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The Inflation Reduction Act of 2022: Tipping the Scale Toward Clean Energy

The Inflation Reduction Act of 2022: Tipping the Scale Toward Clean Energy

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The Inflation Reduction Act of 2022: Tipping the Scale Toward Clean Energy


by: Erica Lasdon | August 30, 2022


Boyertown, Pennsylvania (August 30, 2022) –
Sweeping legislation signed into law this month by President Biden will allow for unprecedented investments to decarbonize the nation’s economy. The Inflation Reduction Act (IRA) earmarks the bulk of its $490 billion spending on clean energy and climate change mitigation initiatives.

Combined with other recent spending bills, the U.S. government is set to begin a period of transformative investments. The Rocky Mountain Institute, a clean energy think tank, notes that the combined bills will more than triple annual real federal spending compared with recent years, which was already elevated from levels of the 1990s and early 2000s. 



While the IRA is far from perfect, advocates say it provides extraordinary opportunities for the conservation of our nation’s lands and waterways and includes significant resources for restoring wildlife habitats and forests. 

The legislation is expected to reduce U.S. greenhouse gas (GHG) emissions to approximately 40%, compared to 2005-levels, by 2030. Without enactment of the IRA, the U.S. was on course to reduce its GHG emissions to only 26%, compared to 2005-levels, over this period, according to an analysis from the World Economic Forum

For the U.S. to reach its emissions-reduction targets, it’s imperative that we begin to take action across the entire technology adoption curve. This means exploring: 

  • Existing technologies that are ready for market but not deployed. 
  • Solutions that require some further development to be market ready. 
  • Technologies that are only prototypes and need significant development.


Importantly, IRA resources will focus on the most hard-to-abate industrial sectors, such as electric power generation. 

As widely reported, the IRA is projected to drive significant emissions reductions in the electric power sector. To a certain extent, this can lower production emissions in steel, cement, and other carbon-intensive industries. However, practical options to capture carbon from industrial processes and traditional energy production require substantial investment to help meet climate goals. The IRA addresses these challenges by creating incentives through a system of grants, loans, and tax credits, including making certain existing credits larger and more durable. 

Here are a few key IRA provisions for companies and investors to be aware of:

  • Changes to 45Q, the existing tax credit for carbon capture and storage (CCS), make it more profitable and easier to access. Companies will be able to earn $85 for every metric ton of CO2 sequestered, rather than $50/ton previously. (The amount earned is less if the CO2 is buried during oil extraction.) The timeline is more favorable too. Previously, a company had to start building capture equipment by 2026. Now it’s 2033. The IRA also significantly lowers the minimum capture requirement.

  • Methane emissions are an urgent issue for many industries, as this type of emission is far more potent than carbon dioxide and hard to detect. For the oil and gas industry, investments in methane detection and a first-time federal fee on methane emissions will amplify existing initiatives within industry to tackle this problem. The IRA also funds grants, rebates, loans, and other assistance to facilities subject to the methane fee for a variety of measures, including adding or improving equipment and processes that reduce methane emissions.

  • Other long-term tax credits include clean hydrogen fuel development, direct-air-capture deployment, and advanced nuclear projects for heavy industry.

By driving down the cost of clean energy and other climate solutions, this approach may make it easier for companies and local governments to increase their climate ambitions. 

Regardless of your business’s sector, you will feel the impact of the IRA and related legislation. As the landscape shifts, companies and investors should factor an increasing rate of technological and systems change into their future plans. 

Deep decarbonization is complex work that requires a diverse set of policy, legal, technology, and market solutions. Forthcoming investments by the U.S. government seek to put the country on a net-zero pathway. Importantly, investors and corporations have many tools available to assess their pathways to net-zero.  

Since our founding, ClimeCo has been a leading transformation partner to companies, investors, and governments pursuing a low-carbon future.  As a vertically integrated sustainability solutions provider, we have enabled our clients to go beyond business as usual. By developing frontier technology- and nature-based carbon-reduction projects, transacting voluntary and compulsory environmental credits, and advising on climate risk and disclosure, our team is dedicated to implementing decarbonization pathways tailored to our clients’ specific sectors, business models, and balance sheets. 

Please get in touch with us if you want to learn more about our: 

  • Complete range of ESG Advisory solutions that help companies improve readiness and resilience in the ever-changing regulatory environment. 

  • Project Development capabilities around high-quality carbon projects that feature strong engagement with our project partners, local stakeholders, carbon registries, and credit buyers.
  • Environmental Credit offerings from projects we develop and projects we invest in.


About ClimeCo

ClimeCo is a respected global advisor, transaction facilitator, trader, and developer of environmental commodity market products, projects, and related services. We specialize in voluntary carbon, regulated carbon, renewable energy credits, plastics credits, and regional criteria pollutant trading programs. Complementing these programs is a team of professionals skilled in providing sustainability program management services, and developing and financing of GHG abatement and mitigation systems.

For more information or to discuss how ClimeCo can drive value for your organization, contact us at 484.415.0501, info@climeco.com, or through our website climeco.com. Follow us on LinkedIn, Facebook, Instagram, and Twitter using our handle, @ClimeCo.

Dispatches from the Nature-Based Solutions Conference

Dispatches from the Nature-Based Solutions Conference

Dispatches from the Nature-Based Solutions Conference


by: Emily Romano | August 25, 2022

Site visit by ClimeCo at a reforestation project in Louisiana

Nature-based solutions (NBS) are an important part of the work we do at ClimeCo, and they are a growing sector of carbon markets. NBS are defined as actions that restore, manage, and protect natural habitats for societal benefit, including mitigation and adaptation to the effects of climate change. These activities, such as reforestation, peatland rewetting, or grassland management, have received extensive media coverage in recent years and months as they play an increasingly important role in many corporate and national climate plans. Successful NBS projects have the potential to achieve a trifecta of climate, community, and biodiversity benefits, while poorly designed projects are rightfully criticized as a step backward for climate goals, human rights, and ecosystem health.

With this context in mind, I attended the Nature-based Solutions Conference in Oxford, UK, in July 2022, hosted by researchers at the Nature-based Solutions Initiative. Held in the beautiful Oxford University Museum of Natural History, the conference attracted a wide range of researchers, policymakers, activists, NGO members, and practitioners. Sessions addressed topics such as the global status and criticisms of NBS, inclusive project governance and narratives, improved biodiversity outcomes, the economics of NBS, and applications for urban environments.

I learned a lot from the speakers, whose presentations addressed the conference’s central question: “How can we ensure that NBS support thriving human and ecological communities?” In this blog, I summarize and share the key messages I took home from this conference.

Bodleian Library, Oxford University


Key Takeaways

Concern for Low-Quality NBS

With careful planning and consideration, NBS projects can provide powerful, sustainable, and cost-effective benefits to their host communities. Unfortunately, a number of low-quality NBS projects around the world have failed in recent decades. These failures are almost always due to protocols with inadequate provisions for permanence and additionality or a lack of robust safeguards of human rights and biodiversity.

The conference explored numerous concerns surrounding low-quality NBS, primarily those voiced by Indigenous and local communities regarding projects that have caused and perpetuated human rights abuses. These include land tenure injustice, displacement of people and livelihoods, and denial of community access to natural resources. This sort of project is often characterized by a top-down design without the active participation of the local community, prioritization of western value systems, and a lack of transparency or long-term monitoring requirements. Low-quality projects often result in ecosystem failures due to inappropriate species selection or project location or the establishment of monoculture plantations without regard for local biodiversity.

An additional concern voiced at the conference was that NBS not be used in greenwashing schemes by polluters to replace decarbonization efforts. While ecosystems play an important role in climate change mitigation and adaptation, they are not capable of compensating for delayed emissions reductions in other sectors. Speakers also highlighted the moral hazard of entities from the Global North who might seek to export the responsibility and the work of decarbonization to the Global South.

These concerns are critically important for improving NBS project outcomes. The conference’s primary focus was on how to address these concerns and included many examples of current best practices from around the world.

Tradeoffs, Inclusive Project Design and Governance, and Narratives

While many NBS projects generate desirable co-benefits or “win-win” results for society and biodiversity, projects may also generate tradeoffs that create tension between competing project goals. For example, biophysical tradeoffs might occur if a project prioritizes one ecosystem service at the expense of another. Social tradeoffs might occur between stakeholders with different cultural or spiritual valuations of nature or between those with scientific knowledge and those with Indigenous knowledge. Project developers must acknowledge and mitigate these tradeoffs in partnership with local stakeholders to account for the full range of project impacts.

One strong message from the conference was the critical role that Indigenous and local community members must play in all stages of NBS projects and the importance of free, prior, and informed consent. Numerous speakers pointed out that many Indigenous groups have traditionally implemented successful NBS within their own communities, and their knowledge can fill critical gaps in scientific understanding. The inclusion of these groups from the design to the implementation to the monitoring stage of a project is not only a basic indicator of respect but can also tangibly improve project outcomes.

Indigenous and community leaders from numerous countries, including Zambia, China, Tanzania, Peru, and the Democratic Republic of the Congo, presented case studies illustrating successful NBS outcomes in their communities. These presentations called for projects to distribute benefits equitably among community members, ensure a living wage, and create sources of long-term finance controlled by the local community. Finally, the speakers emphasized the critical importance of land tenure for Indigenous peoples.

ClimeCo meeting indigenous workers at a mangrove reforestation project in Indonesia

How to Prioritize and Adequately Represent Biodiversity

Another conference theme was the need for better metrics of biodiversity, so that progress can be adequately represented in project designs and monitoring plans. Speakers highlighted several scientific and technological advances, such as ecosystem DNA and high-resolution carbon mapping tools, which would facilitate project area prioritization and robust biodiversity assessment if implemented at scale.

However, some speakers quickly pointed out that “technology is not the solution. We are the solution.” In this vein, multiple speakers recommended that biodiversity monitoring plans utilize community monitoring approaches, including input from local and Indigenous groups regarding biodiversity metric selection.

Mangrove nursery managed and developed by the local community near the reforestation site

Creating High-Quality NBS

The conference delivered a crystal-clear message that projects that do not include robust provisions for human rights and biodiversity do not fall under the umbrella of the NBS term.

To avoid the pitfalls of low-quality projects, reputable carbon offset registries have developed meaningful standards for additionality and permanence and protocols that include protections for human rights and biodiversity. The most important feature of these protocols is that registries update them when a loophole is identified. Although these updates require months or even years to go into effect, this process allows registries to enforce ever-evolving concepts of “best practice.” For this reason, carbon offsets generated using the protocols of reputable registries, such as the Climate Action Reserve, Verra, the American Carbon Registry, and Gold Standard, are categorically distinct from low-quality offsets.

Regardless of protocol requirements, project developers are responsible for designing projects that adhere to best practices and meaningfully address the concerns of Indigenous and local stakeholders. Within the voluntary carbon market, project developers and carbon credit end-users must be able to recognize the indicators of a high-quality project and must be selective in the projects they choose to support.


ClimeCo’s NBS Approach

As offset project developers, the ClimeCo team always listens for new perspectives on best practices. We believe that NBS projects have enormous potential when they are designed carefully to empower and give voice to local communities. As sustainability advisors, we also feel a keen responsibility to help clients decarbonize wherever possible. Our ESG Advisory team provides many services essential to clients at any stage of their decarbonization journey. We encourage the use of offsets to address emission sources that are difficult or impossible to abate as a part of a larger decarbonization plan.

Most importantly, we understand there is no one-size-fits-all approach to NBS project development. We are grateful for each opportunity to earn a community’s trust and seek partners who share our accountability and responsible stewardship values.

ClimeCo’s Dr. Scott Subler observing freshly planted Bald Cypress saplings

Conclusion

I left the conference inspired by the incredible work being done worldwide to improve the implementation of NBS. ClimeCo will continue to listen and apply the guidance and feedback of the global NBS community, and I cannot wait to see the good our projects can do. ClimeCo is committed to informing you of new information discovered as we continue to explore in-depth NBS concerns. We welcome comments or questions surrounding this topic.

Anyone interested in watching conference sessions can access recordings and PDFs of presentations on the conference website (I recommend Session 4 and Session 9A). For those curious to see examples of high-quality projects, the Nature-based Solutions Initiative’s organizers directed us to their Case Study Platform, a map-based tool with over 100 examples of projects from around the world that meet the researchers’ quality standards.

 


About the Author

Emily Romano is a Project Manager at ClimeCo based in San Francisco. Within Project Development, she applies a background in climate, ecosystem, and soil science to her work managing NBS projects. She holds a Master of Science in Environmental Science and Policy from Northern Arizona University and a Bachelor of Science in Geology from Syracuse University.