Biden Signed the Climate Law. Now the Bureaucrats’ Hard Slog Begins.

Source: By Jennifer A Dlouhy, Bloomberg • Posted: Wednesday, August 17, 2022

Federal agencies must write a raft of regulations to implement the new law as hundreds of billions of dollars hang in the balance.

Biden speaks before signing H.R. 5376, the Inflation Reduction Act of 2022, at the White House on Aug. 16.

Biden speaks before signing H.R. 5376, the Inflation Reduction Act of 2022, at the White House on Aug. 16. Photographer: Sarah Silbiger/Bloomberg

President Joe Biden’s signing of the Inflation Reduction Act on Tuesday caps nearly two years of efforts to pass sweeping climate legislation. But the real work is just getting started.

For federal regulators, the moment Biden signed the bill was effectively the starting gun for a race to write new policies to implement its clean energy tax credits, climate programs and environmental mandates. It’s a monumental task that will involve regulators at nearly every federal agency.

The Department of Transportation must fashion a new grant program to propel sustainable aviation fuel projects. The Department of Energy will need to vet applications for billions of dollars’ worth of federal loan guarantees. And at the Environmental Protection Agency, regulators must create new programs to curb methane emissions and standardize how companies report on greenhouse gas releases.

Massive investment hangs in the balance. Much of it is tethered to policies that will be written by the Internal Revenue Service, which must develop new guidance for dozens of new and expanded tax credits. Some companies lured by those tax incentives — but wary of mistakes that could forfeit them — will be waiting for the IRS documents before signing off on new renewable power ventures, manufacturing plants and hydrogen projects.

“Certain projects may be delayed as taxpayers wait for additional guidance on how these programs are going to be implemented and enforced,” said Tony Grappone, a partner at tax adviser Novogradac & Co. It will probably take at least six months and could stretch to a year or more for the IRS to issue guidance on key incentives created or adjusted by the law, he said.

One thing companies will want clarity on is how they can satisfy prevailing wage and apprenticeship requirements to secure the full value of some clean energy tax credits. The law allows projects to get an exemption from those criteria as long as they begin construction within 60 days of the guidance being issued.

Companies will be stockpiling equipment and taking other steps to meet that “commence construction” threshold before the worker provisions kick in. “We’re going to see a huge flurry of people buying equipment,” said Heather Cooper, a partner at law firm McDermott Will & Emery. “Nobody knows exactly what the wage and apprentice rule is going to look like, but we do know what we can do now to avoid those rules when they do come into effect.”

Also complicating matters are new bonuses in the law for clean energy projects tied to low-income housing and redeveloped fossil fuel sites and those built in the shadow of former coal plants and mines. Developers will look to the IRS to understand how to qualify for these.

In the past, guidance delays have been blamed for stifling investment. Consider, for example, Congress’s 2018 decision to expand tax credits for carbon captureso more projects qualified. It wasn’t until 2021 that the IRS issued final regulations for claiming the credits. In the meantime, hundreds of millions of dollars for carbon capture ventures stayed on the sidelines.

This time, carbon capture ventures are in a better position because the Inflation Reduction Act extends the credit for seven more years in addition to boosting its value.

Previous delays “were just putting projects outside the window” to claim the credit, said Jessie Stolark, public policy manager at the Carbon Capture Coalition, which lobbied for the expansion. “It’s really great to see the long runway we have now.” The IRS may not even need to issue guidance on the carbon capture credit, since the law makes a relatively straightforward change of dates and dollar values, Stolark said.

Some businesses are working now to get projects teed up, even if they delay final investment decisions until formal IRS policies are in place.

Companies “aren’t waiting until the ink on the rule is dry,” said Sam Krasnow, a senior advocate at the Natural Resources Defense Council. “They have enough to go on to change their internal planning with their generation mix and boost up solar, wind and battery storage.”

Previously, wind and solar incentives have taken the form of short-term tax credits subject to periodic expiration and renewals. However, an effective 10-year timeline for clean energy tax credits under the IRA “sends the market signal that I think will supersede any impact that comes from the delays that come in rulemaking itself,” Reagan said.

For the EPA, the Energy Department and other agencies, there’s a new IRA to-do list, much of it involved in doling out funding to clean-energy and low-emission projects. The EPA, for instance, has 180 days to steer $27 billion in a new Greenhouse Gas Reduction Fund to green banks that can catalyze critical emission-fighting technology. Recipients could include a yet-to-be established national green bank.

Reed Hundt, chairman of the nonprofit Coalition for Green Capital, said that’s primed for swift action. “The EPA has to make the decision to transfer the money, and it has to establish appropriate monitoring and oversight — but everything is ready to go,” Hundt said.

Officials also are working to write new rules — including some that were on hold for congressional action — throttling greenhouse gas emissions from cars, oil wells and power plants. Veteran regulators and analysts said those measures will be able to take advantage of the law’s focus on encouraging clean energy investment to push the envelope of what’s required. For instance, credits effectively lowering the cost of carbon capture technology and encouraging electric vehicle purchases can help justify more aggressive EPA requirements governing auto emissions and power plant pollution.

“It will make it easier for them to be ambitious because the incentives really help with the cost-benefit analysis,” said Christy Goldfuss, a senior vice president at the Center for American Progress.

The agency’s new rules will be critical to buttressing the law and making progress on climate change, said Jeff Alston, a former environmental engineer and policy adviser who spent 40 years at the EPA. “Climate is such a complicated and big problem, you’ve got to attack it both ways,” with both financial incentives and regulations, Alston said.

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The EPA and other federal agencies are working on a tight timetable, seeking to propose and finalize new rules well before the end of Biden’s first term. If Biden isn’t reelected, regulations that don’t get finished under his watch will fall to his successor, who may not be eager to impose aggressive emissions and efficiency requirements. Even if work wraps up quickly, legal challenges are inevitable for most major environmental rules on the horizon, and a future administration may abandon defending them in court.

Permitting is another wild card that’s critical to ensuring the IRA’s promise is realized in the form of new wind, solar, transmission and storage projects, said Heather Zichal, head of the American Clean Power Association, an industry trade group.

Senator Joe Manchin, the Democrat from West Virginia whose support was critical for the IRA’s passage, extracted a promise from congressional leaders to advance legislation overhauling federal permitting of energy and infrastructure projects. Zichal said she’s encouraged Manchin has elevated the issue.

“Without some reform and without a better system in place, we are very worried about being able to take advantage of these historic tax credits,” Zichal said. “We want to be in a position to move as quickly as possible so that we can compete, so that we can deploy and so that we can ramp up and create the jobs and economic opportunities across the country.”

— With assistance by Ari Natter