Last week, both houses of Congress passed the Inflation Reduction Act of 2022 (the “IRA”), and today President Biden signed it into law. The IRA is historic climate and energy legislation.

We analyzed the key environmental provisions of the draft bill, including provisions related to renewable energy, lower-carbon technologies, methane emissions reduction, and carbon capture and storage in a previous Alert, and its tax provisions, including the extension of a number of tax credits for the development of renewable energy resources, in a previous Alert. This alert supplements our previous analysis by highlighting some additional provisions as well as certain material changes included in the final IRA passed by the Senate and the House of Representatives.

The IRA, passed by both houses of Congress, did not contain many substantive changes to the Methane Emissions Reduction Program or environmental justice programs. The only two changes are highlighted below.

The IRA passed by both houses of Congress includes several changes to the amounts appropriated to facilitate agency environmental reviews.

The IRA passed by both houses of Congress also makes notable changes to the federal tax credit program for the purchase of electric vehicles (“EVs”).5 These changes include:

However, eligibility for these tax credits will be greatly limited, beginning in 2023, due to what are described as stringent sourcing requirements for key components, including batteries. Automakers warn that this may limit the number of eligible vehicles so severely in the short term that it may lead to a reduction in demand for EVs more broadly.

The IRA passed by both houses of Congress includes meaningful changes to the federal onshore and offshore oil and gas leasing and development program. It mandates certain offshore lease sales in the Gulf of Mexico and Alaska and includes mandates for federal onshore and offshore oil and gas leases as a prerequisite to onshore and offshore renewable energy development on federal lands. The final IRA also includes many of the changes previously included in the Build Back Better legislation (Proposed Build Back Better Legislation Includes Important Changes for Oil and Gas), such as increases to the royalty and rental rates. The material changes included in the IRA are summarized below:

The IRA passed by both houses of Congress requires that certain previously announced offshore lease sales in the Gulf of Mexico and Alaska be held during the next two years. The U.S. Department of the Interior (Interior) must award leases to the highest bidders in Lease Sale 2579 held in November 2021, but later vacated after a federal district court found that Interior's environmental review failed to adequately consider certain greenhouse gas emissions. It also requires Interior to move forward with Lease Sale 258 in Alaska Region's Cook Inlet by December 31, 2022,10 and two additional Gulf of Mexico Lease sales, Lease Sales 259 and 261, by March 2023 and September 2023, respectively.11 As part of the compromise to pass the IRA, federal solar and wind development is tied to future federal lease sales for oil and gas for a period of ten years. The final IRA provides that the Secretary of the Interior must hold an offshore oil and gas lease sale during the 120-day period prior to issuing a right-of-way for wind or solar energy development on federal lands, and must hold an offshore oil and gas lease sale within one year prior to issuing a lease for offshore wind development on the outer continental shelf.12 Given the Biden administration’s ambitious renewable energy agenda, this provision is expected to have the effect of ensuring that the Biden administration resumes oil and gas lease sales on federal lands and waters, which have been consistently canceled since the President took office in 2021.

The IRA includes about $2.9 billion in funding aimed at incentivizing increased electric transmission development across the U.S. 

Electric transmission development also will be impacted substantially by actions at Federal Energy Regulatory Commission (“FERC”) such as its: proposed rule in April 2022 (Docket No. RM21-17) relating to cost allocation and generator interconnections; and its March 2020 proposed rule, as supplemented in April 2021 (Docket No. RM20-10) relating to financial incentives for new transmission projects. Electric transmission policy development continues to evolve as stakeholders and regulators grapple with challenges associated with weather extremes, reliability concerns and increasing electricity costs.

As the initial IRA language was announced, Senator Joe Manchin’s office issued a list of environmental permitting changes that Senate Majority Leader Chuck Schumer, House Speaker Nancy Pelosi and President Biden have reportedly promised to support before the end of the fiscal year. The working list includes:

These provisions are expected to be part of a separate piece of legislation to be proposed in the fall. Depending on this final set of proposals, the impact of this permitting legislation could range from expanding and codifying existing permitting processes, including under the FAST-41 Act and its implementing guidance, and more fundamental changes to agency and state permitting processes that have been met by criticism from key Democrats as attempts to “gut” the environmental review process. We will continue to monitor these developments and provide a more detailed update as appropriate.  

2. Bill Sections 60101, 60103, 60105, 60107, 60108,  60110, 60113, 60114, 60116,60201, and  60503. ↩

6. https://www.reuters.com/business/autos-transportation/automakers-scramble-decode-new-us-ev-tax-credits-2022-08-12/; https://www.forbes.com/wheels/news/new-clean-vehicles-tax-credit-evs-qualify/; https://insideevs.com/news/603087/us-senate-passes-bill-ev-tax-credit/; https://theconversation.com/climate-bill-passes-it-could-short-circuit-ev-tax-credits-making-qualifying-for-them-nearly-impossible-188282. ↩

11. Bill Section 50264(d) and (e)_____ ↩

14. S&P Global Inc., Inside FERC, Aug. 12, 2022. ↩