ENB Publishers Note: With the high cost of energy due to the higher renewable price, and inflation caused by printing money for new renewable projects, coal worldwide demand is increasing. We may see coal exports increase from the U.S., so the coal companies in the U.S. may actually benefit from the world market.
On Aug. 16, U.S. President Joe Biden signed the Inflation Reduction Act, or IRA, into law. The IRA includes nearly $370 billion in federal spending for decarbonization efforts over the next decade. While the bill is expected to reduce the U.S. budget deficit by about $300 billion and expand healthcare benefits, the bulk of funding under the new law will go toward clean energy technology.
The legislation, which passed the House of Representatives on Aug. 12, in a straight 220-207 party-line vote, includes funding to support clean energy and transportation, renewable energy, and U.S. electric grid expansion. Some of the funding comes in the form of new tax credits for nuclear plants, energy storage and hydrogen.
According to an independent analysis from Princeton University, the provisions of the law could help the U.S. with a 40% cut to economywide emissions by 2030, relative to 2005 levels. Under the conditions of the Paris Agreement on climate change, the U.S. is required to halve its emissions by 2030. The gap between projected emissions reductions under the law and emissions targets has drawn scrutiny from environmental groups.
The bill will hasten the further development of wind and solar energy in the U.S. By extending tax credits over the longer term, the wind and solar industry can avoid the uncertainty that temporary tax credits have created for the industry in the past. This sends a clear signal to potential investors that returns from clean energy technologies are reliable over the longer term. Other clean energy technologies, such as nuclear, carbon capture and geothermal, will also receive funding in the form of tax credits. As mentioned in a previous Daily Update, the IRA includes support for hydrogen through a new tax credit of $3/kg for low-carbon hydrogen.
In addition to incentivizing energy producers to pursue clean energy technologies, the law also offers consumers a federal consumer tax credit of up to $7,500 on new electric vehicle purchases from U.S. automakers. Many of the law’s tax credits, like the EV subsidies, require companies to meet new domestic sourcing and labor requirements.
However, substantial barriers to new clean energy projects remain. Arduous siting and permitting requirements have delayed a number of projects and further legislative action has been planned to create simpler fast-track approvals.
Under the new law, some large U.S. utilities have expressed increased interest in expanding renewable energy generation. According to S&P Global Commodity Insights, Constellation Energy Corp. President and CEO Joseph Dominguez said the package of nuclear tax incentives included in the IRA should increase the company’s value.
Not everyone in the energy sector wins under the new law though. Surprisingly, given the crucial support of Sen. Joe Manchin of coal-producing West Virginia, coal stands to lose out.
“Coal’s share in U.S.-installed capacity has already declined by 30% during the past decade. The IRA is expected to accelerate retirements substantially as renewables reduce the revenue available to thermal plants,” said Xizhou Zhou, vice president, Global Power and Renewables at S&P Global Commodity Insights.
