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American Inflation Reduction Act Signed Into Law, Committing $370 Billion on Climate and Energy (Part 2)

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Energy Bulletin

Yesterday, we reviewed the key takeaways and action items from the American Inflation Reduction Act of 2022. Today, in this second instalment, we address three of the Act’s key climate and energy provisions: Offshore Wind and Federal Oil & Gas Offshore and Onshore, Air & GHG Emissions, and Methane Emissions Reduction Programs.

Summary of Key Climate and Energy Provisions

The IRA includes a variety of grants, loans, and appropriations to federal agencies aimed at reducing GHG emissions, speeding the transition to a decarbonized economy, promoting environmental justice, supporting energy- and climate-related research and development, and improving climate resiliency.

The provisions fall into several categories:
A. Offshore Wind and Federal Oil & Gas Offshore and Onshore
B. Air & GHG Emissions
C. Methane Emissions Reduction Programs
D. Agriculture & Forestry
E. Electric Transmission
F. Advanced Manufacturing and Decarbonization
G. Alternative Fuel and Low-Emission Aviation Technology Program
H. Water Infrastructure
I. Other Climate Provisions
J. Environmental Permitting and Reviews
K. Climate Resiliency
L. Tax Credits

A. Offshore Wind and Federal Oil & Gas Offshore and Onshore.

  • The bill makes significant changes to rules related to leasing and development of federal lands onshore and on the Outer Continental Shelf (OCS) for wind and oil and gas.
  • The bill expressly predicates, for the next decade, future onshore and offshore federal wind leases on first holding onshore and offshore oil and gas lease sales with minimum offered acreage in the preceding 120 days onshore or one year offshore. The bill also reinstates OCS Lease Sale 257 that was vacated by a federal district court, and directs that three other lease sales which had been scheduled under the 2017-2022 OCS leasing program be held within the next year, notwithstanding that the U.S. Department of the Interior (DOI) had previously cancelled those leases and (for the first time in history) allowed that prerequisite five-year OCS leasing program to expire with no replacement.
  • Regarding OCS wind, the bill authorizes DOI to grant leases, easements, and rights-of-way pursuant to the Outer Continental Shelf Lands Act (OCSLA), 43 U.S.C. § 1337(p)(1)(c), in areas of the Atlantic coast withdrawn from leasing by two prior executive orders. It also mandates that the Secretary issue calls for information and nominations for proposed OCS wind sales by September 30, 2025 near U.S. territories including around Puerto Rico, Guam, American Samoa, the U.S. Virgin Islands, and the Northern Mariana Islands.
  • Regarding oil and gas, the bill makes several key changes to OCSLA and the Mineral Leasing Act to increase minimum royalty rates, bonus bids, and rentals for newly-issued leases. The bill creates a new per-acre fee for submissions of expressions of interest for onshore oil and gas leases. Also for onshore federal oil and gas, the bill eliminates noncompetitive leasing and increases onshore bonding requirements for both new and existing leases.
  • Finally, for all future leases, the bill specifies that royalties must be paid on all gas produced from leases on federal lands and on the OCS that is consumed, or that is lost by venting, flaring, or negligent releases through any equipment during upstream operations. The bill codifies existing royalty-free exceptions for gas vented or flared for not longer than 48 hours due to emergencies, gas used on the lease, unit or communitized area for its benefit, and any gas that is “unavoidably lost”—which the legislation does not define and continues to be a point of contention in certain cases.

B. Air & GHG Emissions.

  • The IRA includes a variety of provisions addressing emissions of both GHGs and traditional “criteria” air pollutants.
  • HFC reductions under the American Innovation and Manufacturing (AIM) Act. EPA has been busy regulating HFCs, a category of GHGs, under the AIM Act passed in 2020. The IRA would support that work by appropriating millions of dollars to EPA to conduct rulemakings under the AIM Act geared at phasing down the overall potency of HFCs imported or produced in the U.S.; regulating uses of HFCs in the U.S.; and supporting reclaim of HFCs. Separate funds would be available for “implementation and compliance tools” to support those rulemakings. Finally, EPA could offer competitive grants to companies with “reclaim and innovative destruction technologies” concerning HFCs.
  • Air pollution monitoring. The IRA would appropriate millions of dollars for various EPA-administered grants under the CAA. These include grants related to air toxics and community monitoring (including fenceline air monitoring), and for multipollutant monitoring stations expand the number of monitors for criteria pollutants under the National Ambient Air Quality Standards (NAAQS) program. A subset of these funds would be earmarked for air quality sensors in “low-income and disadvantaged communities.” An expansion of air monitoring networks could provide EPA and state agencies with more detail about recorded concentrations of hazardous air pollutants and criteria pollutants, in areas where agencies currently use modeled emissions based in part on wind patterns. More precise data could have regulatory consequences during EPA’s residual risk and technology reviews under CAA Section 112, under the nonattainment area designation process for NAAQS pollutants under CAA Section 107, and under many other CAA programs.
The Risk and Technology Review is an initiative to assess both the risk and technology of this initiative to be conducted under the authority of the Clean Air Act. It is required to ensure the application of what are known as Maximum Achievable Control Technology Standards (MACT). Section 112 of the Clean Air Act requires the Environmental Protection Agency to complete a report to Congress on the methods it uses to assess the risks that would remain after the implementation of MACT standards, hence the term "residual risks”.

  • Renewable Fuels Standard (RFS) funding, including for advanced biofuels. The bill would appropriate funds to EPA to carry out the RFS in CAA Section 211(o), including funding to study the health effects of fuels and fuel additives, to support lifecycle GHG emissions analysis of certain fuels, and effects of pollution on low-income and disadvantaged communities. EPA would also be able to issue new grants to industry to support investments in advanced biofuels.
  • Clean heavy-duty vehicles. The IRA would fund administrative programs related to clean heavy-duty vehicles. This includes money to replace eligible vehicles located in nonattainment areas under the CAA. It also provides grants and rebates to cover incremental costs of replacing a high-emission vehicle with a zero-emission vehicle; infrastructure needed to charge zero-emission vehicles; workforce development and training to support zero-emission vehicles; and planning and technical activities to support zero-emission vehicles.
  • Grants to reduce air pollution at ports. The IRA would create a “general assistance” fund for port authorities to install zero-emission port equipment, conduct planning or permitting in connection with such zero-emission port equipment or technology, and to develop qualified climate action plans. Additional funding is available to award rebates and grants to eligible recipients to carry out the same activities in nonattainment areas under the CAA.
  • New “Greenhouse Gas Reduction Fund.” The IRA would amend the CAA to create a “Greenhouse Gas Reduction Fund.” The Fund will provide financial and technical assistance grants to states, tribal governments, and others to enable low-income and disadvantaged communities to deploy or benefit from zero-emission technologies (e.g., distributed technologies on residential rooftops). The new Fund can also be used to provide general financial and technical assistance, with a sizable sum set aside specifically for low-income and disadvantaged communities.
  • Other emission grants and funding. The IRA would provide grants, rebates, and loans to reduce diesel emissions in low-income and disadvantaged communities to address the health impacts of such emissions on those communities. The bill would provide for other EPA-administered CAA grants to address emissions from wood heaters and to monitor methane emissions. With respect to vehicles, EPA has grant money for states to support GHG and “zero-emission standards” under CAA Section 177.
Section 177 of the Clean Air Act reads as follows:
Notwithstanding section 7543(a) of this title, any State which has plan provisions approved under this part may adopt and enforce for any model year standards relating to control of emissions from new motor vehicles or new motor vehicle engines and take such other actions as are referred to in section 7543(a) of this title respecting such vehicles if -
(1) such standards are identical to the California standards for which a waiver has been granted for such model year, and
(2) California and such State adopt such standards at least two years before commencement of such model year (as determined by regulations of the Administrator).
Nothing in this section or in subchapter II of this chapter shall be construed as authorizing any such State to prohibit or limit, directly or indirectly, the manufacture or sale of a new motor vehicle or motor vehicle engine that is certified in California as meeting California standards, or to take any action of any kind to create, or have the effect of creating, a motor vehicle or motor vehicle engine different than a motor vehicle or engine certified in California under California standards (a “third vehicle”) or otherwise create such a “third vehicle”.

Additional EPA grants would provide technical assistance for schools in low-income and disadvantaged communities to address environmental issues, renovate buildings, and mitigate “ongoing air pollution hazards” in the school environment. 

C. Methane Emissions Reduction Programs.

  • To address emissions of methane, a potent GHG, the IRA provides funding to support EPA efforts under existing statutory authority and also creates a new methane fee program.
  • Support for EPA methane mitigation and monitoring. In an effort to mitigate and monitor methane emissions, the IRA appropriates $850 million to EPA to support efforts for GHG reporting by owners and operators of facilities, methane emissions monitoring, and the reduction of emissions from petroleum and natural gas systems. The IRA targets emissions from petroleum and natural gas systems and marginal conventional wells by directing the funding towards:
    • Improving climate resiliency of communities and petroleum/natural gas systems;
    • Improving and deploying industrial equipment to reduce methane emissions;
    • Supporting innovation to reduce methane and other GHGs;
    • Permanently shutting in and plugging wells on federal lands;
    • Mitigating the health impacts of methane emissions in low-income or disadvantaged communities; and
    • Supporting environmental restoration.
  • Fee on methane waste emissions. The IRA authorizes a fee on excess methane emissions that exceed a defined emissions waste threshold. The IRA sets the fee by multiplying the number of metric tons of excess methane emissions by $900. This multiplying figure increases each year, from $1,200 in 2025 to $1,500 in 2026. This charge would apply to many industries, including offshore and onshore petroleum and natural gas production; onshore natural gas processing and transmission compression; underground natural gas storage; liquefied natural gas storage, import, and export equipment; onshore petroleum and natural gas gathering and boosting; and onshore natural gas transmission pipelines. This new methane fee could have significant consequences for the Biden-Harris Administration’s methane strategy, particularly with respect to the economic analysis calculating the costs and benefits of new rulemakings.

The third instalment to be published tomorrow will address the rest of the Act’s key climate and energy provisions: Agriculture & Forestry, Electric Transmission, Advanced Manufacturing and Decarbonization, Alternative Fuel and Low-Emission Aviation Technology Program, Water Infrastructure, Other Climate Provisions, Environmental Permitting and Reviews, and Climate Resiliency. 

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