HOUSTON — The enactment of sweeping U.S. climate change legislation may be pivotal for early-stage technologies like low-carbon hydrogen, but an arduous permitting process and other challenges could stunt their progress, oil and gas executives said Tuesday.
The Inflation Reduction Act — signed into law by President Joe Biden last year — includes approximately $369 billion in climate and energy spending. Much of that comes in the form of tax credits targeting everything from wind and solar to batteries to “clean” hydrogen made from renewable or low-emissions electricity.
But while oil and gas leaders gathered at CERAWeek by S&P Global said the law will incentivize investments in carbon capture technologies and carbon-free hydrogen, they also called for changes to the permitting process to make it easier to build projects involving those technologies.
“It’s still procedurally impossible for our country to go through this because our permitting does not allow us to do this,” said Ryan Lance, CEO of ConocoPhillips Co., a Texas-based oil and gas company.
Lance was one of many energy executives to weigh in on the climate law and permitting issues Tuesday at CERAWeek, one of the most prominent energy conferences in the world.
The comments follow those of senior White House adviser John Podesta, who said Monday that it’s time to get back to work to pass “permitting reform legislation” (Energywire, March 7). Sen. Joe Manchin, a West Virginia Democrat who supports permitting changes, is scheduled to speak Friday at CERAWeek.
The annual event, which runs Monday through Friday this week in Houston, is being held for the first time since the Inflation Reduction Act was signed by Biden in August.
The conference underscores ongoing challenges facing the oil and gas industry amid rising global temperatures and the Biden administration’s efforts to significantly curtail greenhouse gas emissions that drive climate change. For oil and gas and related sectors of the economy, hydrogen produced from renewable energy could help slash without eliminating fossil fuels, according to some experts.
How far the administration’s signature climate law will go toward incentivizing that and other technologies, however, is an open question. Although Lance said the law has made hydrogen production in the U.S. “probably the cheapest in the world,” other speakers said the financial picture for hydrogen gas made without fossil fuels remains uncertain.
The Inflation Reduction Act is “going to incentivize hydrogen here in the U.S., which is a good thing,” said CEO Darren Woods of Exxon Mobil Corp., which is also based in Texas.
“But the market for hydrogen and people’s willingness to pay a premium for low emissions fuels hasn’t taken off yet,” Woods said.
The climate law is expected to drive sizable reductions in greenhouse gas emissions over the next decade, largely by incentivizing investments in clean energy technologies.
Along with the bipartisan infrastructure law passed in 2021, the climate law will enable energy companies to have “the full set of tools” they need to address climate change, said Jigar Shah, director of the Loan Programs Office at the Department of Energy.
“There is a growing recognition by all of the parties here that there are enough tools at DOE and enough private sector capital backing these growth companies that we’re going to solve the [climate] problem one way or another,” Shah said in an interview.
At the same time, industry leaders said the world needs a more secure supply chain for metals and other materials used to make electric vehicles, solar panels and other technologies.
Analysts said the Biden administration’s strategy for addressing climate change through the Inflation Reduction Act and other programs depends largely on private sector participation.
Samantha Gross, director of the Energy Security and Climate Initiative at the Brookings Institution, said the approximately $369 billion in the law for climate and clean energy is “not that much money” when measured against the cost of transforming the entire U.S. energy system.
“What it’s meant to do is provide certainty to folks who are making investments and also to bring out more private investments,” Gross said of the law during a panel discussion at the conference. “The private sector is where the real money is.”The role of industry in influencing the success of the climate law seemed to be understood by company leaders as well.
“The IRA is a step in the right direction, and at the end of the day we need leaders from business and also the energy industry to help the administration, basically, for the energy transition,” said John Hess, CEO of Hess Corp., a New York-based oil and gas company.
In many respects, the oil and gas sector is “uniquely capable” of driving investments in emerging technologies like clean hydrogen, carbon capture and storage and geothermal energy, Shah said.
But if those companies choose not to move as quickly on those technologies as competing “growth” companies, those competing companies will make up for the difference, he said.
“From the federal government’s point of view, we want to see absolute targets hit. We want climate reductions,” Shah said.
Supply chain and ‘renewable’ gas
Among the Inflation Reduction Act’s new tax credits is a first-ever production tax credit for clean hydrogen, defined as hydrogen that emits no more than 4 kilograms of carbon dioxide equivalent per kilogram of hydrogen.
DOE has estimated that hydrogen produced from solar, wind or nuclear power, as well as hydrogen made from fossil fuels using carbon capture technology, could qualify for the credit.
The majority of hydrogen produced today in the U.S. and globally uses power from natural gas to separate the element from other compounds so it can be used as fuel.
But the climate law is starting to change that, with multiple billion-dollar industrial projects involving clean hydrogen made using renewable energy under development along the Gulf of Mexico, said Bryan Fisher, an industrial decarbonization expert at RMI, a pro-clean-energy nonprofit group.
“The biggest question we get from these project teams is: how do I take advantage of the federal incentives that are out there? The federal government hasn’t given this much money out since 2011,” Fisher said in an interview, referencing the Obama-era stimulus program known as the American Recovery and Reinvestment Act.
“The IRA was a huge game changer, with the incentives. It got these projects really within spitting distance of economically viable,” he added.
Natural gas utilities are also increasingly investing in hydrogen, particularly with the new tax credit.
Another area of interest for gas utilities: renewable natural gas, which got a new, 10-year tax credit from the climate law. Synonymous with biomethane, renewable natural gas is produced from organic waste, such as sewage or animal manure.
All told, there are 508 renewable natural gas projects underway in the U.S. gas-utility industry, about half of which are in operation, said Karen Harbert, CEO of the American Gas Association.
“The next quarter are under construction, and the next quarter are in financing. So they’re not pie in the sky — they’re actually real projects,” Harbert said in an interview.
Environmental advocates and other critics have questioned renewable natural gas’ climate benefits, but gas utilities are increasingly touting it as a tool to reduce their emissions.
For oil and gas majors, the Inflation Reduction Act also has the potential to spur more investments in renewable energy.
European companies in particular, such as Norway’s Equinor ASA and London-based BP PLC, have increasingly become sizable players in offshore wind and other types of carbon-free energy.
Bernard Looney, BP’s chief executive, said during the conference that 30 percent of the company’s capital was spent “outside of oil and gas” last year. That’s compared to 3 percent in 2019, he added.
Notably, the Inflation Reduction Act’s subsidies for clean energy made in the U.S. have been controversial in Europe, with some leaders having called them protectionist or unfair (Energywire, Feb. 28).
Worldwide, the transition to renewable energy is creating new demands for raw materials like copper and lithium. That raises questions about building out a supply chain for those materials, said Balaji Krishnamurthy, vice president of strategy and sustainability at California-based Chevron Corp.
According to a recent estimate, global demand for copper may essentially double between now and 2035, Krishnamurthy said during a panel discussion. In addition, it can take up to 16 years “to go from discovery to first production of copper,” he said.
“As we think about building new renewable energy at scale, we fully need to understand the implications all throughout the supply chain,” he said.
