The recently announced Inflation Reduction Act has been celebrated as Congress’s biggest investment in fighting climate change, but the 725-page bill also has benefits for the fossil fuel industry.
While the bill's centerpiece is about $385 billion towards funding climate change efforts, the sprawling legislation also includes "bits" for the fossil fuel industry, as economist Douglas Holtz-Eakin put it to Yahoo Finance. Those bits include provisions that may spur greater oil production, open new areas to drilling, and incentivize “carbon capture” technology.
The bill does come with new taxes on the industry, but this latest effort is indisputably friendlier to fossil fuel producers than last year’s stalled “Build Back Better” effort. Exxon (XOM) Darren Woods has told investors the bill was a “step in the right direction,” and others in the industry have also praised the bill.
‘Definitely not a green bill’
Senators Chuck Schumer (D-NY) and Joe Manchin (D-WV) surprised everyone on July 27 when they announced their deal and instantly resuscitated a key Democrat effort.
Exxon's Woods became a notable backer just two days later, contending the deal embraced a “more comprehensive set of solutions.”
BP America, in a statement to Yahoo Finance, said it applauds "Senate lawmakers for making progress toward a historic climate deal," adding that the company supports a strong climate measure and "supports regulatory certainty." Valero Energy (VLO) also praised the deal.
The friendliness to the energy sector was "really eye-opening for everybody," a close observer of the industry, Tortoise Portfolio Manager Rob Thummel, said in a Yahoo Finance Live interview.
Barrons reports that ExxonMobil, Chevron (CVX), Occidental Petroleum (OXY), and Equitrans Midstream (ETRN) could benefit the most from the bill’s provisions, including controversial carbon capture incentives that many climate activists say won’t help in the short-term.
During his round of television appearances on Sunday, Sen. Manchin repeatedly underscored the bill's benefits for the energy industry.
“We have accelerated permitting, which is what they want, and we have increased production of energy, which is what they want,” Manchin said on CNN, speaking of Republicans, who are expected to oppose the bill. “It's not a Democrat bill, it's not a Republican bill [and] it's definitely not a green bill.”
The bill would change certain rules around federal land sales for oil drilling — raising money for the federal government through increased fees but also potentially speeding up the process of opening more land to energy production. The bill could also expose new areas to drilling, particularly in federal waters in Alaska and the Gulf of Mexico.
Manchin says his deal includes a future Senate vote on a more widespread permitting reform bill, which the oil industry has long been calling for. That bill, details of which are scarce, could open more areas for drilling and also spur the building of more natural gas pipelines.
To be sure, most climate activists have celebrated the measure and the billions put aside for green energy. Still, some have focused on the Manchin-led provisions, calling them a giveaway.
"This bill is more of a climate scam bill than a climate change bill,” a group called 350.org said.
Still, Josiah Neeley, a senior energy fellow at the "limited government" think tank R Street Institute, notes that drilling rights can often change dramatically from administration to administration. These rules changes could have the benefit of leading to more “stability and predictability” in the coming years, he said.
'Throwing a little less money at the fossil people'
The bill imposes new taxes on the industry. It would also reinstate a tax on polluters under the Environmental Protection Agency's Superfund program that could cost the industry up to $25 billion.
The bill includes new fees on excess methane emissions, as well. Katie Tubb, a research fellow at The Heritage Foundation, sees that provision as “a point of divergence between the large oil companies and the smaller ones.”
“The bigger producers, the Exxons of the world, I think are more okay with the fee a) because they can afford it and b) because it pushes out the smaller producers who can't afford it," she said.
The American Petroleum Institute, for its part, praised some provisions of the bill while noting that it opposes taxes on the industry.
Meanwhile Holtz-Eakin, the President of the American Action Forum and former Chief Economist for George W. Bush's Council of Economic Advisers, was not impressed with the overall strategy of the bill.
“It’s just sort of throwing money at different clean things and hoping something good happens," he said, "and throwing a little less money at the fossil people and hoping that doesn't counteract it.”
Ben Werschkul is the Washington correspondent for Yahoo Finance.
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