We begin today a series of four bulletins regarding the American Inflation Reduction Act of 2022 signed into law by President Biden on August 16, 2022. Much of the content is derived from a bulletin published by U.S. environmental law firm Beveridge & Diamond, which we have been authorized to reproduce. We have added comments of our own in brackets or boxes to provide context for a Canadian audience.

The first instalment, released today, includes introductory remarks, key takeaways and action items, and the background of the American Inflation Reduction Act of 2022.

The second instalment will address three categories of the Act’s key climate and energy provisions: Offshore Wind and Federal Oil & Gas Offshore and Onshore, Air & GHG Emissions, and Methane Emissions Reduction Programs.

The third instalment will address the rest of the Act’s key climate and energy provisions: Agriculture & Forestry, Electric Transmission, Advanced Manufacturing and Decarbonization, Alternative Fuel and Low-Emission Aviation Technology Program, Water Infrastructure, Other Climate Provisions, Environmental Permitting and Reviews, and Climate Resiliency.

The fourth and last instalment will address the Act’s focus on Tax credits and provide a conclusion for this bulletin series.

Introductory Remarks

On August 16, 2022, President Biden signed the Inflation Reduction Act (IRA) into law. The IRA includes a host of programs aimed at addressing climate change and energy production. These include, for example, major new or expanded funding to reduce emissions of greenhouses gases (GHGs) such as methane and hydrofluorocarbons (HFCs), to encourage a domestic supply chain for electric vehicles and energy storage systems, to promote agricultural practices that capture carbon dioxide in soils, to expand offshore production of energy (both fossil and wind), and to provide federal support for energy efficiency. The IRA also includes dozens of new and extended tax credits for renewable energy, electric vehicles, electric transmission, and related industries. The IRA is, by far, the most significant federal initiative to address climate change.

Key Takeaways and Action Items

  • Although it significantly pares back both the spending and substantive provisions of the companion Build Back Better bill passed by the House of Representatives in November 2021, the IRA nonetheless is the largest federal response to climate change in history and will set the course for substantial changes in how the nation produces energy over the next decade. Major provisions include:
    • Offshore Wind and Fossil Fuel Production. The IRA would significantly expand offshore leasing for wind energy but would require oil and gas leases to be offered over large tracts of the outer continental shelf as a condition of making wind leases available.
    • Air Emissions. The IRA includes major provisions aimed at reducing GHG emissions, like HFC refrigerants, and emissions of the “criteria” pollutants traditionally regulated under the Clean Air Act.

The “Criteria Air Pollutants," as the U.S. Clean Air Act calls them, are the following six contaminants: particulate matter, photochemical oxidants (including ozone), carbon monoxide, sulfur dioxide, nitrogen dioxide and lead. The U.S. Environmental Protection Agency calls a pollutant a "Criteria Pollutant" because it adopts National Ambient Air Quality Standards for them, which are based on criteria that are themselves based on the most current scientific information regarding health or welfare effects.

  • Methane. The IRA substantially increases support for the U.S. Environmental Protection Agency (EPA)’s existing efforts to address methane emissions and also creates a new system of fees that would impose charges on owners of oil and gas infrastructure if methane emitted from that infrastructure exceeds specified thresholds.
  • Agriculture and Forestry. The IRA includes several programs aimed at reducing GHGs from agriculture, promoting soils- and forestry-based carbon sequestration, and improving the climate resiliency of farms and forests.
  • Alternative Fuels. The IRA would substantially expand federal support for biofuels, sustainable fuels, hydrogen as a fuel, and sustainable aviation fuels.
  • Manufacturing. The IRA provides support for decarbonization of GHG-intensive industries through measures like energy efficiency, transition to low-carbon inputs, and use of materials that capture large volumes of carbon during manufacturing.

The IRA also includes major revisions to the nation’s system of tax credits for renewable energy production, carbon capture and sequestration, and advanced manufacturing. It would extend the existing system of Investment Tax Credits (ITC) and Production Tax Credits (PTC), and it would maintain or increase tax credits for construction using labor that is paid prevailing wages [The expression “prevailing wages” refers to a rate of pay established for certain type of work, mostly public works in certain areas. It is not the same thing as a minimum wage.] with qualifying apprenticeship programs. The IRA would also create several new tax credits, such as for renewable aviation fuels and clean hydrogen. Finally, after 2025, the IRA would phase out the existing system of credits in favor of a new system that would award credits for any technology that produces carbon-free energy and keeps that system in place until the nation’s electricity sector reduces its GHG emissions to 25% of 2022 levels.

Background

The IRA is the long-delayed legislative companion of the bipartisan Infrastructure Investment and Jobs Act (IIJA), the major infrastructure package adopted in November 2021 with significant Republican support in the Senate. The IRA – the Senate response to the more ambitious Build Back Better legislation passed by the House – was adopted on a strictly party-line vote using “reconciliation” rules that permit legislation to be passed without facing a filibuster, but limit the subject matter of such legislation to fiscal matters. The House of Representatives has scheduled a vote on the IRA for Friday, August 12, and it was signed into law by President Biden on Tuesday, August 16.

What is a "filibuster"? Here is how the U.S. Senate’s website explains it:

The Senate tradition of unlimited debate has allowed for the use of the filibuster, a loosely defined term for action designed to prolong debate and delay or prevent a vote on a bill, resolution, amendment, or other debatable question. Prior to 1917 the Senate rules did not provide for a way to end debate and force a vote on a measure. That year, the Senate adopted a rule to allow a two-thirds majority to end a filibuster, a procedure known as "cloture." In 1975 the Senate reduced the number of votes required for cloture from two-thirds of senators voting to three-fifths of all senators duly chosen and sworn, or 60 of the 100-member Senate.

Like the IIJA, the IRA addresses a range of issues related to energy production and climate policy, and sets the stage for major federal involvement in the energy industry aimed at accelerating the transition to low-carbon and carbon-neutral systems of electricity production and electrification of the nation’s transportation system. Many of the provisions also earmark or steer funds toward low-income and disadvantaged communities, building on key environmental justice themes of the Biden-Harris campaign and administration. In addition, many provisions include domestic content requirements aimed at boosting U.S. industries, as well as “prevailing wage” and apprenticeship requirements aimed at promoting union jobs and increasing pay for blue collar workers.

In the next instalment, which we will publish tomorrow, we will address three of the Act’s key climate and energy provisions: Offshore Wind and Federal Oil & Gas Offshore and Onshore, Air & GHG Emissions, and Methane Emissions Reduction Programs.