Congress sees $235 billion in clean energy grants. There they are

Congress has long loathed climate policy. Cap and trade suffered a spectacular death in 2010. A plan to pay utilities to sell more clean electricity was scrapped this month. And proposals to tax carbon dioxide emissions have never had a chance.

But there is one important exception to the reluctance of lawmakers to tackle greenhouse gases: clean energy subsidies.

Congress passed the first wind production tax relief in 1992. Since then, the PTC has been extended 13 times. Solar energy and carbon capture also have long-standing incentives.

Now lawmakers seem ready to double down. The tuning package contains approximately: $235 billion in incentives for everything from wind and solar to emerging technologies such as green hydrogen and sustainable aviation fuels. In contrast, the economic stimulus package passed in 2009 provided $90 billion in clean energy spending.

President Biden’s climate agenda now relies on the approval of tax incentives, especially after the Clean Electricity Performance Program was stripped from the bill despite opposition from Senator Joe Manchin (DW.Va.).

It is a familiar scene for old climate watchers.

“Essentially, our country has continued with tax incentives and regulations,” said Julio Friedmann, a senior researcher at Columbia University’s Center on Global Energy Policy. “It may take a while before the regulations are in place, but we can get started with the tax credits.”

Tax incentives are not a substitute for an economy-wide carbon price or a clean electricity standard, he continued. “But it is a proven way to accelerate the removal and reduction of CO2.”

The specifics of the package remain fluid, but here’s a breakdown based on the account that was highlighted in the House Ways and Means Committee in September.

The old guard: wind and sun

These are not traditional wind and solar subsidies.

Why?

The reconciliation package would pay the PTC and the investment loan directly. Instead of finding a bank to help fund a project, renewable energy developers would get a check from the government. That would be a boon for wind and solar developers.

But that’s not the only change. Solar energy has long been eligible for an investment deduction, but not for the production tax deduction available for wind energy. Now it would qualify for both.

The legislation would also return the PTC and ITC to their original value, but with a twist. The PTC offers a base rate of 0.5 cents per kilowatt-hour through 2031. Still, that figure could rise to 2.5 cents per kWh (the original value) if developers pay the prevailing wages and hire a certain percentage of students for their projects. .

The updated ITC provides a similar system, with a base pay of 6 percent and a bonus of 30 percent with applicable wage and internship requirements. Energy storage and microgrid controllers would also qualify for the ITC.

The combined price tag of the revamped PTC and ITC is $107 billion between 2022 and 2031. By comparison, the US spent about $20 billion on the PTC between 2005 and 2019, according to the Congressional Research Service.

What’s old is new: nuclear energy and hydrogen

One of the most notable things about the reconciliation package is how it would extend subsidies once only available for wind and solar to other zero-emission technologies. This also applies to nuclear installations.

Nuclear power generated nearly a fifth of US electricity last year. But persistently low natural gas prices and renewables have eroded the economic competitiveness of nuclear facilities and led to a series of plant closures. The reconciliation package aims to prevent more shutdowns with a nuclear production tax credit worth 3 cents per kWh through 2026. The credit is expected to cost $15 billion.

If the nuclear production credit is to keep existing facilities open, a hydrogen credit aims to change the way industrial facilities operate. Today, most of the hydrogen used in industrial facilities such as chemical plants is produced by combining natural gas with steam.

But electricity can also be used to split a water molecule into hydrogen. When the process uses renewable energy, so-called green hydrogen is created. But it is usually expensive.

The Reconciliation Act would provide a tax credit of $3 per kilogram for hydrogen production using renewable energy sources. Reduced credit would be available for other technologies using carbon capture natural gas and nuclear facilities. In total, clean hydrogen credits are worth $9 billion in a decade.

“It really shows the commitment to decarbonization,” said Dan Klein, an energy modeler at S&P Global Platts. “It goes beyond the low-hanging fruit, beyond the energy sector and EVs.”

Rev your electric motor

Speaking of EVs, the bill would bring in $42 billion in tax credits for electric transportation over the next ten years. In addition to $15 billion for new EVs and $11 billion for commercial EVs, there is a $7 billion line item for electric bicycles.

The tax credits for electric vehicles are especially important from a climate perspective because transportation is the main source of carbon pollution in the US, accounting for nearly a third of emissions. Light vehicles are responsible for nearly 60 percent of U.S. transportation emissions, according to to EPA.

“EVs are now like wind and solar a decade ago,” said Rob Jackson, a professor at Stanford University who studies energy systems and climate change. “They are not cost competitive on a leveled basis, but they are getting there.

“Cars are not that different from power plants,” he added. “Instead of 40 years, they last 15 years. We don’t really have the luxury of waiting for electric vehicles to reach net zero.”

The EV incentives for new vehicles are structured like the incentives for wind and solar energy. A buyer of a new car would receive a basic incentive of $4,000. An additional $3,500 is available if the vehicle is purchased before 2027. An additional $4,500 can be raised if the car is assembled in the US in factories subject to collective bargaining agreements. And finally, $500 is available if more than 55% of the parts are made in the USA. The result is a maximum credit of $12,500.

Put it in the ground

The reconciliation package would also expand the 45Q tax incentives for carbon capture and direct air capture (DAC).

Today, a facility that captures carbon dioxide and stores it in the ground would qualify for a $50 per ton tax credit. A facility that captures carbon dioxide and pumps it underground to boost oil production would qualify for a $35-per-ton credit.

A major change under the legislation is the expansion of credits for DAC facilities, which would take CO2 from the atmosphere and store it underground. A DAC facility that meets the account’s applicable wage and apprenticeship requirements is eligible for a $180 per ton credit.

Both small and large facilities can qualify, with a minimum catch threshold of 1,000 tons per year. A traditional CCS operation could receive up to $60 per ton.

All tax cuts will be accompanied by $3.5 billion in the bipartisan infrastructure deal to help plan DAC hubs. That sounds like music to the ears of DAC supporters like Erin Burns, executive director at Carbon180, a nonprofit that advocates direct air capture. Help from the Department of Energy and EPA is needed to plan and authorize new facilities, she said.

“When you think about 45Q, it’s really important policy to scale up carbon management policies. But on its own, it’s not enough to get us to the scale we see in climate models,” she said. “You see that in coordination with this administration and Congress.”