August 11, 2022

NM Environment Review: Three ways the Inflation Reduction Act could benefit fossil fuels

Hannah Grover/NM Political Report

A pumpjack is pictured near Aztec, NM.

NM Environment Review is a weekly newsletter that is sent out every Thursday. Sign up here to have it delivered to your inbox.

Hello everyone,

A lot of news following the Senate passage of the Inflation Reduction Act has focused on provisions to help address climate change, like making it easier for people to purchase electric vehicles. You can read my coverage on the topic here. However, the package is not a death toll for the fossil fuel industry. Instead, it includes provisions that will benefit the fossil fuel industries.

These provisions are now being attacked by advocacy groups. While the groups decry provisions that help fossil fuels continue to dominate the energy sector, they say that the IRA needs to pass. 

“The Inflation Reduction Act is a stark example of the naked corruption of government in Washington D.C,” Tom Solomon and Jim Mackenzie, co-coordinators of 350 New Mexico, said in a joint statement. “The continued ability of the fossil fuel corporations to buy their way into business as usual in the face of accelerating climate catastrophe is alarming and depressing. Is it good that the IRA passed the Senate? Yes. Is it an insult to frontline communities? Yes. As climate activists, we will continue to oppose any expansion of fossil fuel infrastructure, including the proposed fossil hydrogen hubs here in New Mexico.” 

Here are three ways that fossil fuels in New Mexico will benefit from the Inflation Reduction Act.

45Q tax credits

These tax credits are issued based on the amount of carbon captured from a project and then either placed underground in a deep reservoir or sold for use. When sold for use, the carbon is generally pumped underground to force oil out. This process is known as enhanced oil recovery.

Carbon capture projects have seen some successes in certain areas, but New Mexico garnered international attention for a proposal to create the largest carbon capture project in the world. This project centers around retrofitting the San Juan Generating Station to remove the carbon from the flue gas after the coal is burned to produce power.

Many are skeptical about the viability of the project, especially as the start-up company is running out of time. S&P Global reported on that earlier this week.

Should the project be successful, the IRA gives Enchant Energy more time to start construction and higher potential tax credits. The current deadline for a project to begin construction and qualify for the 45Q tax credits—tax credits that are in place to incentivize carbon capture projects—is Jan. 1, 2026. The Inflation Reduction Act will change that to Jan. 1, 2033.

Additionally, the IRA would raise the tax credits to $80 per metric ton of carbon dioxide captured and placed into underground reservoirs and $60 per metric ton of carbon dioxide captured and used for enhanced oil recovery.

While San Juan is the project that has gotten the most attention, it is not the only one in the region.

Occidental Petroleum, better known as Oxy, has been exploring the carbon capture arena for years and is working on what is known as direct air capture in the Permian Basin. Direct air capture involves pulling carbon out of the atmosphere.

Direct air capture projects would be eligible for even higher tax credits under the IRA—$180 per metric ton captured and placed into underground reservoirs and $130 per metric ton used in enhanced oil recovery.

Hydrogen incentives

The IRA would create a new tax credit—known as 45V—for clean hydrogen production.

Days after the Senate passed the IRA, state legislators heard a presentation about the proposal to retrofit the shuttered Escalante Power Plant and turn it into a blue hydrogen facility. 

On one side, Wiley Rhodes, co-founder of Escalante H2 Power, presented it as an economic development opportunity that could help a relatively poor part of the state and could decarbonize sectors other than just electrical generation. On the other side, David Schissel, the Institute for Energy Economics and Financial Analysis’ director of resource planning analysis, presented it as a project that faces numerous obstacles before it could become a reality and, even then, it would quickly find itself in competition with cleaner, more affordable energy sources.

Schissel said from the company’s website and past presentations, it is hard to get any sense of the financial or engineering viability of the project.

“I think that that kind of detailed financial and engineering data is important before anyone decides to invest any money in any project actually,” he said.

Schissel acknowledged that the Escalante project is not the only blue hydrogen—or hydrogen derived from natural gas—project in the United States. He said virtually every state has a proposed blue hydrogen project. But, he said, there is no commercial scale power plant running on 100 percent hydrogen. Similar projects include one in Ohio and Schissel said the Ohio project will use 5 percent hydrogen and the rest will be natural gas. Schissel said other projects will start with a mixture of hydrogen and natural gas and ramp up over years to reach 100 percent hydrogen.

“So there’s a long way to go and it’s going to take a long time to get to 100 percent hydrogen as the fuel in power plants,” he said, adding that if Escalante is successful it will likely use both hydrogen and natural gas at first.

The reliance on natural gas means continued emissions, including during the production and transportation of the fuel.

Hydrogen proponents unsuccessfully tried to get legislation passed this year to incentivize hydrogen production in New Mexico, including a potential federally-funded hydrogen hub. Read more about that effort here.

Currently, New Mexico is working with Colorado, Utah and Wyoming to create a regional hydrogen hub. Read more about that here.

Oil and gas leasing on public lands

A section of the IRA known as the Ensuring Energy Security prohibits public lands from being leased for renewable energy projects unless the Bureau of Land Management has had an onshore oil and gas lease sale within 120 days.

“Holding renewable energy hostage to more oil and gas expansion is incoherent climate policy. Pollution from the world’s already-producing fossil fuels, if fully developed, would push the climate past dangerous tipping points and worsen climate catastrophes,” Taylor McKinnon, a senior campaigner for Center for Biological Diversity said in a statement. “Frontline communities will continue to pay the steepest price. We can’t keep burning more fossil fuels and expect to have a livable planet.”

The Greater Chaco Coalition—a group of advocacy groups opposed to extractive industries near Chaco Culture National Historical Park—said in a press release that the IRA “guarantees continued sacrifice of more sacred landscapes like the Greater Chaco region and threatens to undo any climate action progress it makes.”

Indigenous leaders and allies in New Mexico say prioritizing new oil and gas leases over wind and solar continues the legacy of extraction that harms the health of Native American communities and threatens sacred sites.

“Yaa’ Yaadilah!! Frontline Diné communities in the Greater Chaco region who are directly impacted by extraction were not even given a heads up about this bill. Meanwhile, the funds and royalties that the bill generates will go to federal and state coffers, unlikely to change the conditions we experience in Indigenous homelands and communities of color, which have been turned into national sacrifice areas,” Daniel Tso, a Navajo Nation Council delegate said in a statement. “In buttressing the oil and gas industry and selling out frontline communities, the Inflation Reduction Act continues legacies of genocide, colonialism, and apartheid instead of building towards the just and sustainable future we need. Our communities voted for this Administration with thoughts and hopes that we are in a new day. The Inflation Reduction Act shows that this is business as usual.”

Other news

The monsoon storms brought water back to drying stretches of the Rio Grande and have helped increase flows in the Colorado River basin, but state officials say this relief is temporary. Read my story here.

With the dry conditions in the Colorado River basin, management of San Juan River water faces increasing scrutiny. Read my story here.

A new report urges President Joe Biden’s administration to further protect sites like Chaco Canyon from oil and gas development. Read my story here.

Rather than clean up the uranium waste left behind, a company is seeking to buy homes in a New Mexico community and demolish them, Mark Olalde and Maya Miller reported for ProPublica.

The IRA has been called a historic piece of legislation. Adam Aton with E&E News’ ClimateWire spoke to historians to find out if that really is the case.

Thanks for reading,

– Hannah Grover