In the two weeks since Senate Democrats announced the $740 billion Inflation Reduction Act — a sweeping climate, health and tax deal more than a year in the making — Wyoming’s elected leaders have condemned both the bill and the lawmakers behind it.
“For weeks, there have been rumors that Democrats were working, hidden behind closed doors, on another reckless tax and spending bill. The American people knew it’d be bad, and the bill that we’re looking at now is worse than expected,” Sen. John Barrasso, R-WY, said Aug. 6 on the Senate floor.
He argued that President Joe Biden “declared war on American energy,” imposing an undue burden on energy producers and driving prices higher than working families could afford. And he warned that the Democrats’ agreement would actually make inflation worse.
“Not a single Republican is going to vote for this monstrosity,” Barrasso said. “No Democrat should, either.”
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But every Democrat did. Vice President Kamala Harris broke a party-line tie in the Senate on Aug. 7. Five days later, 220 House Democrats overcame opposition from 207 Republicans. Biden signed the more than 700-page Inflation Reduction Act into law on Tuesday.
The bill commits nearly $370 billion to shrinking the carbon footprint of the energy sector. It allocates chunks of that funding to new and extended incentives for low-carbon energy development and manufacturing and to additional support for energy-efficient home upgrades and electric appliances and vehicles.
It also ties renewable energy development on federal lands to the continuance of oil and gas lease sales, disappointing environmental groups, but raises the associated taxes and fees on new oil and gas leases, frustrating industry and its backers.
Gov. Mark Gordon and 21 other Republican governors said in a joint statement released Aug. 4 that “the last thing Americans need is for Democrats to punish energy producers.”
“Our citizens cannot afford Joe Biden’s broken promises on taxes and Democrats’ inflationary spending that will only exacerbate the economic crisis they created,” the statement added. The governor’s office declined to comment further on the bill.
Independent assessments and the nonpartisan Congressional Budget Office refuted claims from both sides of the aisle about the bill’s true economic impact, estimating that it will, in fact, have a negligible effect on inflation. Environmental analyses, meanwhile, indicate that Congress’ largest-ever investment in climate could reduce greenhouse gas emissions roughly 30% to 40% by the end of the decade.
“There is a lot in this bill — kind of the good, bad and the ugly, I think, in terms of what it’s going to do for Wyoming energy,” said Shannon Anderson, staff attorney for the Powder River Basin Resource Council, a landowners’ group.
It’s a sentiment shared across the state’s energy sector. But the agreement ends there. Interpretations differ widely throughout Wyoming of what in the bill is good, what’s bad and what’s ugly.
Oil and gas
More than 50 oil and gas trade groups, including the Petroleum Association of Wyoming, signed an Aug. 11 letter urging the top Congressional Democrats to “reconsider policies within the legislation before proceeding.”
Ryan McConnaughey, director of communications for the Petroleum Association of Wyoming, said that “while there are some things that could be beneficial to the energy industry in the bill, the net negatives in that bill are just too great to ignore.”
The Inflation Reduction Act hikes the minimum bid on new federal oil and gas leases from $2 per acre to $10 per acre, raises the minimum royalty rate on those leases from 12.5% to 16.7% and ups their annual rental rates — changes many environmental and taxpayer groups have pursued for years.
In Wyoming, where about half of the land and closer to 70% of the minerals are owned by the federal government, most oil and gas production involves at least some federal leasing.
“We already have increased costs in Wyoming as it is,” McConnaughey said. “And so anything that makes it more expensive makes Wyoming a harder place to explore and produce.”
Companies worry that the higher fees will discourage exploratory leasing, long a major source of industry activity, but a practice environmental groups increasingly consider an inefficient use of federal land. One land manager dubbed the bill the “O&G Exploration Reduction Act” in an email to the Star-Tribune.
The bill earmarks more than $1.5 billion for “grants, rebates, contracts, loans” and other incentives to help oil and gas producers monitor and reduce emissions of methane, the primary component of natural gas and a greenhouse gas dozens of times more potent than carbon dioxide. And it imposes fees penalizing operators that exceed an annual limit on methane emissions.
“That’s probably one of the most significant pieces of the bill, in my opinion, in terms of what will happen, hopefully, to reduce the amount of flaring and keep that gas to beneficial uses for energy and heating,” Anderson said.
But McConnaughey called the language “counterproductive,” arguing that it is causing concern among producers “because it doesn’t provide any sort of clear vision on how to implement any of these new regulatory compliance issues.” He said companies aren’t sure yet how the new methane policies will affect them.
The bill also includes a provision aimed at oil and gas leasing — “the Secretary may not issue a right-of-way for wind or solar energy development on Federal land” unless “an onshore lease sale has been held” during the previous 120 days — that has vexed all sides.
If the federal government doesn’t offer at least 2 million acres of public land (or at least 50% of nominated acres) to oil and gas companies, it can’t make federal land available for renewables.
According to Anderson, forcing federal renewable energy development to hinge on additional oil and gas leasing — a Congressional first — could have “perverse” climate impacts. Environmental groups, some of which are calling for leasing to be phased out immediately, feel betrayed by the Biden administration and worry the arrangement will force the federal government to disregard the mounting environmental costs.
The oil and gas industry isn’t thrilled, either.
“It’s just another way for the federal government to be picking winners and losers,” McConnaughey said. “It is a tricky situation when the federal government starts dictating when and where things need to be developed.”
He said the industry is still waiting on legislation expediting oil and gas permitting, promised by Democratic leaders during Inflation Reduction Act negotiations, and which Sen. Joe Manchin, D-WV, said Democrats will advance before the end of September.
Tax credits have been available to wind farms for decades, with Congress typically reauthorizing them for between one and three years at a time, said Jonathan Naughton, a mechanical engineering professor and wind researcher at the University of Wyoming.
“As a business that’s trying to plan a five- to 10-year development, it’s really hard to plan on that tax credit being in place when you want to actually do your development,” Naughton said. “That’s been a problem in the past, particularly for wind.”
The Inflation Reduction Act affords wind developers certainty for the next decade. It extends wind’s tax credit through the end of 2024, then replaces that program with a new production credit open to wind, solar and other low-carbon electricity sources, including conventional nuclear, clean hydrogen and fossil fuel plants outfitted with carbon capture.
Additional incentives built into those credits reward developers for meeting wage and apprenticeship standards and siting projects near former mine lands, power plants or other industrial sites, in low-income areas or in communities that rely on energy revenue. Much of Wyoming qualifies.
The expansion of renewable energy in Wyoming has been limited, in part, by access to the transmission required to move electricity out of the state, Naughton said. The bill directs several billion dollars toward building new transmission and easing the often arduous siting process.
Construction is already underway on multiple newly permitted transmission lines, including Rocky Mountain Power’s Gateway West project.
“Wind and solar are going to benefit from that, and these tax credits just help incentivize them further,” Naughton said. “Anything that we can do to increase transmission is going to open up the potential for additional wind and solar.”
As new transmission is built and power plants using existing transmission retire, “that would allow additional wind to come in,” Naughton said. Some of those developers may opt to generate hydrogen, a low-carbon fuel, from surplus electricity and water, and store it to burn on still days or transport it to buyers elsewhere.
Rocky Mountain Power, Wyoming’s biggest electric utility and a major buyer of the state’s wind power, has not taken a position on the Inflation Reduction Act.
“It’s a large bill and we are still reviewing the content and assessing the implications,” David Eskelsen, a company spokesman, said in an email to the Star-Tribune.
All four of Rocky Mountain Power’s coal-fired power plants in Wyoming are scheduled to retire by 2039, as the company turns to wind, nuclear, natural gas and other electricity sources. Basin Electric Power Cooperative, which operates two Wyoming coal plants, hasn’t set closure dates for either.
Tyler Hamman, Basin Electric’s vice president of government relations, said in a statement Wednesday that the bill, which for the first time expands renewable energy incentives to it and other rural electricity providers, was “really the best-case scenario,” and “by and large a pretty big win.”
The inclusion of funding for carbon capture, utilization and storage proved one of the most controversial parts of the Inflation Reduction Act. One New York Times op-ed declared it “a counterproductive waste of money.”
Increasingly, experts believe the technology will become economically viable too slowly and will cost too much to save all but the youngest U.S. coal plants. The target is shifting to other high-emitting, hard-to-decarbonize industries, like cement production.
But as Wyoming pursues all three prongs of carbon capture, utilization and storage, it hasn’t given up on its coal plants. State lawmakers approved multiple bills meant to delay planned power plant retirements over the last few years, with limited success.
In a legal deal with the state signed earlier this year, Rocky Mountain Power committed to seeking carbon capture proposals for at least one of its remaining coal-fired units. And some Wyoming oil and gas companies are closely tracking the emerging market for hydrogen, which is typically produced using natural gas and could become a low-emissions avenue for natural gas producers if they can capture enough of the carbon released during the conversion process.
The Inflation Reduction Act adjusts an existing tax credit designed to increase the practicality of carbon capture, utilization and storage projects that begin construction within the next decade.
In 2018, Congress set the tax credit at $50 per ton for carbon that was captured from power plants and other industrial sources and then sequestered geologically. Captured carbon that was injected into the ground to boost oil production, then stored in the oil’s place, qualified for $35 per ton.
Those credits rose last week to $85 per ton for geologic storage and $60 per ton for enhanced oil recovery (EOR).
“That could stimulate and spur new CO2 EOR development. We believe that will happen,” said Lon Whitman, director of the University of Wyoming’s Enhanced Oil Recovery Institute.
According to Whitman, the higher credits reduce the cost burden of utilization and storage projects, enabling companies to recoup the money they invested more quickly.
“I think now we watch and let the market and the industry drive how they develop their storage — the permanent, deep saline geologic formation storage, or via EOR,” he said. “It’ll be interesting to watch how it unfolds.”
The Enhanced Oil Recovery Institute is still evaluating the various programs and provisions scattered throughout the lengthy bill.
The federal recommitment to fueling the advanced nuclear industry comes as a promising sign for Wyoming’s uranium mines, according to Travis Deti, executive director of the Wyoming Mining Association. As domestic processing and enrichment rebound, he expects production to follow.
The Inflation Reduction Act also introduces tax breaks for U.S. mines producing critical minerals, including rare earths, and could be a boon to the two exploratory drilling projects already underway in Wyoming.
But the Wyoming Mining Association and the companies it represents are unhappy with almost everything else in the bill, including the permanent extension of the 55-cent-per-ton tax on surface mines used to pay black lung benefits, because “it’s just another burden on the industry,” Deti said.
The bill mentions coal only four times — three of them referencing closures or retirements — even though it devotes billions of dollars to accelerating utilities’ move away from the fuel.
“We’re going to see if this bill stands or collapses on itself,” Deti said.
TerraPower, the company planning to build an advanced nuclear reactor near Kemmerer’s retiring coal-fired power plant by 2028, applauded the passage of the Inflation Reduction Act.
While advanced nuclear reactors like TerraPower’s Natrium facility don’t qualify for the new clean energy tax credit — early projects will be eligible for a separate credit introduced in 2005 — they still stand to benefit from other measures.
“Rocky Mountain Power is working with us, not just for the one plant in Kemmerer — they want to build multiple plants like this,” said TerraPower CEO Chris Levesque. “There’s tax credits in the IRA that will help future utilities buy these reactors.”
The bill also invests another $700 million in support for the advanced nuclear supply chain introduced by the Energy Act of 2020.
Assuming the U.S. supply chain would take more than a few years to mature, TerraPower initially expected to import at least its reactor’s first coreload from Russia, the only commercial supplier of the more highly enriched fuel Natrium requires.
The company scrapped those plans after the invasion of Ukraine and turned to Congress to help it find an alternative source in time to meet its congressionally mandated operating deadline. It’s also working with the Department of Energy to secure uranium already being stored by the federal government until U.S. suppliers catch up.
“We’re even more confident today than when the project started about the U.S. government commitment to creating a U.S. supply chain,” Levesque said, adding that the additional funding is “a clear, clear signal from the U.S. government that they’re going to help this problem.”