US Inflation Reduction Act - Huge Step Towards Clean Energy and NetZero
The United States has passed the Inflation Reduction Act, which will offer increased tax credits for CO2 capture, utilisation, and storage (CCUS) under the 45Q tax code. This incentivises companies to capture their carbon emissions in exchange for tax credits and/or cash, which will be helped by the development of two new CCUS projects - a direct air capture plant in Wyoming owned by CarbonCapture, and an ammonium plant in Texas from the company OCI*.
The new law provides $369 billion for combating climate change, as well as $300 billion in deficit reduction, the largest ever commitment to reducing emissions by the US. Much of this funding will come from a 15% corporate minimum tax on large ($1 billion+) companies. This will help the country reduce inflation, invest in clean energy, and cut healthcare costs by the end of the decade. It is predicted to reduce carbon emissions by 40% by 2030**.
Going into the details of the CCUS portion of the act, the price of carbon credits will increase from $50 per tonne of carbon to $60-180 per tonne depending on whether the carbon is stored or utilised in industry, and on how the carbon is captured (direct air capture credits are worth about twice as much as point source).
The bill will make it easier for smaller businesses to receive carbon credits through a direct pay structure, and protects them and families earning under $400k from increased taxation. It will also make sustainable aviation fuel cheaper and more accessible. Along with this the IRA puts $6 billion into decarbonising heavy industry and $1.5 billion into methane reduction, and let the EPA charge a fee for methane emissions above a company’s allowed threshold.
While the methane fee may increase the price of some everyday things for consumers, they will also receive over $9 billion in energy efficiency incentives including electric vehicles, renewable energy and heat pumps, so overall the law stimulates far more positive change in improving sustainability than additional consumer costs.
It’s a reduced version of Biden’s proposed Build Back Better act, with many of the wider reaching social and environmental provisions removed in order to gain broad support. While it is certainly America’s largest investment in climate and energy to date, there are still a lot of changes to energy use to be made, and stronger carbon dioxide removal incentives are needed to meet the goal of net zero by 2050.
*https://cen.acs.org/business/investment/Inflation-Reduction-Act-already-advancing/100/i33
**https://www.investopedia.com/inflation-reduction-act-of-2022-6362263
