Democrats in the US House of Representatives today secured final passage of a budget bill with an estimated $369bn in spending on climate and energy security over the next decade.
The House voted 220-207 to approve what will be the largest-ever domestic climate law. The measure will now head to the White House, where President Joe Biden is expected to sign it.
The measure is expected to put the US on track to reduce greenhouse gas emissions by 40pc by 2030, relative to 2005, by offering tax credits and subsidies for resources like wind and solar, energy incentives for consumers and subsidies to grow clean energy manufacturing.
The bill will offer some victories for the oil and gas sector that were sought by US senator Joe Manchin (D-West Virginia), who spent months in negotiations seeking to lower the bill's price tag and support "innovation not elimination." Democratic leaders negotiated the bill with razor-thin majorities, including a 50-50 split in the US Senate, with hopes that its investments in energy and an anticipated $300bn in deficit reduction will address climate change and help ease inflation.
Democrats now can claim a legislative win on climate before the midterm elections in November, after months of negative headlines from high gasoline prices and the risks of a recession. But Republicans say the surge in spending, paid for by higher taxes, will add headwinds to the economy.
"All these taxes will hurt the economy, drive inflation further and harm workers' paychecks," House Ways and Means Committee ranking member Kevin Brady (R-Texas) said in floor debate.
The infusion of tax credits and spending in the bill could cause "growing pains" in the energy sector and higher service costs by adding to competition for limited supplies and labor, consultancy Rystad Energy said today.
Over the long term, the bill is expected to cut US consumption of petroleum products by 13pc and its use of natural gas by 9pc by 2030, compared with existing policy, according to a model by the Repeat Project at Princeton University.
The bill will extend through 2024 expiring federal tax credits worth about $70bn that benefit wind, solar, biofuels and other energy sources. From 2025-2031, it will switch to a technology-neutral approach with nearly $65bn for clean electricity and biofuels. The bill will also offer $30bn in new tax credits for existing nuclear plants, about $13bn for clean hydrogen and $3bn to expand carbon capture credits to up to $85/metric tonne (t).
Democrats structured the tax credits to be more lucrative if companies build up supply chains and manufacturing in the US. The requirements mean some tax credits — such as up to $7,500 for new electric vehicles — will not be available widely until industry adapts. The electric vehicle tax credit has drawn concerns from the EU, which last week said the tax credit violates rules at the World Trade Organization.
The victories for the oil sector in the bill include the revival of a $192mn offshore lease sale that was held up in court, along with a mandate for more lease sales in the future. Manchin also won assurances from top Democratic to advance a bill in the coming months to expedite energy infrastructure permitting, including for the long-delayed $6.6bn Mountain Valley natural gas pipeline.
Even so, the oil industry said it opposed the bill because of its new 15pc minimum tax on large corporations, higher royalties on new oil and gas leases, and a first-time fee on excess methane emissions starting at $900/t in 2024. The budget also imposes a 16.4¢/bl excise tax on crude and petroleum products that will pay for the cleanup of hazardous waste sites.
The budget bill "falls short" in addressing US energy needs by increasing taxes and imposing higher royalties, American Petroleum Institute president Mike Sommers said. Sommers said he was encouraged the bill would open the door to leasing and expand support for carbon capture.
Environmentalists have mostly rallied behind the bill, despite concerns that it would lock in more oil and gas leasing, as the single largest step the US can take to move closer to Biden's goal to cut its greenhouse gas emissions in half by 2030 relative to 2005. The bill offers a "fighting chance of avoiding devastating levels of warming," Union of Concerned Scientists president Chao Kreilick said.
