Call To Action Alert: U.S. Senate Bill Bad Deal For Small Business Energy Marketers

On July 27, U.S. Senate Majority Leader Chuck Schumer (D-NY) and Senator Joe Manchin (D-WV) announced a breakthrough agreement on a reconciliation package containing provisions on energy and climate, health, and taxes.

Now called the “Inflation Reduction Act of 2022,” the package took Washington by storm, as lawmakers and outside groups believed talks to be at a complete standstill given Senator Manchin’s recent opposition to the package.

The good news is the deal does not include a surtax on pass-through businesses which would have put small family owned and operated businesses out of business.

Much of the bill is paid for by raising the corporate minimum tax on big companies to 15 percent, ramping up Internal Revenue Service tax enforcement by adding $80 billion to its budget over a decade and closing the “carried interest loophole” which allows private-equity firms pay lower tax rates.

The proposal includes significantly more EV provisions than originally supported by Senator Manchin, including consumer subsidies for purchasing EVs (albeit with lowered income thresholds than previously discussed in the old Build Back Better bill).

The proposal also includes home energy efficiency rebate programs that favors electric heat pumps rather than being energy neutral and also includes favorable tax credit treatment for sustainable aviation fuel (SAF).

EMA opposes favorable tax treatment for SAF because it would disrupt and eventually eliminate the market for on and off-road biodiesel and renewable diesel by diverting limited feedstocks to SAF and lead to higher prices at the pump as well as home heating fuel prices.

U.S. Senate Democrats hope to vote on the measure as soon as the week of August 1st. Because it will move under reconciliation procedures, it needs only a simple majority in the Senate.

Senator Kyrsten Sinema (D-AZ) – who, like Senator Manchin, had concerns with the previous Build Back Better proposal – is currently reviewing the bill.

Next, the Senate Parliamentarian will review the proposal to ensure it aligns with the reconciliation procedures.

After what will be a lengthy vote – including lots of politically tricky votes on Republican-led amendments in the Senate, the bill will be sent to the House, which may return to session during the August recess for this vote.

            EMA Major Concerns

EMA has major concerns with the Inflation Reduction Act of 2022 for the following reasons:

— Increased EV subsidies that are unnecessary and place other forms of energy at a competitive disadvantage;

— Subsidization of electric heating technology over traditional high efficiency heating equipment, and

— Lack of parity between incentives for sustainable aviation fuel and equivalent forms of clean renewable fuels.

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            More Details

Additional Details of the Deal Struck between Manchin and Schumer–

— EV Tax Credits: The package expands the $7,500 EV tax credit by lifting a cap of 200,000 vehicles per manufacturer. However, it includes a cap on the suggested retail price of eligible vehicles of $55,000 for new cars and $80,000 for pickups and SUVs at $7,500 per EV tax credit. Car buyers would also be eligible to receive $4,000 for used EVs for the first time. Credits would be capped to an income level of $150,000 for a single filing taxpayer and $300,000 for joint filers for new vehicles, and at $75,000 and $150,000 for used cars. EVs would need to be built with minerals that are extracted or processed in a country the US has a free trade agreement with and have a battery that includes a large percentage of components that were manufactured or assembled in North America. EMA supports efforts to limit the EV tax credit that would prevent Americans who make over $100,000 a year or who are buying an EV that costs more than $40,000 from claiming the credit.

— Favorable Tax Treatment for Sustainable Aviation Fuel: The package would extend the $1 per gallon tax credit for biodiesel and renewable diesel through 2024, extends the alternative fuel credit, the alternative fuel mixing credit, and payments for alternative fuels through 2024. Unfortunately, the package includes preferential treatment for sustainable aviation fuel that would begin at $1.25 per gallon. EMA opposes favorable tax credit treatment to SAF because it would disrupt and eventually eliminate the market for on and off-road biodiesel and renewable diesel by diverting limited feedstocks to SAF and lead to higher prices at the pump as well as home heating fuel prices.

— Electric Home Rebates: $4.275 billion for qualifying electrification projects. This provision is part of the Biden Administration’s efforts to have electricity be the only energy that American households use. These include $8,000 for a heat pump, $1,750 for a heat pump water heater, $4,000 for an electric load service center, and $2,500 for electric wiring, capped at $14,000 total. This would narrow or even eliminate the gap between installing a heat pump and all electric system and replacing a boiler or furnace. However, this is sharply limited by income standards. If household income is greater than 150 percent of the area median household income, it does not appear that any credits are available. For households that are between 80 and 150 percent of median household income, credits are limited to 50 percent of the project cost, and for households with less than 80 percent of median income, it can cover 100 percent. EMA opposes this provision because it is not energy neutral.

— Home Energy performance-based, Whole House Rebates: $4.3 billion for state energy offices to provide rebates for home energy efficiency retrofits resulting from the implementation of a home energy efficiency retrofit that is calibrated to historical energy usage for a home consistent with BPI 2400, for purposes of modeled performance home rebates.

— Extends the nonbusiness energy property credit (now called Energy Efficient Home Improvement Credit) through 2032 and increases the percentage of the credit from 10% of the cost to 30% and lifetime cap from $600 to $1,200. Any oil furnace or hot water boiler placed into service before Jan. 1, 2027, that meets or exceeds the 2021 Energy Star efficiency criteria and can use 20 percent or more biodiesel/renewable diesel can qualify for the credit. Following Jan. 1, 2027, only an oil furnace or hot water boiler that achieves a 90 AFUE efficiency rating or more and can use biodiesel/renewable diesel blends of 50 percent or more will qualify for the credit. EMA thinks this is an important first step in recognizing that emissions are a combination of the fuel and the appliance.

— USPS EVs: The measure also includes $3 billion for the US Post Office to purchase zero-emission vehicles, $1 billion for clean heavy-duty vehicles like school and transit buses and garbage trucks.

— Methane Fee: The deal includes a fee on excess emission of methane with fees rising to $1,500 a ton in 2026.

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