shut-in wells and deploying methane-reduction equipment and processes.
  • $3 billion to reduce air pollution at ports.
  • $250 million for EPA to develop and carry out a program to support the development, and enhanced standardization and transparency, of environmental product declarations for construction materials and products.
  • $100 million for EPA to develop a program for construction materials used in transportation projects and construction materials used for federal buildings, to identify and label low-embodied carbon construction materials and products.
  • $2.15 billion to be deposited in the Federal Buildings Fund to acquire and install low-embodied carbon materials and products for use in the construction or alteration of buildings.
  • $2 billion in low-carbon transportation materials grants.
  • Allows for FEMA to provide financial assistance for costs associated with low-carbon materials; and incentives that encourage low-carbon and net-zero energy projects.

To read the full article click here

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.