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SUMMARY

It's an environment, public health and finance package with many, many angles.

By Callum Cyrus

Despite the name, US president Joe Biden may have pitched the energy sector policy that will make or break his reputation August 16 with the signing into law of the Democrat-led Inflation Reduction Act 2022 (IRA22).

Think tank Brookings has called it the biggest "explicit" climate change-fighting investment programme in federal US government history.

To US voters, this will be sold as an effort to keep more cash in their wallet, an attempt to contend with rising inflation in their shopping baskets and fuel tanks, and, in the Democrats' own words, a "historic down payment on deficit reduction to fight inflation."

Brookings posits 27% of US households did things they did not plan to do because of the threat of energy bills - from missing out on food or medicine, to sitting in the freezing cold or wilting heat.

And the most noticeable change from most residents' point of view will be the grant payments for energy-saving technologies, working out to around $1,800/year/household for new heat pumps, efficient air conditioners and induction-powered stoves.

But while state payments are a blunt instrument - arguably doing little to fight inflation given the counter-intuitive effect on aggregate demand curves - behind the scenes Washington hopes IRA22 will work to spur unprecedented levels of activity in cleaner energy transition technologies.

White & Case says the doors are set to fly open on at least $310bn in funding awards and loan guarantees - with financial assistance for methane reduction, resiliency and air pollution some of those most relevant to natural gas suppliers.

Around $250mn in "loan guarantee authority" is available to energy infrastructure awards from the US Department of Energy, including carbon capture and storage and other controls that can sequester air pollutants from fossil fuel-based electric generation facilities.

Tax credits for carbon capture are on offer also, with up to $85/metric ton to be paid for flue gas-based carbon capture and up to $180/metric ton for direct air capture that reduces CO2 already in the atmosphere.

Reaction so far from the industry has been favourable, at least in sectors where the impact is likely to be positive. Western Midstream Partners CFO Kristen Shults has said tax credits for both carbon capture and decarbonisation of traditional gas pipeline assets will certainly make investments "more economical and appealing", and that will likely hold true across the US midstream sector.

Whether Biden will convince voters there is anything to immediately be gained from an inflation perspective, however, remains to be seen. Conservative critics have the bill's title in their crosshairs, and the winners and losers from the tax rebate and levy section of the law could play out in various ways.

The American Gas Association has nonetheless lauded the bill and its lead sponsor, Democrat senator Joe Manchin, for a genuine attempt to spur investments in crucial energy transition production, across both hydrogen and renewable natural gas, as fuels guiding the way to a "cleaner energy future".

Similarly, ExxonMobil CEO Darren Woods pitched in from a global upstream perspective, pointing to a shift from traditional renewables and electric vehicles being regarded as climate friendly, to an expanded remit to also back carbon capture, hydrogen and biofuels.

"We're pleased with the broader recognition that a more comprehensive set of solutions are going to be needed to address the challenges of an energy transition.... The discussion evolving [to include] CCS and biofuels and hydrogen is really important," Woods added. 

Senator Manchin will hope the focus on cleaner energy, from natural gas to wind farms and hydrogen, will play a very real role in improving American health outcomes.

Trade union the United Workers of America expressed support on behalf of the coal miners afflicted by black lung who are set to benefit from a new disability trust fund dedicated to help coping with the condition.

It also commended the effort to get more tax credits to renewable energy supply chains, which could hopefully soak up some of the unemployment anticipated as the energy influence of long-serving coal mines declines.

UMWA said in July: "We are pleased to see that provisions were included in the IRA that will extend tax credits to renewable energy supply chain manufacturers that build plants in the coal fields, which will be a big step toward providing good jobs to these distressed communities.

"The enhanced tax credits for carbon capture and storage included in the legislation will also be a boon for coalfield jobs."

Beneath the surface is a bid to counter energy inflation with new exploration concessions in the US Gulf of Mexico where environmentalists have sought to block awards. Auctions in the Gulf will resume under the IRA law, though academic experts have questioned the provision's effectiveness.

Gregory Brew, a historian of oil at Yale University, has said it isn't clear that oil and gas companies will need new drilling permits for the Gulf of Mexico, given the industry's pivot away from that region in recent times to more cost-effective output inland at the onshore Permian Basin.