Inflation Reduction Act would push Louisiana to forefront of clean energy sector

Tax breaks would jumpstart green transition in petrochemical industry

By: - August 11, 2022 11:02 am

Rows of solar panels generate electricity at the University of Louisiana-Lafayette’s solar research lab, Aug. 9, 2021. (Wes Muller/La. Illuminator)

Some policy experts believe Louisiana is one of the better positioned states to take advantage of clean energy provisions in the Inflation Reduction Act that Congress is expected to pass this week. 

With $485 billion in new spending offset by $790 billion in revenue and savings, the legislation includes the nation’s largest ever investment in clean and renewable energy and significant reductions in health care costs for people covered under the Affordable Care Act and Medicare. The bill is expected to receive final passage in the House Friday before heading to the White House for President Joe Biden’s signature.

With more fossil fuel and petrochemical facilities than most other states, Louisiana could be at the forefront of significant transformations in energy production and industrial manufacturing that the bill would usher in.

“Texas and Louisiana will be some of the better positioned states,” said David Dismukes, professor of environmental sciences at LSU. “Everybody’s kind of got their hand in the pie on this, from chemical manufacturers, pipeline companies to permitting companies and lawyers.”

After more than a year of wrangling, Senate Democrats surprised Capitol Hill watchers late last month when they announced a breakthrough in negotiations over the Inflation Reduction Act with Sen. Joe Manchin III (D-West Virginia). The moderate has single-handedly halted key parts of his party’s legislative agenda since Democrats took control of Congress in 2021.  

With Vice President Kamala Harris’s tie-breaking vote, the Senate passed the bill Sunday, sending a scaled-down yet still transformative version of the bill back to the House for final approval. 

Among a long list of energy-related provisions, the bill most notably extends and expands the investment tax credit and production tax credit on clean energy projects including solar, wind, hydroelectric, geothermal, nuclear, hydrogen produced by renewables, stand-alone energy storage such as utility-scale lithium batteries, and other forms of emission-free electricity generation. 

It creates a manufacturing tax credit for equipment such as solar panels, wind turbines, battery cells and other components produced in the U.S., extends the carbon capture tax credit to 2033 and lowers the requirements to allow more facilities to qualify. The bill expands offshore oil and gas leasing while imposing certain fees for the release of excess emissions. 

Industrial facilities outside of the energy sector, such as chemical and cement manufacturers, can earn tax credits if they use clean energy technologies in their manufacturing processes. 

Dismukes said the wide swath of proposed tax credits would be very appealing to Louisiana’s industrial companies and other sectors that support and do business with those companies.

“There’s a lot of different layers in the industry that can benefit from this,” Dismukes said. “From carbon capture all the way down to storage, we’re just in a better position to do that compared to other places around the country.”

Those tax credits will remain in effect until 2032 or once annual greenhouse gas emissions from the production of electricity in the United States is equal to or less than 25% of current emissions — whichever is later. Companies can receive higher rates on the tax credits if they meet certain wage and apprenticeship requirements, if they use materials produced in the U.S. or by siting projects in low-income areas referred to as “energy communities.”

Rep. Troy Carter Sr., D-Louisiana, said the “energy communities” provision of the bill could benefit Black households, which spend more of their income on energy and experience a median energy burden 64% greater than white households. 

“So this is also an environmental justice concern,” Carter said in an email. “This bill is the most aggressive action in history to combat the existential crisis of climate change, which is threatening Louisiana’s coast, people, culture, and infrastructure. The health of many Louisiana communities are threatened by the dangerous pollution and toxins from domestic fossil fuel production.”

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Carter said the tax credits could push Louisiana’s burgeoning wind power industry “over the top,” an opinion shared by Southern Renewable Energy Association Director Simon Mahan.

“The IRA will turbocharge the renewable energy industries in Louisiana,” Mahan said. “Renewables are inflation busters because the fuel is free, [and] by being unaffected by global commodity markets, ratepayer’s electric bills will be lower and more predictable.”

On the consumer side, the bill extends tax credits on purchases of new and used electric vehicles, energy-efficient appliances, home solar panels and other so-called “green home” systems.  

The Louisiana Mid-Continent Oil & Gas Association has taken a cautiously optimistic position as it reviews the changes that the bill will usher into the energy industry. 

“LMOGA welcomes the positive progress on Gulf of Mexico lease sales and the inclusion of provisions that address the energy transition, creating more operational certainty for our industry and encouraging continued investment in low carbon solutions, such as carbon capture and sequestration,”  LMOGA President Tommy Faucheux said in a statement.

Faucheux said LMOGA remains cautious about tax policies that might hinder long-term investments but added, “Louisiana and the Gulf of Mexico are uniquely positioned to provide affordable, reliable, secure energy to meet American needs, while simultaneously reducing our carbon footprint.” 

Republicans, including both of Louisiana’s senators, have criticized the bill, claiming it will raise taxes and do nothing to curb inflation. In a statement, Sen. John Kennedy called it a “massive tax-and-spending bill,” and Sen. Bill Cassidy said it would hurt average Americans.

“This legislation does nothing to decrease inflation but raises the tax bill falling on everyday Americans,” Cassidy said in a statement.

The bill raises taxes only on the nation’s wealthiest corporations by implementing a 15% tax on the earnings they report to shareholders and a 1% tax when companies buy back their own stock to the benefit of wealthy shareholders and executives. 

This proposed tax policy is specifically geared to target a few dozen large corporations such as Amazon, Exxon Mobil, Bank of America and others that have paid little to no taxes on their profits by exploiting loopholes, according to a list compiled by the Center for American Progress.  

Tax policy experts are divided on whether the legislation will reduce inflation. A study by the conservative-leaning Tax Foundation warned that the new tax burden on those corporations could indirectly trickle down to hurt workers and average Americans.

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Manchin, who has previously joined with GOP senators in halting many other policies proposed by Democrats, pushed back on the Republicans’ claims, telling Fox News last week that taxes will not be raised for regular Americans.

“How in the world can you be raising taxes when all we’re saying is the wealthiest corporations in America, 55 of them, pay zero to help this great country of ours to defend ourselves?” Manchin said.

Other policy experts agree the bill could reduce inflation by stemming the price volatility of fossil fuels such as natural gas, which has been a huge driver of inflation. 

The non-partisan research group Resources For the Future (RFF) conducted modeling that projected a 5-7% drop in retail electricity prices with the average household saving $170 to $220 over the next decade compared to a scenario without the Inflation Reduction Act. 

A study from the Committee for a Responsible Federal Budget, a bipartisan group of former congressional budget experts, reported the bill is likely to ease inflationary pressures over the next decade — slashing the federal deficit by $305 billion, cutting net taxes by $2 billion, and reducing net spending by $15 billion. The bill would slash deficits by nearly $2 trillion over the next two decades, the report said.

Prescription cost cap ‘huge relief to seniors’

Another driver of inflation is the cost of health care, which the Inflation Reduction Act addresses by targeting out-of-pocket medical expenses for the millions of Americans who are not covered under private employer-sponsored health insurance policies. 

The bill would cap out-of-pocket spending on prescription drugs at $2,000 per year for people 65 and older on Medicare. The cap would take effect in 2025 for Part D drugs, directly benefiting the nearly 1 million Louisiana residents covered by Medicare.

“I imagine just having that cap would be a huge relief to seniors,” Louisiana Budget Project’s Jan Moller said.

The bill would allow the federal government to negotiate the costs of certain drugs under Medicare, a provision that lawmakers expect will save billions for elderly Americans and Washington over the next decade. Pharmaceutical companies, which lobbied heavily against the bill, would also be required to pay rebates if they raise Medicare drug prices beyond the rate of inflation. 

More Americans would qualify for the Medicare drug subsidies as the bill would raise the income threshold from 135% of the federal poverty level to 150%. 

For Americans who purchase health coverage on the Affordable Care Act exchange, the bill would extend through 2025 the premium subsidy that Congress first implemented during the coronavirus pandemic and set to expire this year. The subsidy has allowed consumers to pay no more than 8.5% of their income on ACA premiums.

Citing a study by the Urban Institute, Moller said an estimated 64,000 Louisiana residents would have lost coverage had Congress allowed the premium subsidy to expire. 

“That is a huge component,” Moller said. “It is going to keep insurance affordable for more than 100,000 low and middle income residents in Louisiana.”

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Wesley Muller
Wesley Muller

Wes Muller traces his journalism roots back to 1997 when, at age 13, he built and launched a hyper-local news website for his New Orleans neighborhood. In the years since then, he has freelanced for the Times-Picayune in New Orleans and worked on staff at the Sun Herald in Biloxi, WAFB-9News CBS in Baton Rouge, and the Enterprise-Journal in McComb, Mississippi. He also taught English as an adjunct instructor at Baton Rouge Community College. Among his recognitions are McClatchy's National President's Award, the Associated Press Freedom of Information Award, and the Daniel M. Phillips Freedom of Information Award from the Mississippi Press Association. Muller is an alumnus of Jesuit High School and the University of New Orleans and is a veteran U.S. Army paratrooper. He lives in Louisiana with his wife and two sons.

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