Political risk threatens US energy policy



Kevin McCarthy, the Republican Speaker of the House of Representatives, was voted out of office, marking a first in US history, amidst critical times for energy policy. The 2022 Inflation Reduction Act incentivizes the investment in low-carbon technologies, however, Republicans in Congress aim to repeal many of its key provisions. In contrast, President Biden’s administration is limiting offshore oil and gas development, which has caused a stir given it contradicts his previous statement encouraging an increase in American oil production.

US Energy Politics: McCarthy’s Ousting and the Future of the Inflation Reduction Act

This week in US politics was marked by Republican House Speaker, Kevin McCarthy, losing his position in a 216-210 vote. This is an unprecedented event in US history and hints at the volatile state of US politics, especially regarding energy policy. With general elections just over a year away, McCarthy’s ousting draws attention to the political risks surrounding US energy outlook.

In 2022, the Inflation Reduction Act (IRA) introduced incentives for investment in low-carbon technologies such as wind, solar, battery storage, hydrogen, and nuclear. However, for effective growth in low-carbon energy, these incentives must stay in place for at least the next decade. Some Republicans in Congress are pushing to repeal major portions of the act.

President Biden’s administration recently moved to limit future offshore oil and gas development. The Department of the Interior published its Proposed Final Program for offshore leases over 2024-29, indicating a significant reduction compared to the Trump administration’s plans. Such long-term restrictions could potentially spark a future short-term crisis.

Next year’s elections look evenly contested, with Biden and Trump neck-to-neck in polls. Should the Republicans regain control of the House, Senate, and White House, there could be attempts to repeal parts of the IRA, limit its impact, and rollback regulations promoting electric vehicles.

IRA Support and Challenges

Despite its problems, energy executives at ADIPEC, the vast energy conference in Abu Dhabi, voiced consensus in favor of the IRA. Shell’s CEO Wael Sawan and Occidental Petroleum’s CEO Vicki Hollub highlighted the IRA’s role in promoting new technologies. However, the IRA has faced implementation challenges such as securing permits, grid connections, and dealing with cost inflation.

In particular, the solar industry has not seen the expected growth due to the IRA. Moreover, industries are still awaiting regulations and guidance on IRA credits eligibility. Despite these challenges, the IRA is still expected to stimulate long-term growth in low-carbon energy.

The question remains if policy changes due to shifts in the White House and Congress could disrupt this growth. While there are concerns, many Republicans represent areas benefiting from investments backed by the IRA, and thus might not support its repeal.

Global Energy Brief

Crude oil prices have fallen over the last week due to worries over weakening demand. India’s petroleum minister Hardeep Singh Puri warned of the potential dangers of too-high oil prices and OPEC+ production cuts amidst global inflation.

Sultan Al-Jaber, CEO of the Abu Dhabi National Oil Company, urged oil and gas companies to lead the transition to low-carbon energy at the ADIPEC energy conference. In other news, Eni announced a significant gas discovery in offshore Indonesia.
Source: Wood Mackenzie

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