(Bloomberg) — The breakthrough spending deal reached by Senators Joe Manchin and Chuck Schumer would commit a historic $370 billion to combat climate change through clean energy tax credits, a green bank and incentives to plug methane leaks.
But it comes at a cost that some green activists are finding impossible to accept: More oil and gas lease sales on public lands and waters.
The measures, outlined late Wednesday in the 725-page spending bill, require the sale of drilling rights in the Gulf of Mexico and Alaska. The bill would also make new renewable power projects on federal land and water contingent on future sales.
The legislation illustrates the challenges Democrats have in winning over coal-loving Manchin, a key moderate whose vote is needed in the evenly split Senate, while meeting the rest of his party’s demands to make climate change a major and urgent priority. Manchin’s steadfast support for his home state’s fossil fuel industry has enraged environmentalists, and could lead to yet another setback for the climate agenda of President Joe Biden, who campaigned on a pledge to block new oil and gas drilling on public lands.
“This is a climate suicide pact,” said Brett Hartl, a director with the Center for Biological Diversity, an Arizona-based environmental group. “The amount of leasing this bill mandates is absolutely massive. I don’t think the climate offsets are enough to cover all the drilling that is going to happen.”
To be sure, the breakthrough deal includes what would amount to a record level of spending on climate change, including a slew of new and extended tax credits for solar, wind, nuclear power, energy storage and clean energy that had been hard fought by the renewable energy industry. It extends tax credits for electric vehicles and other “clean cars” — including, for the first time, used models.
Analysts at Rhodium Group said an initial analysis shows the measures could plausibly put the US on track to reduce greenhouse gas emissions by 40% in 2030.
“The concern is if we don’t get this across the finish line there is no way we can meet President Biden’s climate goals,” said Leah Stokes, a University of California, Santa Barbara professor, who helped craft the legislation.
Under the legislation, the Interior Department would only be able to issue new wind and solar rights over the next decade if it recently held oil and gas lease sales. The requirements would constrain the administration’s ability to pare fossil fuel developments on federal land, despite pleas from climate activists to halt drilling and rapidly pivot to green energy.
The new oil easing requirements come in addition to other fossil fuel benefits that are loathed by environmentalists and could draw opposition from progressive Democrats in the House, many of whom sought a more expansive climate plan. Democrats can only afford to lose four votes if every Republican in the chamber votes against the measure.
The deal announced Wednesday includes subsidies of as much as $85 per metric ton for carbon capture, an amount seen potentially extending the life of coal plants with billions of dollars in tax credits. The increase from the current level of $50 was backed by a coalition of groups that included utility DTE Energy Co. and coal-mining giant Peabody Energy Corp.
Read more: Biden’s Carbon-Capture Plan Hands Lifeline to Coal Plants
The legislation also subsidizes the production and use of hydrogen, a fuel backed by Manchin, through a production tax credit and other means.
In the short term, the Interior Department would be required to hold previously planned lease sales in the Gulf of Mexico and Alaska’s Cook Inlet. The Interior Department had said in May that it was scrapping all three auctions, citing a “lack of industry interest” for the sale of tracts in Alaska’s Cook Inlet and “conflicting court rulings” for the decision to nix two Gulf auctions.
The legislation also would effectively reinstate an auction of Gulf leases that was held in November 2021 but later invalidated by a federal judge after finding that the government didn’t sufficiently examine the climate consequences of the move.
Read more: What’s in the Manchin-Schumer Deal on Taxes, Climate and Energy
Under the bill, the Interior Department would only be able to issue new onshore wind and solar rights of way on federal land if the agency had held an onshore oil and gas lease sale in the prior four months. For offshore wind, the requirement would be for an auction of offshore oil and gas leases spanning at least 60 million acres in the year beforehand.
The measure lays out requirements for the timing and scope of those auctions. And it mandates that all acceptable bids must result in the issuance of oil and gas leases. If a sale is sparsely attended or no successful bids are lodged for oil and gas leases, the requirement would be met. If enacted, the mandates could effectively delay the Biden administration’s planned sale of offshore wind rights near California later this year.
The potential mandates follow criticism from some oil and gas advocates that the Biden administration has moved too slowly in offering federal land and water for new drilling. And they come on the heels of a Biden administration proposal for a five-year oil and gas leasing plan that includes an option for no new offshore sales between 2023 and 2028.
The provisions appear to be a concession to Manchin, a West Virginia Democrat who has complained the Biden administration is “blocking increased energy production at home” while encouraging more oil flows from Venezuela and OPEC producers.
“This gives us energy security,” Manchin said Thursday. He highlighted the permitting changes in the final deal and called it “well balanced.”
The deal would impose long-sought reforms for the oil and gas industry, with new and higher fees for developments on public land and water. That includes requiring energy companies to pay royalties on all of the oil and gas produced on federal lands, including the methane that is vented, flared or otherwise escapes into the atmosphere.
It remains to be seen whether the underlying legislation, which also includes a slew of new and extended tax credits for clean energy and electric vehicles, will be backed by the full Democratic caucus in the 50-50 Senate. It would also have to pass the House, where progressives sought a much more expansive plan.