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What’s in the Inflation Reduction Act for chemistry?

Law supports carbon capture, green power, and low-emissions transportation with billions of federal dollars

by Craig Bettenhausen
August 12, 2022


A metal well-head device sticks out of the ground in an agricultural field, it has several valves and levers.
Credit: Strategic Biofuels
Efforts to capture and sequester CO2, such as this combination biofuels and carbon storage project under development in Louisiana by Strategic Biofuels, receive generous support in the Inflation Reduction Act.

After months of negotiations, US President Joe Biden has signed into law a bill that would provide $369 billion in spending to combat climate change, along with $300 billion in deficit reduction. The Inflation Reduction Act (IRA), H.R. 5376, contains a wealth of provisions that benefit researchers and companies in chemistry and allied fields, including tax incentives, project financing, and federal procurement.

Carbon dioxide capture, utilization, and storage (CCUS) advocates got nearly everything they sought in the bill. Federal tax credits for point-source CCUS will rise from $50 per metric ton (t) of carbon dioxide to $85 per t if the CO2 is sequestered or $60 if the CO2 is sold for industrial use.

The credits in the bill for direct air capture, a suite of technologies that extract CO2 from ambient air, are even higher at $180 per t for storage and $130 per t for utilization. Advocates say this premium is critical for developing the technology to bring the CO2 concentration in the atmosphere down to levels that avoid climate catastrophe. The boost builds on $1 billion in funding for federal carbon removal R&D contained in the recently passed CHIPS Act.

The bill also makes CCUS and direct CO2 capture tax credits eligible for a structure called direct pay, which simplifies project financing and opens the tax credits to smaller players that lack substantial tax bills to offset. Another $6 billion in grants and tax credits will be available to help companies decarbonize heavy industry—funding that explicitly targets the chemical industry alongside cement and steel.

Beyond CO2, the IRA also provides $1.55 billion to the US Environmental Protection Agency for loans, grants, rebates, and contracts to support oil and gas industry efforts to reduce emissions of methane. It also authorizes the EPA to charge a per-ton fee on methane emissions above project- and site-specific thresholds. Many of the capture and emission reduction incentives in the IRA also apply to methane, as well as nitrous oxide, fluorocarbons, and other greenhouse gases.

Cleantech companies of various stripes are likely to see market expansions from a range of energy and fuel-switching provisions in the IRA. The bill includes more than $60 billion in subsidies for carbon-free power generation, split evenly between domestic capacity building for renewables and production tax credits for existing nuclear plants.

For transportation, currently the largest source of the US’s CO2 emissions, the bill provides $35 billion to promote zero-emission vehicles, including grants and loans for domestic production plants and $3 billion in federal spending on vehicles for the US Postal Service. Consumers, meanwhile, gain more than $9 billion in incentives for energy efficient equipment such as heat pumps, solar panels, and electric vehicles. The bill also creates tax credits worth up to $1.75 per gallon for sustainable aviation fuel.

The American Chemistry Council, a trade group representing chemical firms, applauds the energy and climate provisions of the bill but sees parts of the measure—which also includes a corporate minimum tax—as a drag on the industry. “While unfamiliar to most Americans, a new corporate minimum tax and a methane ‘fee’ will affect them nonetheless,” the group says in an email to C&EN. “The cost of the methane tax would be passed through to the production of chemicals used as building block materials for virtually all manufacturing, while the ‘min tax’ could slow manufacturing investment in America.”

Environmental and climate advocacy groups also express qualified support for the legislation, though they take a different tack than industry. “There are some troubling provisions in the legislation, including some that risk expanding fossil fuel use. Going forward, more action is needed to deepen U.S. emission reductions, help communities become more resilient to climate change, and address the disproportionate burdens of fossil fuel pollution borne by low-income communities and communities of color,” Johanna Chao Kreilick, president of the nonprofit Union of Concerned Scientists, said in a statement when the bill passed in the Senate. “Now let’s get this bill through Congress and to the president’s desk for signature as soon as possible.”

The IRA passed congress with no support from Republicans despite democratic West Virginia Senator Joe Manchin stripping out many of the more expansive social and environmental provisions from the former "Build Back Better" bill. Pramila Jayapal, chair of the House Progressive Caucus joined a unanimous democratic caucus in voting to pass the bill. She described the group’s strategy in an Aug. 3 appearance on the podcast A Matter of Degrees: “Let’s get what we can get done, done, but let’s keep pushing for more,” she said.


This story was updated on August 16, 2022, to reflect H.R. 5376 passing the US House of Representatives unchanged and being signed by US President Joe Biden.



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