IRA

Executive Summary

• The Act is structured as Title -> Subtitle -> Part -> Section. Confusingly, not every Title contains separate Subtitles or Parts, and the number of pages varying between the Titles is substantial.
• Much of the Act amends the tax code of the United States to award credits (in particular, Title I-Committee on Finance). This is a key distinction many people don’t actually understand. In order to be granted a tax credit i.e. have your overall tax liability lowered, you have to actually spend money or earn revenue. It’s not simply a government handout.
• That being said, there are government handouts throughout the Act (mostly in the form of loans and grants), and nearly all of which require a cost share agreement.
• Title I makes up the majority of the bill. Within it,
  • Subtitle A focuses on tax reform;
  • Subtitle B discusses prescription drug pricing reform;
  • Subtitle C makes an adjustment to the Affordable Care Act; and
  • Subtitle D discusses energy.
• The bulk of the energy policy falls into Title I, Subtitle D – Energy Security.
• Much of the Act includes requirements to pay fair wages and hire a minimum quota of apprentices in order to receive the full tax credit.
• The production tax credit for nuclear facilities ($0.003/kWh) only applies to existing plants and not advanced nuclear plants. This is more than a bit puzzling.
• There’s some interesting clauses for clean fuels – up to $1.75/gal tax credits for sustainable aviation fuel and $1.00/gal for other clean fuels (must be made at qualified facilities with wage requirements and apprentices – otherwise the credit is only 20%).
• Title V, Subtitle A, Part 7, Sec. 50173. earmarks $700MM for the development of HALEU fuel. This is critical for the nuclear industry, and frankly it’s not nearly enough.
• $5.8B available in grants through the Office of Clean Energy Demonstrations (Title V, Part 6, Sec. 50161).

Overall Outline

The nine Titles of the Act are listed below. I’ve listed the number of pages included in each Title in order to give a sense of scale of how much material is actually included in each. It would be interesting to correlate page count to dollars out (or in) as a result of the legislation.

Syntax: Titles [Roman Numeral] – Committee on X (Page Start – Page Finish; Total Number of Pages)

I. Finance (1 – 549; 548)

II. Agriculture, Nutrition, and Forestry (549 – 580; 31)

III. Banking, Housing, and Urban Affairs (580 – 583; 3)

IV. Commerce, Science, and Transportation (583 – 595; 12)

V. Committee on Energy and Natural Resources (595 – 673; 78)

VI. Environmental and Public Works (673 – 735; 62)

VI. Homeland Security and Governmental Affairs (735 – 739; 4)

VIII. Indian Affairs (739 – 744; 5)

IX. Health, Education, Labor, and Pensions (744 – 755; 11)

Just for fun, here’s a chart showing the relative page count of each:

Deeper Dive

I dive into each section which I found interesting and relevant to the energy industry. I ordered the sections as follows. Some sections are omitted which I didn’t find interesting or relevant to the energy industry. You’ll notice these also correlate to most of the Titles with the most pages.

I. Finance

• Subtitle A, B, and C – Tax Code Reform
• Subtitle D – Energy Security
  • Part 1 – Clean Electricity & Reducing Carbon Emissions
  • Part 2 – Clean Fuels
  • Part 4 – Clean Vehicles
  • Part 5 – Investment in Clean Energy Manufacturing and Energy Security
  • Part 7 – Incentives for Clean Electricity and transportation

V. Committee on Energy and Natural Resources

IV. Commerce, Science, and Transportation

II. Agriculture, Nutrition, and Forestry

Other Titles

• III. Banking, Housing, and Urban Affairs
• VI. Environmental and Public Works
• VI. Homeland Security and Governmental Affairs
• VIII. Indian Affairs
• IX. Health, Education, Labor, and Pensions

Title I – Committee on Finance

The following sections aim to increase tax revenue and negotiate drug prices.

• Subtitle A – Deficit Reduction
  • Part 1 – Corporate Tax Reform
    • Imposes minimum tax of 15%
    • Applicable corps have $1B in revenue for last 3 years
  • Par 2 – Excise Tax on repurchase of corporate stock
    • Inserts new chapter – chapter 37 – repurchase of corporate stock
    • Taxes 1% of repurchased stock
  • Part 3 – Funding the IRS and improving taxpayer compliance
    • This section dives into how much more the IRS is going to be supported. Lots of info on this elsewhere.
  • Part 4 – Continued delay of implementation of prescription drug rebate rule
  • Part 5 – Miscellaneous
• Subtitle B – Prescription Drug Pricing Reform
  • It’s fascinating and bizarre that this is such a large part of the Act. #Politics. It’s over 130 pages.
• Subtitle C – Affordable Care Act Subsidies
  • Only one page. Adjusts time frame to extend through 2025.

Title I, Subtitle D – Energy Security

This Subtitle deserves its own discussion, as it’s where the majority of content is to redefine the tax codes. Here are my notes:

Part 1 – Clean Electricity and Reducing Carbon Emissions

• Strikes the 1/1/22 deadline for lots of credits and extends it to 1/1/25.
• Extends the production tax credit for clean energy. Includes nuclear.
• Must pay a “fair” wage and hire apprentices in order to receive many of the credits. This language and idea is repeated often throughout the Act. It essentially states that contractors have to be paid at a fair market rate, and states a quota for a minimum number of Apprentices to be working for every employee. Specifically, the taxpayer must employ 1 Apprentice for every 4 other employees. If they don’t, then they’ll pay a $50/hr fine that they weren’t employed.
• Produced in USA: 40% of materials need to be mined, produced, or manufactured in the US. Except Offshore wind facilities – then it can be 20%.
• If less than 1 MW, then applicable percentage is 100%.
• Defines an energy community as a community that is 0.17 percent or greater directly employed or 25% or greater local tax revenues supported by coal, oil, or natural gas; has an unemployment rate at or above the national average for previous year; or after 12/31/1999 a coal mine closed, or after 12/31/2009 a coal fired generator has been retired (there are special clauses for said energy communities.
• Sec 13103. Increase in Energy Credit for Solar and Wind Facilities Placed in Service in Connection with Low-Income Communities
  • Increases the credit by 10 to 20 percentage points
• Sec 13104. Extension and Modification of Credit for Carbon Oxide Sequestration
  • Facility must be built before 1/1/2033
  • If it’s a direct air capture facility, then the threshold is 1000 metric tons of “carbon oxide” during a taxable year
  • If it’s an electricity generating facility, then:
    • Captures >=18,750 of qualified carbon oxide during taxable year and >=75% baseline carbon oxide production OR
    • Captures not less than 12,500 metric tons during a taxable year
  • The dollar amount changed in 45Q(b)(1)(A)
• Sec. 13105. Zero-Emission Nuclear Power Production Credit
  • Adds section for nuke credits at rate of $0.003 per kWh
  • Doesn’t apply to advanced nuclear power facilities
  • Increases with inflation
  • Stops after tax year 12/31/32
  • Goes into effect for electricity sold after 12/31/23

Part 2 – Clean Fuels

• Sec. 13201. Extension of incentives for biodiesel, renewable diesel and alternative fuels
• Sec. 13203. Sustainable aviation fuel credit
  • This section is pretty interesting as it provides credits for sustainable aviation fuel.
  • Max credit is $1.75/gal. Min is $1.25/gal.
  • Has to occur in US.
  • Fuel must meet the requirements of ASTM International Standard D7566 or the Fischer Tropsch provisions of ASTM International Standard D1655, Anex A1, is not derived from co-processing and applicable material (or materials derived from an applicable material) with a feedstock which is not biomass, is not derived from palm fatty acid distillates or petroleum, and has been certified as having a lifecycle greenhouse gas emissions reduction percentage of at least 50 percent.
  • Ends 12/31/24… which is baffling. There’s virtually no time to implement it then if you’re starting from scratch.
• Sec. 13204. Clean Hydrogen
  • The section outlines tax credits for producing clean hydrogen.
  • Has tiers for how clean the production is.
    • 2.5 to 4 kg CO2e / kg H2 –> 20%
    • 1.5 to 2.5 kg CO2e / kg H2 –> 25%
    • 0.45 to 1.5 kg CO2e / kg H2 –> 33.4%
    • <0.45 kg CO2e / kg H2 –> 100%
  • The taxpayer gets a credit for the hydrogen produced. Applicable amount of credit is $0.60/kg * applicable percentage
  • Adjusts for inflation
  • Lifecycle greenhouse gas emissions uses the GREET model (Greenhouse gases, Regulated Emissions, and Energy use in Transportation model) which was developed by Argonne National Lab.
  • Construction must begin before 1/1/33
  • Can’t double count with the carbon capture credit under 45Q
  • Has a chance to quintuple amount (getting it up to $3/kg H2) if you meet requirements of Qualified Clean Hydrogen Production Facility. Requirements:
    • Wage requirements – must pay wages at rates not less than the prevailing rates for construction, alteration, or repaid of similar character
    • Apprenticeship requirements – similar to 45(b)(8)
  • Applies to hydrogen produced after 12/31/22
  • I did some quick math here:
    • 8537.6 kg H2 / 1 MMCF natural gas
    • 1 MMCF * 1,000 MCF / MMCF * 1.015 MMBTU / MCF = 1015.0 MMBTU / 1 MMCF
    • $8 / MMBTU * 1015 MMBTU/ MMCF = $8120/MMCF
    • 8537.6 kg H2 * $3/kg H2 = $25612.8 / MMCF
    • 25612.8 / 1015 = $25.2343/MMBTU
    • Please – someone check my math!
  • Can get tax credit also if you use renewable or nuclear energy to make the hydrogen.

Part 3 – Clean Energy and Efficiency Incentives for Individuals

Has tax credits for individuals to upgrade doors, heat pumps, etc.

Part 4 – Clean Vehicles

Sets a limit for a per vehicle tax credit of $3,750 for critical materials and $3,750 for critical components (so the max tax credit you could receive for a clean vehicle is $7,500).

• Must source minerals from US, any country the US has a free trade agreement in effect, or get the batter and recycle it in North America.
• The amount of minerals or materials sourced varies by year and increases over time.
  • Before 2024: Must be at least 40% of the minerals.
  • Calendar year 2024: 50%
  • 2025: 60%
  • 2026: 70%
  • 2027: 80%
• Battery Components
  • Before 1/1/24, 50%
  • 2024 or 2025, 60%
  • 2026: 70%
  • 2027: 80%
  • 2028: 90%
  • After 12/31/28: 100%
• Don’t get these tax credits if you make more than $150k (individual), $225k (head of household) or $300k (married)
• Also can’t get tax credit if vehicle is super expensive ($80k or $55k)

Commentary: internalizing the implications of this, it’s radically apparent that these tax credits are essentially useless and likely WON’T influence the decision making of consumers or producers of electric vehicles. Why not?

In order to source these minerals domestically, they’ll need to be mined domestically. Consider the reality that under the current US regulatory regime, it’s expected to take 5 to 15 years to permit a new mine (let alone explore, order and construct all the processing equipment, discover customers, set up supply chains, etc.). This is a COMPLETE mismatch with the tiered up standards shown above.

What’s that mean?

It means this simply isn’t going to happen. It’s not going to drive any consumer decisions, because it will be virtually impossible to actually implement in a timely manner. Additionally, the benefit is WAY too small. People will still be able to purchase electric vehicles – they just won’t be allowed to realize the (relatively small) $7,500 tax credit. Also – REMEMBER – this is a TAX CREDIT, not a loan, not a rebate, and not a grant. It simply lowers the purchaser’s tax liability, which for most people below the income threshold won’t be that impactful.

Conclusion: while the thought process behind the tax incentives sounds great, I really don’t believe it will change behavior or increase investment in generating domestic mineral supply chains.

Part 5 – Investment in Clean Energy Manufacturing and Energy Security

This is the part which outlines some egregious and ridiculous tax credits for renewable energy projects. It’s absolutely insane. All of it. The most infuriating part is many politicians and government officials (particularly in the DOE) claim to have an “all-of-the-above” strategy, but then specific incentives (literally down to the individual components) are outlined in tax law. It’s absurd.

• Sec. 13501. Extension of the advanced energy project credit
• Sec. 13502. Advanced manufacturing production credit
  • Ridiculous credits. Like $35/kWh
  • Tons of credits for wind and solar
  • Has a ton of elements listed…
  • Minerals can’t come from baaaad countries (described in 40207(a)(5) of Infrastructure Investment and Jobs Act (42 U.S.C. 18741(a)(5)))

Part 6 – Superfund

Brief section adjusting tax credits for inflation for superfund sites.

Part 7 – Incentives for Clean Electricity and Clean Transportation

• Sec. 13701. Clean Electricity Production Credit
  • Same as nuclear ($0.003/kWh) and has restrictions
  • Applies to “Qualified Facilities” which have specific definitions and are basically wind and solar farms.
• Sec. 13702. Clean Electricity Investment Credit
  • Applies to Qualified Facilities and energy storage technologies
  • Interestingly, a Qualified Facility can’t be a facility which is receiving another production tax credit (like a renewable project or nuclear facility).
  • The credit phases out over three years. First year it’s 100%, then 75% in year 2, the 50% in year 3, and then it be gone.
  • Only applies to facilities that are less than 5 MW. Soooo…. what are we doing here?? Seems pretty worthless.
• Sec. 13703. Cost Recovery for Qualified Facilities, Qualified Property, and Energy Storage technology
• Sec. 13704. Clean Fuel Production Credit
  • Neat. $1.75/gal for Sustainable Aviation Fuel (SAF) if made at qualified facility which meets wage and apprenticeship requirements. Otherwise, it’s only $0.35/gal.
  • It’s less for other fuels. Base rate is $0.20/gal, but goes up to $1.00/gal if it’s made at a qualified facility and meets wage and apprenticeship requirements (again, quintuples).
  • Emissions factor = (50 kg CO2e/MMBTU – Emissions Rate of Fuel (in kg CO2e/MMBTU)) / 50 kg CO2e/MMBTU
    • I think it must ultimately be lower than 50.
  • To be called SAF, it must:
    • ASTM International Standard D7566, or:
    • the Fischer Tropsch provisions of ASTM International Standard D1655, Annex A1, and is not derived from palm fatty acid distillates or petroleum.
  • Emissions rate is described in section 211(o)(1)(H) of the Clean Air Act (42 U.S.C. 7545(o)(1)(H)) or under the GREET method.
  • Adjusts for inflation
  • Can’t be made from biomass.
  • Required to publish guidance before 1/1/2025 on how to implement the rule.

Part 8 – Credit Monetization and Appropriations

Enter tax accountants. This is how you actual get paid. It’s technical and boring for engineers like me – but the finance guys are going to love it.

Part 9 – Other Provisions

Short provisions to permanently extend funding the black lung disability trust fund (I had no idea there was such a thing), increase research credit against payroll taxes for small businesses, and tax treatment of certain assistance to farmers.

Title V – Committee on Energy and Natural Resources

This is the part of the Act which covers grants and loans for energy. It also adds environmental reviews, and increases the tax rate on federal oil and gas leases.

Subtitle A – Energy

• Part 1 – General provisions
• Part 2 – Residential Efficiency and electrification rebates
  • Outlines specific rebates (to the tune of $4.3B!!!) for residential energy and efficiency projects e.g. $2,000 rebate for a 20% reduction in energy use.
  • There’s ANOTHER $4.275B available for state energy offices
• Part 3 – Building efficiency and resilience
  • Sec. 50131. Assistance for Latest and Zero Building Energy Code Adooption
    • $330M to carry out activities under part D of title III of the Energy Policy and Conservation Act (42 U.S.C. 6321 through 6326) in accordance with subsection (b).
    • $670M to carry out activities under part D of title III of the Energy Policy and Conservation Act (42 U.S.C. 6321 through 6326) in accordance with subsection (c).
• Part 4 – DOE Loan and Grant Programs
  • Sec. 50141. Funding for Department of Energy Loan Programs Office
    • Sets up an office with up to $40B in loans available through 9/30/2026
    • Also appropriates $3.6B for fiscal year 2022.
  • Sec. 50142. Advanced Technology Vehicle Manufacturing
    • $3B in loans through 9/30/2028 for reequipping, expanding, or establishing a manufacturing facility in the United States to produce, or for engineering integration performed int he United States of, advanced technology vehicles (described in specific sections) only if such vehicles are zero emission vehicles.
  • Sec. 50143. Domestic Manufacturing Conversion Grants
    • $2B through 9/30/2031 for domestic production of efficient hybrid, plug-in electric hybrid, plug-in electric drive, and hydrogen fuel cell electric vehicles (in accordance with section 712 of the Energy Policy Act of 2005 (42 U.S.C. 16062).
  • Sec. 50144. Energy Infrastructure Reinvestment Financing
    • $5B through 9/30/26 to carry out activities under section 1706 of the Energy Policy Act of 2005. This is an added section in this Act.
    • Can guarantee up to $250B in loans.
    • Designed to retool, reposer, repurpose, or replace energy infrastructure that has ceased operations or enable operating energy infrastructure to avoid, reduce, utilize, or sequester air pollutants or anthropogenic emissions of greenhouse gases.
    • Full repayment of loan must be done within 30 years.
    • Energy infrastructure is defined as transmission or generation of electric energy OR equipment used for production, processing, and delivery of fossil fuels, fuels derived from petroleum, or petrochemical feedstocks.
• Part 5 – Electric Transmission
  • Sec. 50151. Transmission Facility Financing
    • $2B through 9/30/30 for transmission lines
  • Sec. 50152. Grants to Facilitate the Siting of Interstate Electricity Transmission Lines
    • $760M through 9/30/29 to help site lines through:
      • Studies
      • Examining 3 alternate routes
      • Help negotiate with siting authority
      • Participate with FERC proceedings
      • Other measures
• Part 6 – Industrial
  • Sec. 50161. Advanced Industrial Facilities Deployment Program
    • Office of Clean Energy Demonstrations
      • $5.812B through 9/30/26
      • Requires 50% cost share
• Part 7 – Other energy matters
  • Sec. 50173. Availability of High-Assay, Low Enriched Uranium
    • $100MM to carry out program described in (a) through (C) of section 2001(a)(2) of Energy Act of 2020 (42 U.S.C. 16281(a)(2)
    • $500MM to carry out D through H of that section
    • $100MM to carry out HALEU domestic research, development, demonstration, and commercial use

Subtitle B – Natural Resources

• Part 1 – General Provisions
• Part 2 – Public Lands
• Part 3 – Drought Response and Preparedness
• Part 4 – Insular Affairs
• Part 5 – Offshore Wind
• Part 6 – Fossil Fuel Resources
  • Increases fed royalty from 12.5% up to 18.75%
  • Have to pay royalties on flared gas
  • Requires more lease sales
  • Can’t issue a wind or solar energy right-of-way unless a lease sale has been held within 120 days of the issuance date of the right-of-way. Also, there’s a minimum amount of acreage required to be leased which is either (lesser of):
    • 2 million acres, or
    • 50% of acreage for which expressions of interest have been submitted during the 1-year period prior to issuance of the wind or solar right-of-way
• Part 7 – USGS – a special provision to advance the 3D elevation program? Strange.
• Part 8 – Other Natural Resource Matters

Subtitle C – Environmental Reviews

• Sec. 50301. Department of Energy – $115M appropriated
• Sec. 50302. FERC – $100M appropriated
• Sec. 50303. Department of Interior – $150M appropriated

Title IV – Committee on Commerce, Science, and Transportation

This section was short, but very impactful. Sec. 40007. Alternative Fuel and Low-Emission Aviation Technology Program has some large grants available:

• $244.5MM for sustainable aviation fuel
• $46MM for low emission aviation tech
• $6MM to fund the govt.
• Feds pay 75% of cost (up to 90% if smal hub airport or nonhub airport)

Title II – Committee on Agriculture, Nutrition, and Forestry

Can come back to this if necessary.

Other Titles

Titles III and VI through IX aren’t of interest for energy projects. There are additional grants for reducing air pollution,

Further Questions

All questions lead to more questions. These are still unanswered:

• Do dollar amounts correlate to page count in each title?
• Look this up for carbon capture:
  • Dollar amounts changed in 45Q(b)(1)(A) – look up
• Need to research this section:
  • section 2001(a)(2) of the Energy Act of 2020 (42 2 U.S.C. 16281(a)(2))

If you want to go to the source, here’s the actual 755 page document:

Inflation-Reduction-Act-of-2022Download