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Congress Approves $369 Billion in Climate Spending, Commits to Expedite Environmental Permitting

on Tuesday, 16 August 2022 in Dirt Alert: David C. Levy, Editor

On August 16, 2022, President Joe Biden signed the Inflation Reduction Act of 2022 (“Act”) into law. The Act makes major changes to prescription-drug pricing, corporate taxes and climate change. (For the Act’s implications to corporate tax, see our Inflation Reduction Act – Key Tax Provisions article.)

Most new spending under the Act, about $369 billion, will go to renewable energy, zero-carbon transportation, clean manufacturing and nature-based climate investments. In particular, the Act allocates:

  • $43 billion to expand manufacturing for clean energy, including manufacturers of wind turbines, solar panels, and batteries;
  • $30 billion for states and electric utilities to transition to renewable-energy sources;
  • $32 billion for climate-smart agriculture, forestry and ethanol production;
  • $27 billion for a clean-energy-technology accelerator to support emissions‑reduction technologies;
  • $20 billion in loans to build new electric-vehicle manufacturing facilities;
  • $10 billion to improve energy efficiency in housing; and
  • $60 billion for environmental-justice investments, which counties, municipalities, and local agencies can apply to receive as grants.

The Act also establishes a series of tax credits to incentivize the above initiatives. Consumers, for instance, may qualify for a $7,500 tax credit to buy a new electric vehicle or $4,000 for a used electric vehicle. Consumers may also qualify for up to 10 years of tax credits to install energy-efficient appliances or fixtures.

To incentivize renewable-energy development, the Act extends and enhances the Investment Tax Credit (“ITC”), the Production Tax Credit (“PTC”), and the Carbon Capture Tax Credit (“CCTC”). The ITC provides a tax benefit for investments in property for certain energy feedstocks. 26 U.S.C. § 48. The PTC, in turn, provides a credit based on the property’s use for generation. § 45. The CCTC provides a credit for carbon capture and underground storage. § 45Q.

The Act extends the ITC and PTC through 2024 and the CCTC through 2033. Beginning in 2025, it converts the ITC and PTC to emissions-based, technology-neutral tax credits that any power generator can utilize so long as it is net zero. While recipients of the ITC or PTC could previously only sell their credits to other co-owners of the facility, the Act permits them to sell the credits to unrelated third parties for cash. The Act also lowers the thresholds at which carbon capture qualifies for credit and decreases the maximum value reduction for the use of section 45Q credits in conjunction with tax-exempt bonds. These changes may drive additional investments into renewable energy and carbon capture, including in states like Nebraska and Iowa.

According to its proponents, the Act will reduce 2030 greenhouse-gas emissions 40 percent below 2005 levels. But the Act is narrower in scope than the Build Back Better plan Congress considered last fall. Build Back Better would have provided over $555 billion in climate-related spending. It failed to gain majority support in the Senate.

This time, the Act garnered the support of 220 Representatives and 50 Senators, plus Vice President Kamala Harris as tiebreaker. To secure that support, Senate Majority Leader Chuck Schumer reportedly agreed to support legislation this fall expediting pipeline permits under section 401 of the Clean Water Act. 33 U.S.C. § 1341. (We analyzed that provision in our Supreme Court Reinstates Trump Rule for State Certifications under the Clean Water Act article.)  Section 401 gives states and tribes approval authority over pipeline projects that discharge into waters of the United States. Senator Schumer will reportedly push legislation this fall requiring states and tribes to exercise that approval authority within one year of a request.

The Act has now gone into effect. Attorneys at Baird Holm specialize in all aspects of renewable energy development. Please do not hesitate to contact us if you have questions about the Act or any related matter.

Hannes D. Zetzsche

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