How the promise of a clean energy future in Pa. could be undone by politics | Analysis

The state’s powerful oil and gas industry wields influence in ways that could blunt the impact of the Inflation Reduction Act

By: - October 17, 2022 6:30 am
Gov. Tom Wolf speaks at the Global Clean Energy Action Forum in Pittsburgh on 9/22/22 (Photo courtesy Gov. Wolf's office).

Gov. Tom Wolf speaks at the Global Clean Energy Action Forum in Pittsburgh on 9/22/22 (Photo courtesy Gov. Wolf’s office).

By Audrey Carleton

The most ambitious climate bill in history has the potential to accelerate Pennsylvania’s transition to a green economy or keep it tied to fossil fuel production, depending on shifting political dynamics and the influence of long-entrenched oil and gas companies.

For Democratic Gov. Tom Wolf, whose environmental legacy consists of playing defense against a Republican-dominated Legislature and a powerful fossil fuel lobby, the passage of the federal Inflation Reduction Act (IRA) is welcome news. “These are necessary investments,” Wolf said during a talk at the Global Clean Energy Action Forum in Pittsburgh on Sept. 22, just weeks after the IRA was signed into law on Aug. 16.

“That will pave the way for a faster and smoother transition to a clean energy future. And they’re going to provide states and local governments with more resources to continue to progress and make real reductions in emissions,” Wolf said.

These investments could cut annual emissions in 2030 by around 1 billion metric tons, or around 40 percent below 2005 levels, according to the widely cited, albeit imperfect, modeling performed by the REPEAT Project out of Princeton University. The $437 billion spending bill does so by incentivizing the good rather than punishing the bad — through tax credits, grants and loan programs, to prompt the cleanup of polluting industries and the buildout of greener alternatives. Some of those cleanup subsidies will go straight to fossil fuel companies, to the frustration of environmentalists.

And in Pennsylvania, environmentalists are wary that the legislation’s investments in hydrogen and carbon capture and storage could leave the state hooked on natural gas. At least one local economic development group is already keen to embrace this, while some fossil fuel industry groups were not swayed by the incentives and have attacked the legislation for introducing “punitive new taxes” and “regulatory red tape.”

At the Clean Energy Action Forum, Wolf expressed his hope that tax credits for renewable projects could incentivize the buildout of green energy, secure good-paying jobs in communities decimated by job loss within the fossil fuel industry and help lower the commonwealth’s overall emissions. Environmental advocates in Pennsylvania told Capital & Main they’re similarly encouraged by the potential for the IRA to help the state reduce its methane emissions from oil and gas and, with local support, help cultivate a green economy.

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How close Pennsylvania gets to seeing this vision to fruition will come down to how legislators, regulators, local zoning boards and municipalities use what’s available to them. It could also come down to the outcome in November of a contentious gubernatorial race — between a far-right senator, Doug Mastriano, who once called climate science “fake,” and the commonwealth’s current attorney general, Josh Shapiro, who supports a green energy buildout and has charged several fossil fuel giants with environmental crimes — and the potential shift of legislative power after a midterm election with redrawn electoral maps.

In a commonwealth with a powerful fossil fuel industry and a presently Republican-dominated Legislature, how will IRA dollars get doled out and will it help the state transition to a green economy?

Methane emissions reductions from marginal wells

“Even with tax credits being available, there’s going to be policy changes needed at the state level to help make this massive, historic bill work,” said Robert Routh, public policy and regulatory attorney at the Clean Air Council.

Though he admits that the outcome of the midterm election could drastically shape the political will for clean energy development, his organization is “trying to understand how best to work with state governments, local governments and other stakeholders on how to make this money flow in the most effective way possible,” he told Capital & Main over the phone. “Then, how to reduce barriers to entry for renewable projects that have now some financial certainty looking ahead over the next decade.”

Routh himself is excited about the possibility of cashing in on the $7,500 tax credit for an electric vehicle following the passage of the IRA. But on a statewide scale, he’s most excited about the creation of the Methane Emissions Reduction Program (MERP).

The program requires the federal Environmental Protection Agency (EPA) to update how it monitors greenhouse gas emissions and allocates just over $1.5 billion over the next six years to monitoring and mitigating methane leaks from natural gas and petroleum production.

These funds will be dispersed as grants, rebates, loans and contracts for improving leak-prone equipment and plugging abandoned oil and gas wells on nonfederal land, among other uses. Per Capital & Main’s reporting in New Mexico, some of this funding may go to fossil fuel producers themselves, to the ire of environmentalists for whom the industry has reasonably lost their trust.

And $700 million of this funding will be earmarked for marginal conventional wells, a class of oil and gas well responsible for outsized emissions despite their relatively low production volumes.

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Pennsylvania oil and gas companies emit more than 1.1 million tons of methane annually, according to the Environmental Defense Fund, which notes that this emission rate is chronically underreported to state regulators.

A portion comes from marginal conventional wells; the Appalachian region is home to an estimated 160,000 of them (or 29 percent of the nationwide total), making Pennsylvania a prime candidate for this funding, argue advocates like Routh, who says their eligibility for IRA funding will come down to how the federal government defines “marginal” and “conventional.”

The commonwealth is currently several years overdue on a set of regulations monitoring volatile organic compounds (VOCs) that are slated to reduce methane as a co-benefit. The regulation faced rippling opposition, ended up being bifurcated and now needs to be passed by December lest the commonwealth lose millions in federal highway funding.

Yet, Routh notes, these regulations will inevitably end up being superseded by an EPA rule, which it will issue by the end of 2022, that specifically and directly targets methane; under the new rule the EPA will mandate states to develop their own plans to reduce methane. At the end of that process, should a state’s methane rule be more lax than the federal rule, it will be subject to a waste emissions charge that the IRA introduced — the only punitive measure written into the bill.

The charge applies to facilities that report emitting more than 25,000 metric tons of carbon dioxide equivalent per year and starts at $900 per metric ton of methane leaked above a threshold designated based on facility type. States with rules that are stronger than the EPA’s 2021 proposed methane rule are exempt from it, a fee design that could be uniquely effective for reining in methane emissions in states with an anti-regulatory bend — states like Pennsylvania, notes Lauren Pagel, policy director at Earthworks.

“The MERP and the EPA’s methane rules as two things are going to be working together,” said Pagel.

Will Pennsylvania build out a hydrogen hub?

Less than a year after the federal Department of Energy announced it would be soliciting proposals for $8 billion in funding for at least four regional hydrogen hubs through the Infrastructure Investment and Jobs Act, the IRA created a tax credit for a similar purpose.

45V, a new tax credit for the production of clean hydrogen, has splintered environmentalists and stoked fear that the subsidy could keep Pennsylvania attached to fossil fuels. The Wolf administration has expressed its commitment to making the southwestern region of the commonwealth competitive for hydrogen hub funding, a sentiment shared by oil and gas majors like Shell, EQT and Equinor, which formed an alliance to build an Appalachian hydrogen hub in February.

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A new production credit for hydrogen that starts at 60 cents per kilogram (on projects that emit less than 4 kilograms of CO2 for every kilogram produced) will make this easier. So will the expansion of the 45Q tax credit for sequestered carbon dioxide, which was raised from $50 to $85 per metric ton of carbon stored by electricity producers that sequester 18,500 tons per year, down from 500,000. (The credit offers subsidies at different rates for carbon that is used for a process called enhanced oil recovery, in which it is shot into old oil wells and used as drilling fluid — currently the most extensive use of captured carbon in the country.)

The latter tax credit will incentivize the creation of blue hydrogen, which relies upon methane as a feedstock and sequesters CO2 emissions to achieve carbon neutrality. The problem, says Sean O’Leary, senior researcher at the Ohio River Valley Institute, is that these projects have yet to be consistently effective.

“Probably the most likely scenario is that policy makers, especially state and local representatives and county commissioners, will embrace the idea of hydrogen and carbon capture and see that as the region’s future,” O’Leary said. “That would be the worst possible outcome … a ton of public money and resources would be squandered.”

Building out hydrogen and carbon capture facilities that rely upon the state’s oil and gas production is a waste of time, O’Leary says. Yet, it seems to be happening: On Sept. 21, the Team Pennsylvania Foundation, a nonprofit economic development organization, released a roadmap for the buildout of a hydrogen hub in the commonwealth. The next day, the Department of Energy announced a deadline for proposals like this one.

O’Leary remains firm that the economics of hydrogen don’t make sense — proven renewable technologies, like wind and solar, will end up outcompeting yet-unproven technologies in the end. The question remains: How much time and money will be spent trying to demonstrate otherwise?

Wind and Solar will be left to local control

Among its most praised impacts, the IRA incentivizes the buildout of wind and solar by expanding the Production and Investment Tax Credits for renewable projects, or sections 45 and 48 of the tax code, respectively. Where the former credit was once set to phase out for wind projects by 2022, it’s been expanded and amended to offer up to 1.5 cents per kilowatt hour for projects that meet local prevailing wages, create apprenticeship programs and are located in “energy communities,” or regions where at least 25 percent of local tax revenue was once derived from the extraction and processing of fossil fuels.

The latter credit, available to entities that install renewable infrastructure, like residential solar panels, was initially set to end in 2024 after it was largely credited with powering the nation’s solar buildout in the 2010s and driving down the price of photovoltaics. The IRA expanded it, offering a credit of up to 30 percent for projects that similarly meet wage and apprenticeship requirements for construction. According to the White House’s rosy estimates, the IRA will bring an estimated “$270 million of investment in large-scale clean power generation and storage to Pennsylvania between now and 2030.”

But without political will for legislation that supports these subsidies, the state may not be well positioned to welcome the growth of industries like wind and solar.

While Wolf set an aggressive solar buildout goal in 2021, Pennsylvania still lags behind other major fossil fuel producing states like California and Texas in its energy production from solar and wind. Even though it’s the largest producer of natural gas in the nation, Texas, for example, derives 4 percent of its energy from solar and 21 percent from wind.

But as the second largest producer of gas in the country, Pennsylvania generates less than one half of 1 percent of its electricity from solar and 1.5 percent from wind. Meaningful legislation to boost these industries have, in recent years, been introduced by handfuls of Democrats, only to die in committee.

“Pennsylvania legislators, kudos to them, both Republicans and Democrats have proposed [wind and solar] bills since 2018,” said Shanti Gamper-Rabindran, associate professor in the Graduate School of Public and International Affairs and the Department of Economics at the University of Pittsburgh, at a side event at the Global Clean Energy Action Forum. “These bills have not passed yet.” 

In a presentation shared with Capital & Main, Gamper-Rabindran notes that the success of clean energy tax credits will vary by municipality — the commonwealth’s home rule charter puts power over zoning decisions in the hands of local communities, so energy projects must be permitted locally before they receive state environmental permits to pass. And some townships are getting ahead of incoming solar projects; last year, for instance, North Beaver township banned solar siting on farms.

Local decisions about renewables can also be swayed, as it is in decisions relating to oil and gas; in one notable instance, Penn Township, outside of Pittsburgh, reversed its decision to reject zoning permits for three fracking well pads after it was sued for $300 million by the company that applied for the permits. Municipalities operate with limited budgets; a suit from a determined energy company could entirely shape how permitting processes play out.

Legislation at the state level could also hurt or hamper this mosaic of local responses to possible growing demand for solar and wind. Bills that preempt local self-governance are not uncommon — one that would have prevented municipalities from banning utilities by energy type sent shockwaves through the Legislature this year before being vetoed by Wolf.

Should renewables see a surge in Pennsylvania, eventually growing to outcompete fossil fuels, as O’Leary postulates, it would have the effect of reducing pollution throughout communities that have long lived with undue exposure to fossil fuels, all while creating jobs that could throw a lifeline to economically depressed towns. Green energy subsidies that multiply for producers that set up shop in former energy communities and that meet prevailing local wages and cultivate apprenticeship programs will help make this a certainty.

“My hope is that markets will defeat the push for carbon capture,” O’Leary said. “It’s also likely that markets will, even though policymakers are largely apparently uninterested in it, drive renewable resources and energy efficiency, way beyond where they expect it will go.”

“That’s my hope, anyway,” he said. “And it’s my expectation as well.”

Audrey Carleton is a reporter for Capital & Main, where this story first appeared.

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