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COMMENTARY: All Eyes on the Senate This Week – Tim Tarpley

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Analysis by Energy Workforce SVP Government Affairs & Counsel Tim Tarpley

Plans to vote on the large reconciliation package  — Senators Joe Manchin and Chuck Schumer’s “Inflation Reduction Act” — continue to move forward in the Senate with a potential vote possible later this week. Hurdles still remain, because as of writing Sen. Kyrsten Sinema has yet to confirm she supports the package as is. Given that the package will need to pass using reconciliation rules, 50 votes will be required for passage and her vote will be critical.

If the package successfully passes the Senate, it will move to the House, where other hurdles may exist. Some progressives in the House have expressed concerns that the bill is too supportive of continued fossil fuel production, while moderates have expressed outrage that it does not return the ability to deduct state and local income taxes from federal tax returns, a provision that was ended during the last Administration.

Overall, the package is a mixed bag for our sector, with some helpful provisions like tax credits for energy manufacturing and offshore oil and gas lease sale mandates. However, the legislation also contains a new methane fee, as well as increased royalties for oil and gas operations on federal lands.

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What is clear is this package is more favorable than what was originally proposed at the beginning of this process earlier this year. Sen. Manchin has indicated he was promised by Sen. Schumer that a permitting reform proposal would be considered before the end of the year. If this promise holds true, such a proposal could be very beneficial to the U.S. energy industry. However, until details are released and its prospects understood, it is difficult to ascertain how beneficial such a proposal will be. Given the nature of the close margins in the Senate, this deal simply may not hold.

Summary of Current Published Agreement (Details could change) 

Provisions That Will Benefit Sector

  • $370 billion for tax credits for clean energy tech and hydrogen, with CCUS included
  • $60 billion in production tax credits for clean energy manufacturing (direct pay for first five years of project)
  • The Section 45Q Credit for Carbon Capture and Sequestration (CCS) is extended through 2032
  • Enhanced 45Q at $85/ton for industrial facilities/power plants for saline geologic formations, $60/ton for utilization of captured CO2, and $60/ton for enhanced oil recovery
  • $1.5 billion in methane reducing grants (EPA)
  • Oil and gas leasing tied to wind — this will mean if President Biden (or a future President) holds a lease sale for offshore wind, they will have to hold one for oil and gas and vice versa. This will provide long-term stability to both programs.
  • Reinstate oil and gas lease sale conducted in Gulf last year
  • Requires Biden Administration to conduct two new leases in Gulf and Alaska Cook inlet that were cancelled in May
  • $27 billion toward a clean energy technology accelerator

Concerning Provisions

  • $7,500 rebate for new electric vehicles, $4,500 for used vehicles
  • $2 billion in grants to covert existing auto manufacturing into electric
  • $20 billion in loans for new electric vehicles
  • Increased fees for oil and gas companies that emit more than 25,000 metric tons of carbon per year, beginning in 2025, if methane leakage exceeds 10 metric tons per million barrels of oil. Fee is $900 per metric ton in 2025 to $1,500 in 2026. Covers emissions at the wellhead, compressor stations, gathering stations, onshore pipelines and storage facilities.
  • Methane fee has a carve out that if companies follow the forthcoming regulation they do not pay the fee
  • Raises onshore royalty to 16.66% from 12.5% currently
  • Raises offshore to 16.66% from 12.5% currently
  • 15% Corporate Minimum Tax (Starts in 2023)
    • Similar the language from last December and the House-passed provision
    • Applies to corporations with average annual adjusted financial statement income of $1 billion per year (domestic) or $100 million per year (foreign-owned) for a consecutive three-year period
    • Allows 80% of financial statement losses and general business credits
    • Score: House-passed version was estimated to raise $318.9 billion; summary materials here claim $313 billion

If you would like to get involved with Energy Workforce advocacy efforts or the Government Affairs Committee, contact SVP Government Affairs Tim Tarpley.

Tim Tarpley, SVP Government Affairs & Counsel, analyzes federal policy for the Energy Workforce & Technology Council. Click here to subscribe to the Energy Workforce newsletter, which highlights sector-specific issues, best practices, activities and more.

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