The Inflation Reduction Act (IRA), signed into U.S. law by President Joe Biden on August 16th, might be the biggest climate investment in history, but it does not look much like the kinds of policies that have been most championed by climate activists and economists. There is no carbon tax, no cap and trade program, no specific emissions targets. Instead, the law combines a slew of incentives like rebates and tax credits aimed to encourage significant growth of the clean energy and electric vehicle sectors.
To understand what is in the IRA, and what exactly its impact could be on reducing national greenhouse gas emissions, we spoke with Dr. Jesse Jenkins, who leads the REPEAT Project at Princeton University. Dr. Jenkins’ team performed an independent climate and economic impact analysis of the IRA, and he walked us through the details of the climate mitigation measures in this package: what decarbonization strategies are being employed, who is most impacted by the measure, and how much emissions reduction will result from the policies of this bill.
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Contact us at contact@climatenow.com
Visit our website for all of our content and sources for each episode.
The Inflation Reduction Act (IRA), signed into U.S. law by President Joe Biden on August 16th, might be the biggest climate investment in history, but it does not look much like the kinds of policies that have been most championed by climate activists and economists. There is no carbon tax, no cap and trade program, no specific emissions targets. Instead, the law combines a slew of incentives like rebates and tax credits aimed to encourage significant growth of the clean energy and electric vehicle sectors.
To understand what is in the IRA, and what exactly its impact could be on reducing national greenhouse gas emissions, we spoke with Dr. Jesse Jenkins, who leads the REPEAT Project at Princeton University. Dr. Jenkins’ team performed an independent climate and economic impact analysis of the IRA, and he walked us through the details of the climate mitigation measures in this package: what decarbonization strategies are being employed, who is most impacted by the measure, and how much emissions reduction will result from the policies of this bill.
Follow us on Twitter, LinkedIn, Facebook, and Instagram.
Contact us at contact@climatenow.com
Visit our website for all of our content and sources for each episode.
[00:00:00] James Lawler: Welcome to Climate Now, a podcast that delves into the scientific ideas, technologies, and policies that will help us address the global climate crisis and achieve a net-zero future. I'm your host, James Lawler. If you find today's episode interesting, leave us a review on Apple Podcasts or wherever you happen to be listening to this.
[00:00:24] James Lawler: You can find more of our content, including videos, newsletters, upcoming, live events, and partnership opportunities, on our website at climatenow.com.
[00:00:32] James Lawler: Today we're diving into the Inflation Reduction Act, or IRA with Jesse Jenkins, who's a macro-scale energy systems engineer at Princeton University and a lead researcher for the Rapid Energy Policy Evaluation and Analysis Toolkit Project, or REPEAT Project for short, which was one of the main modeling groups that helped lawmakers understand the potential impact of the Inflation Reduction Act Policies while they were being considered in Congress.
https://repeatproject.org/docs/REPEAT_IRA_Prelminary_Report_2022-08-04.pdf
[00:00:59] Jesse Jenkins: You know, it's trying to make clean energy cheap, it's trying to cut air pollution and create more equitable access to clean energy solutions, it's trying to build out the U.S. clean energy manufacturing supply chain, and of course, it's trying to drive down our CO2 emissions as rapidly as we can.
[00:01:12] James Lawler: The IRA is a big law with a lot packed in. It has credits for consumers to purchase EVs and heat pumps, it has fees on gas companies for methane leaks, and even some language that allows specific oil and gas leases on public lands. So, we won't cover everything today. We will talk about the potential impact the law might have on U.S. greenhouse gas emissions, the different subsidies it provides for clean energy, not just wind and solar, but also geothermal and nuclear power, among others, as well as subsidies for hydrogen, carbon capture and storage, long duration battery storage, and support for local manufacturing.
[00:01:50] James Lawler: Then, we'll wrap up with a brief overview of the Greenhouse Gas Reduction Fund, which will grant $27 billion to communities, with $15 billion going to low income and disadvantaged communities. So, a lot to cover today, let's dive in.
[00:02:05] Jesse Jenkins: This preliminary report describes the high level impacts of the bill on U.S. emissions trajectory, energy costs for the country, the deployment of resources like wind and solar and carbon capture, what it does for oil and gas markets, and demand , and production of oil and gas. Those kinds of impacts that are most important, high level impacts, are in the report.
[00:02:29] James Lawler: So, let's dive into some of what those impacts are likely to be, starting maybe with the most important thing, which is greenhouse gas emissions. By what mechanisms will this bill reduce the United States' greenhouse gas emissions, and by how much?
[00:02:43] Jesse Jenkins: So, the main thing that the Inflation Reduction Act does is it focuses on making clean energy cheaper than fossil energy, and it does that immediately through subsidies, a whole range of grants and loan guarantees and rebates for low income people, and primarily tax credits.
[00:02:59] James Lawler: Isn't it already true, though, that clean energy like solar and wind is less expensive than fossil fuel energy, in many places at least, at this point?
[00:03:09] Jesse Jenkins: So, it is true that the kilowatt hours that you can get from a wind farm or solar farm, in many locations—not everywhere, but many locations—are cheaper than what you get from a fossil fuel power plant. The big difference, though... it's sort of like comparing, it's not apples and oranges, more like bananas and burgers, right?
[00:03:26] Jesse Jenkins: They're two different types of your energy diet. Wind and solar are cheap, they have no fuel costs when they're there, but they're not dependable. They're weather dependent and variable in their output. So, even though they're cheaper, they do displace some of the energy that's provided by those resources.
[00:03:43] Jesse Jenkins: We need other clean resources that can complement weather-dependent technologies. It could be geothermal energy, it could be clean hydrogen produced, you know, from electrolysis and stored. to use at another time, it could be nuclear power, hydropower with large reservoirs that can shift when it produces. So, a mix of these other firm resources as well. And today we're really dependent on our fossil power plants for that. So, that's the challenge there.
[00:04:09] Jesse Jenkins: What this does is it subsidizes everything. It makes renewables even cheaper, so that we can build more wind and solar, even when their value starts to get smaller and smaller in the system.
[00:04:18] Jesse Jenkins: And, it also provides the same level of support for advanced nuclear power, for advanced geothermal, for hydrogen, which gets a new production tax credit, for carbon capture and storage on fossil power plants, or industrial point sources, which gets a new, or much more significant tax credit.
[00:04:34] Jesse Jenkins: So, all down the line, everything you want to put in the portfolio of a cleaner energy system, the bill provides somewhere between 20 and 50 percent, roughly, of the cost of those projects is now borne by the federal tax base.
[00:04:48] Jesse Jenkins: And not just everybody, like, it's not you and me. The tax increases in the bill are on billionaire tax cheats that have not been paying their fair taxes. That IRS enforcement is going to be able to get more money from corporations, big major corporations that make a billion dollars or more in revenue and have been paying less than 15 percent corporate income tax. There's now a new minimum corporate tax at 15 percent. So it's, you know, Corporations and people who've been cheating on their taxes, paying for us to all get cheaper, cleaner energy, and that's at its core what the bill does.
[00:05:21] Jesse Jenkins: And by making energy cheaper, there's no guaranteed emissions outcome. So, it's not like a regulation where we say we're ratcheting down emissions. That also makes it harder to model, which is why we needed this project—to be able to put all the policies in and try to understand their aggregate impact.
[00:05:35] Jesse Jenkins: But when you put it all together, the impact is big on the order of a billion tons of additional emissions reductions in 2030, below the current policy without this bill. That gets us to about 40 to 42 percent below 2005 levels in 2030, 2005 is sort of the peak year in U.S. emissions that's used as a benchmark in all of our international climate commitments.
[00:05:57] Jesse Jenkins: So, that's the comparison that we're looking at. And the goal that the Biden Administration is set, which is a good one, is to get to 50 percent below 2005 levels. So, it basically does two thirds of the additional work that we need beyond the Infrastructure Law to close the gap. There's been a billion and a half-ton gap between the Infrastructure Law and where we need to be in 2030.
[00:06:19] Jesse Jenkins: This additional law does about two thirds of that work, or another billion tons. So, it doesn't get us there on its own, but it does a huge amount of that work, and it makes every subsequent action from here on out much cheaper by covering a substantial portion of the cost.
[00:06:33] James Lawler: So, let's step through some of the provisions of the bill, starting with solar energy. How does this bill support photovoltaic solar power generation?
[00:06:42] Jesse Jenkins: So, there's two tax credits for solar, one for businesses, one for personal residences, your personal income tax credit. On the personal front, both of them have been phasing out. The full value is a 30 percent tax credit that stepped down to 22 percent this year, and was going to phase out over the next two years entirely for households, and down to 10 percent for businesses.
[00:07:07] Jesse Jenkins: The bill reverts back immediately to the 30 percent full value tax credit, because that's an investment tax credit that covers 30 percent of the cost of installing solar on your home, or in the case of a utility scale solar farm, the cost of building that project and connecting it to the grid. For the household, you have to have the tax appetite, the liability on your taxes to write that down.
[00:07:28] Jesse Jenkins: Say, you know, you've put a $30,000 solar system ,It covers eight $8,500 of that. You have to owe $8,500 in taxes if you want to monetize that. That used to be the case for businesses as well. And in order to monetize those credits, they had to take on what was known as tax equity investors. So, those are big banks or other entities with large tax appetites.
[00:07:46] Jesse Jenkins: They would invest as owners of the project in order to claim the value of the tax credit, because the developers of those projects typically don't have enough tax liability to use the credits.
[00:07:56] Jesse Jenkins: Now, under this law, you can easily transfer the credit to any other business with corporate tax liability. They don't have to be investors in the project. So, you can basically sell your tax credit to any other business that has tax liabilities. That makes it a lot easier to take advantage of the full value of that credit. You know, maybe not the full value, maybe you sell it for 95 cents on the dollar, because the recipient wants to come out a little bit ahead on that deal. But it's much better than the current tax equity structure, which is very complicated and takes a good chunk of the money for the banks.
[00:08:30] Jesse Jenkins: All nonprofits and publicly owned utilities, which previously couldn't use the credits at all, because they don't pay any taxes. They get what's called direct pay, which is that they basically file a tax reform return as if they had already paid all that in taxes and owe nothing. So then they get a rebate of the full value of the tax credits.
[00:08:50] Jesse Jenkins: Very interesting.
[00:08:51] James Lawler: So, what about hydrogen? How will the bill help the hydrogen industry?
[00:08:55] Jesse Jenkins: So, in addition to subsidizing all clean sources of electricity, which you can use to produce hydrogen, to produce green, quote unquote 'green hydrogen' via electrolyzers, which take electricity and split water into hydrogen and oxygen. So, it subsidizes not just solar, but wind and advanced nuclear and geothermal and any carbon-free electricity source gets either that 30 percent investment credit, or a $26 per megawatt hour production credit.
[00:09:21] Jesse Jenkins: Every megawatt hour you produce, the government will give you a $26 tax credit for the first 10 years of the project. That's gonna make clean energy a lot cheaper, which will make hydrogen produced from electricity more competitive relative to how we produce hydrogen today, which is entirely from natural gas.
[00:09:39] Jesse Jenkins: Natural gas is methane. It's CH4. You split out the hydrogen and the CO2. Right now, they vent that CO2 to the atmosphere, and you sell the hydrogen to an oil refinery or a fertilizer ammonia factory, those kinds of things. So really, there's two things you can do to make cleaner hydrogen.
[00:09:58] Jesse Jenkins: You can start capturing that CO2, when you split the methane up. The bill provides a much more lucrative subsidy for carbon capture. It's now worth $85 for every ton that you capture and store in geologic storage underground.
[00:10:14] James Lawler: When we say it's worth $85, does the government write you a check for $85 for each confirmed ton? So that one is also a tax credit, and same thing in supply, you can transfer it to any other entity. Nonprofits get direct pay, so they will write you a check.
[00:10:27] Jesse Jenkins: The difference with that one, and the hydrogen credit, as well as the advanced manufacturing credit, and we can talk about that later, is that anyone can also elect to get five years of that direct pay benefit. So, if you don't have tax liability for the carbon capture or hydrogen credits, you can choose... In the hydrogen credit is over the first 10 years of production, the carbon capture credits over the first 12 years, so at some five year stretch, it has to be consecutive in that period. You can turn on direct pay if you want to, even if you're a tax-paying entity.
[00:10:57] Jesse Jenkins: For example, you just built your project, you've still got a lot of costs you're writing down on your, on your books, you haven't earned a lot of revenue yet. You can get direct pay right from the beginning, and then it would be, come tax time, at least, an $85 check per every ton.
[00:11:10] Jesse Jenkins: But the main way that most people are focused on to produce clean hydrogen is from electricity from clean sources, and that gets a $3 per kilogram subsidy. The going rate for hydrogen is somewhere between a dollar and $1.50 or $1.25 per kilogram from natural gas, depending on how expensive natural gas is. So that's a huge subsidy. Again, it's a tax credit. All the same things apply you. You can also do the five year direct pay for that one.
[00:11:36] Jesse Jenkins: So, both producing hydrogen from fossil fuels and capturing the CO2, or from biomass and capturing the CO2, and producing hydrogen from carbon-free sources of electricity can now net you a very significant subsidy that will make clean hydrogen cost competitive with hydrogen for natural gas.
[00:11:54] James Lawler: Can you correct me if I'm thinking about this the wrong way? So, all of these, the tax credit, the subsidies on solar, the renewable forms of energy production, are transferable. Meaning that if it costs me $300 to install some facility that produces green energy, I can take roughly a hundred dollars of that and write it off.
[00:12:14] Jesse Jenkins: No, it's just straight: a hundred dollars. It's not a deduction. There are a couple deductions for energy efficiency, but most of these are a straight credit.
[00:12:19] James Lawler: So, now I can then effectively monetize that perhaps by selling it to, let's say, Disney or something.
[00:12:30] Jesse Jenkins: Yeah, anybody.
[00:12:33] James Lawler: Is there an existing market for this, today? Like, can people go out and buy other people's credits?
[00:12:41] Jesse Jenkins: I believe this is a brand new provision in the energy space. At least, there may be some real-estate related tax credits for low income housing that can be similarly transferred.
[00:12:49] Jesse Jenkins: I've heard, I'm not an expert in that space, but I think I've heard of similar kinds of things in that space. But for the energy space, transferability is a brand new thing that the Inflation Reduction Act created, so this will take some time to build a market, a secondary market. Effectively for tax credits for people to buy and sell them.
[00:13:07] Jesse Jenkins: You can only sell them once, so there actually can't be a secondary market. It's just, you sell it to one other person. When you sell it, you have to register with the IRS, then that person can't resell it to prevent double counting. So there will have to be new IRS guidance created for this.
[00:13:22] Jesse Jenkins: That'll take a little bit of time, the rest of the year. They'll become liquid markets basically for brokers that basically help match buyers and sellers of credits, and help them be monetized.
[00:13:36] James Lawler: Now, what about battery storage? How much battery storage do you think this bill is going to stimulate?
[00:13:41] Jesse Jenkins: So, any grid connected energy storage now gets a 30 percent investment tax credit, just like solar. That was not the case before. Previously, you only got the creditif you were co-located physically with a qualifying solar. So you have a bunch of these hybrid wind, solar, and battery facilities.
[00:14:01] Jesse Jenkins: That's partly because you save money on your transmission interconnection because you can use the same substation, inverters, and transmission lines for both projects, but it also is because that was the only way to monetize the investment tax credit for storage projects in the past. Now standalone storage projects, co-located, whatever, they get the 30 percent investment tax credit for the next decade. Again, commenced construction by the end of 2032, so that's new in the bill. There is also a set of subsidies for producing batteries and battery components in the United States that are meant to build out the EV battery supply chain, but apply equally to people building grid-scale energy storage.
[00:14:42] Jesse Jenkins: If you are investing in U.S. manufacturing for electrodes, you know, cathodes or anodes, or battery cells or packs, those are now also subsidized by a new manufacturing production tax credit, that's equal to 10 percent of the cost of the cathode materials or anode materials, or up to $45 per kilowatt hour for the combined cell and pack. I can't remember exactly much for the cell versus the pack, if you don't do the assembly together. That's roughly a third of the cost of a manufactured lithium ion battery pack today, and it will become a larger chunk of the cost as lithium ion gets cheaper. So, 30 percent on the manufacturing side if you build in the U.S. and then 30 percent, regardless of where your batteries come from, when you actually go construct the project for grid-scale storage.
[00:15:34] Jesse Jenkins: It's going to be a big boon for energy storage development. It's growing from basically nothing at record paces, so we'll see kind of where it goes from here, but expect gigawatts of energy storage connected to the grid, Whereas now we have like a couple of gigawatts total in the country.
[00:15:53] James Lawler: It's amazing. So, we'd love to ask you about nuclear energy. Is there a vision in this bill for the role that nuclear power production should play, and if so, what is it?
[00:16:03] Jesse Jenkins: Yeah, there definitely is, and when it comes to nuclear, it's always important to separate out two very important different questions, which is, what do we do with the existing nuclear fleet, right?
[00:16:12] Jesse Jenkins: That supplies about a fifth of our electricity today and is roughly half of our carbon free electricity in the country right now. Those plants already require some amount to maintain and continue to operate, but far less than any replacement of a new carbon free firm power source that would be equivalent.
[00:16:33] Jesse Jenkins: Then the question, what about new nuclear reactors? Right. We've had disastrous experiences in Georgia and South Carolina building big gigawatt-scale reactors, at plant Vogtle and VC Summer, you know, Westinghouse and Toshiba, it's parent company, went bankrupt over it. The, you know, Scana in South Carolina went bankrupt over it, big failure.
[00:16:52] Jesse Jenkins: They have a range of smaller, modular, or advanced nuclear reactors coming down the pipe, but just starting to get licensed by the NRC, so they're a long way from breaking ground, in many cases. So, those are two very different questions.
[00:17:06] Jesse Jenkins: The bill does two things for the existing fleet, which has been economically threatened across the country by cheap natural gas, which sets the marginal price for electricity much of the time in our markets—it's more expensive today during given the current energy crisis, but the last decade has been historically cheap—and the growth of renewable electricity.
[00:17:27] Jesse Jenkins: Gas has had a much bigger effect than renewables, but renewables are growing and will have a larger effect in the future. So, basically nuclear plants have not been subsidized as a clean energy resource in this country at a federal level ever, and a number of states have decided to take action on that, including New Jersey, where I live, in New York, where I think, are you in New York?
[00:17:48] James Lawler: Yeah.
[00:17:48] Jesse Jenkins: New York state, which has supported its upstate reactors, even as it closed Indian Point. Illinois, Connecticut, they have also done the same thing. So, they basically stepped in and said, these resources are a critical foundation for our state's clean energy goals. We want to be moving forward, not running to stay in place, not using clean electricity to replace clean electricity.
[00:18:05] Jesse Jenkins: So, we're going to subsidize those reactors to stay operating. The federal government now for the first time is stepping into that job and is offering a tax credit of up to $15 per megawatt hour for existing nuclear reactors. It is less than that if they earn more revenue. So, it's an interesting formula. If they start earning more than $25 per megawatt hour from the electricity markets, the $15 starts to decrease. It could be zero if you earn enough.
[00:18:31] Jesse Jenkins: So, the idea is these reactors are pretty affordable. We don't need to be subsidizing them unnecessarily, but we do need to be providing basically a guarantee that there's revenue there if they need it, and that will help them continue to operate so that we can keep that kind of foundation of carbon free electricity. Use all the new renewables that we're building to shut down and phase out coal and gas, because that's how we drive emissions down. So, that's new. That support is provided in the bill for the existing nuclear fleet so that it stays online and we can keep making more rapid progress towards our emissions and pollution reduction goals.
[00:19:03] Jesse Jenkins: Now, the separate question is, what role might new advanced nuclear reactors play in our future energy system, and that's a big question mark, honestly. Now, the key to remember is, as I explained earlier, there are different types of resources that combine to kind of fill out our full energy diet. So, the fact that wind and solar are really cheap is great.
[00:19:22] Jesse Jenkins: We can get a lot of energy from them throughout the year, but they're not there when you need them necessarily. So, you need resources that can be there either all the time, or exactly when you need them. It's better if they're only there when you need them, not all the time, but we'll take all the time if that's all we can get. That's where the firm low carbon technologies come in, and they're all much less mature than wind and solar, and we really want them to be.
[00:19:47] Jesse Jenkins: So, you know, you think about advanced geothermal energy, and we're opening up new ways to tap into geothermal all over the country, but that harnesses innovations from the oil and gas sector, but those are all early stage companies that are demonstrating how to do that.
[00:20:01] Jesse Jenkins: Think about hydrogen production. Again, our clean hydrogen industry is in its infancy. That's going to ramp up and maybe provide clean fuel. Carbon capture to retrofit an existing gas plant, again, that's nascent, right. We've built demonstration projects, but there's no scale in that industry yet.
[00:20:20] Jesse Jenkins: And then advanced nuclear, which, we tried to build big, gigawatt-scale reactors. That went pretty terribly. There's a lot of companies betting now on both smaller modular designs that could be kind of serial produced in a factory environment, and then assembled onsite. And also some advanced reactor designs that aren't like the light water reactors in our conventional power plants or submarines, they're more advanced designs that use different coolants and different fueling structures, and may have some inherent cost and or safety advantages to those designs.
[00:20:53] Jesse Jenkins: All those have to get licensed by the nuclear regulatory commission, NuScale, which is building a basically smaller version of the conventional lightwater reactor, just got their design approval, but they still don't have approval to construct a project. There are a couple of other companies. Oklo, which has a different style design, and BWR. The BWRX from GE and Hitachi, which is also a lightwater reactor, 300 megawatt size. They're all kind of moving their way through the process, and in the next year or two, they may get their approvals as well.
[00:21:26] Jesse Jenkins: Now, the challenge is, can you build them to compete? Not necessarily with wind and solar, because bananas and burgers are not exactly substitutes, but can you compete with all the other clean firm power options? Can you compete with geothermal? Carbon capture, hydrogen, combustion, biomass, whatever options you have in that space. That's up to the industry to prove.
[00:21:45] James Lawler: To bring it more towards, you know, apples and oranges versus bananas and burgers, at least, could you compete with solar plus battery storage, for example, right?
[00:21:55] James Lawler: It's not that. Okay.
[00:21:57] Jesse Jenkins: Batteries fill a different role as well. I call them fast burst resources or balancing resources.
[00:22:03] Jesse Jenkins: So, the firm resources really are the only ones that are not energy constrained, meaning you can run them as long as you need them. And they're not weather dependent, which means you can run them whenever you need them. And that makes them a really critical complement to the weather dependent, variable renewables, and to the shorter duration, fast burst resources.
[00:22:19] Jesse Jenkins: We need that full package, that kind of balanced energy diet to cost effectively and reliably operate our grid. And the challenge right now is, while wind and solar and, increasingly, batteries and demand flexibility are doing a great job filling those two pieces of the pie, or those two, you know, legs of the stool.
[00:22:37] Jesse Jenkins: We are really dependent on natural gas and existing nuclear plants and coal plants to fill that firm role today. And we can't do that for the long term, right? The nuclear plants, even if we keep them for another 10, 20 years, they're gonna have to be retired. Eventually the coal and gas plants need to go as soon as we can get rid of them. We need a suite of technologies, of clean firm technologies that can replace those and compliment the wind and solar. They're not gonna do everything, but they play a critical role in the mix and that's where nuclear might to be able to compete now.
[00:23:06] Jesse Jenkins: Bringing it back to the policy, what the Inflation Reduction Act does is subsidize all of them and says, the good news is, you're now cheaper than the dirty stuff, but now you guys all have to go compete, right, with the subsidies at your back. And so hydrogen again, gets a subsidy, long duration storage gets quite a generous subsidy under the bill, nuclear, geothermal, any advanced, clean, carbon free electricity technology gets a, either 30% investment tax credit or a production tax credit, for the first time ever on exactly equal footing in terms of the policy support as wind and solar receive. That has not been the case, geothermal has kind of gone on and off the list of receiving the same level of support. Nuclear has never been on the list.
[00:23:49] Jesse Jenkins: From 2025 on, the subsidies transition to equal support for all carbon-free generation. You can choose now if you want either the investment tax credit or the production tax credit, whichever one makes more financial sense for you previously. Solar could only do the investment credit. Wind, you had to be on either or both lists to qualify.
[00:24:11] Jesse Jenkins: Now, you can choose and any carbon free resource will qualify. So, the thing for the public, what we need is at least one of those technologies to work in each region of the country. And that's important because enhanced geothermal probably will work in the west much more readily than it will in the east.
[00:24:29] Jesse Jenkins: Maybe that knocks out the problem in the west, but we still need something for New Jersey and New York and New England. It's going to be a big diverse country. We have different local social preferences and patterns of development and resource spaces.
[00:24:46] James Lawler: Do you think the incentives for carbon capture and storage will make CCS viable economically?
[00:24:53] Jesse Jenkins: Yeah, we do. That's what our modeling finds, as well. Previously, the credit was worth $50 per ton for carbon that was captured and stored and $35 per ton for carbon that was captured and then used. The primary use of CO2 these days is for what's called enhanced oil recovery (EOR).
[00:25:13] Jesse Jenkins: So, you pump CO2 down into depleted oil wells that helps lubricate and free up , you know, pressurize the well to get more of that oil. And if you add up the value of $35 per ton, plus the EOR, it tends to usually be worth more than $50, although it is risky because it's dependent on the fluctuating value of oil.
[00:25:32] Jesse Jenkins: So far, we've seen a lot of projects that have started up looking at EOR, enhanced oil recovery.
[00:25:39] Jesse Jenkins: Now the credit is worth $85 per ton for capture and storage, and $60 per ton for capture and use. So, that went up too, but the gap, you know, the relative value now of $85 per ton, relative to 60 plus,10 or 15 bucks from selling it for enhanced oil recovery.
[00:25:59] Jesse Jenkins: It's now better and less risky for most projects to choose to capture and store that CO2 instead of using it for enhanced oil recovery. So, you know, I'd expect there probably will be some projects that move forward and do EOR, but the bulk of the industry will now A) be much more economically viable across a wide range of locations and industries.
[00:26:20] Jesse Jenkins: At $85 a ton versus $50. It will now kind of generally tilt the scale so that most projects are more profitable and less risky capturing that CO2 and storing it in geologic basins, instead of using it to pump more oil out of the ground., it won't be every facility everywhere, it'll be the facilities that are located favorably next to geothermal CO2 storage opportunities, or large pipelines that can move it to those opportunities.
[00:26:48] Jesse Jenkins: So, where previously $50 a ton or $35 plus, the EOR value, CO2 capture really only made economic sense at very pure sources of CO2, like ethanol fermenters, where you'd get 85 percent pure CO2 coming off of the fermenting vats, or gas separating units, where you take CO2 out of natural gas, as it comes out of the ground, you strip it out and use it.
[00:27:12] Jesse Jenkins: Now, at $85 a ton, it will probably make economic sense in power generation at natural gas or coal plants, again, the right facilities and the right locations so that they have the right site layout and access to CO2 storage. And, in several heavy industries that are some of the highest emitting industries in the country, that'll include, some oil refineries and petrochemical applications, steel blast furnaces, potentially, and cement production.
[00:27:38] Jesse Jenkins: Still, steel, cement, and petrochemicals are the three biggest sources of industrial emissions in the country, and this will start to open carbon capture as a possibility in those sectors, which are very difficult to electrify or switch over to... you have basically to switch to hydrogen, which itself uses a ton of electricity.
[00:27:56] Jesse Jenkins: It opens up new options for decarbonization of industry, which are really important. and in our modeling, at least, there is some deployment in the power sector as well. And that's where I think folks are more ambivalent about carbon capture, particularly when it's installed at coal plants, which will continue to emit pollutants, even if they're capturing most of their CO2.
[00:28:17] Jesse Jenkins: That's where a lot of the negative reaction to the carbon capture credits is focused on: coal plant applications.
[00:28:23] James Lawler: Got it. Can you tell us about the Greenhouse Gas Reduction Fund piece of the law, so $27 billion, with $15 billion going to low income and disadvantaged communities. What kind of projects might that money go toward?
[00:28:37] Jesse Jenkins: Yeah, we've talked mostly about the tax credits that are in the bill, which are the bulk of the money and do the bulk of the emissions reduction work. But, the Greenhouse Gas Reduction Fund is a good example of two other things that are in the bill.
[00:28:47] Jesse Jenkins: One is a set of financial preferential financing that the federal government is going to provide, so the Greenhouse Gas Reduction Fund provides $27 billion to capitalize local state and nonprofit green banks all over the country, that can then use that as the equity in their banks to securitize and use as collateral for all of the concessionary loans and financing and other products they provide for clean energy adoption and deployment and pollution reduction programs in local communities across states, across the country.
[00:29:21] Jesse Jenkins: There are a number of state green banks that already exist. This will help more and more adequately fund the ones that exist. So, this example of this sort of financing, there are other programs like that at the Department of Energy, which gets an enormous expansion of its loan program authority for several different programs, one to support retooling the automotive industry to produce EVs, another for retooling existing fossil energy facilities to either capture their pollutants or emissions, or replace them with cleaner resources, and expansion of the program to support more nascent clean energy technologies in their initial deployment. So, that's gonna have a big impact too.
[00:30:00] Jesse Jenkins: We didn't model any of those loan guarantee programs in our modeling, so that's on top of the roughly billions of tons of reductions that we estimate, or at least it helps facilitate those billion tons, but the other thing you pointed out is that over half of that funding, over $15 billion of the 27 is specifically earmarked to low income and disadvantaged communities.
[00:30:20] Jesse Jenkins: This is consistent throughout the bill as well. There's about $60 billion in total funding across a range of different programs, which are designed specifically to cut emissions and pollution impacts in fenceline and disadvantaged communities that have historically a disproportionate share of the environmental cost and impact of our energy systems, and to open up accessibility to clean energy and electric vehicle chargers and other clean energy solutions to low income and marginalized communities as well.
[00:30:55] Jesse Jenkins: So, kind of dual goals. Make sure that the impacts of the energy system are reduced as much as possible in the communities that have been harmed the most, and ensure the broadest, most equitable access to clean energy solutions as we can, so that we're not leaving anyone behind.
[00:31:13] Jesse Jenkins: Is $60 billion enough to complete that job? Probably not. But, it is the first and largest substantial federal government effort to focus on environmental justice, and more equitable access to clean energy resources.
[00:31:28] James Lawler: Well, thank you so much, Jesse. Thanks for going on that marathon with us today. Really appreciate it.
[00:31:33] Jesse Jenkins: You're welcome.
[00:31:35] James Lawler: That was Jesse Jenkins, macro-energy systems engineer from Princeton University and the REPEAT Project telling us all about different climate provisions in the Inflation Reduction Act. To learn more about what the law offers visit, repeatproject.org.
[00:31:49] James Lawler: Now that's it for this episode of the Climate Now podcast. Please leave us a review, forward to a friend, or tell us what you think at contact at climatenow.com. We hope you join us for our next conversation.
[00:32:06] James Lawler: Climate Now is made possible in part by our science partners like the Livermore Lab Foundation, the Livermore Lab Foundation supports climate research and carbon cleanup initiatives. The Lawrence Livermore National Lab, which is a Department of Energy Applied Science and Research Facility. More information on the foundation's climate work can be found at livermorelabfoundation.org.