The Establishment of the Inflation Reduction Act

The Inflation Reduction Act
Stark cloudy weather over empty exterior view of the US Capitol Building in Washington By lazy llama

In late August, Senators Schumer and Manchin announced an agreement on a massive bill titled the Inflation Reduction Act (IRA) — a slimmed-down version of the Build Back Better (BBB) bill Democrats had been negotiating since President Biden took office. The primary focus of the tax incentives in the bill was pitched by Democrats as “the single biggest climate investment in U.S. history” to put the United States “on a path to roughly 40% emissions reduction by 2030.”

Senator Manchin opposed the BBB but agreed to back the IRA with one condition — support by the President, Senator Schumer and Speaker Pelosi for a permitting reform bill. Senator Manchin knew passing such a bill separately would be difficult, so he also got an agreement to attach the bill to a must-pass piece of legislation by the end of the year. 

The first bill was the continuing resolution to fund the federal government through December 16, 2022. But, an odd coalition of progressive Democrats and Senate Republicans formed to oppose the inclusion of the reform provisions as part of that legislation. The next opportunity will be to try including the language in one of the appropriation bills — most likely the Defense appropriations bill — which needs to be passed by Congress by the December 16 deadline in the continuing resolution. 

The only bill that can survive a potential change in administration is one with bipartisan support. Legislators on both sides of the aisle have expressed a desire for permitting reform measures, but also opposition to terms set forth by the other party. Whether there’s enough common ground remains to be proven. 

Where Does Senator Manchin’s Bill Go Now?

Senate Republicans opposed an initial term sheet, an early draft, and also the final version of Senator Manchin’s bill, which he called the “Energy Independence and Security Act of 2022.” However, just a few days before its release, Republican Senator Capito from West Virginia released language for her own permitting reform bill. Senator Capito’s bill was titled the “Simplify Timelines and Assure Regulatory Transparency Act’’ or the ‘‘START Act.” 

The two bills have some areas of overlap, and following the withdrawal of Senator Manchin’s bill from the continuing resolution, Senator Capito expressed her desire to continue working on permitting reform, as did other Senate Republicans — including Senator Cornyn of Texas – another key oil and gas producing state. Neither bill is a cure-all for challenges experienced by oil and gas project developers, and Senator Manchin’s may do more for advancing the buildout of electric transmission needed to support the renewable generation incentivized by the Inflation Reduction Act. So, in the same way, an odd coalition initially opposed Senator Manchin’s bill, it’s also possible a similar bipartisan coalition may be able to pass a version of the permitting reform this December.

What Provisions in the Two Bills May Generate Bipartisan Support?

NEPA Reform

Both bills include amendments to the National Environmental Policy Act (NEPA) — the statute which requires the preparation of either an Environmental Assessment (EA) or Environmental Impact Statement (EIS) for almost every major energy project. The bills overlap in their attempts to set time frames for the preparation of these assessments. Senator Capito’s version sets a strict limit of two years for all reviews, whereas Senator Manchin’s requires an average to be met, one year for EAs and two years for EISs. Both approaches have pros and cons, but there appears to be enough common ground to garner bipartisan support for NEPA reform.

Clean Water Act Reform 

Senator Capito’s bill includes amendments to the Clean Water Act designed to codify as law a number of regulatory actions taken by the Trump administration in its last year in office. Senator Manchin’s bill has a far more limited set of reforms, essentially amending the law to incorporate interpretation of federal court decisions from around the country which are not applicable nationwide. However, this provision was struck due to the language that was added to the continuing resolution — before the entire bill was pulled. No official explanation for this exclusion was given, but it may indicate that even limited changes to the Clean Water Act will not be able to gain bipartisan support.

Judicial Review

Before he introduced his bill language, Senator Manchin released a term sheet identifying its intended components. One of those terms was for setting a “statute of limitations for court challenges,” but no such provision appeared in the final bill. However, Senator Capito’s bill would require that any challenge to any energy project permit or approval be filed with the courts no later than sixty days after the decision. The absence of such a provision in Senator Manchin’s bill is problematic, but the fact it was included in his term sheet may mean it could be resurrected in a future bipartisan bill.

Expediting Completion of Mountain Valley Pipeline

Both bills included very similar provisions directing the completion of the Mountain Valley Pipeline project. Senator Manchin’s language was a bit more robust than Senator Capito’s, and so there’s reason to believe some version of this language will be able to gain bipartisan support. 

Other Provisions

The two bills address a number of other aspects of permitting reform all of which may be problematic for one or the other party but may be essential for the bill to gain bipartisan support. In particular, Senator Manchin’s bill is lauded by some environmental groups and progressive Democrats because it would benefit the expansion of electric transmission — essential to a return on the investments for a renewable generation made by the Inflation Reduction Act. On the flip side, Senator Capito’s bill had a provision appealing exclusively to Republicans that would benefit the oil and gas exploration and production industries. Whether any or all of these measures have a chance of surviving in a bipartisan deal likely turns on how the overall balance is struck between favor of renewables and traditional energy sources. 

Polarization is the Enemy of Progress

The Inflation Reduction Act was passed on party-line votes in both the Senate and the House. Almost immediately following, representatives and legislators on both sides of the aisle made it clear they had no intention of passing a subsequent bill to reform the permitting process. Progressive Democrats and environmental purists, ignoring the fact renewable projects have long been subject to regulatory and litigation delays, staunchly opposed any provisions supporting traditional energy infrastructure. Republican opposition appeared mostly to spite Senator Manchin’s support of the IRA, and because they believed his reforms were not sufficient to address the problems faced by the traditional energy industry. 

Following the removal of Manchin’s language from the continuing resolution, Senator Schumer indicated he would attach it to the Defense appropriations bill expected to be approved in December. Senator Capito also noted she was willing to continue working on permitting reform in this Congress or the next, because “even if it’s a new Congress, and even if Republicans take over, we still need to have a bipartisan product here in the United States Senate.” But Senator Kramer (R-N.D.) offered an opposing and less optimistic perspective: he doubts Manchin could possibly alter the bill in a way that satisfies more Republicans and won’t put off more Democrats, “but of course, if we made it a bill that would really be useful, it’s hard to see how Democrats could ever support it.”

Decisions over the next three months will likely dictate the next two to ten years for commercial teams across the entire energy industry. For now, we wait on pins and needles.

Gary Kruse is Managing Director of Research for Arbo, an energy regulatory intelligence data, software and services provider to pipelines, producers, policy-makers, and trading houses. Gary is a foremost expert on the intersecting impact of regulatory, litigation and permitting complexities, and market dynamics on energy infrastructure development and operation. His unique ability to infuse data and quantitative analysis with context from economic, political, and market trends make his insights and viewpoints highly sought by executive, policy, and trading decision-makers seeking to confidently deploy capital, minimize risk, and maximize returns. Gary has decades of experience as an energy industry attorney, is a graduate of the University of Virginia School of Law, and received a Bachelor of Arts in Mathematics from the University of Dayton.

Get the Real Story with Shale Magazine

At Shale Magazine, our sole mission is to look at the facts from an objective angle and report on current events that matter most to energy industry stakeholders. Actions like the Whitehouse unfairly characterizing oil and gas profits as “evil” while Texas plans to divest from ESG funds showcases where both sides certainly have a long way to go. Shale Magazine offers fresh insights into every issue by never shying away from a story and sticking with the facts. Make sure to check out our latest issues to stay in the know about all things energy. You’ll find great opportunities for networking and events, exclusive interviews and one-on-ones with top industry execs, and all the latest news from upstream, midstream, and downstream.


Please enter your comment!
Please enter your name here