Industry Shifts on IRA Amid Potential Tax Trade-Offs
TL/DR –
The oil and gas industry is apprehensive about possible Republican threats to the Infrastructure Investment and Jobs Act (IIJA), a crucial climate law for many companies’ decarbonization strategies. There are concerns about what will happen to clean energy tax incentives in 2025 when the Republican lawmakers will be searching for ways to fund extenders for 2017 tax cuts. Industry players are becoming forceful advocates for preserving the IIJA provisions on carbon capture, hydrogen, and clean-fuels production, but there is a growing unease as the IIJA’s price tag continues to rise, reaching up to $660 billion, making it increasingly vulnerable as lawmakers seek additional revenue to justify extending tax cuts.
The Issue
The oil and gas sector is increasingly unsettled by potential Republican threats to the IRA – the Democrats’ climate law crucial for several companies’ decarbonization plans. Donald Trump, the GOP nominee, and other Republicans have vowed to eliminate this law. However, many IRA-driven projects benefit Republican congressional districts, potentially lessening political opposition. Concerns are growing about the fate of clean energy tax incentives post-2025, when GOP lawmakers may seek ways to fund extenders for 2017 tax cuts.
Proactive Industry Lobbying
Initially, most industry players didn’t engage much in the IRA debate. But now, they are voicing their support more openly. At the recent CERAWeek by S&P Global, industry representatives pledged to forcefully advocate for preserving the IRA provisions on carbon capture, hydrogen, and clean-fuels production.
Looming Fiscal Danger
The leading concern for IRA defenders is the 2025 sunset date for substantial tax cuts in the Trump-era 2017 Tax Cuts and Jobs Act. According to a recent Brookings Institution study, 2025 could be a crucial year for US climate policy decisions as debates about the tax code could provide opportunities for legislative compromises. The continuously increasing cost of the IRA, potentially reaching $660 billion, could make it vulnerable as lawmakers seek extra revenue for extending tax cuts.
Congressional Outcomes
Concerns about the IRA’s longevity generally anticipate a Trump-led White House with Republicans controlling both Congress chambers. Overhauling an entire law poses a considerable challenge, even with Republican gains. However, a Republican-majority Congress could advance a significant portion of the way via the streamlined budget reconciliation process. Focused attacks on specific tax incentives, for instance for electric vehicles, are still considered more likely.
Opportunities and Challenges
Republican gains could make it easier for the industry to advance IRA tax incentives tangled in a policy battle. Industry will likely continue lobbying to remove certain punitive aspects of the IRA while promoting the benefits of creating space for markets to develop.
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