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Thirteen years is a long time in the climate policy world — but that is how long advocates of climate action have been waiting for another chance at implementing sweeping federal legislation to address U.S. greenhouse gas emissions. Back in 2008-2009, negotiators were working to replace the expiring Kyoto Protocol, Europe adopted a major climate and energy package to achieve emissions, renewable and energy efficiency targets and Barack Obama had been elected president with expectations of climate action. In June 2009, the Waxman Markey Bill passed the U.S. House of Representatives by a very slim margin and included a framework to drive change through subsidies, renewable electricity standards, and an economy-wide carbon cap and trade system. It never made it further.

By the end of 2009, many major economies, including the U.S., had agreed to the Copenhagen Accord and essentially the entire world has since agreed to the Paris Agreement. Recognizing the challenges of passing climate legislation, the Obama Administration tried to make progress via a regulatory approach. But those regulations needed to withstand legal challenges —and in 2016, the Supreme Court stayed the Obama Administration’s ambitious Clean Power Plan for decarbonizing the power sector. In July 2022, the US Supreme Court’s West Virginia vs. EPA decision closed that door further —limiting regulatory options to set climate policy absent “clear congressional authorization” or legislative intent. SPGI Commodities Insights forecasts were indicating the U.S. falling far short of its aggressive 2030 Paris Agreement targets.

Since the Russian invasion of Ukraine, the EU has sought to meld its ambitious “Fit for 55” decarbonization goals for 2030 with the need to address near-term concerns around energy security and a lasting cutback of Russian fossil fuel imports. Commodity Insights forecasts indicate that China’s plans and directives will achieve their goal of peaking country-level GHG emissions by 2030. Meanwhile, the U.S. was offering another reminder of how a divided electorate and the checks and balances of government can lead to policy paralysis.

One month later —after intense public and private negotiations and compromises, and by the slimmest of margins, Congress passed and President Joe Biden signed the Inflation Reduction Act. The bill provides $369 billion in meaningful incentives for clean technologies such as wind, solar, storage, hydrogen, nuclear, carbon capture, and biofuels that will drive energy sector transformation and emissions reduction. Instead of a structure built on carbon trading and pricing, the IRA looks to leverage federal funding and tax policy to drive private sector clean energy investment, building on the successful track record of tax credits for wind and solar. Instead of trading carbon allowances, project developers and financiers will need to be engaged in markets for tax equity — which will need to scale up.

Instead of a carbon bill, the IRA offers comprehensive industrial policy, which through implementation will bring about emissions reductions. Concerns about budget deficits would be in part offset by increased corporate taxes. Concerns about jobs and the disadvantaged would be addressed by apprenticeship and locational project requirements. The bill looks to ensure reliable clean energy supply chains by tying the full value of tax benefits to materials sourcing and manufacturing requirements. For those concerned about an overly rapid transition, the bill reopens some leasing for fossil fuels and facilitates long-stalled pipelines — although a methane fee will help ensure cleaner upstream supply.

The IRA benefits a full spectrum of clean energy, extending long-running programs for wind and solar and EVs. It also bolsters programs for carbon capture and creates new programs for low carbon hydrogen, stand-alone energy storage and existing nuclear. The incentives will not only ensure that new capacity is clean, but will replace existing emitting capital stock —including accelerating coal plant retirements.

The new law did leave other clean energy issues unresolved. Direct incentives for transmission buildout —critical for moving power from areas of cheap clean energy to demand centers — did not make the final bill. Without a carbon price, investments may not be fully “carbon-efficient.” It is unclear whether some of the hurdles for qualifying for credits, including domestic sourcing and employment considerations, are achievable. It is also uncertain whether clean energy supply chains are ready to meet the expected additional demand. There is no funding provided for international climate financing efforts, nor is it clear how U.S. efforts would fit into considerations of Article 6 or border carbon adjustments. But after 13 years, the U.S. can for the first time begin relying on a comprehensive, federally-driven policy to channel investments, transform the sector, and drive down emissions — all while bringing aspirational Paris Agreement targets more firmly into the realm of achievable.

Roman Kramarchuk
Head Future Energy Analytics, S&P Global Commodity Insights

President, S&P Global Sustainable1

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General Overview

Clean Energy Technology Insight: Inflation Reduction Act Supports Storage, EVs

The Inflation Reduction Act (IRA) is a reconciliation bill that unlocks $370 billion in climate and energy investment in the United States, supporting a diversity of technologies and solutions.

Select climate and energy spending in Inflation Reduction Act

Biden Signs Inflation Reduction Act, Relying On Carrots To Drive Clean Tech Adoption And Decarbonization

On August 16, U.S. President Biden signed the Inflation Reduction Act (IRA). The budget reconciliation bill includes around $369 billion in climate energy provisions, vastly slimmed down from the original proposals in the Build Back Better bill.

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Flood the system: The IRA is a regulatory nightmare that just might work

In a strategic departure from the EU model for catalyzing the energy transition, the Inflation Reduction Act (IRA) opts to passively place immense pressure on regulatory bodies to overhaul tariffs and market structures rather than attempt to micromanage the markets themselves.

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What will the Inflation Reduction Act Unleash Cutting through the fog of enactment with S&P Global

The early August signing of the Inflation Reduction Act into law represented a significant reweighting of US federal energy policy toward renewable energy and cleantech deployment through more than $350 billion in financial incentives.

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Global Power and Renewables Research Highlights, August 2022

On 30 June, the U.S. Supreme Court issued a 6-3 decision limiting the scope of the Environmental Protection Agency's authority to regulate power plant greenhouse gas emissions. The ruling addresses the Obama-era Clean Power Plan, specifically the approach used by EPA to establish the best system of emission reduction.

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Platts Market Data – Energy Transition provides access to the full breadth and depth of our energy transition market data, including contract price assessments.

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IHS Markit Webinar: Financials And The Energy Provision Of The Inflation Reduction Act

We are at the biggest inflection point for the energy sector since the end of the Second World War. The design and timing of the energy provisions in the reconciliation bill passed by the US Senate over the weekend constitute far more than a grab bag of federal government giveaways.

The bill, which will almost certainly be signed into law by the end of this week, leverages market-led investment decisions in a uniquely American way, and at a uniquely American scale, capping two years of global commitments with a carefully constructed incentive structure designed to tip energy markets already in transition into a state of super-charged cleantech deployment.

This webinar discusses how the IRA fits into the broader energy investment context at this point in the transition and how the tax credit provisions reshape the role of the sell side in deploying established and new cleantech.

U.S. Climate Bill Primes Renewables Sector For Private Equity Investment

North America was already seeing rising private equity investment in renewable energy when the Inflation Reduction Act passed in August and added a slew of new, longer-term incentives for projects in the U.S.

The energy and climate provisions of the wide-ranging bill, signed into law Aug. 16 by President Joe Biden, are "changing the landscape" of renewable energy investment by enhancing and extending tax credits, said Michael Masri, a partner at Kirkland & Ellis LLP who specializes in tax law and renewables.

The law targets $369 billion for investing in energy and climate over the next decade. Tax credits for clean energy in the past often had a window of just a year or two.

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Electric Power & Clean Energy Technology

Inflation Reduction Act Will Spark A New Era For Clean Energy Technology In The United States

On 7 August 2022, the U.S. Senate passed a landmark climate and energy bill, which includes a revamped electric vehicle (EV) tax credit. Under the bill, known as the Inflation Reduction Act of 2022 (IRA), the maximum tax credit a consumer can receive for buying an EV would remain at $7,500. Yet the proposed revamped EV tax credit removes a key restriction while adding new ones.

There would be no phaseout mechanism for tax credits once automakers sell 200,000 EVs. However, vehicles would become subject to critical minerals and battery component sourcing requirements — based on country of origin — that become more stringent over time, as well as a requirement that final assembly be in North America. The U.S. House of Representatives could pass the legislation as soon as tomorrow, paving the way for U.S. President Joe Biden to sign the bill into law.

Wind and Solar LCOE Versus Gas Combined Cycle Variable Costs

IHS Markit Webinar: Implications Of The U.S. Inflation Reduction Act On Electric Power

On 16 August, U.S. President Joe Biden signed into law a historic energy and climate package—the Inflation Reduction Act (IRA)—which includes major tax credit provisions to spur clean energy and promote electrification.

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Hydrogen Production Tax Credit Makes Low-Carbon Hydrogen Competitive With Legacy Production

The recently passed Inflation Reduction Act includes a new clean hydrogen Production Tax Credit, or PTC, that Platts Analytics expects to stimulate immense investment in the sector through the 2020s.

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The Inflation Reduction Act: Landmark Climate and Energy Security Bill Sets the Ground for a Massive Increase in CCUS Installations

The IRA is a historical win for clean energy technologies with a significant improvement of economic conditions for emerging technologies like carbon capture, utilization, and storage (CCUS) and hydrogen.

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Oil, Gas & Transport

U.S. EV Tax Credit In The Inflation Reduction Act Bill: Same $7,500 Maximum, Different Restrictions

On 7 August 2022, the U.S. Senate passed a landmark climate and energy bill, which includes a revamped electric vehicle (EV) tax credit. Under the bill, known as the Inflation Reduction Act of 2022 (IRA), the maximum tax credit a consumer can receive for buying an EV would remain at $7,500. Yet the proposed revamped EV tax credit removes a key restriction while adding new ones.

There would be no phaseout mechanism for tax credits once automakers sell 200,000 EVs. However, vehicles would become subject to critical minerals and battery component sourcing requirements — based on country of origin — that become more stringent over time, as well as a requirement that final assembly be in North America. The U.S. House of Representatives could pass the legislation as soon as tomorrow, paving the way for U.S. President Joe Biden to sign the bill into law.

Unlike under the current law, the IRA would allow light EVs produced by all automakers to have the potential to qualify for a tax credit of up to $7,500. Currently, owing to a per-automaker vehicle cap, Tesla and General Motors (GM) vehicles no longer qualify for an EV tax credit, while such an incentive will soon begin phasing out for Toyota vehicles. If the current EV tax credit policy were left unchanged, vehicles from more automakers would become ineligible in the coming years.

Mobility And Energy Future Outlook For U.S. BEV, PHEV, And FCEV Share Of Total LV Sales

Understanding the Importance of Measuring Methane Emissions and its Impact on the Ongoing Energy Transition

As the world continues to transition towards cleaner energy production and consumption, methane, a colorless, odorless flammable gas which is a major component of fossil fuel-derived natural gas will remain a focal point for the foreseeable future as efforts to combat global warming grow.

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Listen: Oil Majors Come Out Ahead On Inflation Reduction Act; Outlook For Independents ‘Not As Rosy’

Oil and natural gas industry groups were not pleased with the Inflation Reduction Act, signed into law Aug. 16, despite some positive elements for the sector, including provisions to ensure more oil and gas lease sales and expand carbon capture tax credits.

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Biden Administration Scores Win In Legal Battle Over Federal Oil, Gas Leasing

A legal victory backing, albeit on a technicality, the Biden administration's moratorium on federal oil and natural gas leasing is unlikely to rattle domestic production or prompt new action by the administration which had already turned to other means to address its concerns with onshore and offshore lease sales.

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The S&P Climate Transition Index Series and S&P Paris-Aligned Climate Index Series measure the performance of eligible equity securities from an underlying parent index selected and weighted to be collectively compatible with a 1.5ºC global warming climate scenario at the index level.

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Biofuels & Ag

Inflation Reduction Act Charts A New Course For U.S. Biofuels Industry

On Aug. 16, U.S. President Joe Biden signed the Inflation Reduction Act of 2022 into law, providing incentives to various sectors, including the biofuels industry. The Act does not replace the existing Renewable Fuel Standard, so the EPA will continue setting volumetric blending mandates each year.

U.S. Refiner Jump on the Renewable Fuel Bandwagon

Sustainable Aviation Fuel A Winner As U.S. Renewable Fuel Producers Embrace Inflation Reduction Act

To U.S. renewable energy producers, the passage of Inflation Reduction Act of 2022 is a dream come true, containing provisions which will help many undercapitalized companies fund increased biofuel industry growth.

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Mixed Reactions From Ag, Nutrition Groups On Inflation Reduction Act, But Nation’s Largest Farm Group Silent

The House cleared Democrats’ Inflation Reduction Act (IRA) Friday (August 12), which includes nearly $40 billion in ag- and forestry-related provisions and while some ag and biofuels lauded the measure the nation’s largest farm group has yet to weigh in.

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Legislation and Regulation

Power Sector Focusing On Federal Agencies Following Major Laws

In the wake of a historic U.S. climate law, further federal action to curb planet-warming emissions from the U.S. power sector could largely play out at administrative agencies over the second half of President Joe Biden's first term.

Major U.S. Energy Laws

IRA Bill Could Be Top Target Of Republican Oversight Agenda

Should Republicans reach a majority in the U.S. Congress in the November midterm elections, the party could put Democrats' energy and climate policies under intense scrutiny — even as obstacles remain to advancing major Republican goals in that space.

Although Democratic President Joe Biden could veto any Republican-sponsored bills that threaten his agenda, tough oversight from a Republican majority could target implementation of the Inflation Reduction Act, with its billions in energy and climate spending.

A Republican-led House or Senate could also ratchet up scrutiny of federal agencies such as the Environmental Protection Agency at a time when the Biden administration is seeking to complete a suite of regulations to fulfill its greenhouse gas reduction goals.

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