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Inflation Reduction Act of 2022: Energy Security and Climate Change Programs

Senate Majority Leader Chuck Schumer, D-N.Y., and Senator Joe Manchin, D-W.Va., have released a draft of the "Inflation Reduction Act of 2022," which among other things would allocate approximately $369 billion in energy security and climate change programs. The bill would offer significant consumer and manufacturer incentives in the form of grants, loans, and tax credits.

Snapshot of Incentives

Consumer incentives include tax credits for clean and efficient energy, $9 billion in home energy rebate programs, a $4,000-$7,500 tax credit for qualified individuals to purchase zero-emission vehicles, and $1 billion in grant programs for energy efficiency housing projects.

Manufacturer incentives include $60 billion in production tax credits toward qualified clean energy generation and storage and would provide financing to promote electric vehicle manufacturing, including $2 billion in grants to convert existing auto manufacturing facilities into clean vehicle factories and $20 billion in loans to construct new clean vehicle manufacturing facilities. 

The bill would tender grants to facilitate the siting of inter-state electricity transmission lines and would call for environmental agencies to streamline permitting processes. The bill also would offer tax credits for emissions reduction from electricity production and energy storage, transportation, industrial manufacturing, buildings, and agriculture, and would earmark $60 billion to drive investment in disadvantaged communities that have been disproportionately affected by pollution and climate change, including funding for clean and equitable transportation planning, installation of zero-emission equipment and technology at ports, and other community led projects. 

Methane Penalties and Increased Royalties 

The bill would impose a penalty of $900 per metric ton of methane leakage, which exceeds the applicable annual waste emissions threshold for emissions reported for 2024, and $1,500 for the year 2026 and thereafter. The applicable annual waste emission threshold is generally set based on emissions exceeding a designated percentage of petroleum and natural gas sent for sale from the facility, depending on the type of operation. For example, a penalty would be paid for methane emissions exceeding 0.20 percent of the natural gas or 10 metric tons of methane per million barrels of oil sent by an onshore or offshore production facility. Additionally, the bill would increase onshore and offshore royalties from 12.5% to 16.66%, at a minimum. 

Oil & Gas Lease Sales

For a period of 10 years, the bill would dedicate at least 2 million acres of public lands and 60 million acres of offshore waters to oil and gas leasing per year, and would bar wind or solar development leases unless an oil and gas lease sale has also been held during the prior year and meets a specified minimum acreage. Accordingly, the bill would reinstate an 80 million acre offshore oil and gas lease sale in the Gulf of Mexico, which was vacated in federal court due to flawed environmental analysis which did not adequately account for the lease sale's effect on greenhouse gas emissions.

The draft bill is expected to be brought to the Senate floor for a vote on Saturday, August 6, 2022.

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