U.S. Sen. Joe Manchin's concerns over climbing inflation rates have further clouded the outlook for a massive package of clean energy tax breaks that the power industry has been promoting as part of a possible new budget reconciliation bill.

Those concerns could cause Democrats to miss their target of advancing a reconciliation bill before Congress' August recess. Democrats may also need to pursue a smaller package of clean energy incentives and rely on executive action from President Joe Biden to advance their climate goals, lawmakers and policy experts said.

Manchin, a moderate Democrat and key swing vote in the evenly divided Senate, said during a July 15 interview with West Virginia media outlet MetroNews' Hoppy Kercheval that he wanted to see what U.S. inflation figures do in July before deciding on the size and scope of a possible reconciliation package. On July 13, the U.S. Bureau of Labor Statistics reported that the consumer price index climbed 9.1% year over year in June, up from the May annual increase.

In terms of moving ahead on reconciliation, "I can't make that decision basically on taxes of any type and also on the energy and climate [provisions] because it takes the taxes to pay for the investment into clean technology that I'm in favor of," Manchin said.

And although the senator supports the development of clean energy technologies, Manchin said increased, albeit cleaner, fossil fuel production is key to the country's energy and climate policies.

"If we want to decarbonize, then we want to produce more fossil cleaner than anyone in the world and replace the dirty fossil that's going into the atmosphere," Manchin said.

The comments came after The Washington Post reported July 14 that Manchin would not support a reconciliation bill that contains new spending on climate change or new tax increases for wealthy individuals. The publication cited two people familiar with the matter who spoke on the condition of anonymity.

Delays likely

Waiting for new inflation figures to come out next month would upset Senate Democratic leaders' hopes to act on reconciliation before Congress starts its monthlong summer break in August. Democrats have until the end of the current fiscal year, Sept. 30, to enact a reconciliation bill, leaving a narrow window for action.

More crucially, if inflation does not improve, Manchin may be unwilling to support Democrats' hopes to salvage much of the more-than $300 billion in clean energy tax breaks that Democrats in the U.S. House of Representatives included in the Build Back Better Act they passed in late 2021. The tax package spanned 10 years and included new and prolonged credits for wind and solar energy projects, nuclear plants, long-distance transmission lines and hydrogen production.

The Build Back Better bill stalled in the Senate due to opposition from Manchin and the upper chamber's entire Republican caucus due to the bill's total price tag, but Manchin had expressed support for the House bill's climate provisions. However, Manchin's concerns over inflation have thrown cold water on recent talks with Senate leadership on a new way forward on reconciliation, leaving climate action advocates looking at potential alternative paths for policies to reduce planet-warming greenhouse gas emissions.

Reconciliation bills only need support from a simple majority in the 100-seat Senate, but such legislation cannot move forward without Manchin's backing, given the lack of any GOP support.

If hopes for a bigger climate package are dashed, Democrats could try to move a slimmed-down and shorter-term measure to extend and expand clean energy credits during the "lame duck" session of Congress after the November midterm elections.

"We think bipartisan support is feasible, but the clean energy credits could be an order of magnitude less (in terms of value) and shorter (in terms of duration) than what a mini-[Build Back Better Act] might have delivered," Clearview Energy Partners LLC said in a research note.

Even a smaller package could provide "nice enhancements" to credits for renewable energy and carbon capture and sequestration as well as incentives for hydrogen production, said Sasha Mackler, energy program director for the Bipartisan Policy Center. But the length of those credits is likely to be smaller than what the Build Back Better Act proposed.

"If you look historically in the traditional tax extenders context, Congress usually gives a couple of years at a time," Mackler said in an interview. "So I think that's probably the starting point for negotiations."

Calls for executive action

In a July 15 statement, Biden promised to use his presidential powers to propel climate action.

"Let me be clear: if the Senate will not move to tackle the climate crisis and strengthen our domestic clean energy industry, I will take strong executive action to meet this moment," Biden said.

Environmental groups were quick to renew calls for Biden to declare a national climate emergency, a move that could unlock untapped executive branch powers such as redirecting federal spending toward climate-friendly procurement.

Former President Donald Trump invoked the National Emergencies Act to redirect defense spending to expand the wall along the U.S.-Mexico border, and the climate crisis presents a far more pressing emergency, groups such as the Center for Biological Diversity have been saying since Biden assumed office.

Biden invoked the Defense Production Act in June to accelerate domestic production of solar panels, heat pumps and electric grid equipment, Brett Hartl, the group's government affairs director, said in a July 15 interview.

Declaring a national climate emergency would "light a fire under federal agencies to really accelerate their rulemaking efforts across the board to address climate," Hartl said.

On June 30, the U.S. Supreme Court issued a decision in West Virginia v. EPA that significantly restricted the U.S. Environmental Protection Agency's greenhouse gas authority over existing power plants.

But Hartl said the EPA could move to regulate carbon dioxide as a harmful air pollutant under the National Ambient Air Quality Standards by setting statewide caps on CO2 emissions.

U.S. Sen. Sheldon Whitehouse, D-R.I., released a statement citing a July 1 tweet thread in which the lawmaker listed a series of actions the Biden administration could take in the wake of the high court's decision.

Those actions include a robust federal rule on the social cost of carbon "with broad reach," setting stricter limits on co-pollutants from coal- and gas-fired power plants, issuing stronger emission rules for vehicles, and putting lower emissions "front and center in procurement," Whitehouse said.

Acknowledging that the U.S. Supreme Court "clipped some of the EPA's authority to regulate carbon pollution from power plants," Whitehouse said that is "no reason not to quickly pursue aggressive action on every path available to the executive branch, including paths left open for EPA."

"Executive agencies have well-established authority to regulate criteria air pollutants, hazardous air pollutants, fuel economy standards, energy efficiency, royalty rates and much more," Whitehouse told S&P Global Commodity Insights.

Additional executive actions could include prioritizing and incentivizing renewable energy projects on public lands and waters, Sarah Mason, deputy executive director of advocacy group Clean Energy for America, said in an email.

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