Energy Transition Game-Changer: Wood Mackenzie Outlines Areas That Could Maximise Benefits of the Inflation Reduction Act
The recent energy and climate crises have been a challenge for countries worldwide, as they attempted to find a balance between the two. However, the transition to clean, low-carbon energy has taken root, steadily gaining ground and is estimated to require investments of $10 trillion in order to reach a net-zero by 2050.
In light of this, Wood Mackenzie, an energy intelligence group, recently released a report that looks into the key steps that would enable the US to reap the benefits of the Inflation Reduction Act (IRA). Through careful analysis, the company put forth that the IRA had transformed the US from “laggard to leader” in energy transition policy.
Carbon Capture, Utilisation and Storage
David Brown, Director of Energy Transition Service at Wood Mackenzie, highlighted that carbon capture, utilisation and storage (CCUS) permitting processes are a key issue that will influence CCUS development in the US in 2023. Brown pointed out that the federal Environmental Protection Agency (EPA) process to license Class VI wells (for CO2 sequestration) could be accelerated through granting primacy over this activity to individual states.
The company claims that primacy is “extremely important” to CCUS developers, as it would grant states the ability to permit CCUS storage wells at a faster speed than the federal government. To put this into perspective, Wood Mackenzie provided that states like Texas and Louisiana are targeting one- to two-year approvals for Class VI storage wells, as opposed to the six-year process that was seen in the last Class VI well.
Low-Carbon Hydrogen Exports
The report further specified that the Inflation Reduction Act reintroduces a production tax credit (PTC) for clean hydrogen, known as the 45V. However, the report ponders whether low-carbon hydrogen export projects are eligible for the 45V incentive, emphasising that the IRA does not give a clear answer in this case. Therefore, the energy intelligence provider believes that this issue should be clarified for low-carbon hydrogen export projects to advance.
Wood Mackenzie explains that the $3/kg 45V incentive, if applied to low-carbon hydrogen export projects, could help make the US a leader in low-carbon hydrogen exports. With this in mind, the company claims that low-carbon hydrogen feedstock would have some of the lowest cost in the world due to production and investment tax credits for wind and solar, natural gas prices that peak at $5.50/mmbtu in 2050 and expanded 45Q tax credits for CCUS.
Other Areas of Focus
The energy intelligence group claim that one of the largest areas of uncertainty within the IRA is how green hydrogen producers will certify that their power supply is zero emissions. Furthermore, the company underscores that the type of power used to produce hydrogen will have “a large influence” on lifecycle emissions, which is “a key component” of calculating the level of policy support.
Wood Mackenzie is adamant that the IRA is “a strong tailwind for decarbonised transport,” but that fulfilling some of the incentive requirements may be difficult. To this end, the report shows that the IRA established a $7,500 incentive for battery electric vehicle (BEV) sales, up to a vehicle value of $55,000. However, this requires that 50 per cent of battery components be manufactured or assembled in North America.
Conclusion
Overall, Wood Mackenzie’s recent report sheds light on the key areas that should be focused on in order to maximise the benefits of the Inflation Reduction Act. The company highlights that this is all necessary to ensure that the US reaches its net-zero by 2050 goal. In order to do so, Wood Mackenzie stresses that greater clarity is needed to create optimal conditions for investors.
