Released August 23, 2022 | SUGAR LAND
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Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--A measure meant to lower the U.S. inflation rate is something of an all-of-the-above effort to lift the domestic energy sector, tacitly leveling the playing field between fossil fuels and renewable energy.
U.S. President Joe Biden signed the Inflation Reduction Act of 2022 into law on August 16.
"The Inflation Reduction Act will lower costs for families, combat the climate crisis, reduce the deficit, and finally ask the largest corporations to pay their fair share," the White House said. That's a big wish list. Among the benefits outlined in the measure are a cap on what those covered under the Medicare health program have to pay for prescription medications each year; $14,000 in rebates for energy-efficient appliances; a goal to reduce greenhouse gas emissions by 1 gigaton by 2030; incentives for renewable energy programs in general; and more offshore areas for drillers.
There already are questions over whether a measure that outlines billions in new spending, including $369 billion on energy and climate change, will actually usher in widespread economic benefits. The fiscally conservative Tax Foundation says no.
"We estimate that the Inflation Reduction Act would reduce long-run economic output by about 0.2% and eliminate about 29,000 full-time equivalent jobs in the United States," the group said. "It would also reduce average after-tax incomes for taxpayers across every income quintile over the long run."
But apart from incomes, inflation and growth, the measure may level the playing field for the domestic energy sector. By a wide margin, the U.S. ranks second in the world behind China in terms of total renewable energy power capacity or electricity generation, according to the International Renewable Energy Association. But the U.S. is a leader when it comes to natural gas and crude oil production.
It's the latter point that matters on the global stage as an interconnected, global economy tries to break Russia's grip on the energy sector as punishment for the war in Ukraine. Liquefied natural gas (LNG) sourced from the U.S. is finding new homes in Europe, while recent data show U.S. crude oil exports are setting records.
The energy sector tried to have it both ways with the conventional energy measures outlined in the Inflation Reduction Act. The National Ocean Industries Association praised the room it made for offshore wind, while the American Petroleum Institute complained about added costs.
"From a new corporate minimum tax to an $11.7 billion tax on crude oil and petroleum products to a new natural gas tax, this legislation imposes additional costs on American families and businesses at a time when policymakers should be looking for solutions to provide relief," said API President and Chief Executive Officer Mike Sommers, before Biden signed the act into law.
Now that it's law, new problems are being found. Immediately after Biden put pen to paper, some legal challenges arose over the provisions for offshore drillers. At issue is whether to reinstate the results from a November 2021 lease sale and the slate of new auctions expected by 2023.
But even if those developments get stuck in the legal and/or political abyss, the U.S. will remain a global leader in fossil-fuel production. In an August report, published before the inflation measure was signed, the U.S. Energy Department estimated that domestic crude oil production would set a record next year at 12.7 million barrels per day. Dry natural gas production next year reaches 100 billion cubic feet per day, a 3.5% increase over this year's average.
That is not the case for renewables. The so-called energy transition was a running theme in the market narrative during the worst of the COVID-19 pandemic. That was an opportune time to pursue green goals, as the social restrictions meant to control the spread of COVID-19 caused demand for oil to crater so much that crude oil prices actually turned negative for a short time.
That's no longer the case. Renewable energy isn't as mobile as conventional resources, and the pivot away from Russia means alternative sources of crude oil and natural gas are necessary. But Russia is no longer the main rival of the U.S., as it was during the decades leading up to the collapse of the Soviet Union in 1991. That honor now goes to China, the world's leader in renewable energy.
So while the U.S. is, and will continue to be for the foreseeable future, a world leader in fossil-fuel production, it has to play catchup with its main rival on the international stage in terms of renewables. And analysis from Norwegian consultancy Rystad Energy finds the Inflation Reduction Act goes a long way to help stimulate that.
Over the next eight years, Rystad finds the measure will attract more than $270 billion in investments in the renewable energy sector by way of tax credits and other incentives. For wind energy alone, that could reach $160 billion.
"The Inflation Reduction Act is a game changer for the U.S. wind and solar industry," Rystad Energy renewables analyst Marcelo Ortega said in a research note. "The tax credits in the bill will strengthen the economic feasibility of new project developments and boost the wind and solar markets' growth trend this decade and beyond."
If energy is emblematic of national power, a phenomenon on full display with the Russian war on Ukraine, the Inflation Reduction Act could level the playing field so that the U.S. is a world leader in the energy of today, as well as the energy of the future.
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).
U.S. President Joe Biden signed the Inflation Reduction Act of 2022 into law on August 16.
"The Inflation Reduction Act will lower costs for families, combat the climate crisis, reduce the deficit, and finally ask the largest corporations to pay their fair share," the White House said. That's a big wish list. Among the benefits outlined in the measure are a cap on what those covered under the Medicare health program have to pay for prescription medications each year; $14,000 in rebates for energy-efficient appliances; a goal to reduce greenhouse gas emissions by 1 gigaton by 2030; incentives for renewable energy programs in general; and more offshore areas for drillers.
There already are questions over whether a measure that outlines billions in new spending, including $369 billion on energy and climate change, will actually usher in widespread economic benefits. The fiscally conservative Tax Foundation says no.
"We estimate that the Inflation Reduction Act would reduce long-run economic output by about 0.2% and eliminate about 29,000 full-time equivalent jobs in the United States," the group said. "It would also reduce average after-tax incomes for taxpayers across every income quintile over the long run."
But apart from incomes, inflation and growth, the measure may level the playing field for the domestic energy sector. By a wide margin, the U.S. ranks second in the world behind China in terms of total renewable energy power capacity or electricity generation, according to the International Renewable Energy Association. But the U.S. is a leader when it comes to natural gas and crude oil production.
It's the latter point that matters on the global stage as an interconnected, global economy tries to break Russia's grip on the energy sector as punishment for the war in Ukraine. Liquefied natural gas (LNG) sourced from the U.S. is finding new homes in Europe, while recent data show U.S. crude oil exports are setting records.
The energy sector tried to have it both ways with the conventional energy measures outlined in the Inflation Reduction Act. The National Ocean Industries Association praised the room it made for offshore wind, while the American Petroleum Institute complained about added costs.
"From a new corporate minimum tax to an $11.7 billion tax on crude oil and petroleum products to a new natural gas tax, this legislation imposes additional costs on American families and businesses at a time when policymakers should be looking for solutions to provide relief," said API President and Chief Executive Officer Mike Sommers, before Biden signed the act into law.
Now that it's law, new problems are being found. Immediately after Biden put pen to paper, some legal challenges arose over the provisions for offshore drillers. At issue is whether to reinstate the results from a November 2021 lease sale and the slate of new auctions expected by 2023.
But even if those developments get stuck in the legal and/or political abyss, the U.S. will remain a global leader in fossil-fuel production. In an August report, published before the inflation measure was signed, the U.S. Energy Department estimated that domestic crude oil production would set a record next year at 12.7 million barrels per day. Dry natural gas production next year reaches 100 billion cubic feet per day, a 3.5% increase over this year's average.
That is not the case for renewables. The so-called energy transition was a running theme in the market narrative during the worst of the COVID-19 pandemic. That was an opportune time to pursue green goals, as the social restrictions meant to control the spread of COVID-19 caused demand for oil to crater so much that crude oil prices actually turned negative for a short time.
That's no longer the case. Renewable energy isn't as mobile as conventional resources, and the pivot away from Russia means alternative sources of crude oil and natural gas are necessary. But Russia is no longer the main rival of the U.S., as it was during the decades leading up to the collapse of the Soviet Union in 1991. That honor now goes to China, the world's leader in renewable energy.
So while the U.S. is, and will continue to be for the foreseeable future, a world leader in fossil-fuel production, it has to play catchup with its main rival on the international stage in terms of renewables. And analysis from Norwegian consultancy Rystad Energy finds the Inflation Reduction Act goes a long way to help stimulate that.
Over the next eight years, Rystad finds the measure will attract more than $270 billion in investments in the renewable energy sector by way of tax credits and other incentives. For wind energy alone, that could reach $160 billion.
"The Inflation Reduction Act is a game changer for the U.S. wind and solar industry," Rystad Energy renewables analyst Marcelo Ortega said in a research note. "The tax credits in the bill will strengthen the economic feasibility of new project developments and boost the wind and solar markets' growth trend this decade and beyond."
If energy is emblematic of national power, a phenomenon on full display with the Russian war on Ukraine, the Inflation Reduction Act could level the playing field so that the U.S. is a world leader in the energy of today, as well as the energy of the future.
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).
