WASHINGTON — Democrats are poised to pass the most significant climate legislation in history, but the end product is a far cry from where it started.
The latest iteration of the so-called “budget reconciliation” package provides hundreds of billions of dollars for climate and energy, including incentives to boost renewable energy generation and the uptake of electric vehicles.
It includes taxes and fees that will impact oil and gas companies, but also includes carrots to go along with those sticks for fossil fuel producers. That’s thanks to the influence of coal champion Sen. Joe Manchin, DW.Va., as well as some of the House moderates representing Texas and its oil and gas interests.
Rep. Lizzie Fletcher, D-Houston, was among those pushing fellow Democrats to consider impacts on the industry, but said in an interview the bill is still a major effort to fight change climatic.
Fletcher said his constituents want to reduce greenhouse gas emissions, but in a smart way.
“It’s transformational and it’s a really important step forward,” she said of the legislation.
Changes aimed at mitigating the financial impacts on oil and gas producers did not convince their main trade association or their Republican allies on Capitol Hill.
Senate Minority Leader Mitch McConnell, R-Ky., repeatedly criticized the natural gas bill’s provisions on the floor this week, saying gas remains a primary source of power generation in the USA.
“It’s also how countless families heat their homes and it’s the keystone to our national energy independence and our ability to export to our allies in Europe,” McConnell said. “But the ‘Green New Deal’ Democrats are coming directly after US natural gas with huge new tax hikes.”
But the bill is not the kind of aggressive intervention favored by those who talk the most about a Green New Deal.
Instead of ending all drilling on public lands, the bill mandates the leasing of oil and gas on millions of acres onshore and in the Gulf of Mexico. And it would tie renewable energy projects on public lands to the oil and gas lease permit.
It includes a new methane reduction program that would charge companies a fee on every metric ton of waste methane released into the atmosphere.
Methane is much more potent for global warming than carbon dioxide while also dissipating much faster from the atmosphere, a combination that means reducing methane emissions is a relatively easy way to make rapid progress on the planet. climate change.
Massive amounts of methane have been documented from operations in West Texas.
When the bill was first introduced, Fletcher and several other House Democrats voiced their concerns about the energy provisions in a letter to their leaders.
The new methane tax was one of the main areas that drew additional protests from three of those Texans: Representatives Vicente Gonzalez, Henry Cuellar and Filemon Vela, who has since left Congress.
They said they feared the fee would hurt producers and ultimately be passed on to consumers. They all voted for the House version after changes that included the addition of a prize pool to help operators, especially smaller ones, comply.
But Cuellar indicated he was still looking for Manchin to make additional changes to the Senate and that is exactly what happened.
Fees are now phased in over a longer period, with the full $1,500 per tonne not taking effect until 2026 and compliance assistance roughly doubled to over $1.5 billion. of dollars.
The methane charge is also based on individual operators instead of relying on a basin-wide assessment. Fletcher said the previous approach would have penalized companies that already deal with methane waste.
“It was really important that the goals were realistic and achievable and that we got everyone in line,” Fletcher said. “If the government is properly incentivizing methane waste reduction, not just through sanctions but also through subsidies and innovation, that’s the most constructive way to get things done.”
She said the inclusion of compliance financing allows smaller operators to access the capital they need to finance emissions reduction technology.
“So there’s a lot of funding out there to help make that happen because, of course, it’s a priority for everyone to reduce those emissions and that’s a pathway to get there,” he said. she declared.
Cuellar hasn’t said publicly what he thinks of the latest release. Gonzalez said in a statement:
“There are certainly improvements to the methane levy and the overall effect this bill has on the energy industry compared to the original Build Back Better bill. However, there are still some worrying provisions. My priority is to ensure that this bill does not raise energy prices or hinder American energy jobs at such a critical time.
The legislation would now extend until 2032 the so-called “45Q” tax credits for carbon capture and sequestration which were due to expire. It also increases a category of these credits from $50 to $85 per metric ton of carbon dioxide stored.
Fletcher said the carbon capture technology shows promise, but the market hasn’t yet developed to warrant widespread adoption.
“A lot of people in my district said they needed these changes in the 45Q structure to make it happen,” Fletcher said.
Ian Lange, director of the minerals and energy economics program at the Colorado School of Mines, said Europe has poured a lot of money into carbon capture and storage with little to show for it.
“It’s far from a sure thing,” Lange said.
Still, these tax credits could be a major boon for Texas, according to David Blackmon, an independent energy analyst based in Mansfield.
“Especially given the huge (carbon capture) project centered on Houston and the Gulf Coast mounted by ExxonMobil,” Blackmon said, pointing to the company’s recent Q2 earnings call.
During that call, company CEO Darren Woods touted the potential benefits of federal support for low-carbon solutions such as clean hydrogen and carbon capture.
In response to questions, ExxonMobil spokesman Casey Norton stressed that the company remains opposed to taxes and any other provisions that could make US companies less competitive or inhibit energy production.
“We are used to advocating for well-designed policies that recognize that many different technologies are needed for a low-emissions future, including hydrogen and carbon capture and storage,” Norton said. “We are working on the development and deployment of these solutions.”
The bill would reinstate a long-standing Superfund-related tax on imported crude oil and petroleum products at the rate of 16.4 cents/barrel, which would be indexed to inflation.
It would also impose a minimum corporate tax that would affect all businesses, including producers, pipelines, gas processors and refiners, Blackmon noted.
“It’s no different with oil and gas than with any other commodity or commodity,” Blackmon said.
Republicans have said the taxes are misguided because they would only further spur inflation and high gas prices that are already hammering American consumers.
Sen. Ted Cruz, R-Texas, criticized the bill in a statement, saying the energy-related taxes violate President Joe Biden’s pledge to avoid raising taxes on the middle class.
“If you’re driving a pickup truck, commuter or van and you’re already having trouble filling your gas tanks, this bill will make it worse,” Cruz said.
The American Petroleum Institute says that despite the package’s “improved provisions”, it opposes policies that raise taxes and discourage investment in the sector.
In addition to raising taxes, the bill would increase what companies pay when drilling on federal leases. It’s a bigger deal in neighboring New Mexico, which has large swaths of federal land, than in Texas, which has relatively little.
In fact, making drilling harder and more expensive on federal lands could ultimately boost Texas production.
A Dallas Fed report on previously proposed restrictions suggested Permian Basin producers could leave New Mexico federal lands across the state and Texas, creating jobs for the Lone Star State.
Lange played down the potential for a major change between the two states.
He highlighted how the bill could reduce demand for oil and gas by boosting renewable energy sources. If more Americans are able to use solar and wind power to heat their homes, it would sap demand for natural gas, and switching to electric vehicles would potentially reduce oil consumption.
“If there’s some kind of demand destruction, then it’s the tide that’s going to bring all the boats down…that demand destruction is probably the biggest thing to worry about,” Lange said of the sector. oil and gas. “But it could be worse.”