The Inflation Reduction Act (IRA) of 2022 is America's biggest investment in climate to date and marks the most significant climate legislation in U.S. history. It was signed into law in August 2022 and meant to boost investment in clean energy technologies and lower the cost of medication. The U.S. government has earmarked $391 billion to fight climate change by cutting greenhouse gas emissions by 40% from 2005 baseline levels by 2030.
IRA includes a variety of investments in climate change actions such as renewable energy production and grid energy storage, nuclear power, electric vehicle incentives, home energy efficiency upgrades, investments in sustainable aviation fuel, carbon capture and storage, and advanced manufacturing.
Now, let’s take a moment to consider the impact of some of these investments and how you can benefit.
You may not have to make major changes to meet 2030 goals.
The biggest chunk of the money, or $128 billion, is directed toward grid energy storage projects and well-known renewable energy production. These include wind, solar, hydro, and geothermal energy. A grid energy storage system is required to connect intermittent generation sources, like wind and power. While traditional dammed hydroelectricity has been the most significant storage unit, newer options that use batteries or smart microgrids are emerging. As technology evolves, equipment that consumes a great deal of power can be regulated to control power demand. For a moment, consider how power regulation affects your personal household items such as electric vehicle charging, air conditioning units, freezers and washing machines, to name a few. During times of high-power demand, this equipment can temporarily pause or slow down. This can significantly help balance power grid supply and demand and allow for further expansion of renewable power sources.
The process industry can receive incentives for producing green fuels, such as renewable and bio-diesel, sustainable aviation fuel, and some other alternative fuels. The IRA will extend the tax credits before 2023 until the end of 2024; then they transition to the clean fuel production credit. After 2024, the clean fuel production credit for renewable transportation fuels will be $0.20/gal (up to $1.00/gal under certain labor conditions) and sustainable aviation fuel will be $0.35/gal, up to $1.75 under similar labor conditions.
In addition, the process industry can also benefit from producing clean hydrogen. A 10-year production tax credit is available for producing green, blue or pink hydrogen. As the name suggests, green hydrogen is hydrogen produced from renewable sources, such as the electrolysis of water using renewable power. Blue hydrogen refers to hydrogen produced through a traditional process like steam methane reforming, where CO2 is captured and sequestered or utilized. Meanwhile, pink hydrogen is hydrogen generated through nuclear power electrolysis.
How much can you save? As long as the greenhouse gas emissions for every kg or hydrogen is less than 4 kg of CO2, your company may claim tax credits up to $3/kg of hydrogen produced. This tax credit only applies to green and pink hydrogen and when certain labor conditions are met. In contrast, the benefits of producing blue hydrogen are lower.
According to the IRA, many benefits may be five times higher based on labor conditions. It is unclear what these labor conditions will be, but the law requires employers to pay “prevailing wages” to the employees and hire a minimum number of “apprentices," too. Note that this Act subsidizes both the production of renewable energy and the construction of the facilities to produce it. As a result, the financial returns on capital projects are very attractive. Many U.S.-based energy companies I talk with are considering the construction of such facilities.
Even more, the production of blue hydrogen will fit easily into your decarbonization projects. In the coming months, I will expand on decarbonization options for the chemical process industry. For now, however, the IRA makes it more attractive to produce carbon-free hydrogen and invest in hydrogen-fired furnaces and boilers.
While the Act provides many financial benefits, you may not have to make major changes on-site to your fired equipment to meet 2030 goals, saving you significant capital investments. Many times, you can simply increase the green and blue hydrogen content of your fuel gas network to immediately reduce CO2 emissions.