Work to Do as Inflation Reduction Act Now Pivots to Implementation

As the White House celebrated passage of the Inflation Reduction Act last summer, President Biden was effusive. “We are going to take the most aggressive action ever, ever, ever to confront the climate crisis and increase our energy security. . . . And that’s not hyperbole.” With $369 billion in spending and incentives for a vast array of clean energy technologies—from wind, solar, and hydrogen, to electric vehicles, sustainable aviation fuel, and carbon storage—the administration claims the IRA will “reduce greenhouse gas emissions by about 1 gigaton in 2030.” That amount is “10 times more climate impact than any other single piece of legislation ever enacted.”

But it’s one thing to pass legislation designed to turbo-charge the energy transition. It’s another to make it a reality. To that end, Biden recently established a new White House Office on Clean Energy Innovation and Implementation, to be headed by former Obama climate adviser John Podesta.

Legal practitioners will play a critical role as the federal government and its clients pivot to implementation of the sprawling new law. Specialists in environmental, regulatory, permitting, tax, energy, and corporate law will be needed in an “all of the above” effort, to borrow a phrase.

Federal agencies—including Treasury, Energy, Transportation, Interior, and EPA—will be busy promulgating regulations, issuing guidance, and awarding funding. With sparse legislative history, novel issues of statutory interpretation will need to be resolved. As one example, the IRA amends the Internal Revenue Code to create a new Section 45V, which introduces a production tax credit for “qualified clean hydrogen.” A process must result in four kilograms of CO2-equivalent or less per kilogram of hydrogen produced, but the devil will be in the details in terms of how the life-cycle GHG emissions of various hydrogen processes will be measured. Treasury will be looking to expert agencies like DOE and other stakeholders for input on many such issues.

As another example, the IRA revamps the existing system of renewable energy tax credits, providing higher-level credits for companies that meet “prevailing wage” and “apprenticeship” requirements for their workers; satisfy “domestic content” standards; and/or agree to locate a project in a specially defined “energy community” (including those that are transitioning from fossil fuel-related industries) or other low-income or tribal areas. These concepts, which also appear in other provisions of the IRA, will need to be further defined.

EPA’s air office will be gearing up to spend over $40 billion, while seeking to harmonize new IRA programs with EPA’s forthcoming climate regulations. “We are convinced that part of our job is to create synergies” between the IRA and regulatory actions, said Joe Goffman, acting head of the air office. One area in particular that practitioners will be watching is how EPA will reconcile its forthcoming regulations to control methane emissions from the oil-and-gas industry with the IRA’s creation of a new methane emissions fee.

Senator Joe Manchin (D-WV), key to the IRA’s passage, has made clear that the new law “invests in the technologies needed for all fuel types—from hydrogen, nuclear, renewables, fossil fuels, and energy storage.” It “does not arbitrarily shut off our abundant fossil fuels,” he explained, but rather “invests heavily in technologies to help us reduce our domestic methane and carbon emissions and . . . displace dirtier products” around the world. Indeed, the law expressly requires the government to move forward with a certain amount of oil-and-gas lease sales as a condition for the use of federal lands and waters for new wind and solar projects. Expect legal battles over how this compromise is construed, along with ongoing disputes over analysis of NEPA oil-and-gas leasing decisions.

Meanwhile, practitioners eagerly await whether Congress will enact permitting-reform legislation—also at the insistence of Manchin. The administration, for example, predicts the IRA will spur construction of 950 million solar panels, 120,000 wind turbines, 2,300 grid-scale battery plants, and this is only the tip of the iceberg—vast new networks of CO2 and hydrogen pipelines, electricity transmission lines for renewables, underground carbon dioxide sequestration facilities, and charging stations for electric vehicles will also be needed. But what if this massive new energy infrastructure cannot be sited and permitted in a timely fashion?

The Washington Post recently called for legislation to “ease the seemingly endless permitting delays that energy projects face.” Noting, for example, that “environmentalists have opposed efforts to deliver clean electricity to American homes because they would require new wires run through forests, ” the paper cautioned that “some of those calling loudest for addressing climate change could become enemies of that very effort.”