Clean energy and climate change are central figures in the Biden administration’s $2 trillion American Jobs Plan infrastructure bill. As such, companies in the energy industry and related sectors need to pay close attention to what the bill could potentially mean for them.
If signed into law as is, the plan would be a significant step forward in the administration’s efforts toward net-zero emissions by 2050. But that is a very big “if,” as talks between President Biden and lawmakers have only just started.
The bill addresses everything from roads and bridges to waterways and internet access to senior care and effects of climate change.
In the energy sector alone, the plan would have important implications for tax incentives, the shift toward renewables, carbon capture efforts, the electric vehicle market and more.
Specifically, according to a White House fact sheet that lays out some of the details, the plan includes proposals for:
Establishing an energy efficiency and clean energy standard. This new national standard would aim to reduce electricity bills and electricity pollution and better use the carbon pollution-free energy provided by sources such as nuclear and hydropower, with the end goal of moving toward 100% carbon pollution-free power by 2035.
A 10-year extension of tax incentives for clean energy generation and storage (such as wind and solar power). There are several differentiators of this proposal to note, according to Bloomberg. In Biden’s version, the incentives would be extended to stand-alone energy projects, which were previously excluded. Additionally, Biden’s proposal includes a “direct-pay” provision that would “entitle qualifying projects to the maximum value of their credit, even if that value extends the amount of the income tax owed,” according to Bloomberg. The direct-pay option is particularly attractive for developers, as tax equity financing is less available. Finally, if put into law, the 10-year length of the extension would be longer than any previous extension.
$100 billion investment in the nation’s electricity grid. The backbone of this is a proposed creation of an investment tax credit to “incentivize the build-out of at least 20GW (gigawatts) of high-voltage capacity power lines.” This investment is meant to push toward Biden’s goal of carbon-free electricity generation by 2035.
“Ten pioneer facilities that demonstrate carbon capture retrofits for large steel, cement and chemical production facilities, all while ensuring that overburdened communities are protected from increases in cumulative pollution.” The plan would also change what is currently a tax credit for carbon dioxide sequestration into a direct payment, making it even more beneficial for those investing in carbon capture technologies.
to invest $35 billion in advanced technologies that will position the United States as the “global leader in clean energy technology and clean energy jobs.” The investment will include funding for priority projects such as utility-scale energy storage, carbon capture and storage, hydrogen, advanced nuclear, floating offshore wind, bio products and electric vehicles.
$174 billion to get ahead of other nations in the electric vehicle (EV) market. This plan includes incentives for both automakers and consumers. The plan would empower automakers to “spur domestic supply chains from raw materials to parts, retool factories to compete globally, and support American workers to make batteries and EVs.” For consumers, incentives would come in the form of sales rebates and tax incentives to buy American-made EVs.
Again, it is important to note that Congress has yet to vote on the legislation and that negotiations have only just begun. But the variety of proposed changes would present both challenges and opportunities for energy companies across the value chain. Here are some key areas of consideration for energy companies as discussions around the American Jobs Plan continue:
Tax implications: The bill, set to be funded in part by raising the corporate tax rate from 21% to 28%, also proposes the elimination of tax subsidies for fossil fuel companies. Although the plan does not specify the exact tax subsidies it will target, cutting deductions such as the one for intangible drilling costs, which allows operators to deduct the majority of costs associated with drilling a well, could significantly affect exploration and production companies. Oil and gas companies should evaluate their current tax structure and the potential effect the elimination of fossil fuel subsidies may have on their bottom line as early planning is key to mitigating unexpected losses.
Product diversification: As the energy transition matures, companies should consider their existing product portfolio and its position to evolve along with the regulatory environment. The clean energy incentives outlined in the proposal should be considered alongside diversification strategies and will open new avenues to pursue renewable energy or cleaner fuel technology investments.
Workforce evolution: Many energy companies significantly reduced their workforce in 2020 because of pandemic-related demand destruction and related industry downturn. As the industry emerges, prices recover and proposed incentives make their way through legislation, the human resources needs of energy companies will evolve as well. Organizations should consider how the proposed incentives may affect their ability to hire and what skill sets—especially related to advanced technologies—will be required in the workforce. Human capital and required subject matter expertise should be carefully considered alongside strategy to shift toward advanced technologies.