Despite compromise, oil, gas bemoans climate bill while renewable groups rejoice

Although some climate advocates derided the Inflation Reduction Act for offering "handouts" to the oil and gas industry, several clean energy groups scored the massive climate investment deal as a win, while fossil fuel lobbying arms contended that it remained a threat to domestic production.

Vice President Kamala Harris cast the tie-breaking vote Aug. 7 to advance the budget reconciliation package(opens in a new tab)—with nearly $370 billion in climate and energy spending—to the US House of Representatives. That chamber is slated to return from recess Aug.12 to take up the measure.

Renewable energy sources will benefit from the bill, with energy prices falling as clean energy capacity increases, said Morris Greenberg, senior manager of North America power analytics with S&P Global Commodity Insights, in an initial reaction to the energy supply components of the bill.

"Assuming the industry can overcome supply bottlenecks, siting challenges, and transmission constraints, the legislation will lead to significantly stronger investment in clean energy," he said Aug. 8.

Solar and energy storage projects will likely benefit initially, given their position in the interconnection queues, but wind may "see a larger impact, benefiting from restoration of the full production tax credit and developments in long-duration storage," Greenberg said.

Oil, gas concerns

Oil and gas industry groups acknowledged there were some positive elements in the bill for companies they represent but overall deemed the bill deleterious to efforts to rein in high energy and fuel prices.

"While the Senate failed to address concerns with the IRA that will hurt American energy producers and drive up energy costs for the American people, the House has an opportunity to protect American competitiveness by voting 'NO' on this bill," American Exploration and Production Council CEO Anne Bradbury said Aug. 7 in a statement.

A methane fee(opens in a new tab), the alternative minimum tax and federal lands provisions were flagged by AXPC as sections of the bill that would raise energy costs, hurt US competitiveness and threaten energy security.

The American Petroleum Institute was "encouraged" that the bill sought to ensure more oil and gas lease sales and expand carbon capture tax credits, but "we remain opposed to policies that raise taxes and discourage investment in US oil and natural gas," President and CEO Mike Sommers said.

Among the pain points for the oil and gas industry would be an uptick in the cost of production on federal lands and waters as the budget reconciliation package looks to raise revenue through higher oil and gas royalty rates and leasing costs for development.

This has seemingly overshadowed that the bill would reinstate Lease Sale 257, which opened some 80 million acres off the Gulf of Mexico but was canceled by a federal judge over climate concerns. The package also demands that three offshore lease sales take place that was supposed to occur in 2022 but that the US Department of the Interior canceled.

The Senate-passed bill amends a prior draft of the legislation, pushing the year-end 2022 deadline to hold Gulf of Mexico Lease Sale 259 to March 31, 2023, but maintaining the Dec. 31, 2022, deadline for Cook Inlet Lease Sale 258 and the Sept. 30, 2023, deadline for Gulf of Mexico Lease Sale 261.

The bill also requires more acres of public lands and waters to be offered for oil and gas development before any new solar or wind energy projects could be built in those areas.

That provision would likely prevent a complete phase-out of oil and gas lease sales on federal lands and offshore, pushing back on the Interior's July 1 proposal for the 2023-2028 National Outer Continental Shelf Oil and Gas Leasing Program that put the possibility of zero lease sales over that five-year period on the table.

In a sharp rebuke to that provision, the Center for Biological Diversity went as far as calling the measure "a climate suicide pact."

But UC Berkeley School of Law professor Eric Biber noted in a blog post that "there is no requirement that the areas offered for lease are actually successfully auctioned off," and "the minimum acreage requirements in the provision are actually lower than the acres offered for onshore auctions since 2009 ... and are about average for offshore sales."

About 7% of US oil production and 8% of gas output is produced on federal onshore lands, while federal offshore acreage accounts for about 16% of US oil output and 3% of gas output, according to Interior.

Renewables support

Clean energy groups generally shrugged off the fossil fuel-friendly elements of the package, determining that those sacrifices to secure support from Senator Joe Manchin, Democrat-West Virginia, were worth it to ensure Senate passage of the historic climate investment deal.

"We can absolutely live with this," Abigail Ross Hopper, president and CEO of the Solar Energy Industries Association, told reporters Aug. 8. "We're focused on ensuring that as much solar deployment happens as possible, happens as smoothly as possible, and we will compete with whatever technology sources are out there."

The bill garnered support from Edison Electric Institute President Tom Kuhn, who praised lawmakers for negotiating a solution that "works best for the American people."

"This monumental legislation provides much-needed certainty and will help electric companies reach a clean energy future faster, without compromising on the reliability and affordability that customers value," Kuhn said.

Various renewable energy trade groups praised the bill's funding for climate and clean energy programs to help deploy clean energy sources, support new jobs in the sector, and put the US on track to reducing economy-wide emissions by 40% by 2030.

"This is the vote heard around the world," said Heather Zichal, CEO of the American Clean Power Association. "This is a generational opportunity for clean energy after years of uncertainty and delay."

Two industry groups also praised the bill's inclusion of new provisions for electric cooperatives. National Rural Electric Cooperative Association CEO Jim Matheson noted that the bill included "crucial new tools" for cooperatives, including a direct payment option for tax incentives that can help communities deploy nuclear, carbon capture, and energy storage technologies.

"Making federal energy tax incentives available to all utilities, including public power and rural electric cooperative utilities that serve nearly 30% of all US retail customers, will ensure that American energy stays affordable, reliable, clean, and secure," added Joy Ditto, president and CEO of the American Public Power Association.