Federal Update – Senate Continues Debate on Inflation Reduction Act
August 4, 2022
With the August recess looming, the Senate this week inched closer to a final vote on a major budget reconciliation bill that includes various climate change, renewable energy, tax, and health care-related provisions. The package, which was once referred to as the Build Back Better Act, was unveiled last week by Senate Majority Leader Chuck Schumer (D-NY) and Senator Joe Manchin (D-WV). Their agreement, which came after Senator Manchin had rejected a previous proposal due to concerns about rising inflation, would slash carbon emissions by an estimated 40 percent (from 2005 levels economy-wide) by the year 2030.
The Manchin-Schumer deal, dubbed the Inflation Reduction Act of 2022, includes nearly $370 billion for a range of tax credits to help stimulate adoption of clean energy technologies. The package also includes a fee on oil and gas companies’ methane emissions. Additionally, the measure would send $60 billion to low-income areas and minority communities that suffer disproportionately from environmental pollution and calls for holding lease sales for oil and gas production on federal land and water.
Aside from the environmental provisions, the Inflation Reduction Act would allow Medicare to negotiate for prescription drug prices while providing three years of subsidies for Affordable Care Act premiums. A previous iteration of the bill would have limited the subsidies to two years.
In its current form, the legislation would raise an estimated $739 billion in revenue by imposing a 15 percent corporate minimum tax, increasing IRS enforcement, reducing Medicare prescription drug prices, and closing the so-called carried interest loophole. Of those savings, $300 million would be dedicated to deficit reduction.
At press time, the package was being reviewed by the Senate parliamentarian. Under the special rules governing the budget reconciliation process, each provision within the legislation must produce a significant effect on federal spending, revenues, or debt. If the parliamentarian determines that key elements of the bill do not abide by the so-called “Byrd Rule,” Democrats may be forced to redraft or drop certain provisions from the final package. Once the review is complete, Democrats will be able to advance the aforementioned reforms with a simple majority vote. As of this writing, Senator Kyrsten Sinema (D-AZ) has yet to endorse the measure, and without her vote, the measure will not advance.
Looking ahead, the expectation is that some version of the legislation will advance in the Senate by this weekend, though the timeline could slip into next week. Once the bill clears the upper chamber, House Democratic leaders will summon lawmakers back from their month-long recess for a final vote.
To follow are select highlights of the Inflation Reduction Act:
Health Provisions
The Schumer-Manchin deal would allow Medicare to negotiate drug prices and would limit Medicare out-of-pocket co-pays to $2,000 annually. In addition, the measure would penalize pharmaceutical companies if the prices of their drugs rise faster than the rate of inflation. The agreement also would extend for another three years the increased premium subsidies for Affordable Care Act coverage for approximately 13 million low- to moderate-income individuals who purchase coverage through a health exchange.
Clean Energy Tax Credits
The agreement includes 10-year extensions of existing credits for wind and solar, as well as provisions for heat pumps, rooftop solar and standalone energy storage, such as batteries.
Electric Vehicles
The measure includes a $7,500 rebate for new electric vehicles (EVs) and a $4,500 tax credit for used vehicles. The package also would set aside financing and credits to promote EV manufacturing. It calls for $2 billion in grants to help convert existing auto manufacturing factories into EV production facilities and $20 billion in loans for new clean vehicle manufacturing sites.
Domestic Clean Energy Manufacturing
The bill includes a five-year, $60 billion production tax credit that would send payments directly to companies involved in clean energy manufacturing. About half of the credits would flow to efforts to spur manufacturing for solar panels, wind turbines, batteries and critical minerals processing. About $10 billion would be dedicated to build clean technology manufacturing facilities.
Environmental Justice
The package includes $60 billion for various environmental justice initiatives. The proposed funding includes $3 billion in block grants to address environmental health problems, $3 billion for creating more access to transportation, $3 billion for improving air quality near ports, and $1 billion for clean heavy-duty vehicles (buses, garbage trucks, etc.).
Drinking Water and Endangered Species
The legislation would provide $550 million in grants and other financial support for disadvantaged communities to help them access potable drinking water supplies. The bill also includes funding for the U. S. Fish and Wildlife Services (FWS) to develop and update Endangered Species Act Recovery Plans, address the threat of invasive species, and increase the resiliency and capacity of habitats and infrastructure to withstand climate-induced weather events.
Methane Fee
Under the bill, oil and gas companies that emit more than 25,000 metric tons of carbon dioxide annually would be fined beginning in 2025, if their methane leakage rate exceeds a certain threshold. The fee would escalate over time from $900 per metric ton of emissions to $1,500 beginning in 2027. The package gives EPA more than $1.5 billion through fiscal year 2028 to help companies reduce methane emissions, such as providing technical assistance to improve greenhouse gas reporting, shut-in wells, and deploying methane-reduction equipment and processes. It also would let companies that comply with any future federal methane rules to avoid paying the fee, so long as those regulations achieve the same amount of emissions reductions.
Offshore Wind
The package includes new measures that would tie offshore wind leasing to previous auctions for oil and gas. The bill would put in place a 10-year window in which a lease for offshore wind development could not be issued unless an oil and gas lease sale has been held in the year prior and is not less than 60 million acres. It also would withdraw the Trump administration’s moratorium on offshore wind leasing in the southeastern U.S. and eastern Gulf of Mexico.
Defense Production Act
The legislation includes $500 million in funding to support President Biden’s use of the Defense Production Act to produce heat pumps and spur critical minerals processing projects.
Green Bank
The agreement includes $27 billion for a clean energy technology accelerator to support deployment of emission-reduction technologies, especially in disadvantaged communities. The program resembles the national green bank that had emerged in earlier iterations of the bill.