Just after we went to press last week, the US Senate finally came to an agreement on energy spending, with $369 billion allocated from a $739 billion plan. Democrats want to hold a Senate vote this week, but the budget reconciliation process will allow Republicans to stage delays and propose amendments.
The bill, renamed from Build Back Better to the Inflation Reduction Act, is a mere shadow of the $3.5 trillion, then $2.2 trillion, then $1.75 trillion stimulus package proposed last year, which was to have included $555 billion for clean energy and climate change. The Inflation Reduction Act instead offers $369 billion for “Energy Security and Climate Change,” making energy the one category which largely survived.
The rest of the bill consists of $300 billion allotted to deficit reduction – “America cannot spend its way out of debt or out of inflation,” says Senator Manchin – and $64 billion for an Affordable Care Act extension. This is all to be funded with new corporate tax measures, including a 15% corporate tax rate minimum which survived from the original proposals, all over a 10-year time frame.
After months of refusal and criticism from Senator Manchin, which then lapsed into long periods devoid of negotiations, it is something of a surprise to see anything passed at all. The deal is a victory for the Democrats as they head toward tough midterm elections in November. Criticized by its base for not delivering on central campaign promises, the Biden Administration can now proceed with some level of reform on climate legislation, taxation, and social spending.
As for Senator Manchin, who has delayed and reduced this bill for the past eleven months, he has a political tightrope to walk. He is a Democrat in West Virginia, where President Trump received 68% of the vote in both 2016 and 2020. Senator Manchin’s own margin of victory shrank to 3 points in his 2018 re-election, but now he has things to bring to the table for a 2024 re-election – a completed Mountain Valley pipeline in the state, $4 billion assigned to “coal communities” – West Virginia has those. Not to mention his family’s coal brokerage, from which he drew $500,000 in income last year.
Senator Manchin has a stranglehold on legislation only while the Senate is split 50-50, which it won’t be in a hundred days’ time. He needed a bill passed less than the Biden Administration did, but to refuse to pass anything would have been to waste that leverage. The longer the Senator held out, the more concessions the White House made, and so now we have $369 billion of energy spending within which the climate change agenda is heavily polluted under the banner of Energy Security – though it is still the largest such spend in history.
As for Senator Sinema, the other recalcitrant who stalled Build Back Better last year alongside Manchin, she does not appear to be much in evidence. Arizona is a swing state and Sinema has most likely done too much to anger her Democrat base already.
Senator Manchin’s statement of support for the bill explicitly criticizes the Biden Administration’s past restriction of domestic oil production. Moreover, Manchin states that “President Biden, Leader Schumer and Speaker Pelosi have committed to advancing a suite of commonsense permitting reforms this fall that will ensure all energy infrastructure, from transmission to pipelines and export facilities, can be efficiently and responsibly built to deliver energy safely around the country and to our allies.”
With this bill, the Biden Administration’s 2030 emissions target has shrunk from the 50% reduction from 2005 levels promised in 2021, to 40%, which is equivalent to an around 25% emissions reduction from 2019 figures. Without any new spending, things would be even worse on that front.
New leases for oil and gas will be opened up across the USA, from the Gulf to Alaska, with the Interior Department required to offer two million acres of public land onshore (twice the area purchased annually for such purposes since 2009), and 60 million acres offshore, to oil and gas leasing each year for the next decade, as a pre-requisite to granting public land access to utility-scale solar and wind projects. Darren Woods, CEO of ExxonMobil, has called the legislation “A step in the right direction.”
Having said that, the bill has considerable renewable energy spending too. Renewable subsidies will be strengthened, including up to $7,500 for clean vehicle purchases, which was crucially lacking in the Infrastructure Bill. New and expanded Production Tax Credit (PTC) and Investment Tax Credit (ITC) funds will go to solar, wind, energy storage, geothermal, biogas, clean hydrogen, and nuclear power.
Residences will receive $10 billion for energy efficiency improvements, while the Department of Energy is assigned $3 billion for transmission – $2 billion for “national interest corridors,” $760 million for interstate lines, and $100 million of interregional and offshore planning and analysis.
Funding extends also to renewable energy manufacturing, to the tune of over $60 billion. That includes $10 billion in investment tax credits, for factory investments, $22 billion for new and retooled clean vehicles factories, $30 billion in production tax credits – and $2 billion for National Labs research.
Senator Jon Ossoff’s Solar Energy Manufacturing for America (SEMA) Act provisions, proposed separately in 2021 and then rolled into Build Back Better, are present in the Inflation Reduction Act. This still stands at $3 per kilogram polysilicon, $12 per square meter of wafer, $40 per kW of cells, and $70 per Watt of modules. To dig a little into how generous that is, the polysilicon subsidy would wipe out more than half of the electricity cost of manufacture. Electricity is the majority of polysilicon’s marginal production cost, at least when silicon powder is not in short supply. By itself, the Inflation Act is not enough to foster a fully-verticalized solar supply chain – it will only result in more cell and module factories – but it is a big step in that direction.
First Solar, the US major solar manufacturer, saw its share price rise by 33% with the bill’s announcement, and its CEO has said it will consider expanding its production within the US should the manufacturing credits be passed into law. Even NextEra Energy, as much lauded solar and wind enthusiast saw a 5% share jump.