Effects of Inflation Reduction Act on Renewable Fuels Industry

There has been no shortage of praise from the renewable fuels industry to President Joe Biden signing into law last summer a massive reconciliation package allocating nearly $369 billion for actions related to climate change.

The package included an extension and eventual overhaul of a tax credit scheme for producers of renewable fuels and funding for an infrastructure buildout for retailers hoping to provide higher blends of such fuels.

The Inflation Reduction Act of 2022 (IRA) was signed in August 2022 after months of negotiations between Senate Majority Leader Chuck Schumer of New York and Sen. Joe Manchin of West Virginia over the scope of the measure.

While the IRA came as a relatively pared-down alternative to the Build Back Better (BBB) Act that failed in the legislature the previous autumn, the measure was nonetheless praised by renewable fuel industry advocates for provisions they said offer their industry a significant path to expansion and greater utilization over the coming years.

Geoff Cooper, president and CEO of the Renewable Fuels Association (RFA), said following passage of the measure that its investments now offer the industry a “sustainable path for growth and investment.”

Benefits of the Inflation Reduction Act of 2022

The law extended the $1/gal biomass-based diesel blender’s tax credit (BTC), which was long a boon for the industry, until Dec. 31, 2024, and also created a similar credit for sustainable aviation fuel (SAF) production that had been derailed following the failure of the BBB act.

The IRA authorizes funding for two years for a new $1.25/gal credit for SAF blending. That credit will be awarded to fuel blends that can reduce carbon emissions by at least 50% compared with conventional jet fuel. For every additional percentage point in reduced emissions, the credit will increase by 1ct up to a cap of $1.75/gal.

The measure also restores the 50ct/gal alternative fuels tax credit for a range of fuels, including LNG and CNG, which expired in 2021, and extends it through the end of 2024. In addition, it offers $20 billion in grant funding for climate-smart agricultural practices, as well as support for carbon capture and sequestration (CCS) projects.

The legislation recognizes the role farmers and biofuel producers can play in reducing greenhouse gas emissions.

American Coalition for Ethanol (ACE) CEO Brian Jennings said that the legislation “recognizes the role farmers and biofuel producers can play in reducing greenhouse gas emissions and validates the work ACE has put forth to position corn ethanol as a meaningful part of the climate solution.”

And Emily Skor, CEO of Growth Energy, said that the initiative will help “jump-start climate progress, while delivering more savings at the pump, greater long-term energy security and a welcome economic boon to rural communities.”

The measure’s SAF tax credit was also praised by Ed Bolen, president and CEO of the National Business Aviation Association, who said in a release that its implementation “marks genuine progress toward increasing SAF production, promoting greater availability at general aviation airports and reducing costs to end users.”

Oil and Refining Industries Take a Different View

Mike Sommers, president of the American Petroleum Institute, said that while the IRA took “important steps toward new oil and gas leasing and investments in carbon capture and storage,” it fell “well short of addressing America’s long-term energy needs” and further discouraged needed investment in oil and gas.

Supporters have since continued to applaud the move.

The IRA fell well short of addressing America’s long-term energy needs. 

Monte Shaw, head of the Iowa Renewable Fuels Association, earlier in March recalled how a recent meeting of his organization’s board illustrated the industry’s fondness for the IRA and the boost it gave the CCS industry.

“About half of my board felt that the IRA tax provisions would be as transformative for the renewable fuels industry as RFS II was,” he stated, referring to the groundbreaking Renewable Fuel Standard.

Views from Outside the U.S.

Canada-based downstream company Parkland Corp. said in March that it is scrapping plans to build a renewable diesel plant in British Columbia in part because language in the IRA that could favor U.S. fuel producers over non-U.S. operators has made the project less attractive.

On the same day, the government of New South Wales (NSW) in Australia announced $43 million in funding toward the construction of two green hydrogen hubs, saying the incentives are competitive against the IRA, which industry experts have warned is drawing green capital and qualified workforce away from Australia.

Europe needs to regain ground if it wants to play a role in the hydrogen Economy.

Also earlier in March, attendees at the International Energy Week 2023 conference in London were told that following the launching of the IRA, “Europe needs to regain ground if it wants to play a role in the hydrogen Economy.”

“The race is on,” Marco Alvera, chief executive of TES Hydrogen, said, noting the incentives for hydrogen in the IRA.

Similarly, Australia said in late February that it will review its national hydrogen strategy to stay competitive in light of international developments such as the IRA.

Earlier in March, Australia’s Clean Energy Council (CEC) called on the federal government to increase its policy support and funding for renewable energy in the country or risk losing what it calls an “international clean energy arms race” to the U.S.

Chief Executive Kane Thornton said that while it was positive for decarbonization, the IRA threatens to divert significant international investments and jobs from Australia to North America.

“Australia has a prime opportunity to become a clean energy superpower, but the brightest minds and the biggest wallets are now looking to the U.S. for their best opportunity,” Thornton said.

“It is immediately clear the US package dwarfs the level of support Australian governments provide for the clean energy transition,” he said, adding that “the consequences of inaction have the potential to damage Australian competitiveness across all industries for decades to come.”

Those were not the only reverberations outside the U.S. In February, Peter Liese, a member of the center-right European People’s Party, warned that the EU needs to respond to the IRA in order to encourage green investments on that continent.

“The IRA is a challenge to Europe when it comes to jobs in green industries,” he said. “The answer to ‘America First’ should not be ‘Europe First’ but ‘Europe Fast.’ We need to speed up our procedures.”

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Tags: Renewables